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, 2008
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OR
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 1-143
GENERAL MOTORS
CORPORATION
(Exact Name of Registrant as
Specified in its Charter)
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|
|
|
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STATE OF DELAWARE
(State or other jurisdiction
of
Incorporation or Organization)
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38-0572515
(I.R.S. Employer
Identification No.)
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|
300 Renaissance Center, Detroit, Michigan
(Address of Principal
Executive Offices)
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|
48265-3000
(Zip
Code)
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(313) 556-5000
Registrants telephone number, including area code
NA
(former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past
90 days. Yes þ No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of large
accelerated filer, accelerated filer and
smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
Do not check if smaller reporting company
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|
Smaller reporting
company o
|
Indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of April 30, 2008, the number of
shares outstanding of the Registrants common stock was
566,154,445 shares.
Website
Access to Companys Reports
General Motors Corporations
internet website address is www.gm.com. Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
section 13(a) or 15(d) of the Exchange Act are available
free of charge through our website as soon as reasonably
practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission.
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
INDEX
PART I
|
|
Item 1.
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Condensed
Consolidated Financial Statements
|
|
|
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|
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Three Months Ended
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March 31,
|
|
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|
2008
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|
2007
|
|
|
Net sales and revenue
|
|
|
|
|
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|
|
|
Automotive sales
|
|
$
|
42,125
|
|
|
$
|
42,451
|
|
Financial services and insurance revenue
|
|
|
545
|
|
|
|
936
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
|
42,670
|
|
|
|
43,387
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|
|
|
|
|
|
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Costs and expenses
|
|
|
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|
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Automotive cost of sales
|
|
|
38,333
|
|
|
|
38,889
|
|
Selling, general and administrative expense
|
|
|
3,699
|
|
|
|
3,311
|
|
Financial services and insurance expense
|
|
|
496
|
|
|
|
883
|
|
Other expenses
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
43,259
|
|
|
|
43,083
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(589
|
)
|
|
|
304
|
|
Equity in loss of GMAC LLC (Note 5)
|
|
|
(1,612
|
)
|
|
|
(183
|
)
|
Automotive and other interest expense
|
|
|
(774
|
)
|
|
|
(799
|
)
|
Automotive interest income and other non-operating income, net
|
|
|
318
|
|
|
|
521
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, equity
income and minority interests
|
|
|
(2,657
|
)
|
|
|
(157
|
)
|
Income tax expense (benefit)
|
|
|
653
|
|
|
|
(61
|
)
|
Equity income, net of tax
|
|
|
132
|
|
|
|
156
|
|
Minority interests, net of tax
|
|
|
(73
|
)
|
|
|
(102
|
)
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|
|
|
|
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|
Loss from continuing operations
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|
|
(3,251
|
)
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|
|
(42
|
)
|
Income from discontinued operations, net of tax (Note 3)
|
|
|
|
|
|
|
104
|
|
|
|
|
|
|
|
|
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Net income (loss)
|
|
$
|
(3,251
|
)
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share, basic and diluted:
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(5.74
|
)
|
|
$
|
(0.07
|
)
|
Discontinued operations
|
|
|
|
|
|
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0.18
|
|
|
|
|
|
|
|
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Total
|
|
$
|
(5.74
|
)
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
(millions)
|
|
|
566
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to the condensed
consolidated financial statements.
1
|
|
|
|
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March 31,
|
|
|
December 31,
|
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|
March 31,
|
|
|
|
2008
|
|
|
2007
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|
|
2007
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|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
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|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
21,362
|
|
|
$
|
24,549
|
|
|
$
|
20,923
|
|
Marketable securities
|
|
|
1,831
|
|
|
|
2,139
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and marketable securities
|
|
|
23,193
|
|
|
|
26,688
|
|
|
|
21,082
|
|
Accounts and notes receivable, net
|
|
|
10,071
|
|
|
|
9,659
|
|
|
|
9,697
|
|
Inventories
|
|
|
16,915
|
|
|
|
14,939
|
|
|
|
15,431
|
|
Equipment on operating leases, net
|
|
|
4,826
|
|
|
|
5,283
|
|
|
|
5,650
|
|
Other current assets and deferred income taxes
|
|
|
4,112
|
|
|
|
3,566
|
|
|
|
13,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
59,117
|
|
|
|
60,135
|
|
|
|
64,961
|
|
Financing and Insurance Operations Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
239
|
|
|
|
268
|
|
|
|
301
|
|
Investments in securities
|
|
|
212
|
|
|
|
215
|
|
|
|
187
|
|
Equipment on operating leases, net
|
|
|
5,304
|
|
|
|
6,712
|
|
|
|
10,457
|
|
Equity in net assets of GMAC LLC
|
|
|
5,391
|
|
|
|
7,079
|
|
|
|
7,355
|
|
Other assets
|
|
|
2,864
|
|
|
|
2,715
|
|
|
|
3,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance Operations assets
|
|
|
14,010
|
|
|
|
16,989
|
|
|
|
21,984
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net assets of nonconsolidated affiliates
|
|
|
1,931
|
|
|
|
1,919
|
|
|
|
2,001
|
|
Property, net
|
|
|
43,282
|
|
|
|
43,017
|
|
|
|
41,612
|
|
Goodwill and intangible assets, net
|
|
|
1,093
|
|
|
|
1,066
|
|
|
|
1,058
|
|
Deferred income taxes
|
|
|
1,671
|
|
|
|
2,116
|
|
|
|
32,588
|
|
Prepaid pension
|
|
|
20,593
|
|
|
|
20,175
|
|
|
|
17,639
|
|
Other assets
|
|
|
4,044
|
|
|
|
3,466
|
|
|
|
3,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
72,614
|
|
|
|
71,759
|
|
|
|
98,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
145,741
|
|
|
$
|
148,883
|
|
|
$
|
185,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable (principally trade)
|
|
$
|
29,793
|
|
|
$
|
29,439
|
|
|
$
|
30,065
|
|
Short-term borrowings and current portion of long-term debt
|
|
|
5,968
|
|
|
|
6,047
|
|
|
|
4,834
|
|
Accrued expenses
|
|
|
34,736
|
|
|
|
34,822
|
|
|
|
33,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
70,497
|
|
|
|
70,308
|
|
|
|
68,416
|
|
Financing and Insurance Operations Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
3,879
|
|
|
|
4,908
|
|
|
|
8,297
|
|
Other liabilities and deferred income taxes
|
|
|
928
|
|
|
|
905
|
|
|
|
1,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance Operations liabilities
|
|
|
4,807
|
|
|
|
5,813
|
|
|
|
10,002
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
34,168
|
|
|
|
33,384
|
|
|
|
33,120
|
|
Postretirement benefits other than pensions
|
|
|
46,994
|
|
|
|
47,375
|
|
|
|
49,321
|
|
Pensions
|
|
|
11,624
|
|
|
|
11,381
|
|
|
|
11,293
|
|
Other liabilities and deferred income taxes
|
|
|
17,325
|
|
|
|
16,102
|
|
|
|
16,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
110,111
|
|
|
|
108,242
|
|
|
|
110,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
185,415
|
|
|
|
184,363
|
|
|
|
188,723
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
1,369
|
|
|
|
1,614
|
|
|
|
1,145
|
|
Stockholders Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, 6,000,000 shares authorized,
no shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock,
$12/3
par value (2,000,000,000 shares authorized, 756,637,541 and
566,100,839 shares issued and outstanding as of
March 31, 2008, respectively, 756,637,541 and
566,059,249 shares issued and outstanding as of
December 31, 2007, respectively, and 756,637,541 and
565,738,371 shares issued and outstanding as of
March 31, 2007, respectively)
|
|
|
944
|
|
|
|
943
|
|
|
|
943
|
|
Capital surplus (principally additional paid-in capital)
|
|
|
15,327
|
|
|
|
15,319
|
|
|
|
15,346
|
|
Accumulated deficit
|
|
|
(42,847
|
)
|
|
|
(39,392
|
)
|
|
|
(172
|
)
|
Accumulated other comprehensive loss
|
|
|
(14,467
|
)
|
|
|
(13,964
|
)
|
|
|
(20,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(41,043
|
)
|
|
|
(37,094
|
)
|
|
|
(4,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities, Minority Interests and Stockholders
Deficit
|
|
$
|
145,741
|
|
|
$
|
148,883
|
|
|
$
|
185,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to the condensed
consolidated financial statements.
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Other
|
|
|
|
|
|
|
Shares of
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Common
|
|
|
Common
|
|
|
Capital
|
|
|
Income
|
|
|
(Accumulated
|
|
|
Income
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Surplus
|
|
|
(Loss)
|
|
|
Deficit)
|
|
|
(Loss)
|
|
|
Deficit
|
|
|
Balance December 31, 2006
|
|
|
566
|
|
|
$
|
943
|
|
|
$
|
15,336
|
|
|
|
|
|
|
$
|
195
|
|
|
$
|
(22,126
|
)
|
|
$
|
(5,652
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62
|
|
|
|
62
|
|
|
|
|
|
|
|
62
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition asset / obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
298
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of accounting change regarding pension plan and OPEB
measurement-dates pursuant to SFAS No. 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(425
|
)
|
|
|
1,153
|
|
|
|
728
|
|
Cumulative effect of a change in accounting
principle adoption of FIN No. 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137
|
|
|
|
|
|
|
|
137
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2007, as restated
|
|
|
566
|
|
|
$
|
943
|
|
|
$
|
15,346
|
|
|
|
|
|
|
$
|
(172
|
)
|
|
$
|
(20,675
|
)
|
|
$
|
(4,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
566
|
|
|
$
|
943
|
|
|
$
|
15,319
|
|
|
|
|
|
|
$
|
(39,392
|
)
|
|
$
|
(13,964
|
)
|
|
$
|
(37,094
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,251
|
)
|
|
|
(3,251
|
)
|
|
|
|
|
|
|
(3,251
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition asset / obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(503
|
)
|
|
|
|
|
|
|
(503
|
)
|
|
|
(503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of GMAC LLC adoption of SFAS No. 157 and
No. 159 (Note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
(62
|
)
|
Stock options
|
|
|
|
|
|
|
1
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2008
|
|
|
566
|
|
|
$
|
944
|
|
|
$
|
15,327
|
|
|
|
|
|
|
$
|
(42,847
|
)
|
|
$
|
(14,467
|
)
|
|
$
|
(41,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to the condensed
consolidated financial statements.
3
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Net cash provided by (used in) continuing operating
activities
|
|
$
|
(1,590
|
)
|
|
$
|
1,353
|
|
Cash provided by discontinued operating activities
|
|
|
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(1,590
|
)
|
|
|
1,468
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Expenditures for property
|
|
|
(1,945
|
)
|
|
|
(1,181
|
)
|
Investments in marketable securities, acquisitions
|
|
|
(1,135
|
)
|
|
|
(80
|
)
|
Investments in marketable securities, liquidations
|
|
|
1,430
|
|
|
|
60
|
|
Capital contribution to GMAC LLC
|
|
|
|
|
|
|
(1,022
|
)
|
Operating leases, liquidations
|
|
|
840
|
|
|
|
789
|
|
Other
|
|
|
(202
|
)
|
|
|
(582
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing investing activities
|
|
|
(1,012
|
)
|
|
|
(2,016
|
)
|
Cash used in discontinued investing activities
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,012
|
)
|
|
|
(2,020
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net decrease in short-term borrowings
|
|
|
(1,078
|
)
|
|
|
(2,210
|
)
|
Borrowings of long-term debt
|
|
|
492
|
|
|
|
18
|
|
Payments made on long-term debt
|
|
|
(15
|
)
|
|
|
(35
|
)
|
Cash dividends paid to stockholders
|
|
|
(142
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing financing activities
|
|
|
(743
|
)
|
|
|
(2,368
|
)
|
Cash used in discontinued financing activities
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(743
|
)
|
|
|
(2,370
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
129
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(3,216
|
)
|
|
|
(2,899
|
)
|
Cash and cash equivalents at beginning of the period
|
|
|
24,817
|
|
|
|
24,123
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
21,601
|
|
|
$
|
21,224
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to the condensed
consolidated financial statements.
4
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
(Unaudited)
Note 1. Nature
of Operations
We (also General Motors Corporation, GM or the Corporation) are
primarily engaged in the worldwide production and marketing of
cars and trucks. We operate in two businesses, consisting of
Automotive (GM Automotive or GMA) and Financing and Insurance
Operations (FIO). We develop, manufacture and market vehicles
worldwide through our four automotive segments which consist of
GM North America (GMNA), GM Europe (GME), GM Latin
America/Africa/Mid-East (GMLAAM) and GM Asia Pacific (GMAP).
Also, our finance and insurance operations are primarily
conducted through our 49% equity interest in GMAC LLC (GMAC),
which is accounted for under the equity method of accounting.
GMAC provides a broad range of financial services, including
consumer vehicle financing, automotive dealership and other
commercial financing, residential mortgage services, automobile
service contracts, personal automobile insurance coverage and
selected commercial insurance coverage.
Note 2. Basis
of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) for
interim financial information. Accordingly, they do not include
all of the information and footnotes required by United States
generally accepted accounting principles (GAAP) for complete
financial statements. In our opinion, these condensed
consolidated financial statements include all adjustments,
consisting of only normal recurring items, considered necessary
for a fair presentation of our financial position and results of
operations. The operating results for interim periods are not
necessarily indicative of results that may be expected for any
other interim period or for the full year. These unaudited
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in our Annual Report on
Form 10-K
for the year ended December 31, 2007 (2007
10-K) as
filed with the SEC.
The condensed consolidated financial statements include our
accounts and those of our subsidiaries that we control due to
ownership of a majority voting interest. In addition, we
consolidate variable interest entities for which we are the
primary beneficiary. Our share of earnings or losses of
nonconsolidated affiliates are included in our consolidated
operating results using the equity method of accounting when we
are able to exercise significant influence over the operating
and financial decisions of the affiliate. We use the cost method
of accounting if we are not able to exercise significant
influence over the operating and financial decisions of the
affiliate. All intercompany balances and transactions have been
eliminated in consolidation.
|
|
|
Change
in Presentation of Financial Statements
|
Prior period results have been reclassified for the retroactive
effect of discontinued operations. Refer to Note 3. Certain
reclassifications have been made to the comparable 2007
financial information to conform to the current period
presentation.
Change in
Accounting Principles
On January 1, 2008, we adopted Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value
Measurements (SFAS No. 157), which provides a
consistent definition of fair value that focuses on exit price
and prioritizes, within a measurement of fair value, the use of
market-based inputs over entity-specific inputs.
SFAS No. 157 requires expanded disclosures about fair
value measurements and establishes a three-level hierarchy for
fair value measurements based on the observability of inputs to
the valuation of an asset or liability as of the measurement
date. The standard also requires that a company consider its own
nonperformance risk when measuring liabilities carried at fair
value, including derivatives. In February 2008, the Financial
Accounting Standard Board (FASB) approved FASB Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157 (FSP
No. 157-2),
that permits companies to partially defer the effective date of
SFAS No. 157 for one year for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at
fair value in the financial statements
5
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
on a nonrecurring basis. FSP
No. 157-2
does not permit companies to defer recognition and disclosure
requirements for financial assets and financial liabilities or
for nonfinancial assets and nonfinancial liabilities that are
remeasured at least annually. SFAS No. 157 is
effective for financial assets and financial liabilities and for
nonfinancial assets and nonfinancial liabilities that are
remeasured at least annually for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal
years. The provisions of SFAS No. 157 are applied
prospectively. We have decided to defer adoption of
SFAS No. 157 for one year for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at
fair value in the financial statements on a nonrecurring basis.
The effect of our adoption of SFAS No. 157 on
January 1, 2008 was not material and no adjustment to
Accumulated deficit was required. Refer to Note 11 for more
information regarding the impact of our adoption of
SFAS No. 157.
|
|
|
The
Fair Value Option for Financial Assets and Financial
Liabilities including an Amendment of
SFAS No. 115
|
On January 1, 2008, we adopted SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of
SFAS No. 115 (SFAS No. 159), which
permits an entity to measure certain financial assets and
financial liabilities at fair value that were not previously
required to be measured at fair value. Entities that elect the
fair value option will report unrealized gains and losses in
earnings at each subsequent reporting date. The fair value
option may be elected on an
instrument-by-instrument
basis, with few exceptions. SFAS No. 159 amends
previous guidance to extend the use of the fair value option to
available-for-sale
and
held-to-maturity
securities. SFAS No. 159 also establishes presentation
and disclosure requirements to help financial statement users
understand the effect of the election. We have not elected to
measure any financial assets and financial liabilities at fair
value which were not previously required to be measured at fair
value. Therefore, the adoption of this standard has had no
impact on our financial condition and results of operations.
|
|
|
Accounting
for Uncertainty in Income Taxes
|
On January 1, 2007, we adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes (FIN No. 48), which supplements
SFAS No. 109, Accounting for Income Taxes
(SFAS No. 109), by defining the confidence level that
a tax position must meet in order to be recognized in the
financial statements. FIN No. 48 requires that the tax
effect(s) of a position be recognized only if it is
more-likely-than-not to be sustained based solely on
its technical merits as of the reporting date. The
more-likely-than-not threshold represents a positive assertion
by management that a company is entitled to the economic
benefits of a tax position. If a tax position is not considered
more-likely-than-not to be sustained based solely on its
technical merits, no benefits of the tax position are to be
recognized. The more-likely-than-not threshold must continue to
be met in each reporting period to support continued recognition
of a benefit. With the adoption of FIN No. 48,
companies are required to adjust their financial statements to
reflect only those tax positions that are more-likely-than-not
to be sustained. Any necessary adjustment would be recorded
directly to retained earnings and reported as a change in
accounting principle. We adopted FIN No. 48 as of
January 1, 2007, and recorded an increase to Accumulated
deficit of $137 million as a cumulative effect of a change
in accounting principle with a corresponding decrease to the
liability for uncertain tax positions.
|
|
|
Accounting
for Nonrefundable Payments for Goods or Services to Be Used in
Future Research and Development Activities
|
In June 2007, the FASB ratified Emerging Issue Task Force (EITF)
Issue
No. 07-3,
Accounting for Nonrefundable Payments for Goods or
Services to Be Used in Future Research and Development
Activities (EITF
No. 07-3),
requiring that nonrefundable advance payments for future
research and development activities be deferred and capitalized.
Such amounts should be expensed as the related goods are
delivered or the related services are performed. EITF
No. 07-3
is effective for new arrangements on a prospective basis for
fiscal years beginning after December 15, 2007. The
adoption of this guidance did not have a material effect on our
financial condition and results of operations.
6
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
Accounting
for Income Tax Benefits of Dividends on Share-Based Payment
Awards
|
In June 2007, the FASB ratified EITF Issue
No. 06-11,
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards (EITF
No. 06-11),
which requires entities to record to additional paid-in capital
the tax benefits on dividends or dividend equivalents that are
charged to retained earnings for certain share-based awards. In
a share-based payment arrangement, employees may receive
dividends or dividend equivalents on awards of nonvested equity
shares, nonvested equity share units during the vesting period,
and share options until the exercise date. Generally, the
payment of such dividends can be treated as deductible
compensation for tax purposes. The amount of tax benefits
recognized in additional paid-in capital should be included in
the pool of excess tax benefits available to absorb tax
deficiencies on share-based payment awards. EITF
No. 06-11
is effective for fiscal years beginning after December 15,
2007, and interim periods within those fiscal years. The
adoption of this guidance did not have a material effect on our
financial condition and results of operations.
Accounting
Standards Not Yet Adopted
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS No. 141(R)),
which retained the underlying concepts under existing standards
in that all business combinations are still required to be
accounted for at fair value under the acquisition method of
accounting but SFAS No. 141(R) changed the method of
applying the acquisition method in a number of significant
aspects. SFAS No. 141(R) will require that:
(1) for all business combinations, the acquirer records all
assets and liabilities of the acquired business, including
goodwill, generally at their fair values; (2) certain
pre-acquisition contingent assets and liabilities acquired be
recognized at their fair values on the acquisition date;
(3) contingent consideration be recognized at its fair
value on the acquisition date and, for certain arrangements,
changes in fair value will be recognized in earnings until
settled; (4) acquisition-related transaction and
restructuring costs be expensed rather than treated as part of
the cost of the acquisition and included in the amount recorded
for assets acquired; (5) in step acquisitions, previous
equity interests in an acquiree held prior to obtaining control
be re-measured to their acquisition-date fair values, with any
gain or loss recognized in earnings; and (6) when making
adjustments to finalize initial accounting, companies revise any
previously issued post-acquisition financial information in
future financial statements to reflect any adjustments as if
they had been recorded on the acquisition date.
SFAS No. 141(R) is effective on a prospective basis
for all business combinations for which the acquisition date is
on or after the beginning of the first annual period subsequent
to December 15, 2008, with the exception of the accounting
for valuation allowances on deferred taxes and acquired tax
contingencies. SFAS No. 141(R) amends
SFAS No. 109 such that adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective
date of this statement should also apply the provisions of
SFAS No. 141(R). Once effective, this standard will be
applied to all future business combinations.
|
|
|
Noncontrolling
Interests in Consolidated Financial Statements
|
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB 51
(SFAS No. 160), which amends Accounting Research
Bulletin (ARB) No. 51 Consolidated Financial
Statements (ARB No. 51) to establish new
standards that will govern the accounting for and reporting of
noncontrolling interests in partially owned consolidated
subsidiaries and the loss of control of subsidiaries. Also,
SFAS No. 160 requires that: (1) noncontrolling
interest, previously referred to as minority interest, be
reported as part of equity in the consolidated financial
statements; (2) losses be allocated to the noncontrolling
interest even when such allocation might result in a deficit
balance, reducing the losses attributed to the controlling
interest; (3) changes in ownership interests be treated as
equity transactions if control is maintained; and (4) upon
a loss of control, any gain or loss on the interest sold be
recognized in earnings. SFAS No. 160 is effective on a
prospective basis for all fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008, except for the presentation and
disclosure requirements, which will be applied retrospectively.
We are currently evaluating the effects that
SFAS No. 160 will have on our financial condition and
results of operations.
7
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
Disclosures
about Derivative Instruments and Hedging Activities
an Amendment of FASB Statement No. 133
|
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an Amendment of FASB Statement
No. 133 (SFAS No. 161), that expands the
disclosure requirements of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133).
SFAS No. 161 requires additional disclosures
regarding: (1) how and why an entity uses derivative
instruments; (2) how derivative instruments and related
hedged items are accounted for under SFAS No. 133; and
(3) how derivative instruments and related hedged items
affect an entitys financial position, financial
performance, and cash flows. In addition, SFAS No. 161
requires qualitative disclosures about objectives and strategies
for using derivatives described in the context of an
entitys risk exposures, quantitative disclosures about the
location and fair value of derivative instruments and associated
gains and losses, and disclosures about credit-risk-related
contingent features in derivative instruments.
SFAS No. 161 is effective for fiscal years and interim
periods within these fiscal years, beginning after
November 15, 2008.
|
|
|
Accounting
for Collaborative Arrangements
|
In December 2007, the FASB ratified EITF Issue
No. 07-1,
Accounting for Collaborative Arrangements (EITF
No. 07-1),
which requires revenue generated and costs incurred by the
parties in the collaborative arrangement be reported in the
appropriate line in each companys financial statement
pursuant to the guidance in EITF Issue
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent (EITF
No. 99-19)
and not account for such arrangements on the equity method of
accounting. This Issue also includes enhanced disclosure
requirements regarding the nature and purpose of the
arrangement, rights and obligations under the arrangement,
accounting policy, and the amount and income statement
classification of collaboration transactions between the
parties. EITF
No. 07-1
is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years, and shall
be applied retrospectively (if practicable) to all prior periods
presented for all collaborative arrangements existing as of the
effective date. We are currently evaluating the effects, if any,
that EITF
No. 07-1
may have on the presentation and classification of these
activities in our financial statements.
Note 3. Divestures
of Businesses
|
|
|
Sale
of Allison Transmission Business
|
In August 2007, we completed the sale of the commercial and
military operations of our Allison Transmission (Allison)
business. The results of operations and cash flows of Allison
have been reported in the condensed consolidated financial
statements as discontinued operations in the three months ended
March 31, 2007. Historically, Allison was reported within
GMNA.
The following table summarizes the results of discontinued
operations (dollars in millions):
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2007
|
|
Net sales
|
|
$
|
543
|
|
Operating income from discontinued operations
|
|
$
|
165
|
|
Income tax provision
|
|
$
|
61
|
|
Income from discontinued operations, net of tax
|
|
$
|
104
|
|
As part of the transaction, we entered into an agreement with
the buyers of Allison whereby we may provide the new parent
company of Allison with contingent financing of up to
$100 million. Such financing would be made available if,
during a defined period of time, Allison was not in compliance
with its financial maintenance covenant under a separate credit
agreement. Our financing would be contingent on the stockholders
of the new parent company of Allison committing to provide an
equivalent amount of funding to Allison, either in the form of
equity or a loan, and, if a loan, such loan would be granted on
8
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
the same terms as our loan to the new parent company of Allison.
As of March 31, 2008 we have not provided financing
pursuant to this agreement. This commitment expires on
December 31, 2010. Additionally, both parties have entered
into non-compete arrangements for a term of 10 years in the
United States and for a term of five years in Europe.
Note 4. Inventories
Inventories are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Productive material, work in process, and supplies
|
|
$
|
7,071
|
|
|
$
|
6,267
|
|
|
$
|
5,982
|
|
Finished product, including service parts, etc.
|
|
|
11,304
|
|
|
|
10,095
|
|
|
|
10,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories at FIFO
|
|
|
18,375
|
|
|
|
16,362
|
|
|
|
16,939
|
|
Less LIFO allowance
|
|
|
(1,460
|
)
|
|
|
(1,423
|
)
|
|
|
(1,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive inventories
|
|
|
16,915
|
|
|
|
14,939
|
|
|
|
15,431
|
|
FIO off-lease vehicles, included in FIO Other assets
|
|
|
406
|
|
|
|
254
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
17,321
|
|
|
$
|
15,193
|
|
|
$
|
15,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5. Investment
in Nonconsolidated Affiliates
Information regarding our share of net income (loss) for our
nonconsolidated affiliates is included in the table below:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
GMAC
|
|
$
|
(1,612
|
)
|
|
$
|
(183
|
)
|
Shanghai General Motors Co., Ltd and SAIC-GM-Wuling Automobile
Co., Ltd.
|
|
|
116
|
|
|
|
117
|
|
Others
|
|
|
16
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,480
|
)
|
|
$
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
Summarized financial information of GMAC is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
Total financing revenue
|
|
$
|
4,932
|
|
|
$
|
5,298
|
|
Depreciation expense on operating lease assets
|
|
$
|
1,397
|
|
|
$
|
1,081
|
|
Interest expense
|
|
$
|
3,179
|
|
|
$
|
3,673
|
|
Loss before income tax expense
|
|
$
|
(571
|
)
|
|
$
|
(155
|
)
|
Income tax expense
|
|
$
|
18
|
|
|
$
|
150
|
|
Net loss
|
|
$
|
(589
|
)
|
|
$
|
(305
|
)
|
Net loss available to members
|
|
$
|
(615
|
)
|
|
$
|
(357
|
)
|
9
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
21,446
|
|
|
$
|
20,559
|
|
|
$
|
22,086
|
|
Finance receivables and loans, net
|
|
$
|
119,433
|
|
|
$
|
124,759
|
|
|
$
|
165,017
|
|
Investment in operating leases, net
|
|
$
|
33,122
|
|
|
$
|
32,348
|
|
|
$
|
25,881
|
|
Other assets
|
|
$
|
31,446
|
|
|
$
|
28,255
|
|
|
$
|
25,520
|
|
Total assets
|
|
$
|
243,354
|
|
|
$
|
248,939
|
|
|
$
|
275,132
|
|
Total debt
|
|
$
|
185,294
|
|
|
$
|
193,148
|
|
|
$
|
223,727
|
|
Accrued expenses, deposit and other liabilities
|
|
$
|
32,039
|
|
|
$
|
28,713
|
|
|
$
|
23,083
|
|
Total liabilities
|
|
$
|
228,590
|
|
|
$
|
233,374
|
|
|
$
|
257,840
|
|
Redeemable preferred membership interests
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,226
|
|
Preferred interests
|
|
$
|
1,052
|
|
|
$
|
1,052
|
|
|
$
|
|
|
Total equity
|
|
$
|
14,764
|
|
|
$
|
15,565
|
|
|
$
|
15,066
|
|
In the three months ended March 31, 2008, we determined
that our investments in GMAC Common Membership Interests and
Preferred Membership Interests were impaired and that such
impairments were other than temporary. Accordingly, we recorded
an impairment charge of $1.3 billion in Equity in loss of
GMAC LLC to reduce the carrying value of our investment in GMAC
Common Membership Interests to its estimated fair value of
$5.4 billion after considering the impact of recording our
share of GMACs results for the three months ended
March 31, 2008. We also recorded an impairment charge of
$142 million in Automotive interest income and other
non-operating income, net to reduce the carrying value of our
investment in Preferred Membership Interests to its estimated
fair value of $902 million. Our measurements of fair value
were determined in accordance with SFAS No. 157
utilizing Level 3 inputs of the fair value hierarchy
established in SFAS No. 157. Refer to Note 11 for
further information on the specific valuation methodology.
As of March 31, 2008, December 31, 2007 and
March 31, 2007, we held 1,021,764, 1,021,764 and 1,555,000
Preferred Membership Interests in GMAC representing 100%, 100%
and 74%, respectively, of the Preferred Membership Interests
issued and outstanding. As of December 31, 2007 and
March 31, 2007, the carrying value of our investments in
GMAC Common Membership Interests was $7.1 billion and
$7.4 billion, respectively, and the carrying value of our
investment in GMAC Preferred Membership Interests was
$1.0 billion and $1.6 billion, respectively. We
accrued dividends of $26 million and $39 million in
the three months ended March 31, 2008 and 2007,
respectively, related to our Preferred Membership Interests.
On January 1, 2008, GMAC adopted SFAS No. 157 and
No. 159. As a result of their adoption of
SFAS No. 157, GMAC recorded an adjustment to retained
earnings related to the recognition of day-one gains on
purchased mortgage servicing rights and certain residential loan
commitments. As a result of their adoption of
SFAS No. 159, GMAC elected to measure, at fair value,
certain financial assets and liabilities including certain
collateralized debt obligations and certain mortgage loans held
for investment in financing securitization structures. As a
result, we reduced our Equity in net assets of GMAC LLC and
increased our Accumulated deficit by $62 million as of
January 1, 2008.
Refer to Note 15 for a description of the related party
transactions with GMAC.
10
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Property,
Net
Property, net is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, plants, and equipment
|
|
$
|
77,735
|
|
|
$
|
76,475
|
|
|
$
|
74,426
|
|
Less accumulated depreciation
|
|
|
(45,552
|
)
|
|
|
(44,474
|
)
|
|
|
(43,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, plants, and equipment, net
|
|
|
32,183
|
|
|
|
32,001
|
|
|
|
30,427
|
|
Special tools, net
|
|
|
11,099
|
|
|
|
11,016
|
|
|
|
11,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive property, net
|
|
$
|
43,282
|
|
|
$
|
43,017
|
|
|
$
|
41,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization, including asset impairment
charges, included in Automotive cost of sales, Selling, general
and administrative expense, and Financial services and insurance
expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
Depreciation and impairment
|
|
$
|
1,226
|
|
|
$
|
1,245
|
|
Amortization and impairment of special tools
|
|
|
772
|
|
|
|
720
|
|
Amortization of intangible assets
|
|
|
20
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,018
|
|
|
|
1,982
|
|
|
|
|
|
|
|
|
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangible assets
|
|
|
211
|
|
|
|
379
|
|
|
|
|
|
|
|
|
|
|
Total consolidated depreciation and amortization
|
|
$
|
2,229
|
|
|
$
|
2,361
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for FIO is primarily related to Equipment
on operating leases, net, which are presented separately.
Note 7. Product
Warranty Liability
Activity for policy, product warranty, recall campaigns and
certified used vehicle warranty liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Beginning balance
|
|
$
|
9,615
|
|
|
$
|
9,064
|
|
|
$
|
9,064
|
|
Increase in liability (warranties issued during period)
|
|
|
1,020
|
|
|
|
5,135
|
|
|
|
1,222
|
|
Payments
|
|
|
(1,180
|
)
|
|
|
(4,539
|
)
|
|
|
(1,151
|
)
|
Adjustments to liability (pre-existing warranties)
|
|
|
4
|
|
|
|
(165
|
)
|
|
|
(11
|
)
|
Effect of foreign currency translation
|
|
|
58
|
|
|
|
223
|
|
|
|
29
|
|
Liabilities transferred in the sale of Allison (Note 3)
|
|
|
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
9,517
|
|
|
$
|
9,615
|
|
|
$
|
9,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We review and adjust these estimates on a regular basis based on
the differences between actual experience and historical
estimates or other available information.
Note 8. Pensions
and Other Postretirement Benefits
We recognize the funded status of our benefit plans in
accordance with the recognition provisions of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and
132(R) (SFAS No. 158). Additionally, we elected
to early adopt the measurement date provisions of
SFAS No. 158 at January 1, 2007. Those provisions
require the measurement date for plan assets and liabilities to
coincide with the sponsors year end. Using the
two-measurement approach for those defined benefit
plans where the measurement date was not historically consistent
with our year end, we recorded an increase to Accumulated
deficit of $782 million, $425 million after-tax,
representing the net periodic benefit cost for the period
between the measurement date utilized in 2006 and the beginning
of 2007, which previously would have been recorded in the three
months ended March 31, 2007 on a delayed basis. We also
performed a measurement at January 1, 2007 for those
benefit plans whose previous measurement dates were not
historically consistent with our year end. As a result of the
January 1, 2007 measurement, we recorded a decrease to
Accumulated other comprehensive loss of $2.3 billion,
$1.5 billion after-tax, representing other changes in the
fair value of the plan assets and the benefit obligations for
the period between the measurement date utilized in 2006 and
January 1, 2007. These amounts are offset partially by an
immaterial adjustment of $390 million, $250 million
after-tax, to correct certain demographic information used in
determining the amount of the cumulative effect of a change in
accounting principle reported as of December 31, 2006 to
adopt the recognition provisions of SFAS No. 158.
The components of pension and other postemployment benefits
(OPEB) expense (income) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
U.S. Other
|
|
|
Non-U.S.
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Benefits(a)
|
|
|
Other Benefits(a)
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Components of (income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
150
|
|
|
$
|
160
|
|
|
$
|
105
|
|
|
$
|
118
|
|
|
$
|
75
|
|
|
$
|
93
|
|
|
$
|
10
|
|
|
$
|
10
|
|
Interest cost
|
|
|
1,292
|
|
|
|
1,216
|
|
|
|
320
|
|
|
|
255
|
|
|
|
913
|
|
|
|
901
|
|
|
|
60
|
|
|
|
46
|
|
Expected return on plan assets
|
|
|
(2,060
|
)
|
|
|
(1,986
|
)
|
|
|
(252
|
)
|
|
|
(218
|
)
|
|
|
(344
|
)
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (credit)
|
|
|
210
|
|
|
|
130
|
|
|
|
9
|
|
|
|
5
|
|
|
|
(465
|
)
|
|
|
(461
|
)
|
|
|
(25
|
)
|
|
|
(20
|
)
|
Amortization of transition obligation
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
66
|
|
|
|
211
|
|
|
|
69
|
|
|
|
82
|
|
|
|
187
|
|
|
|
339
|
|
|
|
27
|
|
|
|
28
|
|
Curtailments, settlements and other
|
|
|
217
|
|
|
|
2
|
|
|
|
5
|
|
|
|
23
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divestiture of Allison
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) expense
|
|
$
|
(125
|
)
|
|
$
|
(272
|
)
|
|
$
|
258
|
|
|
$
|
267
|
|
|
$
|
370
|
|
|
$
|
520
|
|
|
$
|
72
|
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Table does not include extended disability plans with total net
expense of $6 million and $13 million in the three
months ended March 31, 2008 and 2007, respectively,
(excluding curtailments), as these amounts are not material. |
As a result of the Allison divestiture discussed in Note 3,
we recorded an adjustment to the unrecognized prior service cost
of our U.S. hourly and salaried pension plans of
$18 million and our U.S. hourly and salaried OPEB plans of
$223 million in the three months ended September 30,
2007. Those adjustments were included in the determination of
the gain recognized on the sale of Allison. The net periodic
pension and OPEB expenses related to Allison were reported as a
component of discontinued
12
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
operations. All such amounts related to Allison are reflected in
the tables above, and the effects of those amounts are shown as
an adjustment to arrive at net periodic pension and OPEB expense
(income) from continuing operations.
In October 2007, we signed a Memorandum of
Understanding Post-Retirement Medical Care (Retiree
MOU) with the International Union, United Automotive, Aerospace
and Agricultural Implement Workers of America (UAW), now
superseded by the settlement agreement entered into in February
2008, currently pending final court approval (Settlement
Agreement). The Settlement Agreement provides that
responsibility for providing retiree health care will
permanently shift from us to a new retiree plan funded by a new
independent Voluntary Employee Beneficiary Association trust
(New VEBA). The court certified the class and granted
preliminary approval of the Settlement Agreement and we mailed
to the class in March 2008. The fairness hearing is scheduled
for June 2008 and we expect the court to render a final decision
with regard to the Settlement Agreement by August 2008. All
appeals, if any, should be exhausted no later than
January 1, 2010.
When fully implemented, the Settlement Agreement will cap our
payment for retiree healthcare obligations to UAW associated
employees, retirees and dependents as defined in the Settlement
Agreement; will supersede and replace the 2005 UAW Health Care
Settlement Agreement, as discussed in the 2007
10-K; and
will transfer responsibility for administering retiree
healthcare benefits for these individuals to the New VEBA trust.
Before it can become effective, the Settlement Agreement is
subject to court approval and the completion of discussions
between us and the SEC regarding accounting treatment for the
transactions contemplated by the Settlement Agreement on a basis
reasonably satisfactory to us. In light of these contingencies,
no recognition to the effects of the Settlement Agreement has
been made in these condensed consolidated financial statements.
The Settlement Agreement provides that on the later of
January 1, 2010 or final court approval of the Settlement
Agreement (Implementation Date), we will transfer our
obligations to provide covered UAW employees with post
retirement medical benefits to a new retiree health care plan
(the New Plan) to be established and funded by the New VEBA.
In accordance with the Settlement Agreement, effective
January 1, 2008 for bookkeeping purposes only, we divided
the existing internal VEBA into two bookkeeping accounts. One
account consists of the percentage of the existing internal
VEBAs assets as of January 1, 2008 that is equal to
the estimated percentage of our hourly OPEB liability covered by
the existing internal VEBA attributable to non-UAW represented
employees and retirees, their eligible spouses, surviving
spouses and dependents (Non-UAW Related Account) and had a
balance of $1.2 billion. The second account consists of the
remaining percentage of the assets in the existing internal VEBA
as of January 1, 2008 (UAW Related Account) and had a
balance of $14.5 billion. No amounts will be withdrawn from
the UAW Related Account, including its investment returns, until
transfer to the New VEBA.
In February 2008, pursuant to the Settlement Agreement, we
issued a $4.0 billion short term note (Short-Term Note) to
LBK, LLC, a Delaware limited liability company of which we are
the sole member (LBK). The Short-Term Note pays interest at a
rate of 9% and matures on the date that the face amount of the
Short-Term Note is paid with interest to the New VEBA in
accordance with the terms of the Settlement Agreement. LBK will
hold the Short-Term Note until maturity.
In February 2008, pursuant to the Settlement Agreement, we
issued $4.4 billion principal amount of our 6.75%
Series U Convertible Senior Debentures Due
December 31, 2012 (Convertible Note) to LBK. LBK will hold
the Convertible Note until it is transferred to the New VEBA in
accordance with the terms of the Settlement Agreement. Interest
on the Convertible Note is payable semiannually. In accordance
with the Settlement Agreement LBK will transfer any interest it
receives on the Convertible Note to a temporary asset account we
maintain. The funds in the temporary asset account will be
transferred to the New VEBA in accordance with the terms of the
Settlement Agreement.
In conjunction with the issuance of the Convertible Note, we
entered into certain cash-settled derivative instruments
maturing on June 30, 2011 with LBK that will have the
economic effect of reducing the conversion price of the
Convertible Note from $40 to $36. These derivative instruments
will also entitle us to partially recover the additional
economic value provided if
13
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
our common stock price appreciates to between $63.48 and $70.53
per share and to fully recover the additional economic value
provided if our common stock price reaches $70.53 per share or
above. Pursuant to the Settlement Agreement, LBK will transfer
its interests in the derivatives to the New VEBA when the
Convertible Note is transferred from LBK to the New VEBA
following the Implementation Date.
Because LBK is a wholly-owned consolidated subsidiary, these
securities have been eliminated in our condensed consolidated
financial statements and will continue to be until they are
transferred to the New VEBA without restrictions in accordance
with the Settlement Agreement.
In April 2008, pursuant to the Settlement Agreement, we made a
contribution of $165 million to the temporary asset
account. Beginning in 2009, we may be required, under certain
circumstances, to contribute an additional $165 million per
year, limited to a maximum of an additional 19 payments, to
either the temporary asset account or the New VEBA (when
established). Such contributions will be required only if annual
cash flow projections show that the New VEBA will become
insolvent on a rolling
25-year
basis. At any time, we will have the option to prepay all
remaining contingent $165 million payments.
Additionally, at the initial effective date of the Settlement
Agreement, we may transfer up to an additional
$5.6 billion, subject to adjustment, to the New VEBA or we
may instead opt to make annual payments of varying amounts
between $0.4 billion and $3.3 billion through 2020.
|
|
|
2008
Special Attrition Programs
|
In February 2008, we signed agreements with the UAW and the
International Union of Electronic, Electrical, Salaried, Machine
and Furniture Workers (IUE) regarding special attrition programs
which are intended to further reduce the number of hourly
employees. The UAW attrition program (2008 UAW Special Attrition
Program) offered to our 74,000 UAW-represented employees
consists of wage and benefit packages for normal and voluntary
retirements, buyouts or pre-retirement employees with 26 to
29 years of service. In addition to their vested pension
benefits, those employees that are retirement eligible will
receive a lump sum payment, depending upon classification, that
will be funded from our U.S. Hourly Pension Plan. For those
employees not retirement eligible, other retirement and buyout
options have been offered. The terms offered to the 2,300 IUE
represented employees (2008 IUE Special Attrition Program) are
similar to those offered through the 2008 UAW Special Attrition
Program. During the three months ended March 31, 2008, we
recorded $201 million of expense primarily for the 2008 UAW
Special Attrition Program and the 2008 IUE Special Attrition
Program (2008 Special Attrition Programs) in accordance with
SFAS No. 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits (SFAS No. 88),
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other than Pensions
(SFAS No. 106), and SFAS No. 112,
Employers Accounting for Postemployment
Benefits (SFAS No. 112) Refer to Note 12.
Included in the $201 million expensed in the three months
ended March 31, 2008 is $167 million recorded pursuant
to SFAS No. 88 which is recorded in the Curtailments,
settlements and other line of U.S. Pension Plan Benefits.
These costs include lump sum payments and other costs related to
pre-retirement benefit payments for irrevocable acceptances
through March 31, 2008 under the 2008 Special Attrition
Programs. Because the offer period for the 2008 Special
Attrition Programs extends into the three months ended
June 30, 2008, additional acceptances are expected and
accordingly, further amounts will be expensed in the three
months ended June 30, 2008. Such amounts will likely exceed
$400 million. In addition, it is reasonably possible that
sufficient acceptances will be received such that we may need to
remeasure our defined benefit plans for potential curtailments
and accelerate the recognition of a portion of our unamortized
prior service costs (credits) for our hourly U.S. pension
and OPEB plans.
|
|
|
Legal
Services Plans and Restatement of Financial
Information
|
The accompanying condensed consolidated balance sheet and
statement of stockholders deficit as of March 31,
2007 have been restated to correct the accounting for certain
benefit plans that provide legal services to hourly employees
represented by the UAW, International Union of Electrical
Workers Communications Workers of America (IUE-CWA) and the
Canadian Auto
14
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Workers (CAW) (Legal Services Plans) as discussed in our 2007
10-K. In
order to correct the condensed consolidated balance sheet as of
March 31, 2007, we increased deferred tax assets and OPEB
liabilities by $112 million and $323 million,
respectively. This resulted in a reduction of $211 million
to previously reported stockholders deficit as of
March 31, 2007. We have not restated the condensed
consolidated statements of operations or cash flows for the
three months ended March 31, 2007 for this misstatement
because we have concluded that the impact is immaterial.
Note 9. Commitments
and Contingencies
We have provided guarantees related to the residual value of
certain operating leases, primarily the lease of our corporate
headquarters. As of March 31, 2008, the maximum potential
amount of future undiscounted payments that could be required to
be made under these guarantees amounted to $754 million.
These guarantees terminate during years ranging from 2008 to
2035. Certain leases contain renewal options. In connection with
the residual value guarantee related to the lease of our
corporate headquarters, we have recorded liabilities totaling
$126 million as of March 31, 2008. We recorded an
additional $20 million with respect to this residual value
guarantee prior to the leases expiration in May 2008, at
which point we purchased the building for $626 million in
cash, removed the residual value guarantee liability and
recorded the building at its estimated fair value.
We have agreements with third parties that guarantee the
fulfillment of certain suppliers commitments and related
obligations. As of March 31, 2008, the maximum potential
future undiscounted payments that could be required to be made
under these guarantees amount to $168 million. These
guarantees terminate during years ranging from 2008 to 2017, or
upon the occurrence of specific events, such as an entitys
cessation of business. In connection with such guarantees, we
have recorded liabilities totaling $19 million.
In addition, in some instances, certain assets of the party
whose debt or performance is guaranteed may offset, to some
degree, the effect of the triggering of the guarantee. The
offset of certain payables may also apply to certain guarantees.
We also provide payment guarantees on commercial loans made by
GMAC and outstanding with certain third-parties, such as dealers
or rental car companies. As of March 31, 2008, the maximum
commercial obligations we guaranteed related to these loans was
$121 million. Years of expiration related to these
guarantees range from 2008 to 2012. Based on the
creditworthiness of these third parties, the value ascribed to
the guarantees we provided was determined to be insignificant.
In connection with certain divestitures of assets or operating
businesses, we have entered into agreements indemnifying certain
buyers and other parties with respect to environmental
conditions pertaining to real property we owned. Also, in
connection with such divestitures, we have provided guarantees
with respect to benefits to be paid to former employees relating
to pensions, postretirement health care and life insurance.
Aside from indemnifications and guarantees related to Delphi
Corporation (Delphi) or a specific divested unit, both of which
are discussed below, due to the conditional nature of these
obligations it is not possible to estimate our maximum exposure
under these indemnifications or guarantees. No amounts have been
recorded for such obligations as they are not probable and
estimable at this time.
In addition to the guarantees and indemnifying agreements
mentioned above, we periodically enter into agreements that
incorporate indemnification provisions in the normal course of
business. Due to the nature of these agreements, the maximum
potential amount of future undiscounted payments to which we may
be exposed cannot be estimated. No amounts have been recorded
for such indemnities as our obligations under them are not
probable and estimable at this time.
Refer to Note 15 for additional information on guarantees
that we provide to GMAC.
15
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Our operations, like operations of other companies engaged in
similar businesses, are subject to a wide range of environmental
protection laws, including laws regulating air emissions, water
discharges, waste management and environmental cleanup. We are
in various stages of investigation or remediation for sites
where contamination has been alleged. We are involved in a
number of remediation actions to clean up hazardous wastes as
required by federal and state laws. Such statutes require that
responsible parties fund remediation actions regardless of
fault, legality of original disposal or ownership of a disposal
site.
The future impact of environmental matters, including potential
liabilities, is often difficult to estimate. We record an
environmental reserve when it is probable that a liability has
been incurred and the amount of the liability can be reasonably
estimated. This practice is followed whether the claims are
asserted or unasserted. Management expects that the amounts
reserved will be paid over the periods of remediation for the
applicable sites, which typically range from five to
30 years.
For many sites, the remediation costs and other damages for
which we ultimately may be responsible cannot be reasonably
estimated because of uncertainties with respect to factors such
as our connection to the site or to materials there, the
involvement of other potentially responsible parties, the
application of laws and other standards or regulations, site
conditions, and the nature and scope of investigations, studies
and remediation to be undertaken (including the technologies to
be required and the extent, duration and success of
remediation). As a result, we are unable to determine or
reasonably estimate the amount of costs or other damages for
which we are potentially responsible in connection with these
sites, although that total could be substantial.
While the final outcome of environmental matters cannot be
predicted with certainty, it is our opinion that none of these
items, when finally resolved, is expected to have a material
adverse effect on our financial position or liquidity. However,
it is possible that the resolution of one or more environmental
matters could exceed the amounts accrued in an amount that could
be material to our results of operations in any particular
reporting period.
Like most automobile manufacturers, we have been subject to
asbestos-related claims in recent years. We have seen these
claims primarily arise from three circumstances:
|
|
|
|
|
A majority of these claims seek damages for illnesses alleged to
have resulted from asbestos used in brake components;
|
|
|
|
Limited numbers of claims have arisen from asbestos contained in
the insulation and brakes used in the manufacturing of
locomotives; and
|
|
|
|
Claims brought by contractors who allege exposure to
asbestos-containing products while working on premises we owned.
|
While we have resolved many of the asbestos-related cases over
the years and continue to do so for strategic litigation reasons
such as avoiding defense costs and possible exposure to
excessive verdicts, we believe that only a small proportion of
the claimants has or will develop any asbestos-related
impairment. Only a small percentage of the claims pending
against us allege causation of a disease associated with
asbestos exposure. The amount expended on asbestos-related
matters in any year depends on the number of claims filed, the
amount of pretrial proceedings and the number of trials and
settlements during the period.
We record the estimated liability associated with asbestos
personal injury claims where the expected loss is both probable
and can reasonably be estimated. In the three months ended
December 31, 2007, we retained Hamilton,
Rabinovitz & Associates, Inc. (HRA), a firm
specializing in estimating asbestos claims to assist us in
determining our potential liability for
16
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
pending and unasserted future asbestos personal injury claims.
The analysis relies on and includes the following information
and factors:
|
|
|
|
|
A third-party forecast of the projected incidence of malignant
asbestos related disease likely to occur in the general
population of individuals occupationally exposed to asbestos;
|
|
|
|
Data concerning claims filed against us and resolved, amounts
paid, and the nature of the asbestos related disease or
condition asserted during approximately the last four years
(Asbestos Claims Experience);
|
|
|
|
The estimated rate of asbestos related claims likely to be
asserted against us in the future based on our Asbestos Claims
Experience and the projected incidence of asbestos related
disease in the general population of individuals occupationally
exposed to asbestos;
|
|
|
|
The estimated rate of dismissal of claims by disease type based
on our Asbestos Claims Experience; and
|
|
|
|
The estimated indemnity value of the projected claims based on
our Asbestos Claims Experience, adjusted for inflation.
|
We reviewed a number of factors, including the analysis provided
by HRA and increased our reserve by $349 million in the
three months ended December 31, 2007 to reflect a
reasonable estimate of our probable liability for pending and
future asbestos related claims projected to be asserted over the
next ten years, including legal defense costs. We will monitor
our actual claims experience for consistency with this estimate
and make periodic adjustments as appropriate.
We believe that our analysis was based on the most relevant
information available combined with reasonable assumptions, and
that we may prudently rely on its conclusions to determine the
estimated liability for asbestos related claims. We note,
however, that the analysis is inherently subject to significant
uncertainties. The data sources and assumptions used in
connection with the analysis may not prove to be reliable
predictors with respect to claims asserted against us. Our
experience in the recent past includes substantial variation in
relevant factors, and a change in any of these
assumptions which include the source of the claiming
population, the filing rate and the value of claims
could affect the estimate significantly up or down. In addition,
other external factors such as legislation affecting the format
or timing of litigation, the actions of other entities sued in
asbestos personal injury actions, the distribution of assets
from various trusts established to pay asbestos claims and the
outcome of cases litigated to a final verdict could affect the
estimate.
As of March 31, 2008, December 31, 2007 and
March 31, 2007, our liability recorded for asbestos related
matters was $628 million, $637 million and
$539 million, respectively. The reserve balance between
March 31, 2007 and December 31, 2007 increased as a
result of a $349 million increase in the reserve for
probable pending and future asbestos claims, as discussed above,
which was partially offset by a reduction in the reserve for
existing claims of $251 million resulting from fewer claims
and lower expenses than previously estimated.
|
|
|
Contingent
Matters-Litigation
|
Various legal actions, governmental investigations, claims and
proceedings are pending against us, including a number of
shareholder class actions, bondholder class actions, shareholder
derivative suits and class actions under the U.S. Employee
Retirement Income Security Act of 1974, as amended (ERISA), and
other matters arising out of alleged product defects, including
asbestos-related claims; employment-related matters;
governmental regulations relating to safety, emissions, and fuel
economy; product warranties; financial services; dealer,
supplier and other contractual relationships and environmental
matters.
With regard to the litigation matters discussed in the previous
paragraph, we have established reserves for matters in which we
believe that losses are probable and can be reasonably
estimated. Some of the matters may involve compensatory,
punitive or other treble damage claims or demands for recall
campaigns, incurred but not reported asbestos-related claims,
environmental remediation programs or sanctions, that if
granted, could require us to pay damages or make other
expenditures in amounts that could not be reasonably estimated
as of March 31, 2008. We believe that we have appropriately
accrued for such matters under SFAS No. 5
Accounting for Contingencies (SFAS No. 5),
or, for matters not requiring accrual, that such matters will
not have
17
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
a material adverse effect on our results of operations or
financial position based on information currently available to
us. Litigation is inherently unpredictable, however, and
unfavorable resolutions could occur. Accordingly, it is possible
that an adverse outcome from such proceedings could exceed the
amounts accrued in an amount that could be material to us with
respect to our results of operations in any particular reporting
period.
In 1999, we spun off our Automotive Components Group (ACG) into
a new entity, which became Delphi. Delphi is our largest
supplier of automotive systems, components and parts and we are
Delphis largest customer. At the time of the spin-off,
employees of ACG became employees of Delphi. As part of the
separation agreements, Delphi assumed the pension and other
postretirement benefit obligations for these transferred U.S.
hourly employees who retired after October 1, 2000 and we
retained pension and other postretirement obligations for U.S.
hourly employees who retired on or before October 1, 2000.
Additionally at the time of the spin-off, we entered into
separate agreements with the UAW, the IUE-CWA and the United
Steel Workers (USW) (individually, the UAW, IUE-CWA and USW
Benefit Guarantee Agreements and, collectively, the Benefit
Guarantee Agreements) providing contingent benefit guarantees
whereby we would make payments for certain pension benefits and
OPEB to certain former U.S. hourly employees that became
employees of Delphi (defined as Covered Employees). Each Benefit
Guarantee Agreement contains separate benefit guarantees
relating to pension and OPEB obligations, with different
triggering events. The UAW, IUE-CWA and USW required through the
Benefit Guarantee Agreements that in the event that Delphi or
its successor companies ceases doing business or becomes subject
to financial distress we could be liable if Delphi fails to
provide the corresponding benefits at the required level. The
Benefit Guarantee Agreements do not obligate us to guarantee any
benefits for Delphi retirees in excess of the corresponding
benefits we provide at the time to our own hourly retirees.
Accordingly, any reduction in the benefits we provide our hourly
retirees reduces our obligation under the corresponding benefit
guarantee. In turn, Delphi has entered into an agreement
(Indemnification Agreement) with us that requires Delphi to
indemnify us if we are required to perform under the UAW Benefit
Guarantee Agreement. In addition, with respect to pension
benefits, our guarantee arises only to the extent that the
pension benefits provided by Delphi and the Pension Benefit
Guaranty Corporation fall short of the guaranteed amount. The
Indemnification Agreement and the UAW Benefit Guarantee
Agreements have been extended until June 30, 2008.
We received notice from Delphi, dated October 8, 2005, that
it was more likely than not that we would become obligated to
provide benefits pursuant to the Benefit Guarantee Agreements,
in connection with its commencement of Chapter 11
proceedings under the U.S. Bankruptcy Code. The notice stated
that Delphi was unable to estimate the timing and scope of any
benefits we might be required to provide under the Benefit
Guarantee Agreements; however, in 2005, we believed it was
probable that we had incurred a liability under the Benefit
Guarantee Agreements. Also, on October 8, 2005, Delphi
filed a petition for Chapter 11 proceedings under the U.S.
Bankruptcy Code for itself and many of its U.S. subsidiaries. On
June 22, 2007, we entered into a Memorandum of
Understanding with Delphi and the UAW (Delphi UAW MOU) which
included terms relating to the consensual triggering of the
Benefit Guarantee Agreement with the UAW as well as additional
terms relating to Delphis restructuring. Under the Delphi
UAW MOU we also agreed to pay for certain healthcare costs of
Delphi retirees and their beneficiaries in order to provide a
level of benefits consistent with those provided to our retirees
and their beneficiaries from the Mitigation Plan VEBA, as
discussed in our 2007
10-K. We
also committed to pay $450 million to settle a UAW claim
asserted against Delphi, which the UAW has directed us to pay
directly to the GM UAW VEBA trust. Such amount is expected to be
amortized to expense over future years. In August 2007, we
entered into a Memorandum of Understanding with Delphi and the
IUE-CWA (Delphi IUE-CWA MOU), and we entered into two separate
Memoranda of Understanding with Delphi and the USW (collectively
the USW MOUs). The terms of the Delphi IUE-CWA MOU and the USW
MOUs are similar to the Delphi UAW MOU with regard to the
consensual triggering of the Benefit Guarantee Agreements.
18
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
Delphi-GM
Settlement Agreements
|
We have entered into comprehensive settlement agreements with
Delphi (Delphi-GM Settlement Agreements) consisting of a Global
Settlement Agreement, as amended (GSA) and a Master
Restructuring Agreement, as amended (MRA) that would become
effective upon Delphis substantial consummation of its
Plan of Reorganization (POR) and our receipt of consideration
provided for in the POR. The GSA is intended to resolve
outstanding issues between Delphi and us that have arisen or may
arise before Delphis emergence from Chapter 11 and
will be implemented with Delphi shortly after emergence from
bankruptcy. The MRA is intended to govern certain aspects of our
commercial relationship following Delphis emergence from
Chapter 11. The more significant items contained in the
Delphi-GM Settlement Agreements include our commitment to:
|
|
|
|
|
Reimburse Delphi for its costs to provide OPEB to certain of
Delphis hourly retirees from and after January 1,
2007 through the date that Delphi ceases to provide such
benefits;
|
|
|
|
Reimburse Delphi for the normal cost of credited
service in Delphis pension plan between January 1,
2007 and the date its pension plans are frozen;
|
|
|
|
Assume $1.5 billion of net pension obligations of Delphi
and Delphi providing us a $1.5 billion note receivable;
|
|
|
|
Reimburse Delphi for all retirement incentives and half of the
buy-out payments made pursuant to the various attrition program
provisions and to reimburse certain U.S. hourly buydown payments
made to hourly employees of Delphi;
|
|
|
|
Award future product programs to Delphi and provide Delphi with
ongoing preferential sourcing for other product programs, with
Delphi re-pricing existing and awarded business;
|
|
|
|
Reimburse certain U.S. hourly labor costs incurred to produce
systems, components and parts for us from October 1, 2006
through September 14, 2015 at certain U.S. facilities owned
or to be divested by Delphi (Labor Cost Subsidy);
|
|
|
|
Reimburse Delphis cash flow deficiency attributable to
production at certain U.S. facilities that continue to produce
systems, components and parts for us until the facilities are
either closed or sold by Delphi (Production Cash Burn Support);
and
|
|
|
|
Guarantee a minimum recovery of the net working capital that
Delphi has invested in certain businesses held for sale.
|
In addition, Delphi agreed to provide us or our designee with an
option to purchase all or any of certain Delphi businesses for
one dollar if such businesses have not been sold by certain
specified deadlines. If such a business is not sold either to a
third party or to us or any affiliate pursuant to the option by
the applicable deadline, we (or at our option, an affiliate)
will be deemed to have exercised the purchase option, and the
unsold business, including materially all of its assets and
liabilities, will automatically transfer to the GM
buyer. Similarly, under the Delphi UAW MOU if such a
transfer has not occurred by the applicable deadline,
responsibility for the UAW hourly employees of such an unsold
business affected would automatically transfer to us or our
designated affiliate.
The GSA also resolves all claims in existence as of the
effective date of Delphis POR that either Delphi or we
have or may have against the other. Additionally, the GSA
provides that Delphi will pay us: (1) $1.5 billion in
a combination of at least $750 million in cash and a second
lien note; and (2) $1 billion in junior preferred
convertible stock at POR value upon Delphis substantial
consummation of its POR. In February 2008 we informed Delphi
that we were prepared to reduce the cash portion of our
distributions significantly and accept an equivalent amount of
debt in the form of a first or second lien note to help
facilitate Delphis successful emergence from bankruptcy
proceedings. Under Delphis POR and as a result of our
agreed participation in Delphis exit financing, our total
recovery would have consisted of $0.3 billion in cash,
$2.7 billion in second lien debt and $1.0 billion in
junior preferred convertible stock at the POR value. The second
lien debt includes $1.5 billion relating to our assumption
of $1.5 billion of Delphi net pension obligations. The
ultimate value of any consideration is contingent on the fair
market value of Delphis securities upon emergence from
bankruptcy.
19
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In January 2008, Delphi withdrew its March 2006 motion under the
U.S. Bankruptcy Code seeking to reject certain supply contracts
with us.
The Bankruptcy Court entered an order on January 25, 2008
confirming Delphis POR, including the Delphi-GM Settlement
Agreements. On April 4, 2008, Delphi announced that
although it had met the conditions required to substantially
consummate its POR, including obtaining $6.1 billion in
exit financing, Delphis plan investors refused to
participate in the closing of the transaction contemplated by
the POR, which was commenced but not completed because of the
plan investors position. As a result, it is unlikely that
Delphi will emerge from bankruptcy in the near-term. We believe
that Delphi will seek alternative arrangements to emerge from
bankruptcy, but there can be no assurance that Delphi will be
successful in obtaining any alternative arrangements. The
resulting uncertainty could potentially disrupt our ability to
plan future production and realize our cost reduction goals,
affect our relationship with the UAW, result in our providing
additional financial support to Delphi, receive less than the
distributions that we expected from the resolution of
Delphis bankruptcy proceedings, or assume some of
Delphis obligations to its workforce and retirees.
We continue to work with Delphi and its stakeholders to
facilitate Delphis efforts to emerge from bankruptcy. As
part of this effort, we have agreed to advance up to
$650 million to Delphi during 2008, which is within the
amounts we would have owed under the Delphi-GM Settlement
Agreements had Delphi emerged from bankruptcy in April 2008. We
will receive an administrative claim for funds we advance to
Delphi under this arrangement, and such funds will be credited
against amounts owed by us under the Delphi-GM Settlement
Agreements once such agreements become effective. We have agreed
to work together with Delphi toward implementation of the
Delphi-GM Settlement Agreements in the near-term.
In the three months ended March 31, 2008, we recorded a
charge in Other expenses of $731 million to increase our
net liability related to the Benefit Guarantee Agreements,
primarily due to updated estimates reflecting uncertainty around
the nature, value and timing of our recoveries upon emergence of
Delphi from bankruptcy. We have recorded total charges of
$8.3 billion to date in connection with the Benefit
Guarantee Agreements. These charges are net of estimated
recoveries that would be due to us upon emergence of Delphi from
bankruptcy. In the three months ended March 31, 2007 no
charges related to the Benefit Guarantee Agreements were
recorded. Our commitments under the Delphi-GM Settlement
Agreements for the Labor Cost Subsidy and Production Cash Burn
Support are expected to result in additional expense of between
$300 million and $400 million annually beginning in
2008 through 2015, which will be treated as a period cost and
expensed as incurred as part of Automotive cost of sales. Due to
the uncertainties surrounding Delphis ability to emerge
from bankruptcy it is reasonably possible that additional losses
could arise in the future, but we currently are unable to
estimate the amount or range of such losses, if any.
|
|
|
Benefit
Guarantees Related to Divested Plants
|
We have entered into various guarantees regarding benefits for
our former employees at two previously divested plants that
manufacture component parts whose results continue to be
included in our consolidated financial statements in accordance
with FASB Interpretation (FIN) No. 46(R),
Consolidation of Variable Interest Entities
(FIN No. 46(R)). For these divested plants, we entered
into agreements with both of the purchasers to indemnify, defend
and hold each purchaser harmless for any liabilities arising out
of the divested plants and with the UAW guaranteeing certain
postretirement health care benefits and payment of
postemployment benefits.
In 2007, we recognized favorable adjustments of $44 million
related to these plant closures, in addition to a
$38 million curtailment gain with respect to OPEB.
Note 10. Income
Taxes
Under Accounting Principles Board Opinion No. 28,
Interim Financial Reporting (APB No. 28), we
are required to adjust our effective tax rate each quarter to be
consistent with the estimated annual effective tax rate. We are
also required to record the
20
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
tax impact of certain discrete items, unusual or infrequently
occurring, including changes in judgment about valuation
allowances and effects of changes in tax laws or rates, in the
interim period in which they occur. In addition, jurisdictions
with a projected loss for the year or a
year-to-date
loss where no tax benefit can be recognized are excluded from
the estimated annual effective tax rate. The impact of such an
exclusion could result in a higher or lower effective tax rate
during a particular quarter, based upon the mix and timing of
actual earnings versus annual projections.
Pursuant to SFAS No. 109, valuation allowances have
been established for deferred tax assets based on a more
likely than not threshold. Our ability to realize our
deferred tax assets depends on our ability to generate
sufficient taxable income within the carryback or carryforward
periods provided for in the tax law for each applicable tax
jurisdiction. We have considered the following possible sources
of taxable income when assessing the realization of our deferred
tax assets:
|
|
|
|
|
Future reversals of existing taxable temporary differences;
|
|
|
Future taxable income exclusive of reversing temporary
differences and carryforwards;
|
|
|
Taxable income in prior carryback years; and
|
|
|
Tax-planning strategies.
|
Pursuant to SFAS No. 109, concluding that a valuation
allowance is not required is difficult when there is significant
negative evidence which is objective and verifiable, such as
cumulative losses in recent years. We utilize a rolling three
years of actual and current year anticipated results as our
primary measure of our cumulative losses in recent years.
However, because a substantial portion of those cumulative
losses related to various non-recurring matters and the
implementation of our North American Turnaround Plan, we
adjusted those three-year cumulative results for the effect of
these items. The analysis performed in the three months ended
September 30, 2007 and our current analysis indicates that
in the United States, Canada, Germany and the United Kingdom, we
have cumulative three year losses on an adjusted basis. In
Spain, we anticipate being in a cumulative three-year loss
position in the near-term. This is considered significant
negative evidence which is objective and verifiable and
therefore, difficult to overcome. In addition, as discussed in
Near-Term Market Challenges our near-term financial
outlook in these jurisdictions remains challenging. Accordingly,
in the three months ended September 30, 2007, we concluded
that the objectively verifiable negative evidence of our recent
historical losses combined with our challenging near-term
outlook out-weighed other factors and that it is more likely
than not that we will not generate taxable income to realize our
net deferred tax assets, in whole or in part in these
jurisdictions. Although our three year adjusted cumulative loss
in the United States at March 31, 2008 has decreased
from that at December 31, 2007, we continue to believe this
conclusion is appropriate. As it relates to our assessment in
the United States, many factors in our evaluation are not within
our control, particularly:
|
|
|
|
|
The possibility for continued or increasing price competition in
the highly competitive U.S. market;
|
|
|
Continued high fuel prices and the possible effect that may have
on consumer preferences related to our most profitable products,
fullsize trucks and utility vehicles;
|
|
|
Uncertainty over the effect on our cost structure from more
stringent U.S. fuel economy and global emissions standards which
may require us to sell higher volumes of alternative fuel
vehicles across our portfolio;
|
|
|
Uncertainty as to the future operating results of GMACs
ResCap mortgage business; and
|
|
|
Acceleration of tax deductions for OPEB liabilities as compared
to prior expectations due to changes associated with the
Settlement Agreement.
|
We recorded full valuation allowances against our net deferred
tax assets in the United States, Canada and Germany in the three
months ended September 30, 2007 and in Spain and the United
Kingdom in the three months ended March 31, 2008. With
regard to the United States, Canada and Germany we continue to
believe that full valuation allowances are needed against our
net deferred tax assets in these tax jurisdictions.
If, in the future, we generate taxable income in the United
States, Canada, Germany, the United Kingdom and Spain on a
sustained basis, our conclusion regarding the need for full
valuation allowances in these tax jurisdictions could change in
the future, resulting in the reversal of some or all of such
valuation allowances in the future. If our U.S., Canadian,
German, United
21
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Kingdom or Spanish operations generate taxable income prior to
reaching profitability on a sustained basis, we would reverse a
portion of the valuation allowance related to the corresponding
realized tax benefit for that period, without changing our
conclusions on the need for a full valuation allowance against
the remaining net deferred tax assets.
In the three months ended March 31, 2008, we recognized
income tax expense on Loss from continuing operations before
income taxes, equity income and minority interests due to:
(1) the effect of valuation allowances totaling
$394 million recorded against our net deferred tax assets
in the United Kingdom of $170 million and Spain of
$224 million, which is discussed in more detail below; and
(2) the impact of no longer recording tax benefits for
losses incurred in the United States, Canada, Germany and
Brazil, unless offset by pretax income from other than
continuing operations, based on the valuation allowances
established in the three months ended September 30, 2007,
as disclosed in our 2007
10-K.
In the three months ended March 31, 2008, we determined
that it was more likely than not that we would not realize our
net deferred tax assets, in whole or in part, in Spain and the
United Kingdom and recorded full valuation allowances totaling
$394 million against our net deferred tax assets in these
tax jurisdictions. The following summarizes the significant
changes occurring in the three months ended March 31, 2008,
which resulted in our decision to record these full valuation
allowances.
In the United Kingdom, we are in a three-year adjusted
cumulative loss position and our near-term and mid-term
financial outlook for automotive market conditions is more
challenging than we believed in the three months ended
December 31, 2007. Our outlook deteriorated based on our
projections of the combined effects of the challenging foreign
exchange environment and unfavorable commodity prices.
Additionally, we have increased our estimate of the potential
costs that may arise from the regulatory and tax environment
relating to carbon dioxide
(CO2)
emissions in the European Union, including legislation enacted
or announced during 2008.
In Spain, although we are not currently in a three-year adjusted
cumulative loss position our near-term and mid-term financial
outlook deteriorated significantly in the three months ended
March 31, 2008 such that we anticipate being in a
three-year adjusted cumulative loss position in the near- and
mid-term. In Spain, as in the United Kingdom, we are unfavorably
affected by the combined effects of the foreign exchange
environment and commodity prices, including our estimate of the
potential costs that may arise from the regulatory and tax
environment relating to
CO2
emissions.
Based on our analysis, we concluded that it was more likely than
not that we would not realize our net deferred tax assets, in
whole or in part, in the United Kingdom and Spain and recorded
full valuation allowances.
As of March 31, 2008 and December 31, 2007, the amount
of gross unrecognized tax benefits before valuation allowances
and the amount that would favorably affect the effective income
tax rate in future periods after valuation allowances were
$2.8 billion and $0.1 billion, respectively. As of
March 31, 2007, the amount of gross unrecognized tax
benefits before valuation allowances and the amount that would
favorably affect the effective income tax rate in future periods
after valuation allowances were $2.7 billion and
$2.1 billion, respectively. These amounts consider the
guidance in
FIN No. 48-1,
Definition of Settlement in FASB Interpretation
No. 48
(FIN No. 48-1).
As of March 31, 2008, $2.3 billion of the liability
for uncertain tax positions is netted against deferred tax
assets relating to the same tax jurisdictions. The remainder of
the liability for uncertain tax positions is classified as a
non-current liability.
We file income tax returns in multiple jurisdictions and are
subject to examination by taxing authorities throughout the
world. In the U.S., our federal income tax returns for 2001
through 2003 have been reviewed by the Internal Revenue Service,
and except for one transfer pricing matter, it is likely that
this examination will conclude in 2008. We have submitted
requests for Competent Authority assistance on the transfer
pricing matter. The Internal Revenue Service is currently
reviewing our 2004 through 2006 federal income tax returns. In
addition, our previously filed tax returns are currently under
review in Argentina, Australia, Belgium, Canada, China, Ecuador,
France, Germany, Greece, India, Indonesia, Italy, New Zealand,
Portugal, Russia, Spain, Taiwan, Thailand, Turkey, the United
Kingdom and Venezuela. We have received notice that tax audits
will commence in Japan and Korea. We believe that certain tax
audits in Mexico and the United Kingdom will conclude during
2008. As of
22
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2008 it is not possible to reasonably estimate
the expected change to the total amount of unrecognized tax
benefits over the next twelve months.
We have open tax years from primarily 1999 to 2006 with various
significant taxing jurisdictions including the U.S., Australia,
Canada, Mexico, Germany, the United Kingdom, Korea and Brazil.
These open years contain matters that could be subject to
differing interpretations of applicable tax laws and regulations
as they relate to the amount, timing or inclusion of revenue and
expenses or the sustainability of income tax credits for a given
audit cycle. We have recorded a tax benefit only for those
positions that meet the more-likely-than-not standard.
Note 11. Fair
Value Measurements
In September 2006, the FASB issued SFAS No. 157 and in
February 2007, issued SFAS No. 159. Both standards
address aspects of the expanding application of fair value
accounting. Effective January 1, 2008, we adopted
SFAS No. 157 and SFAS No. 159. Pursuant to
the provisions of FSP
No. 157-2,
we have decided to defer adoption of SFAS No. 157 for
one year for nonfinancial assets and nonfinancial liabilities
that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. There was no adjustment to
Accumulated deficit as a result of our adoption of
SFAS No. 157. SFAS No. 159 permits an entity
to measure certain financial assets and financial liabilities at
fair value that were not previously required to be measured at
fair value. We have not elected to measure any financial assets
or financial liabilities at fair value which were not previously
required to be measured at fair value.
SFAS No. 157 provides for the following:
|
|
|
|
|
Defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date,
and establishes a framework for measuring fair value;
|
|
|
|
Establishes a three-level hierarchy for fair value measurements
based upon the observability of inputs to the valuation of an
asset or liability as of the measurement date;
|
|
|
|
Requires consideration of our nonperformance risk when valuing
liabilities; and
|
|
|
|
Expands disclosures about instruments measured at fair value.
|
SFAS No. 157 also establishes a three-level valuation
hierarchy for fair value measurements. These valuation
techniques are based upon observable and unobservable inputs.
Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect our market
assumptions. These two types of inputs create the following fair
value hierarchy:
|
|
|
|
|
Level 1 Quoted prices for identical
instruments in active markets;
|
|
|
|
Level 2 Quoted prices for similar
instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; and
model-derived valuations whose significant inputs are
observable: and
|
|
|
|
Level 3 Instruments whose significant inputs
are unobservable.
|
Following is a description of the valuation methodologies we
used for instruments measured at fair value, as well as the
general classification of such instruments pursuant to the
valuation hierarchy.
We classify our securities within Level 1 of the valuation
hierarchy where quoted prices are available in an active market.
Level 1 securities include exchange-traded equities. If
quoted market prices are not available, we determine the fair
values of our securities using pricing models, quoted prices of
securities with similar characteristics or discounted cash flow
models. These models are primarily industry-standard models that
consider various assumptions, including time value and yield
curve as well as other relevant economic measures. Examples of
such securities, which we would generally classify within
Level 2 of the
23
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
valuation hierarchy, include U. S. government and agency
securities, certificates of deposit, commercial paper, and
corporate debt securities. In certain cases where there is
limited activity or less observability to inputs to the
valuation, we classify our securities within Level 3 of the
valuation hierarchy. Inputs to the Level 3 security fair
value measurements consider various assumptions, including time
value, yield curve, prepayment speeds, default rates, loss
severity, current market and contractual prices for underlying
financial instruments as well as other relevant economic
measures. Securities classified within Level 3 include
certain mortgage-backed securities, certain corporate debt
securities and other securities.
The majority of our derivatives are traded on the
over-the-counter market and are valued using internal models
that use as their basis readily observable market inputs, such
as time value, forward interest rates, volatility factors, and
current and forward market prices for commodities and foreign
exchange rates. We generally classify these instruments within
Level 2 of the valuation hierarchy. Such derivatives
include interest rate swaps, cross currency swaps, foreign
currency derivatives and commodity derivatives. We classify
derivative contracts that are valued based upon models with
significant unobservable market inputs as Level 3 of the
valuation hierarchy. Examples include certain long-dated
commodity purchase contracts and interest rate derivatives with
notional amounts that fluctuate over time. Models for these fair
value measurements include unobservable inputs based on
estimated forward rates and prepayment speeds.
SFAS No. 157 requires that the valuation of derivative
liabilities must take into account the companys own
nonperformance risk. Effective January 1, 2008, we updated
our derivative liability valuation methodology to consider our
own nonperformance risk as observed through the credit default
swap market and bond market.
24
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the financial instruments measured
at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements on a Recurring Basis as of March 31,
2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
430
|
|
|
$
|
23
|
|
|
$
|
|
|
|
$
|
453
|
|
United States government and agency
|
|
|
|
|
|
|
1,287
|
|
|
|
|
|
|
|
1,287
|
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
283
|
|
|
|
283
|
|
Certificates of deposit
|
|
|
|
|
|
|
5,268
|
|
|
|
|
|
|
|
5,268
|
|
Commercial paper
|
|
|
|
|
|
|
4,410
|
|
|
|
|
|
|
|
4,410
|
|
Corporate debt
|
|
|
|
|
|
|
602
|
|
|
|
51
|
|
|
|
653
|
|
Other
|
|
|
|
|
|
|
29
|
|
|
|
221
|
|
|
|
250
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
199
|
|
Interest rate swaps
|
|
|
|
|
|
|
219
|
|
|
|
11
|
|
|
|
230
|
|
Foreign currency derivatives
|
|
|
|
|
|
|
968
|
|
|
|
|
|
|
|
968
|
|
Commodity derivatives
|
|
|
|
|
|
|
1,035
|
|
|
|
354
|
|
|
|
1,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
430
|
|
|
$
|
14,040
|
|
|
$
|
920
|
|
|
$
|
15,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swaps
|
|
$
|
|
|
|
$
|
55
|
|
|
$
|
|
|
|
$
|
55
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
11
|
|
Foreign currency derivatives
|
|
|
|
|
|
|
1,528
|
|
|
|
|
|
|
|
1,528
|
|
Commodity derivatives
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
|
|
|
$
|
1,799
|
|
|
$
|
11
|
|
|
$
|
1,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below includes the activity in the balance sheet
accounts for financial instruments classified within
Level 3 of the valuation hierarchy. When a determination is
made to classify a financial instrument within Level 3, the
determination is based upon the significance of the unobservable
inputs to the overall fair value measurement. Level 3
financial instruments typically include, in addition to the
unobservable or Level 3 components, observable components
which are validated to external sources.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Financial Assets and Liabilities
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases,
|
|
|
Transfer in
|
|
|
|
|
|
|
January 1,
|
|
|
Gains/(Losses)
|
|
|
Issuances and
|
|
|
and/or
out of
|
|
|
March 31,
|
|
|
|
2008
|
|
|
Realized
|
|
|
Unrealized
|
|
|
Settlements
|
|
|
Level 3
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
$
|
283
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
283
|
|
Interest rate swaps net
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
|
|
257
|
|
|
|
|
|
|
|
119
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
354
|
|
Corporate debt securities
|
|
|
28
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
Other securities
|
|
|
258
|
|
|
|
(3
|
)
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Assets
|
|
$
|
828
|
|
|
$
|
(3
|
)
|
|
$
|
118
|
|
|
$
|
(34
|
)
|
|
$
|
|
|
|
$
|
909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized securities holding gains and losses are excluded from
earnings and reported in Other comprehensive income until
realized. Gains and losses are not realized until an instrument
is settled or sold. On a monthly basis, we evaluate whether
25
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
losses related to investments in debt and equity securities are
temporary in nature. Factors considered in determining whether a
loss is temporary include the length of time and extent to which
the fair value has been below cost, the financial condition and
near-term prospects of the issuer and our ability and intent to
hold the investment for a period of time sufficient to allow for
any anticipated recovery. If losses are determined to be other
than temporary, the loss is recognized and the investment
carrying amount is adjusted to a revised fair value. Included in
Unrealized Gains/(Losses) on Other securities is an
other-than-temporary
impairment of $17 million. Although recognition of
impairment losses represents a decline in fair value that is not
considered to be temporary, those losses may still be recovered
in the future and are therefore not realized unless settled.
Included in Unrealized Gains/(Losses) on Commodity derivatives
is an unrealized gain related to changes in underlying precious
and base metal prices recorded in Automotive cost of sales. The
amount of realized losses related to Other securities has been
recorded in Automotive interest and other non-operating income,
net.
The following table presents the financial instruments measured
at fair value on a nonrecurring basis in periods subsequent to
initial recognition in the three months ended March 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
March 31,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total Losses
|
|
|
|
(Dollars in millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in GMAC Common Membership Interests
|
|
$
|
5,391
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,391
|
|
|
$
|
(1,310
|
)
|
Investment in GMAC Preferred Membership Interests
|
|
|
902
|
|
|
|
|
|
|
|
|
|
|
|
902
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,293
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,293
|
|
|
$
|
(1,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the provisions of APB No. 18, The
Equity Method of Accounting for Investments in Common
Stock (APB No. 18), our investment in GMAC Common
Membership Interests, with a pre-impairment carrying amount of
$6.7 billion as of March 31, 2008, was written down to
its estimated fair value of $5.4 billion as of
March 31, 2008, after considering the impact of recording
our share of GMACs results for the three months ended
March 31, 2008. The resulting impairment charge of
$1.3 billion was recorded in Equity in loss of GMAC LLC.
Additionally, our investment in GMAC Preferred Membership
Interests, with a pre-impairment carrying amount of
$1.0 billion as of March 31, 2008, was written down to
its estimated fair value of $902 million as of
March 31, 2008. The resulting impairment charge of
$142 million was recorded in Automotive interest income and
other non-operating income, net.
In order to determine the fair value of our investment in GMAC
Common Membership Interests, we first determined a fair value of
GMAC by applying various valuation techniques to its significant
business units, and then applied our 49% equity interest to the
resulting fair value. Our determination of the fair value of
GMAC encompassed applying valuation techniques, which included
Level 3 inputs, to GMACs significant business units
as follows:
|
|
|
|
|
Auto Finance We obtained industry data, such as
equity and earnings ratios for other industry participants, and
developed average multiples for these companies based upon a
comparison of their businesses to Auto Finance.
|
|
|
|
Insurance We developed a peer group, based upon such
factors as equity and earnings ratios and developed average
multiples for these companies.
|
|
|
|
Residential Capital, LLC We obtained industry data
for an industry participant who we believe to be comparable, and
also utilized the publicly announced acquisition price of an
industry participant who we believe to be comparable.
|
26
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
Commercial Finance Group We obtained industry data,
such as price and earnings ratios, for other industry
participants, and developed average multiples for these
companies based upon a comparison of their businesses to the
Commercial Finance Group.
|
In order to determine the fair value of our investment in GMAC
Preferred Membership Interests, we determined a fair value by
applying valuation techniques, which included Level 3
inputs, to various characteristics of the GMAC Preferred
Membership Interests as follows:
|
|
|
|
|
Utilizing information as to the pricing on similar investments
and changes in yields of other GMAC securities in the three
months ended March 31, 2008, we developed a discount rate
for the valuation.
|
|
|
|
Utilizing assumptions as to the receipt of dividends on the GMAC
Preferred Membership Interests, the expected call date and a
discounted cash flow model, we developed a present value of the
related cash flows.
|
Note 12. GMNA
Postemployment Benefit Costs
As previously discussed in our 2007
10-K, the
majority of our hourly employees working within GMNA are
represented by various labor unions. We have specific labor
contracts with each union, some of which require us to pay idled
employees certain wage and benefit costs. Costs to idle,
consolidate or close facilities and provide postemployment
benefits to employees idled on an other than temporary basis are
accrued based on our best estimate of the wage and benefit costs
to be incurred. Costs related to the idling of employees that
are expected to be temporary are expensed as incurred. We review
the adequacy and continuing need for these liabilities on a
quarterly basis in conjunction with our quarterly production and
labor forecasts. As a result of the 2008 Special Attrition
Programs in the three months ended March 31, 2008, we
recorded $48 million of additional postemployment benefit
costs in accordance with SFAS No. 112. Refer to
Note 8.
The liability for postemployment benefit costs as of
March 31, 2008 reflects estimated future wages and benefits
for 8,000 employees primarily located at idled facilities and
facilities to be idled and 3,600 employees subject to the terms
of the various attrition programs. As of December 31, 2007,
the postemployment benefit costs liability reflects estimated
future wages and benefits related to 8,900 employees primarily
located at idled facilities and facilities to be idled as a
result of previous GMNA plant idling activities and 3,800
employees subject to the terms of the attrition programs. The
liability for postemployment benefit costs as of March 31,
2007 reflects estimated future wages and benefits related to
7,500 employees primarily located at idled facilities and
facilities to be idled and 5,100 employees subject to the terms
of the attrition programs.
Activity for postemployment benefit costs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Year
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Beginning balance
|
|
$
|
858
|
|
|
$
|
1,269
|
|
|
$
|
1,269
|
|
Additions
|
|
|
48
|
|
|
|
364
|
|
|
|
|
|
Interest accretion
|
|
|
7
|
|
|
|
21
|
|
|
|
4
|
|
Payments
|
|
|
(152
|
)
|
|
|
(792
|
)
|
|
|
(376
|
)
|
Adjustments
|
|
|
(31
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
730
|
|
|
$
|
858
|
|
|
$
|
893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13. Restructuring
and Other Initiatives
We have executed various restructuring and other initiatives and
may execute additional initiatives in the future to align
manufacturing capacity to prevailing global automotive
production and to improve the utilization of remaining
facilities. Such
27
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
initiatives may include plant closings, consolidation of
operations and functions, production relocations or reductions
and voluntary and involuntary employee separation programs.
Estimates of restructuring and other initiative charges are
based on information available at the time such charges are
recorded. Due to the inherent uncertainty involved, actual
amounts paid for such activities may differ from amounts
initially recorded. Accordingly, we may record revisions of
previous estimates by adjusting previously established reserves.
The following table summarizes our restructuring and other
initiative charges:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Automotive Operations:
|
|
|
|
|
|
|
|
|
GMNA
|
|
$
|
1
|
|
|
$
|
2
|
|
GME
|
|
|
123
|
|
|
|
57
|
|
GMLAAM
|
|
|
3
|
|
|
|
|
|
GMAP
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Total Automotive Operations
|
|
$
|
127
|
|
|
$
|
99
|
|
|
|
|
|
|
|
|
|
|
Refer to Note 12 for further discussion of postemployment
benefits costs related to hourly employees of GMNA, and
Note 8 for pension and other postretirement benefit charges
related to our hourly employee separation initiatives.
The following table details the components of our restructuring
charges by segment in the three months ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
GMLAAM
|
|
|
GMAP
|
|
|
Corporate and Other
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Separation costs
|
|
$
|
1
|
|
|
$
|
123
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
127
|
|
Contract termination costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
1
|
|
|
$
|
123
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMNA recorded restructuring charges of $1 million for a
U.S. salaried severance program, which allows involuntarily
terminated employees to receive ongoing wages and benefits for
no longer than 12 months.
GME recorded charges of $123 million for separation
programs. These charges were related to the following
restructuring initiatives:
|
|
|
|
|
Charges of $73 million, primarily related to early
retirement programs, along with additional minor separations
under other current programs in Germany. Approximately 4,600
employees will leave under early retirement programs in Germany
through 2013. The total remaining cost for the early retirements
will be recognized over the remaining required service period of
the employees.
|
|
|
|
In the three months ended June 30, 2007, we announced
additional separation programs at the Antwerp, Belgium facility.
These programs impact 1,900 employees, who will leave through
July 2008, and have total estimated costs of $440 million.
Of this amount, we recorded $45 million in the three months
ended March 31, 2008 and $353 million in 2007 in
connection with these separation programs. The remaining cost of
the Antwerp, Belgium program will be recognized over the
remaining required service period of the employees through July
2008.
|
28
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
The remaining $5 million in separation charges relates to
initiatives announced in 2006. These include separations in
Sweden and the United Kingdom.
|
GMLAAM recorded restructuring charges of $3 million for
separation programs in South Africa and Chile.
The following table details the components of our restructuring
charges by segment in the three months ended March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
GMLAAM
|
|
|
GMAP
|
|
|
Corporate and Other
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Separation costs
|
|
$
|
2
|
|
|
$
|
57
|
|
|
$
|
|
|
|
$
|
40
|
|
|
$
|
|
|
|
$
|
99
|
|
Contract termination costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
2
|
|
|
$
|
57
|
|
|
$
|
|
|
|
$
|
40
|
|
|
$
|
|
|
|
$
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMNA recorded restructuring charges of $2 million for a
U.S. salaried severance program, which allows involuntarily
terminated employees to receive ongoing wages and benefits for
no longer than 12 months.
GME recorded charges of $57 million for separation
programs. These charges were related to the following
restructuring initiatives:
|
|
|
|
|
Charges of $43 million, primarily related to early
retirement programs, along with additional minor separations
under other current programs in Germany as described in more
detail above.
|
|
|
|
The remaining $14 million in separation charges relates to
initiatives announced in 2006 as described above.
|
GMAP recorded charges of $40 million for a voluntary
employee separation program at GM Holden, Ltd (Holden), which
was announced in the three months ended March 31, 2007.
This initiative reduces the facilitys workforce by 650
employees as a result of increased plant operational efficiency.
Note 14. Loss
Per Share
Basic and diluted loss per share have been computed by dividing
Loss from continuing operations by the weighted average number
of shares outstanding during the period.
The amounts used in the basic and diluted loss per share
computations are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions, except per share amounts)
|
|
|
Loss from continuing operations
|
|
$
|
(3,251
|
)
|
|
$
|
(42
|
)
|
Weighted average number of shares outstanding
|
|
|
566
|
|
|
|
566
|
|
Basic and diluted loss per share from continuing operations
|
|
$
|
(5.74
|
)
|
|
$
|
(0.07
|
)
|
Due to net losses from continuing operations for all periods
presented, the assumed exercise of stock options had an
antidilutive effect and therefore was excluded from the
computation of diluted loss per share. The number of such
options not
29
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
included in the computation of diluted loss per share was
102 million and 108 million in the three months ended
March 31, 2008 and 2007, respectively.
No shares potentially issuable to satisfy the
in-the-money
amount of the convertible debentures have been included in
diluted earnings per share for the three months ended
March 31, 2008 and 2007 as our various series of
convertible debentures were
not-in-the-money.
In March 2007, Series A convertible debentures in the
amount of $1.1 billion were put to us and settled entirely
in cash. As of March 31, 2008 and 2007, the principal
amount of outstanding Series A convertible debentures was
$39 million.
Note 15. Transactions
with GMAC
We have entered into various operating and financing
arrangements with GMAC as more fully described in our 2007
10-K. The
following describes the financial statement effects as of
March 31, 2008, December 31, 2007 and March 31,
2007 and for the periods ended March 31, 2008 and 2007
which are included in our condensed consolidated financial
statements.
|
|
|
Marketing
Incentives and Operating Lease Residuals
|
As of March 31, 2008, December 31, 2007 and
March 31, 2007, the maximum additional amount that could be
paid by us under the U.S. residual support program was
$1.2 billion, $1.1 billion and $0.4 billion,
respectively. As of March 31, 2008, December 31, 2007
and March 31, 2007, we had total reserves recorded of
$148 million, $118 million and $12 million,
respectively, based on our estimated required future payments to
GMAC associated with the maximum additional amount that we could
be obligated to pay to GMAC under the U.S. residual support
program.
As of March 31, 2008, December 31, 2007 and
March 31, 2007, the maximum amount guaranteed under the
U.S. risk sharing arrangement was $1.3 billion,
$1.1 billion and $0.6 billion, respectively. As of
March 31, 2008, December 31, 2007 and March 31,
2007, we had total reserves recorded of $142 million,
$144 million and $76 million, respectively, based on
our estimated future payments to GMAC associated with the
maximum amount guaranteed under the U.S. risk sharing
arrangement.
We paid $915 million and $870 million to GMAC
primarily related to our U.S. marketing incentive and operating
lease residual programs in the three months ended March 31,
2008 and 2007, respectively.
|
|
|
Equipment
on Operating Leases Transferred to Us by GMAC
|
In November 2006, GMAC transferred equipment on operating leases
to us, along with related debt and other assets. GMAC retained
an investment in a note, which had a balance of
$35 million, $35 million and $446 million as of
March 31, 2008, December 31, 2007 and March 31,
2007, respectively, and is secured by the equipment on operating
leases transferred.
We recognized exclusivity fee revenue of $26 million in the
three months ended March 31, 2008 and 2007.
The amount of royalty income recognized in the U.S. in the three
months ended March 31, 2008 and 2007 was $4 million.
30
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Balance
Sheet
A summary of the balance sheet effects of transactions with GMAC
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable (a)
|
|
$
|
1,726
|
|
|
$
|
1,285
|
|
|
$
|
1,337
|
|
Other assets (b)
|
|
$
|
26
|
|
|
$
|
30
|
|
|
$
|
39
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable (c)
|
|
$
|
666
|
|
|
$
|
548
|
|
|
$
|
679
|
|
Short-term borrowings and current portion of long-term
debt (d)
|
|
$
|
2,823
|
|
|
$
|
2,802
|
|
|
$
|
3,338
|
|
Accrued expenses (e)
|
|
$
|
15
|
|
|
$
|
50
|
|
|
$
|
63
|
|
Long-term debt (f)
|
|
$
|
116
|
|
|
$
|
119
|
|
|
$
|
411
|
|
|
|
|
(a) |
|
Represents wholesale settlements due from GMAC, as well as
amounts owed by GMAC with respect to the Equipment on operating
leases, net transferred to us, and the exclusivity fee and
royalty arrangement. |
(b) |
|
Primarily represents distributions due from GMAC on our
Preferred Membership Interests. |
(c) |
|
Primarily represents amounts accrued for interest rate support,
capitalized cost reduction, residual support and lease
pull-ahead programs and the risk sharing arrangement. |
(d) |
|
Represents wholesale financing, sales of receivable transactions
and the short-term portion of term loans provided to certain
dealerships wholly-owned by us or in which we have an equity
interest. In addition, it includes borrowing arrangements with
Adam Opel AG and arrangements related to GMACs funding of
our company-owned vehicles, rental car vehicles awaiting sale at
auction and funding of the sale of our vehicles in which we
retain title while the vehicles are consigned to GMAC or
dealers, primarily in the United Kingdom. Our financing remains
outstanding until the title is transferred to the dealers. This
amount also includes the short-term portion of a note provided
to our wholly-owned subsidiary holding debt related to the
Equipment on operating leases, net transferred to us from GMAC. |
(e) |
|
Primarily represents interest accrued on the transactions in
(d) above. |
(f) |
|
Primarily represents the long-term portion of term loans and a
note payable with respect to the Equipment on operating leases,
net transferred to us mentioned in (d) above. |
Statement
of Operations
A summary of the income statement effects of transactions with
GMAC is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Net sales and revenues (a)
|
|
$
|
(703
|
)
|
|
$
|
(870
|
)
|
Cost of sales and other expenses (b)
|
|
$
|
218
|
|
|
$
|
125
|
|
Automotive interest income and other non-operating income,
net (c)
|
|
$
|
102
|
|
|
$
|
108
|
|
Interest expense (d)
|
|
$
|
56
|
|
|
$
|
80
|
|
Servicing expense (e)
|
|
$
|
28
|
|
|
$
|
50
|
|
Derivative gains (f)
|
|
$
|
5
|
|
|
$
|
5
|
|
|
|
|
(a) |
|
Primarily represents the reduction in net sales and revenues for
marketing incentives on vehicles which are sold, or anticipated
to be sold, to customers or dealers and financed by GMAC in the
U.S. This includes the estimated amount of residual support
accrued under the residual support and risk sharing programs,
rate support under the interest rate support |
31
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
programs, operating lease and finance receivable capitalized
cost reduction incentives paid to GMAC to reduce the capitalized
cost in automotive lease contracts and retail automotive
contracts, and costs under lease pull-ahead programs. This
amount is offset by net sales for vehicles sold to GMAC for
employee and governmental lease programs and third party resale
purposes. |
(b) |
|
Primarily represents cost of sales on the sale of vehicles to
GMAC for employee and governmental lease programs and third
party resale purposes. Also includes miscellaneous expenses on
services performed for us by GMAC. |
(c) |
|
Represents income on our Preferred Membership Interests in GMAC,
exclusivity and royalty fee income and reimbursements by GMAC
for certain services we provided. Included in this amount is
rental income related to GMACs primary executive and
administrative offices located in the Renaissance Center in
Detroit, Michigan. The lease agreement expires on
November 30, 2016. |
(d) |
|
Represents interest incurred on term loans, notes payable and
wholesale settlements. |
(e) |
|
Represents servicing fees paid to GMAC on the automotive leases
we retained. |
(f) |
|
Represents gains recognized in connection with a derivative
transaction entered into with GMAC as the counterparty. |
Note 16. Segment
Reporting
We operate in two businesses, consisting of GM Automotive (or
GMA) and FIO. Our four automotive segments consist of GMNA, GME,
GMLAAM and GMAP. We manufacture our cars and trucks in 35
countries under the following brands: Buick, Cadillac,
Chevrolet, GMC, GM Daewoo, Holden, HUMMER, Opel, Pontiac, Saab,
Saturn, Vauxhall and Wuling. Our FIO business consists of our
49% share of GMACs operating results, which we account for
under the equity method, and Other Financing, which is comprised
primarily of two special purpose entities holding automotive
leases previously owned by GMAC and its affiliates that we
retained, and the elimination of inter-segment transactions
between GM Automotive and Corporate and Other.
Corporate and Other includes the elimination of inter-segment
transactions, certain non-segment specific revenues and
expenses, including costs related to postretirement benefits for
Delphi and other retirees and certain corporate activities.
Amounts presented in Automotive sales, Interest income and
Interest expense in the tables that follow principally relate to
the inter-segment transactions eliminated at Corporate and
Other. All inter-segment balances and transactions have been
eliminated in consolidation.
In the three months ended December 31, 2007, we changed our
measure of segment profitability from net income to income
before income taxes plus equity income, net of tax and minority
interests, net of tax. Amounts for the three months ended
March 31, 2007 have been revised to reflect these periods
on a comparable basis for the changes discussed above.
Additionally, 2007 amounts have been reclassified for the
retroactive effect of discontinued operations as discussed in
Note 3.
32
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMA
|
|
|
Total
|
|
|
Corporate
|
|
|
Excluding
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
GMLAAM
|
|
|
GMAP
|
|
|
Eliminations
|
|
|
GMA
|
|
|
&Other(a)
|
|
|
FIO
|
|
|
GMAC(c)
|
|
|
Financing(b)
|
|
|
FIO
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
As of and for the Three Months ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
24,006
|
|
|
$
|
9,232
|
|
|
$
|
4,666
|
|
|
$
|
4,221
|
|
|
$
|
|
|
|
$
|
42,125
|
|
|
$
|
|
|
|
$
|
42,125
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
42,125
|
|
Inter-segment
|
|
|
537
|
|
|
|
677
|
|
|
|
97
|
|
|
|
1,256
|
|
|
|
(2,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive sales
|
|
|
24,543
|
|
|
|
9,909
|
|
|
|
4,763
|
|
|
|
5,477
|
|
|
|
(2,567
|
)
|
|
|
42,125
|
|
|
|
|
|
|
|
42,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,125
|
|
Financial services and insurance revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
545
|
|
|
|
545
|
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
$
|
24,543
|
|
|
$
|
9,909
|
|
|
$
|
4,763
|
|
|
$
|
5,477
|
|
|
$
|
(2,567
|
)
|
|
$
|
42,125
|
|
|
$
|
|
|
|
$
|
42,125
|
|
|
$
|
|
|
|
$
|
545
|
|
|
$
|
545
|
|
|
$
|
42,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment
|
|
$
|
1,263
|
|
|
$
|
464
|
|
|
$
|
80
|
|
|
$
|
187
|
|
|
$
|
13
|
|
|
$
|
2,007
|
|
|
$
|
11
|
|
|
$
|
2,018
|
|
|
$
|
|
|
|
$
|
211
|
|
|
$
|
211
|
|
|
$
|
2,229
|
|
Equity in loss of GMAC LLC
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1,612
|
)
|
|
$
|
|
|
|
$
|
(1,612
|
)
|
|
$
|
(1,612
|
)
|
Interest income
|
|
$
|
271
|
|
|
$
|
173
|
|
|
$
|
72
|
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
545
|
|
|
$
|
(285
|
)
|
|
$
|
260
|
|
|
$
|
|
|
|
$
|
22
|
|
|
$
|
22
|
|
|
$
|
282
|
|
Interest expense
|
|
$
|
634
|
|
|
$
|
216
|
|
|
$
|
55
|
|
|
$
|
53
|
|
|
$
|
3
|
|
|
$
|
961
|
|
|
$
|
(187
|
)
|
|
$
|
774
|
|
|
$
|
|
|
|
$
|
48
|
|
|
$
|
48
|
|
|
$
|
822
|
|
Income (loss) from continuing operations before income taxes,
equity income and minority interest
|
|
$
|
(795
|
)
|
|
$
|
69
|
|
|
$
|
518
|
|
|
$
|
202
|
|
|
$
|
2
|
|
|
$
|
(4
|
)
|
|
$
|
(1,029
|
)
|
|
$
|
(1,033
|
)
|
|
$
|
(1,728
|
)
|
|
$
|
104
|
|
|
$
|
(1,624
|
)
|
|
$
|
(2,657
|
)
|
Equity income (loss), net of tax
|
|
|
(20
|
)
|
|
|
13
|
|
|
|
5
|
|
|
|
134
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Minority interests, net of tax
|
|
|
3
|
|
|
|
(7
|
)
|
|
|
(6
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
(812
|
)
|
|
$
|
75
|
|
|
$
|
517
|
|
|
$
|
286
|
|
|
$
|
2
|
|
|
$
|
68
|
|
|
$
|
(1,029
|
)
|
|
$
|
(961
|
)
|
|
$
|
(1,728
|
)
|
|
$
|
91
|
|
|
$
|
(1,637
|
)
|
|
$
|
(2,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in nonconsolidated affiliates
|
|
$
|
205
|
|
|
$
|
419
|
|
|
$
|
43
|
|
|
$
|
1,228
|
|
|
$
|
|
|
|
$
|
1,895
|
|
|
$
|
36
|
|
|
$
|
1,931
|
|
|
$
|
5,391
|
|
|
$
|
|
|
|
$
|
5,391
|
|
|
$
|
7,322
|
|
Total assets
|
|
$
|
91,873
|
|
|
$
|
29,023
|
|
|
$
|
8,251
|
|
|
$
|
15,085
|
|
|
$
|
(11,847
|
)
|
|
$
|
132,385
|
|
|
$
|
(654
|
)
|
|
$
|
131,731
|
|
|
$
|
10,567
|
|
|
$
|
3,443
|
|
|
$
|
14,010
|
|
|
$
|
145,741
|
|
Goodwill
|
|
$
|
168
|
|
|
$
|
608
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
776
|
|
|
$
|
|
|
|
$
|
776
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
776
|
|
Expenditures for property
|
|
$
|
1,245
|
|
|
$
|
347
|
|
|
$
|
77
|
|
|
$
|
235
|
|
|
$
|
25
|
|
|
$
|
1,929
|
|
|
$
|
16
|
|
|
$
|
1,945
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,945
|
|
33
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMA
|
|
Total
|
|
Corporate
|
|
Excluding
|
|
|
|
Other
|
|
Total
|
|
|
|
|
|
GMNA
|
|
GME
|
|
GMLAAM
|
|
GMAP
|
|
Eliminations
|
|
GMA
|
|
& Other(a)
|
|
FIO
|
|
GMAC(c)
|
|
Financing(b)
|
|
FIO
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
As of and for the Three Months ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
27,514
|
|
$
|
8,070
|
|
$
|
3,464
|
|
$
|
3,403
|
|
$
|
|
|
$
|
42,451
|
|
$
|
|
|
$
|
42,451
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
42,451
|
|
Inter-segment
|
|
|
543
|
|
|
401
|
|
|
113
|
|
|
1,165
|
|
|
(2,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive sales
|
|
|
28,057
|
|
|
8,471
|
|
|
3,577
|
|
|
4,568
|
|
|
(2,222
|
)
|
|
42,451
|
|
|
|
|
|
42,451
|
|
|
|
|
|
|
|
|
|
|
|
42,451
|
|
Financial services and insurance revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
936
|
|
|
936
|
|
|
936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
$
|
28,057
|
|
$
|
8,471
|
|
$
|
3,577
|
|
$
|
4,568
|
|
$
|
(2,222
|
)
|
$
|
42,451
|
|
$
|
|
|
$
|
42,451
|
|
$
|
|
|
$
|
936
|
|
$
|
936
|
|
$
|
43,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment
|
|
$
|
1,366
|
|
$
|
381
|
|
$
|
73
|
|
$
|
147
|
|
$
|
9
|
|
$
|
1,976
|
|
$
|
6
|
|
$
|
1,982
|
|
$
|
|
|
$
|
379
|
|
$
|
379
|
|
$
|
2,361
|
|
Equity in loss of GMAC LLC
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
(183
|
)
|
$
|
|
|
$
|
(183
|
)
|
$
|
(183
|
)
|
Interest income
|
|
$
|
253
|
|
$
|
155
|
|
$
|
26
|
|
$
|
34
|
|
$
|
|
|
$
|
468
|
|
$
|
(219
|
)
|
$
|
249
|
|
$
|
|
|
$
|
140
|
|
$
|
140
|
|
$
|
389
|
|
Interest expense
|
|
$
|
744
|
|
$
|
191
|
|
$
|
36
|
|
$
|
56
|
|
$
|
3
|
|
$
|
1,030
|
|
$
|
(231
|
)
|
$
|
799
|
|
$
|
|
|
$
|
248
|
|
$
|
248
|
|
$
|
1,047
|
|
Income (loss) from continuing operations before income taxes,
equity income and minority interests
|
|
$
|
(211
|
)
|
$
|
2
|
|
$
|
255
|
|
$
|
94
|
|
$
|
(7
|
)
|
$
|
133
|
|
$
|
(210
|
)
|
$
|
(77
|
)
|
$
|
(134
|
)
|
$
|
54
|
|
$
|
(80
|
)
|
$
|
(157
|
)
|
Equity income (loss), net of tax
|
|
|
13
|
|
|
8
|
|
|
6
|
|
|
127
|
|
|
|
|
|
154
|
|
|
2
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
156
|
|
Minority interests, net of tax
|
|
|
(10
|
)
|
|
(6
|
)
|
|
(7
|
)
|
|
(78
|
)
|
|
|
|
|
(101
|
)
|
|
(1
|
)
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
(208
|
)
|
$
|
4
|
|
$
|
254
|
|
$
|
143
|
|
$
|
(7
|
)
|
$
|
186
|
|
$
|
(209
|
)
|
$
|
(23
|
)
|
$
|
(134
|
)
|
$
|
54
|
|
$
|
(80
|
)
|
$
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
104
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
104
|
|
$
|
|
|
$
|
104
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
104
|
|
Investments in nonconsolidated affiliates
|
|
$
|
302
|
|
$
|
419
|
|
$
|
145
|
|
$
|
1,099
|
|
$
|
|
|
$
|
1,965
|
|
$
|
36
|
|
$
|
2,001
|
|
$
|
7,355
|
|
$
|
|
|
$
|
7,355
|
|
$
|
9,356
|
|
Total assets
|
|
$
|
129,800
|
|
$
|
28,945
|
|
$
|
4,883
|
|
$
|
14,117
|
|
$
|
(10,656
|
)
|
$
|
167,089
|
|
$
|
(3,763
|
)
|
$
|
163,326
|
|
$
|
12,921
|
|
$
|
9,063
|
|
$
|
21,984
|
|
$
|
185,310
|
|
Goodwill
|
|
$
|
271
|
|
$
|
492
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
763
|
|
$
|
|
|
$
|
763
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
763
|
|
Expenditures for property
|
|
$
|
742
|
|
$
|
164
|
|
$
|
35
|
|
$
|
220
|
|
$
|
|
|
$
|
1,161
|
|
$
|
20
|
|
$
|
1,181
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
1,181
|
|
|
|
|
(a)
|
|
Corporate and Other includes
charges of $731 million in the three months ended
March 31, 2008 to increase our net liability related to the
Benefit Guarantee Agreements, primarily resulting from updated
estimates reflecting the uncertainty around the nature, value
and timing of our recoveries upon Delphis emergence from
bankruptcy.
|
(b)
|
|
Other Financing also includes the
elimination of net receivables from total assets. Receivables
eliminated as of March 31, 2008 and 2007 were
$4.3 billion and $4.0 billion, respectively.
|
(c)
|
|
We sold a 51% equity interest in
GMAC in November 2006. The remaining 49% equity interest is
accounted for using the equity method and is included in
GMACs segment assets. Refer to Notes 5 and 15 for
summarized financial information of GMAC as of and for the three
months ended March 31, 2008 and 2007.
|
Note 17. Subsequent
Events
On May 1, 2008, we purchased three properties for
$826 million in cash, including our Corporate Headquarters
in Detroit, Michigan for $626 million and two other
properties related to administrative offices located in Pontiac,
Michigan, which were previously accounted for as capital leases
for $200 million. Refer to Note 9.
We have recently agreed with American Axle that we would provide
them with upfront financial support capped at $200 million
to help fund employee buyouts, early retirements and buydowns to
facilitate a settlement of the work stoppage.
GMAC is currently negotiating to provide a new
2-year
$3.5 billion senior secured credit facility to its wholly
owned subsidiary ResCap, which would be conditioned on
successful completion by ResCap of a debt tender and exchange
offer for its outstanding unsecured notes. ResCaps
financing plans also include seeking amendments to substantially
all of its secured bilateral credit facilities to extend their
maturities or to modify their tangible net worth covenants. We
and Cerberus, or our designees, are in discussions to acquire an
aggregate $750 million first loss participation in the
proposed senior secured credit facility, shared between Cerberus
and us on a pro rata basis.
34
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ResCap anticipates that its new debt agreements will include
covenants to maintain minimum cash balances. To comply with
these covenants and to satisfy its liquidity needs, ResCap
expects that it will be required, even if it successfully
implements all of the proposed actions, to generate capital in
the near term through asset sales or other actions in addition
to its normal mortgage finance activities, to obtain additional
cash of approximately $600 million by June 30, 2008.
This additional cash requirement is an estimate based upon
ResCaps internal monthly cash forecasts targeting
sufficient cash surpluses to prudently operate its business and
remain in excess of anticipated cash covenants.
If ResCap is unsuccessful in executing these transactions,
including additional liquidity actions, it would have a material
adverse effect on GMAC, which could result in a further
impairment of our investments in GMAC and could disrupt
GMACs ability to finance our dealers and customers.
35
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) should be read
in conjunction with the accompanying condensed consolidated
financial statements and in conjunction with our Annual Report
on
Form 10-K
for the year ended December 31, 2007 (2007
10-K).
We operate in two businesses, consisting of Automotive (GM
Automotive or GMA) and Financing and Insurance Operations (FIO).
We are engaged primarily in the worldwide development,
production and marketing of automobiles. We develop, manufacture
and market vehicles worldwide through four automotive segments:
GM North America (GMNA), GM Europe (GME), GM Latin
America/Africa/Mid-East (GMLAAM) and GM Asia Pacific (GMAP).
Also, our FIO operations are primarily conducted through GMAC
LLC (GMAC). We own a 49% equity interest in GMAC that is
accounted for using the equity method of accounting. GMAC
provides a broad range of financial services, including consumer
vehicle financing, automotive dealership and other commercial
financing, residential mortgage services, automobile service
contracts, personal automobile insurance coverage and selected
commercial insurance coverage. FIO also includes Other
Financing, which includes financing entities that are not
consolidated by GMAC and two special purpose entities holding
automotive leases previously owned by GMAC and its affiliates
that we retained having a net book value of $3.1 billion,
as well as the elimination of intercompany transactions with GM
Automotive and Corporate and Other.
In the three months ended December 31, 2007, we changed our
measure of segment profitability from net income to income
before income taxes plus equity income, net of tax and minority
interests, net of tax. Amounts for the three months ended
March 31, 2007 have been revised to reflect these periods
on a comparable basis for the changes discussed above. In
addition, 2007 amounts have been reclassified for the
retroactive effect of discontinued operations due to the August
2007 sale of Allison Transmission (Allison) as discussed in
Note 3 to the condensed consolidated financial statements.
Historically, Allison was included in GMNA.
Consistent with industry practice, our market share information
includes estimates of industry vehicle sales in certain
countries where public reporting is not legally required or
otherwise available on a consistent basis.
|
|
|
Three
Months Ended March 31, 2008 Overview
|
The following provides a summary of significant events and
achievements in the three months ended March 31, 2008, as
well as an update from our 2007
10-K of the
global automotive industry, including current market challenges
and our 2008 priorities, including key factors affecting future
and current results and our North American Turnaround Plan.
As more fully described in this MD&A, the following items
are noted regarding the three months ended March 31, 2008:
|
|
|
|
|
Consolidated net sales and revenues declined by 2%;
|
|
|
|
Automotive revenues declined 1%, reflecting growth in GMLAAM,
GME and GMAP offset by significantly lower revenues in GMNA;
|
|
|
|
Net loss of $3.3 billion ($5.74 per share);
|
|
|
|
Impairment charge of $1.5 billion recorded related to our
investment in GMAC;
|
|
|
|
American Axle & Manufacturing Holdings, Inc. (American
Axle) work stoppage unfavorably impacted GMNA earnings by
$0.8 billion;
|
|
|
|
Challenging markets continue in the United States (U.S.),
Canada, Germany and certain other markets in Europe; and
|
|
|
|
Executed Settlement Agreement with the International Union,
United Automotive, Aerospace and Agricultural Implement Workers
of America (UAW).
|
36
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Global
Automotive Industry
|
In the three months ended March 31, 2008, the global
automotive industry continued to show strong sales and revenue
growth outside of the United States. Global industry vehicle
sales to retail and fleet customers were 18.0 million units
in the three months ended March 31, 2008, representing a
3.2% increase over the comparable period in 2007. We expect
industry vehicle sales to be approximately 73.0 million
units in 2008 compared to 70.6 million in 2007. In recent
years, the global automotive industry has experienced consistent
year-to-year
increases, growing 19.4% from 2003 to 2007. Much of this growth
is attributable to demand in emerging markets, such as China,
where industry vehicle sales increased 20.4% to 8.6 million
units in 2007, from 7.1 million units in 2006.
Our worldwide vehicle sales in the three months ended
March 31, 2008 were 2.3 million vehicles, virtually
unchanged from the 2.3 million vehicles in the
corresponding period in 2007. Vehicle sales increased for GME,
GMLAAM and GMAP and declined for GMNA.
Our global market share in the three months ended March 31,
2008 was 12.5% compared to 13.0% in the corresponding period in
2007. Market share by region is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
GMNA
|
|
|
21.7
|
%
|
|
|
22.5
|
%
|
GME
|
|
|
9.6
|
%
|
|
|
9.7
|
%
|
GMAP
|
|
|
7.0
|
%
|
|
|
7.2
|
%
|
GMLAAM
|
|
|
17.9
|
%
|
|
|
16.7
|
%
|
As disclosed in our 2007
10-K, our
growth and profitability priorities for the remainder of 2008
are straightforward:
|
|
|
|
|
Continue to execute great products;
|
|
|
Build strong brands and distribution channels;
|
|
|
Execute additional cost reduction initiatives;
|
|
|
Grow aggressively in emerging markets;
|
|
|
Continue development and implementation of our advanced
propulsion strategy; and
|
|
|
Drive the benefits of managing the business globally.
|
The following summarizes the progress on these priorities in the
three months ended March 31, 2008, as well as changes in
any key factors affecting our current and future results and our
North American Turnaround Plan.
|
|
|
Continue
to Execute Great Products.
|
Our first priority for 2008 is continuing to focus on product
excellence by fully leveraging our global design, engineering
and powertrain expertise to produce vehicles for a wide variety
of regions and market segments. In North America, we plan to
introduce several new vehicles in 2008 including the Pontiac G8
and Chevrolet Traverse. In emerging markets, we plan to expand
and enhance our portfolio of lower cost vehicles.
|
|
|
Build
Strong Brands and Distribution Channels.
|
We continued to accelerate our channel strategy of combining
certain brands into a single dealership, which we believe will
differentiate products and brands more clearly, enhance dealer
profitability and provide us with greater flexibility in product
portfolio and technology planning. In April 2008, we aligned our
U.S. brands into four distinct dealer channels: Chevrolet,
Saturn, Buick/Pontiac/GMC (BPG) and Cadillac/Hummer/Saab
(Premium). We expect that this will enhance dealer profitability
and, over time, facilitate more highly differentiated products
and brands.
37
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Execute
Additional Cost Reduction Initiatives.
|
As described in more detail below under Settlement
Agreement, we continued execution of our plan to address
our legacy cost burden, a key element of our North American
Turnaround Plan. In addition, we announced a special attrition
program available to all of our 74,000 hourly workers
represented by the UAW (2008 UAW Special Attrition Program), and
we expect that participating employees will begin exiting
throughout the first half of 2008. On April 28, we
announced plans to eliminate one shift of production at three of
our full-size pickup truck assembly plants and at one full-size
sport utility vehicle assembly plant, to improve the alignment
of our production capacity with market demand. We remain focused
on repositioning our business for long-term competitiveness,
including achieving a successful resolution to the issues
related to the bankruptcy proceedings of Delphi Corporation
(Delphi), a major supplier and former subsidiary.
|
|
|
Grow
Aggressively in Emerging Markets.
|
Vehicle sales and revenues continue to grow globally, with the
strongest growth in emerging markets such as China, India and
the ASEAN region, as well as Russia, Brazil, the Middle East and
the Andean region. In the three months ended March 31,
2008, 40% of all vehicle sales took place in emerging markets;
we project that in 2012, 45% of vehicles will be sold in
emerging markets. In response, we are planning to expand
capacity in these emerging markets, and to pursue additional
growth opportunities through our relationships with Shanghai
General Motors Co., Ltd. (Shanghai GM), GM Daewoo
Auto & Technology Company (GM Daewoo) and other
potential strategic partners. In addition to the product and
brand strategies discussed above, we plan to expand our
manufacturing capacity in emerging markets in a cost effective
way and to pursue new market opportunities. We believe that
growth in these emerging markets will help to offset challenging
near-term market conditions in mature markets, such as the U.S.
and Germany.
|
|
|
Continue
to Develop and Implement our Advanced Propulsion
Strategy.
|
We continue to develop and advance our alternative propulsion
strategy, focused on fuel and other technologies, making energy
diversity and environmental leadership a critical element of our
ongoing strategy. In addition to continuing to improve the
efficiency of our internal combustion engines, we are focused on
the introduction of propulsion technologies which utilize
alternative fuels and have intensified our efforts to displace
traditional petroleum-based fuels. For example, we have entered
into arrangements with battery and biofuel companies to support
development of commercially viable applications of these
technologies. We anticipate that this strategy will require a
major commitment of technical and financial resources. Like
others in the automotive industry, we recognize that the key
challenge to our advanced propulsion strategy will be our
ability to price our products to cover cost increases driven by
new technology. In the three months ended March 31, 2008,
emissions legislation was passed or enacted in certain countries
in Western Europe which we believe will increase our potential
costs in these markets.
|
|
|
Drive the
Benefits of Managing the Business Globally.
|
We continue to focus on restructuring our operations and have
already taken a number of steps to globalize our principal
business functions such as product development, manufacturing,
powertrain and purchasing to improve our performance in an
increasingly competitive environment. As we build functional and
technical excellence, we plan to leverage our products,
powertrains, supplier base and technical expertise globally so
that we can flow our existing resources to support opportunities
for highest returns at the lowest cost.
Near-Term
Market Challenges
In the near-term, we expect the challenging market conditions
that developed in 2007 in North America and Germany to continue.
In addition, we expect the impact of passed or enacted
legislation in Western Europe to unfavorably impact our
potential costs in these markets.
In North America, the turmoil in the mortgage and credit
markets, continued reductions in housing values, high energy
prices and the threat of a recession have continued to
negatively impact consumers willingness to purchase our
products. These factors have contributed to lower vehicle sales
in North America and, combined with shifts in consumer
preferences toward cars
38
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
and away from fullsize trucks and utility vehicles, have
negatively impacted our results as such larger vehicles are
among our more profitable products. We expect these lower
vehicle sales to continue in the near-term. In response to this
shift and in line with our strategy to align production capacity
with demand, we have eliminated production shifts at certain of
our North American fullsize
pick-up and
sport utility vehicle plants. We estimate that this will reduce
our production during 2008 by approximately 130,000 units. If
U.S. vehicle sales do not meet our expectations, we may reduce
our production further. We anticipate that this will have a
negative impact on our U.S. revenues, earnings and cash flows in
2008.
In addition, in the United States, our results for the three
months ended March 31, 2008 have been negatively impacted
by a work stoppage at one of our suppliers, American Axle. This
work stoppage has not negatively impacted our ability to meet
customer demand due to the high levels of inventory at our
dealers. However, GMNAs results were negatively impacted
by $0.8 billion as a result of the loss of approximately
100,000 production units in the three months ended
March 31, 2008. We anticipate that this lost production
will not be fully recovered after this work stoppage is
resolved, due to the current economic environment in the United
States and to the market shift away from the types of vehicles
that have been most strongly affected by the action at American
Axle. In addition, the work stoppage has negatively impacted our
liquidity by $2.1 billion during this period due to working
capital and other impacts. Approximately 30 of our plants in
North America have been idled by this work stoppage. We continue
to proactively manage production schedules across all of our
plants to maintain production to the extent possible. We have
recently agreed with American Axle that we would provide them
upfront financial support capped at $200 million to help
fund employee buyouts, early retirements and buydowns to
facilitate a settlement of the work stoppage. In addition,
certain of our plants that assemble strategically important
vehicles, including the GMC Acadia, Buick Enclave and
Chevrolet Malibu, have been idled by a work stoppage associated
with finalizing the local agreement as part of the 2007 National
Agreement. Should these work stoppages continue for an extended
period and we are unable to procure the necessary parts from
other sources, in the case of American Axle, we would be
materially adversely impacted. See further discussion in
Liquidity later in this MD&A.
The European market grew slightly during the first three months
of 2008 in comparison to the corresponding period of 2007. This
increase was driven by the continued strong growth in the
emerging markets of Eastern Europe. The Western European markets
in aggregate did not report growth, with particularly
significant declines in Spain and Italy. While the German market
grew from lower levels in the corresponding period of 2007,
pricing conditions remain difficult due to intense competitive
activity. In general, we expect the Western European markets to
face a challenging environment in the near-term, due to
increasing inflationary pressures from high commodity and oil
prices, volatile credit and foreign exchange markets, and lower
consumer confidence.
39
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Consolidated
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
2008 vs. 2007 Change
|
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Net sales and revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
$
|
42,125
|
|
|
$
|
42,451
|
|
|
$
|
(326
|
)
|
|
|
(0.8
|
)%
|
Financial services and insurance revenues
|
|
|
545
|
|
|
|
936
|
|
|
|
(391
|
)
|
|
|
(41.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
|
42,670
|
|
|
|
43,387
|
|
|
|
(717
|
)
|
|
|
(1.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
38,333
|
|
|
|
38,889
|
|
|
|
(556
|
)
|
|
|
(1.4
|
)%
|
Selling, general and administrative expense
|
|
|
3,699
|
|
|
|
3,311
|
|
|
|
388
|
|
|
|
11.7
|
%
|
Financial services and insurance expense
|
|
|
496
|
|
|
|
883
|
|
|
|
(387
|
)
|
|
|
(43.8
|
)%
|
Other expenses
|
|
|
731
|
|
|
|
|
|
|
|
731
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(589
|
)
|
|
|
304
|
|
|
|
(893
|
)
|
|
|
n.m.
|
|
Equity in loss of GMAC LLC
|
|
|
(1,612
|
)
|
|
|
(183
|
)
|
|
|
(1,429
|
)
|
|
|
n.m.
|
|
Automotive interest and other income (expense), net
|
|
|
(456
|
)
|
|
|
(278
|
)
|
|
|
(178
|
)
|
|
|
(64.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, equity
income and minority interests
|
|
|
(2,657
|
)
|
|
|
(157
|
)
|
|
|
(2,500
|
)
|
|
|
n.m.
|
|
Income tax expense (benefit)
|
|
|
653
|
|
|
|
(61
|
)
|
|
|
714
|
|
|
|
n.m.
|
|
Equity income, net of tax
|
|
|
132
|
|
|
|
156
|
|
|
|
(24
|
)
|
|
|
(15.4
|
)%
|
Minority interests, net of tax
|
|
|
(73
|
)
|
|
|
(102
|
)
|
|
|
29
|
|
|
|
28.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(3,251
|
)
|
|
|
(42
|
)
|
|
|
(3,209
|
)
|
|
|
n.m.
|
|
Income from discontinued operations, net of tax
|
|
|
|
|
|
|
104
|
|
|
|
(104
|
)
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,251
|
)
|
|
$
|
62
|
|
|
$
|
(3,313
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales rate
|
|
|
91.0
|
%
|
|
|
91.6
|
%
|
|
|
(0.6
|
)%
|
|
|
n.m.
|
|
Net margin from net income (loss)
|
|
|
(7.6
|
)%
|
|
|
0.1
|
%
|
|
|
(7.7
|
)%
|
|
|
n.m.
|
|
n.m. = not meaningful
|
|
|
Three
Months Ended March 31, 2008 Compared to Three Months Ended
March 31, 2007
|
Our Total net sales and revenues decreased due to a decline in
vehicle sales at GMNA, partially offset by increases in vehicle
sales at GME, GMLAAM and GMAP. We reported an operating loss due
to lower revenues and the impact of lower volume at GMNA, a
labor stoppage at one of our suppliers, higher costs associated
with capacity related activities in North America and Europe and
an increase in our liability relating to the Delphi Benefit
Guarantee Agreements. Our loss from continuing operations and
our net loss increased significantly, primarily as a result of
the continued and greater losses from our investment in GMAC
driven by a $1.3 billion impairment charge on our Common
Membership Interests, a $0.1 billion impairment charge on
our Preferred Membership Interests and a $0.1 billion
increase in our 49% share in GMACs net loss. Further
information on each of our businesses and segments is presented
later in this MD&A.
|
|
|
Changes
in Consolidated Financial Condition
|
|
|
|
Accounts
and Notes Receivable, Net
|
Accounts and notes receivable, net totaled $10.1 billion
and $9.7 billion as of March 31, 2008 and
December 31, 2007, respectively. The increase of
$0.4 billion (or 4.3%) results from various factors
consisting of a $0.6 billion increase in receivables from
GMAC due to seasonal variations in sales, a $0.1 billion
increase in vehicle sales at GMAP, a $0.1 billion increase
in dividend receivable at GME and a $0.1 billion increase
in value added tax (VAT) receivables including the effect of
40
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Foreign Currency Translation at GME. These increases were
partially offset by a $0.5 billion decrease at GMNA due to
lower vehicle sales.
Accounts and notes receivable, net totaled $10.1 billion
and $9.7 billion as of March 31, 2008 and
March 31, 2007, respectively. The increase of
$0.4 billion (or 3.9%) resulted from various factors
including higher vehicle sales at GME, GMLAAM and GMAP totaling
$0.7 billion, and the VAT and dividend receivables
discussed above, partially offset by an $0.8 billion
decrease in GMNAs receivables due to lower factory sales.
Inventories totaled $16.9 billion and $14.9 billion as
of March 31, 2008 and December 31, 2007, respectively.
The increase of $2.0 billion (or 13.2%) is primarily due to
increases in finished product of $0.2 billion at GMNA,
$0.5 billion at GME, $0.2 billion at GMLAAM and
$0.2 billion at GMAP. GMNA also increased an additional
$0.2 billion due to increases in the cost of raw materials
and $0.3 billion due to increases in inventory levels.
Inventories totaled $16.9 billion and $15.4 billion as
of March 31, 2008 and March 31, 2007, respectively.
The increase of $1.5 billion (or 9.6%) is primarily due to
increases in finished product of $0.7 billion at GMAP and
$0.3 billion at GMLAAM, partially offset by decreased
finished product inventory of $0.4 billion at GME. Foreign
Currency Translation increased balances by $0.7 billion at
GME and $0.1 billion at GMLAAM.
|
|
|
Financing
Equipment on Operating Leases, Net
|
Financing equipment on operating leases, net totaled
$5.3 billion and $6.7 billion as of March 31,
2008 and December 31, 2007, respectively. The decrease of
$1.4 billion (or 21.0%) is due to the planned reduction of
Equipment on operating leases, net which we retained after
selling 51% of our equity interest in GMAC.
Financing equipment on operating leases, net totaled
$5.3 billion and $10.5 billion as of March 31,
2008 and March 31, 2007, respectively. The decrease of
$5.2 billion (or 49.3%) is due to the planned reduction of
Equipment on operating leases, net which we retained after
selling 51% of our equity interest in GMAC.
Financing debt totaled $3.9 billion and $4.9 billion
as of March 31, 2008 and December 31, 2007,
respectively. The decrease of $1.0 billion (or 21.0%) is
due primarily to the repayment of debt secured by Equipment on
operating leases, net which we retained after selling 51% of our
equity interest in GMAC.
Financing debt totaled $3.9 billion and $8.3 billion
as of March 31, 2008 and March 31, 2007, respectively.
This decrease of $4.4 billion (or 53.3%) is due primarily
to the repayment of debt secured by Equipment on operating
leases, net which we retained after selling 51% of our equity
interest in GMAC.
|
|
|
Equity in
Net Assets of GMAC LLC
|
Equity in net assets of GMAC LLC totaled $5.4 billion and
$7.1 billion as of March 31, 2008 and
December 31, 2007, respectively. The decrease of
$1.7 billion (or 23.9%) is attributable to a
$1.3 billion impairment of the investment in the three
months ended March 31, 2008 as well as the recording of our
share of GMACs net loss in the three months ended
March 31, 2008 totaling $0.4 billion.
Equity in net assets of GMAC LLC totaled $5.4 billion and
$7.4 billion as of March 31, 2008 and March 31,
2007, respectively. The decrease of $2.0 billion (or 26.7%)
is attributable to the $1.3 billion impairment discussed
above and $1.2 billion of losses recognized under the
equity method, offset by the $0.5 billion increase in our
investment related to the 2007 conversion of Preferred
Membership Interests to Common Membership Interests.
41
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Other
Current Assets and Deferred Income Taxes
|
Other current assets and deferred income taxes totaled
$4.1 billion and $13.1 billion as of March 31,
2008 and March 31, 2007, respectively. The decrease of
$9.0 billion (or 68.6%) relates primarily to valuation
allowances against our deferred income tax assets established in
the three months ended September 30, 2007. These valuation
allowances are discussed below.
|
|
|
Deferred
Income Tax Asset
|
Deferred income tax assets totaled $1.7 billion and
$2.1 billion as of March 31, 2008 and
December 31, 2007, respectively. The decrease of
$0.4 billion (or 21.0%) resulted primarily from the
establishment of valuation allowances totaling $0.4 billion
relating to deferred tax assets in Spain and the United Kingdom.
Deferred income tax assets totaled $1.7 billion and
$32.6 billion as of March 31, 2008 and March 31,
2007, respectively. The decrease of $30.9 billion (or
94.9%) relates primarily to establishing full valuation
allowances against our deferred tax assets in the United States,
Canada and Germany. Refer to Corporate and Other Operations
discussion below for further information on the factors
resulting in the decision to record the valuation allowance.
|
|
|
Short-term
Borrowings and Current Portion of Long-term Debt
|
The Short-term borrowings and current portion of long-term debt
balance totaled $6.0 billion and $4.8 billion as of
March 31, 2008 and March 31, 2007, respectively. The
increase of $1.1 billion (or 23.5%) is due primarily to a
$1.3 billion reclassification of long-term debt to current
maturities. In addition, $0.4 billion of long-term capital
leases was reclassified as short-term obligations. This was
partially offset by a $0.3 billion repayment of a GMAC tax
refund.
Long-term debt totaled $34.2 billion and $33.4 billion
as of March 31, 2008 and December 31, 2007,
respectively. The increase of $0.8 billion (or 2.4%)
resulted from issuance of $0.3 billion of debt in Brazil
and $0.2 billion in Mexico and the effects of Foreign
Currency Translation related to Euro-denominated debt totaling
$0.3 billion.
Long-term debt totaled $34.2 billion and $33.1 billion
as of March 31, 2008 and March 31, 2007, respectively.
Long-term debt increased by $1.0 billion (or 3.2%). We
issued $1.5 billion of Series D convertible debt in
the three months ended June 30, 2007. In addition, we
incurred additional long-term debt as described above in the
three months ended March 31, 2008. These increases were
partially offset by reclassifications to current maturities as
described above.
Accrued expenses totaled $34.7 billion and
$33.5 billion as of March 31, 2008 and March 31,
2007, respectively. The increase of $1.2 billion (or 3.6%)
was primarily the result of increases in the Foreign Currency
Translation effect on derivatives contracts totaling
$0.9 billion.
42
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMA
Operations Financial Review
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
2008 vs. 2007 Change
|
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
42,125
|
|
|
$
|
42,451
|
|
|
$
|
(326
|
)
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
38,414
|
|
|
|
38,773
|
|
|
|
(359
|
)
|
|
|
(0.9
|
)%
|
Selling, general and administrative expense
|
|
|
3,442
|
|
|
|
3,146
|
|
|
|
296
|
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
269
|
|
|
|
532
|
|
|
|
(263
|
)
|
|
|
(49.4
|
)%
|
Automotive interest and other income (expense), net
|
|
|
(273
|
)
|
|
|
(399
|
)
|
|
|
126
|
|
|
|
31.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes,
equity income and minority interests
|
|
|
(4
|
)
|
|
|
133
|
|
|
|
(137
|
)
|
|
|
(103.0
|
)%
|
Equity income, net of tax
|
|
|
132
|
|
|
|
154
|
|
|
|
(22
|
)
|
|
|
(14.3
|
)%
|
Minority interests, net of tax
|
|
|
(60
|
)
|
|
|
(101
|
)
|
|
|
41
|
|
|
|
40.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
68
|
|
|
$
|
186
|
|
|
$
|
(118
|
)
|
|
|
(63.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
|
|
|
$
|
104
|
|
|
$
|
(104
|
)
|
|
|
(100.0
|
)%
|
Automotive cost of sales rate
|
|
|
91.2
|
%
|
|
|
91.3
|
%
|
|
|
(0.1
|
)%
|
|
|
n.m.
|
|
Net margin from continuing operations before income taxes,
equity income and minority interests
|
|
|
|
%
|
|
|
0.3
|
%
|
|
|
(0.3
|
)%
|
|
|
n.m.
|
|
|
|
|
|
|
(Volume in thousands)
|
Production Volume (a)
|
|
|
2,233
|
|
|
|
2,340
|
|
|
|
(107
|
)
|
|
|
(4.6
|
)%
|
Vehicle Sales (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
17,992
|
|
|
|
17,433
|
|
|
|
559
|
|
|
|
3.2
|
%
|
GM
|
|
|
2,254
|
|
|
|
2,268
|
|
|
|
(14
|
)
|
|
|
(0.6
|
)%
|
GM market share Worldwide
|
|
|
12.5
|
%
|
|
|
13.0
|
%
|
|
|
(0.5
|
)%
|
|
|
n.m.
|
|
n.m. = not meaningful
|
|
|
(a) |
|
Production volume represents the number of vehicles manufactured
by our assembly facilities and also includes vehicles produced
by certain joint ventures. |
(b) |
|
Vehicle sales primarily represent sales to the ultimate customer. |
This discussion highlights key changes in operating results
within GMA. The drivers of these changes are discussed in the
regional analysis that follows this section.
|
|
|
Three
Months Ended March 31, 2008 Compared to Three Months Ended
March 31, 2007
|
|
|
|
Industry
Global Vehicle Sales
|
Industry vehicle sales grew strongly in all regions outside
North America. In the three months ended March 31, 2008,
industry vehicle sales increased in the Asia Pacific region by
482,000 vehicles (or 8.9%) to 5.9 million vehicles; Europe
grew 223,000 vehicles (or 3.9%) to 5.9 million vehicles;
and the Latin America/Africa/Mid-East (LAAM) region increased
189,000 vehicles (or 11.7%) to 1.8 million vehicles.
Industry sales decreased in North America by
336,000 vehicles (or 7.2%) to 4.4 million vehicles.
Vehicle sales increased by 53,000 at GMLAAM, 23,000 at GMAP and
18,000 at GME, offset by a decline in vehicle sales at GMNA of
108,000.
43
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Our global production volume decreased by 107,000 vehicles.
Production volume increased at GMAP by 68,000 vehicles and at
GMLAAM by 21,000 vehicles, whereas GMNA declined by 178,000
vehicles and GME declined by 18,000 vehicles.
|
|
|
Total Net
Sales and Revenue
|
The decrease in Total net sales and revenue was driven by
increases of $0.9 billion at GMAP, $1.2 billion at
GMLAAM and $1.4 billion at GME. A substantial portion of
the increased sales and revenue ($1.8 billion) was from
Foreign Currency Translation. These increases were offset by a
decline in Total net sales and revenue of $3.5 billion at
GMNA as well as $0.3 billion in incremental inter-segment
eliminations.
The decrease in Automotive cost of sales resulted from increases
of $0.7 billion at GMAP, $1.2 billion at GME and
$0.9 billion at GMLAAM, offset by a decline in Automotive
cost of sales of $2.8 billion at GMNA as well as
$0.3 billion in incremental inter-segment eliminations.
|
|
|
Selling,
General and Administrative Expense
|
The increase in Selling, general and administrative expense was
driven by increases related primarily to administrative costs,
advertising expenses and unfavorable Foreign Currency
Translation.
|
|
|
Automotive
Interest and Other Income (Expense), Net
|
The improvement in Automotive interest and other income
(expense), net resulted primarily from a $49 million
increase in interest and other income coupled with a
$0.1 billion decrease in interest and other expense at GMNA.
|
|
|
Equity
Income, Net of Tax
|
Equity income, net of tax, decreased primarily as a result of a
$22 million equity loss related to our 50% investment in
New United Motor Manufacturing, Inc. (NUMMI).
|
|
|
Minority
Interests, Net of Tax
|
The decrease in Minority interests, net of tax in the three
months ended March 31, 2008 resulted from decreased
earnings of consolidated affiliates, most notably at GMAP.
|
|
|
Income
from Discontinued Operations, Net of Tax
|
In August 2007, we completed the sale of the commercial and
military operations of Allison. Income from discontinued
operations, net of tax, was $104 million in the three
months ended March 31, 2007.
Supplemental
Categories for Expenses
We evaluate GMA and make certain decisions using supplemental
categories for variable expenses and non-variable expenses. We
believe these categories provide us with useful information and
that investors would also find it beneficial to view the
business in a similar manner.
We believe contribution costs, structural costs and, also,
impairment, restructuring and other charges provide meaningful
supplemental information regarding our expenses because they
place GMA expenses into categories that allow us to assess the
cost performance of GMA. We use these categories to evaluate our
expenses, and believe that these categories allow us to readily
view operating trends, perform analytical comparisons, benchmark
expenses among geographic segments and assess whether the North
American Turnaround Plan and globalization strategy for reducing
costs are on target. We use these categories for
44
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
forecasting purposes, evaluating management and determining our
future capital investment allocations. Accordingly, we believe
these categories are useful to investors in allowing for greater
transparency of the supplemental information that we use in our
financial and operational decision-making.
While we believe that contribution costs, structural costs and,
also, impairment, restructuring and other charges provide useful
information, there are limitations associated with the use of
these categories. Contribution costs, structural costs and
impairment, restructuring and other charges may not be
completely comparable to similarly titled measures of other
companies due to potential differences between companies in the
exact method of calculation. As a result, these categories have
limitations and should not be considered in isolation from, or
as a substitute for, other measures such as Automotive cost of
sales and Selling, general and administrative expense. We
compensate for these limitations by using these categories as
supplements to Automotive cost of sales and Selling, general and
administrative expense.
The total of contribution costs, structural costs and
impairment, restructuring and other charges equals the total of
Automotive cost of sales and Selling, general and administrative
expense for GMA as shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
2008 vs. 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(Dollars in billions)
|
|
|
Contribution costs (a)
|
|
$
|
29.4
|
|
|
$
|
29.3
|
|
|
$
|
0.1
|
|
Structural costs (b)
|
|
|
12.1
|
|
|
|
12.6
|
|
|
|
(0.5
|
)
|
Impairment, restructuring and other charges (c)
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41.8
|
|
|
$
|
41.9
|
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
$
|
38.4
|
|
|
$
|
38.8
|
|
|
$
|
(0.4
|
)
|
Selling, general and administrative expense
|
|
|
3.4
|
|
|
|
3.1
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
41.8
|
|
|
$
|
41.9
|
|
|
$
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Contribution costs are expenses that we consider to be variable
with production. The amount of contribution costs included in
Automotive cost of sales was $29.2 billion and
$29.1 billion in the three months ended March 31, 2008
and 2007, respectively, and those costs were comprised of
material cost, freight and policy and warranty expenses. The
amount of contribution costs classified in Selling, general and
administrative expenses was $0.2 billion in the three
months ended March 31, 2008 and 2007 and these costs were
incurred primarily in connection with our dealer advertising
programs. |
(b) |
|
Structural costs are expenses that do not generally vary with
production and are recorded in both Automotive cost of sales and
Selling, general and administrative expense. Such costs include
manufacturing labor, pension and other postemployment benefits
(OPEB) costs, engineering expense and marketing related costs.
Certain costs related to restructuring and impairments that are
included in Automotive cost of sales are also excluded from
structural costs. The amount of structural costs included in
Automotive cost of sales was $8.9 billion and
$9.7 billion in the three months ended March 31, 2008
and 2007, respectively, and the amount of structural costs
included in Selling, general and administrative expense was
$3.2 billion and $2.9 billion in the three months
ended March 31, 2008 and 2007, respectively. |
(c) |
|
Impairment, restructuring and other charges are included in
Automotive cost of sales. |
Contribution costs increased by $0.1 billion due to a
decrease of $2.3 billion due to lower volumes at GMNA,
partially offset by volume increases at the other regions.
Richer product mix and other factors increased costs by
$0.9 billion, net of favorable material performance.
Overall material performance improved in 2008 versus 2007, as
improvements realized from supplier productivity and sourcing
strategies more than offset higher raw material costs and
product enhancements on new vehicles. Foreign Currency
Translation, due primarily to the weaker U.S. dollar, increased
costs by $1.5 billion.
45
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Structural costs decreased by $0.5 billion from lower
pension, OPEB and other manufacturing costs at GMNA. Other
factors, including global engineering and product development
costs and production costs associated with volume growth in
expanding markets, contributed $0.5 billion in higher costs
in 2008. Costs in 2008 were lower by $0.7 billion due to
higher gains on commodity derivatives contracts related to
purchases of raw materials. Structural costs were higher in 2008
by $0.2 billion from Foreign Currency Translation.
|
|
|
Restructuring
and Other Charges
|
We incurred certain expenses primarily related to restructuring,
which are included in Automotive cost of sales. Additional
details regarding these expenses are included in Notes 12
and 13 to our condensed consolidated financial statements. These
expenses are comprised of:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Special attrition programs
|
|
$
|
201
|
|
|
$
|
(19
|
)
|
Restructuring initiatives
|
|
|
123
|
|
|
|
95
|
|
Other
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
324
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
The 2008 amounts are related to the following:
|
|
|
|
|
$201 million of total charges for restructuring initiatives
in GMNA related to special attrition programs.
|
|
|
$123 million of total charges for restructuring initiatives
at GME.
|
The 2007 amounts are related to the following:
|
|
|
|
|
Adjustments of $19 million for restructuring initiatives in
GMNA related to previously announced special attrition programs.
|
|
|
$95 million of total charges for restructuring initiatives
as follows: GMNA, $(2) million; GME, $57 million; GMAP,
$40 million.
|
|
|
Adjustment of $41 million in conjunction with cessation of
production at a previously divested business.
|
46
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMA
Regional Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
2008 vs. 2007 Change
|
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
24,543
|
|
|
$
|
28,057
|
|
|
$
|
(3,514
|
)
|
|
|
(12.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
23,042
|
|
|
|
25,853
|
|
|
|
(2,811
|
)
|
|
|
(10.9
|
)%
|
Selling, general and administrative expense
|
|
|
2,032
|
|
|
|
1,992
|
|
|
|
40
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(531
|
)
|
|
|
212
|
|
|
|
(743
|
)
|
|
|
n.m.
|
|
Automotive interest and other income (expense), net
|
|
|
(264
|
)
|
|
|
(423
|
)
|
|
|
159
|
|
|
|
37.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, equity
income and minority interests
|
|
|
(795
|
)
|
|
|
(211
|
)
|
|
|
(584
|
)
|
|
|
n.m.
|
|
Equity income (loss), net of tax
|
|
|
(20
|
)
|
|
|
13
|
|
|
|
(33
|
)
|
|
|
n.m.
|
|
Minority interests, net of tax
|
|
|
3
|
|
|
|
(10
|
)
|
|
|
13
|
|
|
|
130.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(812
|
)
|
|
$
|
(208
|
)
|
|
$
|
(604
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
|
|
|
$
|
104
|
|
|
$
|
(104
|
)
|
|
|
(100.0
|
)%
|
Automotive cost of sales rate
|
|
|
93.9
|
%
|
|
|
92.1
|
%
|
|
|
1.8
|
%
|
|
|
n.m.
|
|
Net margin from continuing operations before income taxes,
equity income and minority interests
|
|
|
(3.2
|
)%
|
|
|
(0.8
|
)%
|
|
|
(2.4
|
)%
|
|
|
n.m.
|
|
|
|
|
|
|
(Volume in thousands)
|
Production Volume (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cars
|
|
|
360
|
|
|
|
399
|
|
|
|
(39
|
)
|
|
|
(9.8
|
)%
|
Trucks
|
|
|
525
|
|
|
|
664
|
|
|
|
(139
|
)
|
|
|
(20.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
885
|
|
|
|
1,063
|
|
|
|
(178
|
)
|
|
|
(16.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Unit Sales (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry North America
|
|
|
4,359
|
|
|
|
4,695
|
|
|
|
(336
|
)
|
|
|
(7.2
|
)%
|
GMNA
|
|
|
947
|
|
|
|
1,055
|
|
|
|
(108
|
)
|
|
|
(10.2
|
)%
|
GM market share North America
|
|
|
21.7
|
%
|
|
|
22.5
|
%
|
|
|
(0.8
|
)%
|
|
|
n.m.
|
|
Industry U.S
|
|
|
3,638
|
|
|
|
3,987
|
|
|
|
(349
|
)
|
|
|
(8.8
|
)%
|
GM market share U.S. industry
|
|
|
22.1
|
%
|
|
|
22.8
|
%
|
|
|
(0.7
|
)%
|
|
|
n.m.
|
|
GM cars market share U.S. industry
|
|
|
19.1
|
%
|
|
|
19.5
|
%
|
|
|
(0.4
|
)%
|
|
|
n.m.
|
|
GM trucks market share U.S. industry
|
|
|
24.9
|
%
|
|
|
25.5
|
%
|
|
|
(0.6
|
)%
|
|
|
n.m.
|
|
n.m. = not meaningful
|
|
|
(a) |
|
Production volume represents the number of vehicles manufactured
by our assembly facilities and also includes vehicles produced
by certain joint ventures. |
(b) |
|
Vehicle sales primarily represent sales to the ultimate customer. |
|
|
|
Three
Months Ended March 31, 2008 Compared to Three Months Ended
March 31, 2007
|
Industry vehicle sales in North America decreased due to
weakness in the economy resulting from a decline in the housing
market and rising gas prices. We expect that the weakness in the
U.S. economy will result in challenging near-term market
conditions in GMNA.
47
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Total Net
Sales and Revenue
|
Total net sales and revenue decreased due to a decline in
volumes and unfavorable mix of $3.5 billion, unfavorable
pricing primarily related to weakness in the full-size truck
market of $0.5 billion, which was partially offset by
favorable Foreign Currency Translation of $0.4 billion. The
decrease in volume was driven by a reduction in U.S. industry
sales volumes, lower production as a result of the UAW strike at
our supplier American Axle and the impact of our declining
market share in the United States.
The decline in U.S. industry market share reflects macroeconomic
factors including higher fuel prices and a shift in customer
demand from trucks and utility vehicles to passenger cars and
crossovers. This shift in customer preference was the leading
contributor to the market share losses for GMNA in the U.S.
market. Despite these economic and competitive pressures, new
models in our portfolio of passenger cars and crossover vehicles
performed well during the period. In Canada, while industry
sales were up 6.8%, most of the growth came at the low end of
the market, where GMNAs presence is not as strong, which
coupled with competitive price pressure in the full-size pickup
segment, led to a decrease in GMNAs Canada industry market
share of 1.1%. Total industry sales in Mexico were down 5.4%
with GMNAs Mexico industry market share declining 0.6%
mainly due to competitive price pressure.
Automotive cost of sales decreased due to lower production
volumes and the mix of vehicles with lower sales volume, which
had a favorable net impact of $2.3 billion, gains of
$0.6 billion from commodity derivative contracts used to
hedge forecasted purchases of raw materials and manufacturing,
retiree pension and OPEB savings of $0.5 billion from lower
manufacturing costs and hourly headcount levels resulting from
attrition and productivity improvements. These cost reductions
were partially offset by costs related to the 2008 Special
Attrition Programs of $0.2 billion, and other factors of
$0.4 billion.
Automotive cost of sales rate increased since the reduction in
structural cost included in Automotive cost of sales did not
fully offset the impact of the volume decline on revenue.
|
|
|
Selling,
General and Administrative Expense
|
Selling, general and administrative expense increased slightly
due to increases in spending for advertising and sales
promotions.
|
|
|
Automotive
Interest and Other Income (Expense), Net
|
Automotive interest and other income (expense), net decreased
primarily due to reductions in debt balances with other segments
utilizing certain proceeds from the Allison sale.
|
|
|
Equity
Income (Loss), Net of Tax
|
Equity income (loss), net of tax decreased due to decreased
income from GMNAs investment in NUMMI as a result of lower
volume and launch related expenses associated with the January
2008 introduction of the new Pontiac Vibe and Toyota Corolla.
|
|
|
Income
from Discontinued Operations, Net of Tax
|
Income from discontinued operations, net of tax relates to the
commercial and military operations of Allison. Income from this
business has been reported as discontinued operations in the
three months ended March 31, 2007.
48
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
2008 vs. 2007 Change
|
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
9,909
|
|
|
$
|
8,471
|
|
|
$
|
1,438
|
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
9,030
|
|
|
|
7,808
|
|
|
|
1,222
|
|
|
|
15.7
|
%
|
Selling, general and administrative expense
|
|
|
767
|
|
|
|
662
|
|
|
|
105
|
|
|
|
15.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
112
|
|
|
|
1
|
|
|
|
111
|
|
|
|
n.m.
|
|
Automotive interest and other income (expense), net
|
|
|
(43
|
)
|
|
|
1
|
|
|
|
(44
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes, equity
income and minority interests
|
|
|
69
|
|
|
|
2
|
|
|
|
67
|
|
|
|
n.m.
|
|
Equity income, net of tax
|
|
|
13
|
|
|
|
8
|
|
|
|
5
|
|
|
|
62.5
|
%
|
Minority interests, net of tax
|
|
|
(7
|
)
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
(16.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
75
|
|
|
$
|
4
|
|
|
$
|
71
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales rate
|
|
|
91.1
|
%
|
|
|
92.2
|
%
|
|
|
(1.1
|
)%
|
|
|
n.m.
|
|
Net margin from continuing operations before income taxes,
equity income and minority interests
|
|
|
0.7
|
%
|
|
|
|
%
|
|
|
0.7
|
%
|
|
|
n.m.
|
|
|
|
|
|
|
(Volume in thousands)
|
Production Volume (a)
|
|
|
493
|
|
|
|
511
|
|
|
|
(18
|
)
|
|
|
(3.5
|
)%
|
Vehicle Sales (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry Europe
|
|
|
5,947
|
|
|
|
5,724
|
|
|
|
223
|
|
|
|
3.9
|
%
|
GM Europe
|
|
|
572
|
|
|
|
554
|
|
|
|
18
|
|
|
|
3.3
|
%
|
GM market share Europe
|
|
|
9.6
|
%
|
|
|
9.7
|
%
|
|
|
(0.1
|
)%
|
|
|
n.m.
|
|
GM market share Germany
|
|
|
9.3
|
%
|
|
|
10.0
|
%
|
|
|
(0.7
|
)%
|
|
|
n.m.
|
|
GM market share United Kingdom
|
|
|
14.8
|
%
|
|
|
14.9
|
%
|
|
|
(0.1
|
)%
|
|
|
n.m.
|
|
GM market share Russia
|
|
|
12.1
|
%
|
|
|
9.3
|
%
|
|
|
2.8
|
%
|
|
|
n.m.
|
|
n.m. = not meaningful
|
|
|
(a) |
|
Production volume represents the number of vehicles manufactured
by our assembly facilities and also includes vehicles produced
by certain joint ventures. |
(b) |
|
Vehicle sales primarily represent sales to the ultimate
customer, including unit sales of Chevrolet brand products in
the region. The financial results from sales of Chevrolet brand
products are reported as part of GMAP, because those units are
sold by GM Daewoo. |
|
|
|
Three
Months Ended March 31, 2008 Compared to Three Months Ended
March 31, 2007
|
The growth in industry vehicle sales primarily resulted from
increases of 185,000 vehicles (or 36.9%) in Russia and 67,000
vehicles (or 68.4%) in Ukraine, which were partially offset by
decreases of 81,000 vehicles (or 16.4%) in Spain and 79,000
vehicles (or 9.7%) in Italy.
|
|
|
Total Net
Sales and Revenue
|
Total net sales and revenue increased due to: (1) a
favorable impact of $0.9 billion in Foreign Currency
Translation, driven mainly by the strengthening of the Euro and
Swedish Krona versus the U.S. Dollar; and
(2) $0.3 billion due to higher volume.
49
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
In line with the industry trends noted above, GMEs
revenue, which excludes sales of Chevrolet brand products,
increased most significantly in Russia, where wholesale volumes
were up 15,000 vehicles (or 152.7%). Wholesale volumes in both
Italy and Spain declined by 9,000 vehicles (or 18.4% and 25.2%),
respectively.
Automotive cost of sales increased due to: (1) an
unfavorable impact of $0.8 billion as a result of Foreign
Currency Translation; and (2) $0.3 billion related to
higher volume.
Automotive cost of sales rate improved primarily due to the
slightly disproportional impact of Foreign Currency Translation
on Total net sales and revenues and Automotive cost of sales.
|
|
|
Selling,
General, and Administrative Expense
|
Selling, general and administrative expense increased primarily
due to Foreign Currency Translation.
|
|
|
GM
Latin America/Africa/Mid-East
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
2008 vs. 2007 Change
|
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
4,763
|
|
|
$
|
3,577
|
|
|
$
|
1,186
|
|
|
|
33.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
4,024
|
|
|
|
3,161
|
|
|
|
863
|
|
|
|
27.3
|
%
|
Selling, general and administrative expense
|
|
|
256
|
|
|
|
177
|
|
|
|
79
|
|
|
|
44.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
483
|
|
|
|
239
|
|
|
|
244
|
|
|
|
102.1
|
%
|
Automotive interest and other income (expense), net
|
|
|
35
|
|
|
|
16
|
|
|
|
19
|
|
|
|
118.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes, equity
income and minority interests
|
|
|
518
|
|
|
|
255
|
|
|
|
263
|
|
|
|
103.1
|
%
|
Equity income, net of tax
|
|
|
5
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
(16.7
|
)%
|
Minority interests, net of tax
|
|
|
(6
|
)
|
|
|
(7
|
)
|
|
|
1
|
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
517
|
|
|
$
|
254
|
|
|
$
|
263
|
|
|
|
103.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales rate
|
|
|
84.5
|
%
|
|
|
88.4
|
%
|
|
|
(3.9
|
)%
|
|
|
n.m.
|
|
Net margin from continuing operations before income taxes,
equity income and minority interests
|
|
|
10.9
|
%
|
|
|
7.1
|
%
|
|
|
3.8
|
%
|
|
|
n.m.
|
|
|
|
|
|
|
(Volume in thousands)
|
Production Volume (a)
|
|
|
243
|
|
|
|
222
|
|
|
|
21
|
|
|
|
9.5
|
%
|
Vehicle Sales (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry LAAM
|
|
|
1,806
|
|
|
|
1,617
|
|
|
|
189
|
|
|
|
11.7
|
%
|
GMLAAM
|
|
|
323
|
|
|
|
270
|
|
|
|
53
|
|
|
|
19.6
|
%
|
GM market share LAAM
|
|
|
17.9
|
%
|
|
|
16.7
|
%
|
|
|
1.2
|
%
|
|
|
n.m.
|
|
GM market share Brazil
|
|
|
20.9
|
%
|
|
|
20.2
|
%
|
|
|
0.7
|
%
|
|
|
n.m.
|
|
n.m. = not meaningful
|
|
|
(a) |
|
Production volume represents the number of vehicles manufactured
by our assembly facilities and also includes vehicles produced
by certain joint ventures. |
(b) |
|
Vehicle sales primarily represent sales to the ultimate customer. |
50
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Three
Months Ended March 31, 2008 Compared to Three Months Ended
March 31, 2007
|
Industry vehicle sales in the LAAM region increased because of
strong growth throughout the region. This included increases in
Brazil of 155,000 vehicles (or 31.4%), the Middle East
(excluding Israel) of 21,000 vehicles (or 5.9%), Israel of
17,000 vehicles (or 38.1%), and Egypt of 16,000 vehicles (or
33.4%). Industry vehicle sales in South Africa declined by
21,000 vehicles (or 13.1%), and in Venezuela by 20,000 vehicles
(or 19.7%).
|
|
|
Total Net
Sales and Revenue
|
Total net sales and revenue increased due to:
(1) $0.4 billion in higher volumes across most GMLAAM
business units, including increases of 36,000 vehicles in Brazil
and 8,000 vehicles in Northern Africa, which more than offset
small decreases of 4,000 vehicles in Colombia and 1,000 vehicles
in South Africa; (2) favorable impact of Foreign Currency
Translation of $0.3 billion, primarily related to the
Brazilian Real and Colombian Peso; (3) favorable vehicle
pricing of $0.1 billion; and (4) favorable vehicle mix
of $0.3 billion.
Automotive cost of sales increased due to: (1) increased
volume impact in the region of $0.3 billion;
(2) unfavorable Foreign Currency Translation of
$0.3 billion; and (3) unfavorable vehicle mix of
$0.2 billion.
Automotive cost of sales rate improved due to higher volume,
higher pricing and favorable product mix.
|
|
|
Selling,
General and Administrative Expense
|
Selling, general and administrative expense increased due to:
(1) unfavorable Foreign Currency Translation impact of
$17 million; (2) $10 million increase in
financial transaction taxes due to new legislation in Venezuela;
(3) $19 million increase in labor-related expenses;
and (4) increase in Selling, general and administrative
expenses of $19 million due to general market expansion.
|
|
|
Automotive
Interest and Other Income (Expense), Net
|
Automotive interest and other income (expense), net improved due
to: (1) increase of $23 million net interest income in
Brazil and Venezuela attributed to additional cash on hand;
offset by (2) reduced income of $2 million in South
Africa relating to decreased export incentives due to a
reduction of volume exports; and (3) increase in interest
expense of $1 million relating to uncertain tax positions.
51
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
2008 vs. 2007 Change
|
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
5,477
|
|
|
$
|
4,568
|
|
|
$
|
909
|
|
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
4,894
|
|
|
|
4,169
|
|
|
|
725
|
|
|
|
17.4
|
%
|
Selling, general and administrative expense
|
|
|
383
|
|
|
|
313
|
|
|
|
70
|
|
|
|
22.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
200
|
|
|
|
86
|
|
|
|
114
|
|
|
|
132.6
|
%
|
Automotive interest and other income, net
|
|
|
2
|
|
|
|
8
|
|
|
|
(6
|
)
|
|
|
(75.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes, equity
income and minority interests
|
|
|
202
|
|
|
|
94
|
|
|
|
108
|
|
|
|
114.9
|
%
|
Equity income, net of tax
|
|
|
134
|
|
|
|
127
|
|
|
|
7
|
|
|
|
5.5
|
%
|
Minority interests, net of tax
|
|
|
(50
|
)
|
|
|
(78
|
)
|
|
|
28
|
|
|
|
35.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income tax
|
|
$
|
286
|
|
|
$
|
143
|
|
|
$
|
143
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales rate
|
|
|
89.4
|
%
|
|
|
91.3
|
%
|
|
|
(1.9
|
)%
|
|
|
n.m.
|
|
Net margin from continuing operations before income taxes,
equity income and minority interests
|
|
|
3.7
|
%
|
|
|
2.1
|
%
|
|
|
1.6
|
%
|
|
|
n.m.
|
|
|
|
|
|
|
(Volume in thousands)
|
Production Volume (a)(b)
|
|
|
612
|
|
|
|
544
|
|
|
|
68
|
|
|
|
12.5
|
%
|
Vehicle Sales (a)(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry Asia Pacific
|
|
|
5,879
|
|
|
|
5,397
|
|
|
|
482
|
|
|
|
8.9
|
%
|
GMAP
|
|
|
411
|
|
|
|
388
|
|
|
|
23
|
|
|
|
5.8
|
%
|
GM market share Asia Pacific (d)
|
|
|
7.0
|
%
|
|
|
7.2
|
%
|
|
|
(0.2
|
)%
|
|
|
n.m.
|
|
GM market share Australia
|
|
|
13.1
|
%
|
|
|
15.0
|
%
|
|
|
(1.9
|
)%
|
|
|
n.m.
|
|
GM market share China (d)
|
|
|
12.8
|
%
|
|
|
14.0
|
%
|
|
|
(1.2
|
)%
|
|
|
n.m.
|
|
n.m. = not meaningful
|
|
|
(a) |
|
Includes GM Daewoo, Shanghai GM and SAIC-GM-Wuling Automobile
Co., Ltd. (SGMW) joint venture production/sales. We own 34% of
SGMW and under the joint venture agreement have significant
rights as a member as well as the contractual right to report
SGMW sales in China as part of our global market share. |
(b) |
|
Production volume represents the number of vehicles manufactured
by our assembly facilities and also includes vehicles produced
by certain joint ventures. |
(c) |
|
Vehicle sales primarily represent sales to the ultimate customer. |
(d) |
|
Includes SGMW joint venture sales. |
|
|
|
Three
Months Ended March 31, 2008 Compared to Three Months Ended
March 31, 2007
|
Industry vehicle sales in the Asia Pacific region increased
mainly due to strong growth in China, Indonesia, India, Vietnam,
Malaysia and Thailand. Industry sales increased by 361,000
vehicles (or 17.4%) in China, 50,000 vehicles (or 59.3%) in
Indonesia, 36,000 vehicles (or 6.6%) in India, 29,000 vehicles
(or 220.0%) in Vietnam, 21,000 vehicles (or 20.1%) in Malaysia
and 15,000 vehicles (or 11.2%) in Thailand. Chinas vehicle
market remained strong, increasing to 2.4 million vehicles
in the three months ended March 31, 2008, compared to
2.1 million vehicles in the corresponding period in 2007.
52
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Total Net
Sales and Revenue
|
Total net sales and revenue increased due to:
(1) $0.5 billion driven by growth in export volumes
from GM Daewoo and GM Holden, Ltd. (Holden);
(2) $0.3 billion due to higher volumes across most
GMAP business units; (3) $0.2 billion favorable effect
of Foreign Currency Translation, primarily related to the
Australian Dollar and Euro; offset by (4) an unfavorable
mix of $0.1 billion primarily at GM Daewoo.
Automotive cost of sales increased due to: (1) export
volumes from GM Daewoo and Holden amounting to
$0.4 billion; (2) higher volumes across most GMAP
business units amounting to $0.2 billion; and
(3) effect of Foreign Currency Translation primarily
related to the Australian Dollar of $0.1 billion.
Automotive cost of sales rate decreased due to material cost
performance, efficiencies across business units and warranty
liability revaluation at GM Daewoo.
|
|
|
Selling,
General and Administrative Expense
|
Selling, general and administrative expense increased due to
higher advertising expense amounting to $36 million and
increased administrative expenses amounting to $34 million
in line with the growth in business across various operations in
the region.
|
|
|
Automotive
Interest and Other Income, Net
|
Automotive interest and other income, net decreased due to lower
interest income.
|
|
|
Equity
Income, Net of Tax
|
Equity income increased due to improved performance at our China
joint ventures.
|
|
|
Minority
Interests, Net of Tax
|
Minority interest decreased due to decline of GM Daewoo income.
FIO
Financial Review
Our FIO business includes our share of the operating results of
GMACs lines of business consisting of Automotive Finance
Operations, Mortgage Operations, Insurance, and Other, which
includes GMACs Commercial Finance business and GMACs
equity investment in Capmark Financial Group (previously GMAC
Commercial Mortgage). Also included in FIO are the financing
entities that are not consolidated by GMAC as well as two
special purpose entities holding automotive leases previously
owned by GMAC and its affiliates that were retained by us in
connection with the divestiture of our 51% equity interest in
GMAC during fiscal year 2006.
In the three months ended March 31, 2008, we recorded
impairment charges of $1.5 billion to reduce the carrying
value of our Common and Preferred Membership Interests in GMAC
to fair value. Refer to Note 11 to the condensed
consolidated financial statements for details on the valuation
methodology utilized to determine fair value.
In our 2007
10-K, we had
previously disclosed that we did not believe our investment in
GMAC was impaired, however, there were many economic factors
which were unstable as of December 31, 2007, which may
affect GMACs ability to generate
53
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
sustainable earnings and continue distributions on its Preferred
Membership Interests and, accordingly, impact our assessment of
impairment. The factors included:
|
|
|
|
|
The instability of the global credit and mortgage markets and
the effect of this on GMACs Residential Capital, LLC
(ResCap) subsidiary as well as its automotive finance, insurance
and other operations;
|
|
|
The deteriorating conditions in the residential and home
building markets, including significant changes in the mortgage
secondary market, tightening underwriting guidelines and reduced
product offerings;
|
|
|
Recent credit downgrades of GMAC and ResCap and the effect on
their ability to raise capital necessary on acceptable terms; and
|
|
|
Effect of the expected near-term automotive market conditions on
GMACs automotive finance operations.
|
In the three months ended March 31, 2008, all of these
factors showed further deterioration from December 31,
2007, specifically:
|
|
|
|
|
Reduced commitment levels and lower effective advance rates for
secured funding at ResCap;
|
|
|
The necessity of GMAC continuing to provide funding and capital
infusions to its ResCap subsidiary;
|
|
|
Further deterioration in the residential and home building
markets and the uncertainty of the timing of any recovery;
|
|
|
Further instability in the global credit and mortgage markets;
and
|
|
|
Further downgrades of GMACs and ResCaps credit
ratings.
|
Based on these factors, we believed that a decline in value of
our investments in GMAC occurred in the three months ended
March 31, 2008. Accordingly, we performed an assessment
under the provisions of Accounting Principles Board Opinion
(APB) No. 18, The Equity Method of Accounting for
Investments in Common Stock (APB No. 18) to
determine whether this decline in value was other than
temporary. We concluded that the decline was other than
temporary and, accordingly, we reduced the carrying value of our
investments to fair value as determined under Statement of
Financial Accounting Standards (SFAS) No. 157, Fair
Value Measurements (SFAS No. 157). Our
conclusions were reached after considering the severity of the
impairment and whether the value would recover in a reasonable
period. After reviewing these factors, we concluded that the
decline in value was other than temporary. This assessment
utilizes significant management judgment. We will continue to
monitor our investments to determine if future declines in value
are indicated and whether such declines are other than
temporary. Due to continued instability in the economy and
capital markets, it is reasonably possible that our investments
in GMAC may decline further in value. However, such declines may
not result in further impairment charges if we determine they
are temporary.
|
|
|
Three
Months Ended March 31, 2008 Compared to Three Months Ended
March 31, 2007
|
FIO reported a loss before income taxes of $1.6 billion in
the three months ended March 31, 2008 compared to a loss
before income taxes of $0.1 billion in the three months
ended March 31, 2007. Refer to the commentary below for a
detailed discussion of the events and factors contributing to
this change.
GMACs results reflect the profitable results of the Global
Automotive Finance and Insurance businesses, which were more
than offset by significant losses in the international mortgage
operations of ResCap. Market-driven valuation adjustments and
lower net financing revenue adversely impacted results in the
three months ended March 31, 2008.
Global Automotive Finance operations were impacted by weaker
credit performance, which drove unfavorable valuation
adjustments, higher provision for credit losses, and increased
operating expenses related to restructuring, remarketing and
servicing initiatives. Lower gains on the sale of receivables
and deterioration in the residual performance of off-lease
vehicles also affected performance.
ResCap results were positively affected by favorable hedge
valuations and adversely affected by continued pressure in the
domestic housing markets and certain foreign mortgage and
capital markets. The adverse conditions resulted in lower net
interest margins, lower loan production, fair value declines
related to mortgage loans held for sale and trading securities,
impairments on real estate investments and reduced gains
associated with the disposition of real estate acquired through
foreclosure. In the short-term, it is probable the mortgage
industry will continue to experience both declining mortgage
54
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
origination volumes and reduced total mortgage indebtedness due
to the deterioration of the nonprime and nonconforming mortgage
market. The current market conditions are not expected to turn
favorable in the near-term.
Insurance Operations results decreased due to unfavorable
underwriting results primarily driven by increases in expenses,
particularly sales and marketing related, for growth initiatives
in the U.S. personal insurance and vehicle service contract
business.
FIOs Other Financing reported income before income taxes
of $91 million in the three months ended March 31,
2008 compared to income before income taxes of $54 million
in the three months ended March 31, 2007. This increase was
primarily due to profit on intercompany transactions with GMA.
Corporate
and Other Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
2008 vs. 2007 Change
|
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
(81
|
)
|
|
|
116
|
|
|
|
(197
|
)
|
|
|
(169.8
|
)%
|
Selling, general and administrative expense
|
|
|
257
|
|
|
|
165
|
|
|
|
92
|
|
|
|
55.7
|
%
|
Other expense
|
|
|
786
|
|
|
|
|
|
|
|
786
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(962
|
)
|
|
|
(281
|
)
|
|
|
(681
|
)
|
|
|
n.m.
|
|
Automotive interest and other income (expense), net
|
|
|
(67
|
)
|
|
|
71
|
|
|
|
(138
|
)
|
|
|
(194.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, other
equity income and minority interests
|
|
|
(1,029
|
)
|
|
|
(210
|
)
|
|
|
(819
|
)
|
|
|
n.m.
|
|
Income tax expense (benefit)
|
|
|
645
|
|
|
|
(67
|
)
|
|
|
712
|
|
|
|
n.m.
|
|
Equity income, net of tax
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
n.m.
|
|
Minority interests, net of tax
|
|
|
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,674
|
)
|
|
$
|
(142
|
)
|
|
$
|
(1,532
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n.m. = not meaningful
Corporate and Other includes certain centrally recorded income
and costs, such as interest and income taxes, corporate
expenditures, the elimination of inter-segment transactions and
costs related to pension and OPEB for Delphi retirees and
retirees of other divested businesses for which we have retained
responsibility. Automotive interest and other income (expense),
net in the prior year includes eliminations between our
Automotive business and GMAC.
|
|
|
Three
Months Ended March 31, 2008 Compared to Three Months Ended
March 31, 2007
|
Automotive cost of sales and Selling, general and administrative
expense decreased $0.1 billion in the three months ended
March 31, 2008 compared to the corresponding period in
2007. Pension and other legacy costs decreased by
$50 million while Foreign Currency Translation gains
increased $0.1 billion. These favorable items were
partially offset by an increase of $85 million in
administrative expenses, driven by higher costs for legal,
consulting and other outside services.
Other expenses of $0.8 billion in the three months ended
March 31, 2008 was comprised of charges of
$0.7 billion related to the Delphi Benefit Guarantee
Agreements and $55 million related to transactions with
other FIO. There were no items recorded in Other expenses in the
corresponding period of 2007.
Automotive interest and other income (expense), net increased
due to interest on outstanding debt and reduced interest income
from GMNA as proceeds from the sale of Allison were used to pay
down intercompany debt.
55
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
The increase in Income tax expense (benefit) primarily resulted
from two factors: (1) the reduction in income tax expense
(benefit) in the three months ended March 31, 2008 in the
United States, Canada and Germany; and (2) the effect of
recording valuation allowances against our net deferred tax
assets in Spain and the United Kingdom.
In the three months ended March 31, 2007, we had concluded
that it was more likely than not that we would realize our net
deferred tax assets in the United States, Canada and Germany
and, accordingly, continued to record tax benefits from losses
incurred and tax expense related to income generated in these
jurisdictions. In the United States, although we anticipated
that by the end of 2007 we would have a cumulative three-year
loss on an adjusted basis utilizing a rolling three years of
actual and current year anticipated results, we concluded that
our net deferred tax assets were realizable based primarily on
our financial outlook. However, in three months ended
September 30, 2007, our assessment changed and we concluded
that it was more likely than not that we would not generate
sufficient taxable income to realize our net deferred tax assets
in these tax jurisdictions, either in whole or in part, and,
accordingly, recorded full valuation allowances against these
net deferred tax assets. This change was primarily due to a
decline in actual results from our previous forecast and a
significant downward revision in our near-term (2008 and
2009) financial outlook.
In addition, in the three months ended March 31, 2008, we
determined that it was more likely than not that we would not
realize our net deferred tax assets, in whole or in part, in
Spain and the United Kingdom and recorded full valuation
allowances totaling $0.4 billion against our net deferred
tax assets in these tax jurisdictions. The following summarizes
the significant changes occurring in the three months ended
March 31, 2008, which resulted in our decision to record
these full valuation allowances.
In the United Kingdom, we are in a three-year adjusted
cumulative loss position and our near-term and mid-term
financial outlook for automotive market conditions is more
challenging than we believed in the three months ended
December 31, 2007. Our outlook deteriorated based on our
projections of the combined effects of the challenging foreign
exchange environment and unfavorable commodity prices.
Additionally, we have increased our estimate of the potential
costs that may arise from the regulatory and tax environment
relating to carbon dioxide
(CO2)
emissions in the European Union, including legislation enacted
or announced during 2008.
In Spain, although we are not currently in a three-year adjusted
cumulative loss position, our near-term and mid-term financial
outlook deteriorated significantly in the three months ended
March 31, 2008 such that we anticipate being in a
three-year adjusted cumulative loss position in the near- and
mid-term. In Spain, as in the United Kingdom, we are unfavorably
affected by the combined effects of the foreign exchange
environment, commodity prices and our estimate of the potential
costs that may arise from the regulatory and tax environment
relating to
CO2
emissions.
Based on our analysis, we concluded that it was more likely than
not that we would not realize our net deferred tax assets, in
whole or in part, in the United Kingdom and Spain and recorded
full valuation allowances. As a result of the full valuation
allowances, we no longer record a tax benefit for losses
incurred in these tax jurisdictions unless offset by pretax
income from items other than continuing operations. If income is
generated from continuing operations in these tax jurisdictions,
the income tax expense generated on this income is offset by a
reversal of the previously recorded valuation allowance.
A description of our method to determine if our deferred tax
assets are realizable is included in Critical Accounting
Estimates Deferred Taxes later in this MD&A.
Key
Factors Affecting Future and Current Results
In October 2007, we signed a Memorandum of
Understanding Post-Retirement Medical Care (Retiree
MOU) with the UAW, now superseded by the settlement agreement
entered into in February 2008, currently pending final court
approval (Settlement Agreement). The Settlement Agreement
provides that responsibility for providing retiree health care
will permanently shift from us to a new retiree plan funded by a
new independent Voluntary Employee Beneficiary Association trust
(New VEBA). The court certified the class and granted
preliminary approval of the Settlement
56
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Agreement and we mailed to the class in March 2008. The fairness
hearing is scheduled for June 2008 and we expect the court to
render a final decision with regard to the Settlement Agreement
by August 2008. All appeals, if any, should be exhausted no
later than January 1, 2010.
When fully implemented, the Settlement Agreement will cap our
payment for retiree healthcare obligations to UAW associated
employees, retirees and dependents, as defined in the Settlement
Agreement; will supersede and replace the 2005 UAW Health Care
Settlement Agreement, as discussed in the 2007
10-K; and
will transfer responsibility for administering retiree
healthcare benefits for these individuals to a new benefit plan
to be established and funded by the New VEBA trust. Before it
can become effective, the Settlement Agreement is subject to
class certification, court approval and the completion of
discussions between us and the Securities and Exchange
Commission (SEC) regarding accounting treatment for the
transactions contemplated by the Settlement Agreement on a basis
reasonably satisfactory to us. The court certified the class and
granted preliminary approval of the Settlement Agreement on
March 4, 2008. Notice to the class was mailed on
March 28, 2008. The fairness hearing is scheduled for
June 3, 2008 and we expect the court to render a final
decision with regard to the Settlement Agreement by August 2008.
All appeals, if any, should be exhausted no later than
January 1, 2010. In light of these contingencies, no
recognition to the effects of the Settlement Agreement has been
made in our condensed consolidated financial statements. The
Settlement Agreement provides that on the later of
January 1, 2010 or final court approval of the Settlement
Agreement (Implementation Date) , we will transfer our
obligations to provide covered UAW employees with postretirement
medical benefits to a new retiree health care plan (the New
Plan) to be established and funded by the New VEBA.
In accordance with the Settlement Agreement, effective
January 1, 2008 for bookkeeping purposes only, we divided
the existing internal VEBA into two bookkeeping accounts. One
account consists of the percentage of the existing internal
VEBAs assets as of January 1, 2008 that is equal to
the estimated percentage of our hourly OPEB liability covered by
the existing internal VEBA attributable to non-UAW represented
employees and retirees, their eligible spouses, surviving
spouses and dependents (Non-UAW Related Account) and had a
balance of $1.2 billion. The second account consists of the
remaining percentage of the assets in the existing internal VEBA
as of January 1, 2008 (UAW Related Account) and had a
balance of $14.5 billion. No amounts will be withdrawn from
the UAW Related Account, including its investment returns, until
transfer to the New VEBA.
In February 2008, pursuant to the Settlement Agreement, we
issued a $4.0 billion short-term note (Short-Term Note) to
LBK, LLC, a Delaware limited liability company of which we are
the sole member (LBK). The Short-Term Note pays interest at a
rate of 9% and matures on the date that the face amount of the
Short-Term Note is paid with interest to the New VEBA in
accordance with the terms of the Settlement Agreement. LBK will
hold the Short-Term Note until maturity.
In February 2008, pursuant to the Settlement Agreement, we
issued $4.4 billion principal amount of our 6.75%
Series U Convertible Senior Debentures Due
December 31, 2012 (Convertible Note) to LBK. LBK will hold
the Convertible Note until it is transferred to the New VEBA in
accordance with the terms of the Settlement Agreement. Interest
on the Convertible Note is payable semiannually. In accordance
with the Settlement Agreement, LBK will transfer any interest it
receives on the Convertible Note to a temporary asset account we
maintain. The funds in the temporary asset account will be
transferred to the New VEBA in accordance with the terms of the
Settlement Agreement.
In conjunction with the issuance of the Convertible Note, we
entered into certain cash-settled derivative instruments
maturing on June 30, 2011 with LBK that will have the
economic effect of reducing the conversion price of the
Convertible Note from $40 to $36. These derivative instruments
will also entitle us to partially recover the additional
economic value provided if our common stock price appreciates to
between $63.48 and $70.53 per share and to fully recover the
additional economic value provided if our common stock price
reaches $70.53 per share or above. Pursuant to the Settlement
Agreement, LBK will transfer its interests in the derivatives to
the New VEBA when the Convertible Note is transferred from LBK
to the New VEBA.
Because LBK is a wholly-owned consolidated subsidiary, these
securities have been eliminated in our consolidated financial
statements and will continue to be until they are transferred to
the New VEBA without restrictions in accordance with the
Settlement Agreement.
57
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
In April 2008, pursuant to the Settlement Agreement, we made a
contribution of $165 million to the temporary asset
account. Beginning in 2009, we may be required, under certain
circumstances, to contribute an additional $165 million per
year, limited to a maximum of an additional 19 payments, to
either the temporary asset account or the New VEBA (when
established). Such contributions will be required only if annual
cash flow projections show that the New VEBA will become
insolvent on a rolling
25-year
basis. At any time, we will have the option to prepay all
remaining contingent $165 million payments.
Additionally, at the initial effective date of the Settlement
Agreement, we may transfer up to an additional
$5.6 billion, subject to adjustment, to the New VEBA or we
may instead opt to make annual payments of varying amounts
between $0.4 billion and $3.3 billion through 2020.
|
|
|
2008
Special Attrition Programs
|
In February 2008, we signed agreements with the UAW and the
International Union of Electronic, Electrical, Salaried, Machine
and Furniture Workers (IUE) regarding special attrition programs
which are intended to further reduce the number of hourly
employees. The UAW attrition program offered to our 74,000
UAW-represented employees consists of wage and benefit packages
for normal and voluntary retirements, buyouts or pre-retirement
employees with 26 to 29 years of service. In addition to
their vested pension benefits, those employees that are
retirement eligible will receive a lump sum payment, depending
upon classification, that will be funded from our
U.S. Hourly Pension Plan. For those employees not
retirement eligible, other retirement and buyout options have
been offered. The terms offered to the 2,300 IUE represented
employees (2008 IUE Special Attrition Program) are similar to
those offered through the 2008 UAW Special Attrition Program.
During the three months ended March 31, 2008, we recorded
$201 million of expense primarily for the 2008 UAW Special
Attrition Program and the 2008 IUE Special Attrition Program
(2008 Special Attrition Programs) in accordance with
SFAS No. 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits (SFAS No. 88),
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other than Pensions
(SFAS No. 106), and SFAS No. 112,
Employers Accounting for Postemployment
Benefits (SFAS No. 112) Refer to Note 12.
Included in the $201 million expensed in the three months
ended March 31, 2008 is $167 million recorded pursuant
to SFAS No. 88 which is recorded in the Curtailments,
settlements and other line of U.S. Pension Plan Benefits.
These costs include lump sum payments and other costs related to
pre-retirement benefit payments for irrevocable acceptances
through March 31, 2008 under the 2008 Special Attrition
Programs. Because the offer period for the 2008 Special
Attrition Programs extends into the three months ended
June 30, 2008, additional acceptances are expected and
accordingly, further amounts will be expensed in the three
months ended June 30, 2008. Such amounts will likely exceed
$400 million. In addition, it is reasonably possible that
sufficient acceptances will be received such that we may need to
remeasure our defined benefit plans for potential curtailments
and accelerate the recognition of a portion of our unamortized
prior service costs (credits) for our hourly U.S. pension
and OPEB plans.
In October 2005, Delphi filed a petition for Chapter 11
proceedings under the U.S. Bankruptcy Code for itself and many
of its U.S. subsidiaries. Delphis financial distress and
Chapter 11 filing posed significant risks to us for two
principal reasons: (1) our production operations rely on
systems, components and parts provided by Delphi, our largest
supplier, and could be substantially disrupted if Delphi
rejected its GM supply agreements or its labor agreements and
thereby affected the availability or price of the required
systems, components or parts; and (2) in connection with
our 1999 spin-off of Delphi, we provided limited guarantees of
pension and OPEB benefits for hourly employees represented by
the UAW, the IUE-CWA, and the United Steel Workers (USW) who
were transferred to Delphi from GM (Benefit Guarantees), which
could have been triggered in connection with the Chapter 11
proceedings.
Since the filing, we have continued to work with Delphi, its
unions and other interested parties to negotiate a satisfactory
resolution to Delphis Chapter 11 restructuring
process, including several interim agreements and the labor and
settlement agreements discussed below.
58
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
On June 22, 2007, we entered into a Memorandum of
Understanding with Delphi and the UAW (Delphi UAW MOU) which
included terms relating to the consensual triggering of the UAW
Benefit Guarantee Agreement as well as additional terms relating
to Delphis restructuring. Under the Delphi UAW MOU we also
agreed to pay for certain healthcare costs of Delphi retirees
and their beneficiaries in order to provide a level of benefits
consistent with those provided to our retirees and their
beneficiaries from the Mitigation Plan VEBA. We also committed
to pay $450 million to settle a UAW claim asserted against
Delphi, which the UAW has directed us to pay directly to the GM
UAW VEBA trust. Such amount is expected to be amortized to
expense over future years. The UAW Benefit Guarantee Agreements
and the related Indemnification Agreement have been extended
until June 30, 2008. We also agreed that the applicable
Benefit Guarantees will be triggered for certain UAW employees
if Delphi terminates its pension plan, ceases to provide ongoing
credited services, or fails or refuses to provide
post-retirement medical benefits for those UAW employees at any
time before Delphis Plan of Reorganization (POR) or a
similar plan is consummated.
In August 2007, we entered into a Memorandum of Understanding
with Delphi and the IUE-CWA (Delphi IUE-CWA MOU), and we entered
into two separate Memoranda of Understanding with Delphi and the
USW (collectively the USW MOUs). The terms of the Delphi IUE-CWA
MOU and the USW MOUs are similar to the Delphi UAW MOU with
regard to the consensual triggering of the Benefit Guarantee
Agreements.
|
|
|
Delphi-GM
Settlement Agreements
|
We have entered into comprehensive settlement agreements with
Delphi (Delphi-GM Settlement Agreements) consisting of a Global
Settlement Agreement, as amended (GSA) and a Master
Restructuring Agreement, as amended (MRA) that would become
effective upon Delphis substantial consummation of its POR
and our receipt of consideration provided for in the POR. The
GSA is intended to resolve outstanding issues between Delphi and
us that have arisen or may arise before Delphis emergence
from Chapter 11 and will be implemented with Delphi shortly
after emergence from bankruptcy. The MRA is intended to govern
certain aspects of our commercial relationship following
Delphis emergence from Chapter 11. The more
significant items contained in the Delphi-GM Settlement
Agreements include our commitment to:
|
|
|
|
|
Reimburse Delphi for its costs to provide OPEB to certain of
Delphis hourly retirees from and after January 1,
2007 through the date that Delphi ceases to provide such
benefits;
|
|
|
|
Reimburse Delphi for the normal cost of credited
service in Delphis pension plan between January 1,
2007 and the date its pension plans are frozen;
|
|
|
|
Assume $1.5 billion of net pension obligations of Delphi
and Delphi providing us a $1.5 billion note receivable;
|
|
|
|
Reimburse Delphi for all retirement incentives and half of the
buy-out payments made pursuant to the various attrition program
provisions and to reimburse certain U.S. hourly buydown payments
made to hourly employees of Delphi;
|
|
|
|
Award future product programs to Delphi and provide Delphi with
ongoing preferential sourcing for other product programs, with
Delphi re-pricing existing and awarded business;
|
|
|
|
Reimburse certain U.S. hourly labor costs incurred to produce
systems, components and parts for us from October 1, 2006
through September 14, 2015 at certain U.S. facilities owned
or to be divested by Delphi (Labor Cost Subsidy);
|
|
|
|
Reimburse Delphis cash flow deficiency attributable to
production at certain U.S. facilities that continue to produce
systems, components and parts for us until the facilities are
either closed or sold by Delphi (Production Cash Burn Support);
and
|
|
|
|
Guarantee a minimum recovery of the net working capital that
Delphi has invested in certain businesses held for sale.
|
In addition, Delphi agreed to provide us or our designee with an
option to purchase all or any of certain Delphi businesses for
one dollar if such businesses have not been sold by certain
specified deadlines. If such a business is not sold either to a
third party or to us or any affiliate pursuant to the option by
the applicable deadline, we (or at our option, an affiliate)
will be deemed to have exercised the purchase option, and the
unsold business, including materially all of its assets and
liabilities, will automatically
59
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
transfer to the GM buyer. Similarly, under the
Delphi UAW MOU if such a transfer has not occurred by the
applicable deadline, responsibility for the UAW hourly employees
of such an unsold business affected would automatically transfer
to us or our designated affiliate. The GSA also resolves all
claims in existence as of the effective date of Delphis
POR that either Delphi or we have or may have against the other.
The Bankruptcy Court entered an order on January 25, 2008
confirming the POR, including the Delphi-GM Settlement
Agreements. On April 4, 2008, Delphi announced that
although it had met the conditions required to substantially
consummate its POR, including obtaining $6.1 billion in
exit financing, Delphis plan investors refused to
participate in a closing that was commenced but not completed on
that date, thereby making it unlikely that Delphi will emerge
from bankruptcy in the near-term. Under Delphis POR and as
a result of our agreed participation in Delphis exit
financing, our total recovery would have consisted of
$0.3 billion in cash, $2.7 billion in second lien debt
and $1.0 billion in junior preferred convertible stock at
the POR value. The second lien debt includes $1.5 billion
relating to our assumption of $1.5 billion of Delphi net
pension obligations. If the POR had been consummated, we would
have released our claims against Delphi, and we would have
received an unconditional release of any alleged claims against
us by Delphi. As with other customers, certain of our claims
related to ordinary business would flow through the
Chapter 11 proceedings and be satisfied by Delphi after the
reorganization in the ordinary course of business.
We continue to work with Delphi and its stakeholders to
facilitate Delphis efforts to emerge from bankruptcy. As
part of this effort, we have agreed to advance up to
$650 million to Delphi during 2008, which is within the
amounts we would have owed under the Delphi-GM Settlement
Agreements had Delphi emerged from bankruptcy in April 2008. We
will receive an administrative claim for funds we advance to
Delphi under this arrangement, and such funds will be credited
against amounts owed by us under the Delphi-GM Settlement
Agreements once such agreements become effective. We have agreed
to work together with Delphi toward implementation of the
Delphi-GM Settlement Agreements in the near-term.
|
|
|
Risks if
Delphi Cannot Emerge From Bankruptcy
|
If Delphi is not successful in emerging from bankruptcy, we
could be subject to many of the risks that we have reported
since Delphis 2005 bankruptcy filing. For example, Delphi
could seek to again reject or threaten to reject individual
contracts with us, either for the purpose of exiting specific
lines of business or in an attempt to increase the price we pay
for certain parts and components. Until a Delphi POR is
consummated, we intend to continue to protect our right of
setoff against the $1.15 billion we owed to Delphi in the
ordinary course of business when it made its Chapter 11
filing. However, the extent to which these obligations are
covered by our right to setoff may be subject to dispute by
Delphi, the creditors committee, or Delphis other
creditors, and limitation by the court. We cannot provide any
assurance that we will be able to setoff such amounts fully or
partially. To date, we have recorded setoffs of approximately
$54 million against that pre-petition obligation, with
Delphis agreement. We have also filed a Consolidated Proof
of Claim, in accordance with the Bankruptcy Courts
procedures, setting forth our claims (including the claims of
various GM subsidiaries) against Delphi and the other debtor
entities, although the exact amount of our claims cannot be
established because of the contingent nature of many of the
claims involved and the fact that the validity and amount of the
claims may be subject to objections from Delphi and other
stakeholders.
We would also have a claim against Delphi for $3.8 billion
related to some of the costs we paid related to Delphi hourly
employees who participated in special attrition and buyout
programs, which provided a combination of early retirement
programs and other incentives to reduce hourly employment at
both GM and Delphi. In 2006, 13,800 Delphi employees represented
by the UAW and 6,300 Delphi employees represented by the IUE-CWA
elected to participate in these attrition and buyout programs.
In the three months ended March 31, 2008 we recorded a
charge of $731 million to increase our net liability
related to the Benefit Guarantee Agreements, primarily due to
updated estimates reflecting uncertainty around the nature,
value and timing of our recoveries upon emergence of Delphi from
bankruptcy. We have recorded total charges of $8.3 billion
to date in connection
60
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
with the Benefit Guarantee Agreements. These charges are net of
estimated recoveries that would be due to us upon emergence of
Delphi from bankruptcy. Our commitments under the Delphi-GM
Settlement Agreements for the Labor Cost Subsidy and Production
Cash Burn Support are expected to result in additional expense
of between $300 million and $400 million annually
beginning in 2008 through 2015, which will be treated as a
period cost and expensed as incurred as part of Automotive cost
of sales. We continue to expect that the cost of these
reimbursements will be more than offset in the long-term by our
savings from reductions to the price penalty we now pay Delphi
for systems, components, and parts. Due to the uncertainties
surrounding Delphis ability to emerge from bankruptcy, it
is reasonably possible that additional losses could arise in the
future, but we currently are unable to estimate the amount or
range of such losses, if any.
As previously reported, we are cooperating with federal
governmental agencies in connection with a number of
investigations.
The SEC has issued subpoenas and information requests to us in
connection with various matters including restatements of our
previously issued financial statements in connection with our
accounting for certain foreign exchange contracts and
commodities contracts, our financial reporting concerning
pension and OPEB, certain transactions between us and Delphi,
supplier price reductions or credits and any obligation we may
have to fund pension and OPEB costs in connection with
Delphis proceedings under Chapter 11 of the
Bankruptcy Code. In addition, the SEC has issued a subpoena in
connection with an investigation of our transactions in precious
metal raw materials used in our automotive manufacturing
operation.
We have produced documents and provided testimony in response to
the subpoenas and will continue to cooperate with respect to
these matters. A negative outcome of one or more of these
investigations could require us to restate prior financial
results, pay fines or penalties or satisfy other remedies under
various provisions of the U.S. securities laws, and any of these
outcomes could under certain circumstances have a material
adverse effect on our business.
61
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Liquidity
and Capital Resources
Investors or potential investors in our securities consider cash
flows of the GMA and FIO businesses to be relevant measures in
the analysis of our various securities that trade in public
markets. Accordingly, we provide supplemental statements of cash
flows to aid users of our condensed consolidated financial
statements in the analysis of liquidity and capital resources.
This information reconciles to the condensed consolidated
statements of cash flows after the elimination of Net
investing activity with Financing and Insurance Operations
and Net financing activity with Automotive and Other
Operations line items shown in the table below. Following
are such statements for the three months ended March 31,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMA
|
|
|
Financing and Insurance
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Net cash provided by (used in) continuing operating
activities
|
|
$
|
(2,049
|
)
|
|
$
|
894
|
|
|
$
|
459
|
|
|
$
|
459
|
|
Cash provided by discontinued operating activities
|
|
|
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(2,049
|
)
|
|
|
1,009
|
|
|
|
459
|
|
|
|
459
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property
|
|
|
(1,945
|
)
|
|
|
(1,181
|
)
|
|
|
|
|
|
|
|
|
Investments in marketable securities, acquisitions
|
|
|
(1,135
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
(1
|
)
|
Investments in marketable securities, liquidations
|
|
|
1,424
|
|
|
|
58
|
|
|
|
6
|
|
|
|
2
|
|
Capital contribution to GMAC LLC
|
|
|
|
|
|
|
(1,022
|
)
|
|
|
|
|
|
|
|
|
Operating leases, liquidations
|
|
|
|
|
|
|
|
|
|
|
840
|
|
|
|
789
|
|
Net investing activity with Financing and Insurance Operations
|
|
|
194
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(114
|
)
|
|
|
(590
|
)
|
|
|
(88
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing investing
activities
|
|
|
(1,576
|
)
|
|
|
(2,621
|
)
|
|
|
758
|
|
|
|
798
|
|
Cash used in discontinued investing activities
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(1,576
|
)
|
|
|
(2,625
|
)
|
|
|
758
|
|
|
|
798
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in short-term borrowing
|
|
|
(49
|
)
|
|
|
(1,068
|
)
|
|
|
(1,029
|
)
|
|
|
(1,142
|
)
|
Borrowings of long-term debt
|
|
|
492
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Payments made on long-term debt
|
|
|
(15
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
Net financing activity with Automotive and Other Operations
|
|
|
|
|
|
|
|
|
|
|
(194
|
)
|
|
|
(193
|
)
|
Cash dividends paid to stockholders
|
|
|
(142
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing financing
activities
|
|
|
286
|
|
|
|
(1,226
|
)
|
|
|
(1,223
|
)
|
|
|
(1,335
|
)
|
Cash used in discontinued financing activities
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
286
|
|
|
|
(1,228
|
)
|
|
|
(1,223
|
)
|
|
|
(1,335
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
129
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
Net transactions with Automotive/Financing Operations
|
|
|
23
|
|
|
|
(30
|
)
|
|
|
(23
|
)
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(3,187
|
)
|
|
|
(2,851
|
)
|
|
|
(29
|
)
|
|
|
(48
|
)
|
Cash and cash equivalents at beginning of the period
|
|
|
24,549
|
|
|
|
23,774
|
|
|
|
268
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
21,362
|
|
|
$
|
20,923
|
|
|
$
|
239
|
|
|
$
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We believe we have sufficient liquidity and financial
flexibility to meet our 2008 funding requirements, including the
required funding of the 2008 Special Attrition Programs,
potential near-term impact of a continued work-stoppage at
American Axle, and other funding, even as a result of our
revised 2008 U.S. auto industry volume estimates.
62
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
As discussed above in Near-Term Market Challenges, we have
eliminated certain shifts of production at four North American
facilities. A reduction in production results in an unfavorable
impact on working capital. In the United States we generally
recognize revenue and collect the associated receivable shortly
after production, but pay our suppliers approximately
47 days later. Accordingly, we consistently have negative
working capital. During periods of declining sales and
production this will result in outflows of cash greater than
collections of accounts receivable, as we pay suppliers for
materials on which we have recognized revenue and collected the
associated receivable. As production and sales stabilize, this
impact also stabilizes and we return to a more regular pattern
of working capital changes. Depending on the severity and timing
of any further industry declines, the associated negative
operating cash flow impact due to working capital changes could
be significant. As discussed below, we believe we have
sufficient liquidity, including access to committed lines of
credit, to meet our funding requirements in the near-term. Over
the medium- to long-term, we believe that our ability to meet
our funding requirements primarily will depend on whether we can
successfully implement our North American Turnaround Plan and
return GMNA to profitability and positive cash flow, and our
ability to access the capital markets, as needed.
Automotive and Other (Automotive) available liquidity includes
cash balances, marketable securities, and readily available
assets of our VEBA trusts. At March 31, 2008, available
liquidity was $23.9 billion compared with
$27.3 billion at December 31, 2007 and
$24.7 billion at March 31, 2007. The amount of
consolidated cash and marketable securities is subject to
intra-month and seasonal fluctuations and includes balances held
by various business units and subsidiaries worldwide that are
needed to fund their operations. We manage our global liquidity
centrally which allows us to optimize funding of our global
operations. As of March 31, 2008, approximately 45% of our
reported liquidity was held in the U.S. In the three months
ended March 31, 2008 our U.S. liquidity position
deteriorated, partly due to the impact of the work stoppage at
American Axle. Additionally, our U.S. operations have access to
much of our overseas liquidity through inter-company
arrangements. A summary of our global liquidity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars in billions)
|
|
|
Cash and cash equivalents
|
|
$
|
21.4
|
|
|
$
|
24.6
|
|
|
$
|
20.9
|
|
Marketable securities
|
|
|
1.8
|
|
|
|
2.1
|
|
|
|
0.2
|
|
Readily-available assets of VEBA trusts
|
|
|
0.7
|
|
|
|
0.6
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available liquidity
|
|
$
|
23.9
|
|
|
$
|
27.3
|
|
|
$
|
24.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008, the total VEBA trust assets and
related accounts were $15.5 billion, $0.7 billion of
which was readily available. As of December 31, 2007, the
total VEBA trust assets were $16.3 billion,
$0.6 billion of which was readily-available. As of
March 31, 2007, the total VEBA trust assets were
$15.5 billion, $3.6 billion of which was
readily-available. The decrease in the total VEBA trust assets
since December 31, 2007 was due to negative asset returns
during the period. In connection with the Settlement Agreement a
significant portion of the VEBA assets have been allocated to
the UAW Related Account which will also hold the proportional
investment returns on that percentage of the trust. No amounts
will be withdrawn from the UAW Related Account including its
investment returns from January 1, 2008 until transfer to
the New VEBA. This treatment has led us to exclude any portion
of the UAW Related Account from our available liquidity as of
and subsequent to December 31, 2007.
We also have a $4.6 billion standby revolving credit
facility with a syndicate of banks, of which $150 million
terminates in June 2008 and $4.5 billion terminates in July
2011. As of March 31, 2008, the availability under the
revolving credit facility was $4.6 billion. There are
$10 million of letters of credit issued under the credit
facility, and no loans are currently outstanding. Under the
$4.5 billion secured facility, borrowings are limited to an
amount based on the value of the underlying collateral, which
consists of certain North American accounts receivable and
inventory of GM, Saturn Corporation, and General Motors of
Canada Limited (GM Canada), certain plants, property and
equipment of GM Canada and a pledge of 65% of the stock of the
holding company for our indirect subsidiary General Motors de
Mexico, S de R.L. de C.V. In addition to the $4.5 billion
secured line of credit, the collateral also secures certain
lines of credit, automatic clearinghouse and overdraft
arrangements, and letters of credit provided by the same secured
lenders, totaling $1.6 billion. In the event of work
stoppages that result in the loss of a certain level of
production, the secured facility would be temporarily reduced to
$3.5 billion. As of May 1, 2008 the reduction in our
North American production, which resulted from the American Axle
work stoppage and market conditions has not triggered a
reduction in the available amount under this credit facility.
63
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
In August 2007, we entered into a revolving credit agreement
expiring in August 2009 that provides for borrowings of up to
$1.3 billion. This agreement provides additional available
liquidity that we could use for general corporate purposes,
including working capital needs. Under the facility, borrowings
are limited to an amount based on the value of underlying
collateral, which consists of residual interests in trusts that
own leased vehicles and issue asset-backed securities
collateralized by the vehicles and the associated leases. The
underlying collateral was previously owned by GMAC and was
transferred to us as part of the GMAC transaction in November
2006. The underlying collateral is held by bankruptcy-remote
subsidiaries and pledged to a trustee for the benefit of the
lender. We consolidate the bankruptcy-remote subsidiaries and
trusts for financial reporting purposes. No borrowings were
outstanding under this agreement as of March 31, 2008. As
of May 1, 2008, we have drawn $775 million under this
facility.
We also have an additional $1.2 billion in undrawn
committed facilities, including certain off-balance sheet
securitization programs, with various maturities up to one year
and $1.1 billion in undrawn uncommitted lines of credit. In
addition, our consolidated affiliates with non-GM minority
shareholders, primarily GM Daewoo, have a combined
$1.5 billion in undrawn committed facilities.
GMAC is currently negotiating to provide a new
2-year
$3.5 billion senior secured credit facility to its wholly
owned subsidiary ResCap, which would be conditioned on
successful completion by ResCap of a debt tender and exchange
offer for its outstanding unsecured notes. ResCaps
financing plans also include seeking amendments to substantially
all of its secured bilateral credit facilities to extend their
maturities or to modify their tangible net worth covenants. We
and Cerberus, or our designees, are in discussions to acquire an
aggregate $750 million first loss participation in the
proposed senior secured credit facility, shared between Cerberus
and us on a pro rata basis.
ResCap anticipates that its new debt agreements will include
covenants to maintain minimum cash balances. To comply with
these covenants and to satisfy its liquidity needs, ResCap
expects that it will be required, even if it successfully
implements all of the proposed actions, to generate capital in
the near term through asset sales or other actions in addition
to its normal mortgage finance activities, to obtain additional
cash of approximately $600 million by June 30, 2008.
This additional cash requirement is an estimate based upon
ResCaps internal monthly cash forecasts targeting
sufficient cash surpluses to prudently operate its business and
remain in excess of anticipated cash covenants.
If ResCap is unsuccessful in executing these transactions,
including additional liquidity actions, it would have a material
adverse effect on GMAC, which could result in a further
impairment of our investments in GMAC and could disrupt
GMACs ability to finance our dealers and customers.
We continue to be focused on identifying and taking actions to
enhance our liquidity position. We have identified potential
operating measures that we could take to conserve liquidity if
the current adverse economic conditions persist or deteriorate
further or if other circumstances warrant. These measures could
include further reducing structural costs, selling non-core
assets, and re-timing or eliminating certain capital spending.
In addition, the dividend on common stock continues to be
evaluated on a quarterly basis by the Board of Directors. We
will also opportunistically consider additional public or
private financing transactions, which may include the execution
of incremental credit facilities, term loans, unsecured or
secured borrowings, and equity and equity-linked securities.
Such financing transactions may include issuances overseas. We
anticipate that additional liquidity from such actions, along
with other currently available liquidity described above, will
be used for general corporate purposes including working capital
needs resulting from lower production volumes as well as funding
cash requirements outlined in the Settlement Agreement and
potentially similar agreements with other labor unions.
We believe that it is possible that issues may arise under
various other financing arrangements from our 2006 restatement
of prior consolidated financial statements. These financing
arrangements consist principally of obligations in connection
with sale/leaseback transactions and other lease obligations,
including off-balance sheet arrangements, and do not include our
public debt indentures. In connection with the 2006 restatement
of prior consolidated financial statements, we evaluated the
effect of our restatement under these agreements, including our
legal rights with respect to any claims that could be asserted,
such as our ability to cure. Based on our review, we believe
that, although no assurances can be given as to the likelihood,
nature or amount of any claims that may be asserted, amounts
subject to possible claims of acceleration, termination or other
remedies are not likely to exceed $2.7 billion, consisting
primarily of off-balance sheet arrangements. Moreover, we
believe there may be
64
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
economic or other disincentives for third parties to raise such
claims to the extent they have them. Based on this review, we
reclassified $257 million of these obligations, as of
December 31, 2006, from long-term debt to short-term debt.
As of March 31, 2008 and December 31, 2007, the amount
of obligations reclassified from long-term debt to short-term
debt based on this review was $212 million. We believe we
have sufficient liquidity over the short and medium term to
satisfy any claims related to these matters. To date, we have
not received any such claims and we do not anticipate receiving
any such claims.
The decrease in available liquidity to $23.9 billion as of
March 31, 2008 from $27.3 billion as of
December 31, 2007 was primarily a result of negative
operating cash flow driven by reduced production in North
America, including the impact of the work stoppage at American
Axle which negatively impacted cash flow by $2.1 billion,
and higher levels of capital expenditures. This decrease was
partially offset by proceeds from debt borrowings.
Investments in marketable securities primarily consist of
purchases, sales, and maturities of highly-liquid corporate,
U.S. government, U.S. government agency and mortgage-backed debt
securities used for cash management purposes. Between
January 1, 2008 and March 31, 2008 we liquidated net
$0.3 billion of marketable securities.
In the three months ended March 31, 2008, Automotive and
Other had negative cash flow from continuing operations of
$2.1 billion on a net loss from continuing operations of
$1.6 billion. That result compares with positive cash flow
from continuing operations of $0.9 billion and net income
from continuing operations of $0.1 billion in the
corresponding period of 2007. Operating cash flow in the three
months ended March 31, 2008 was unfavorably impacted by
$0.2 billion of costs related to the GMNA restructuring
initiative and $0.1 billion of costs related to the GME
restructuring initiative for which the charges were previously
recorded from 2003 to 2007.
Capital expenditures of $1.9 billion and $1.2 billion
were a significant use of investing cash in the three months
ended March 31, 2008 and 2007, respectively. Capital
expenditures were primarily made for global product programs,
powertrain and tooling requirements.
Total debt, including capital leases, industrial revenue bond
obligations and borrowings from GMAC as of March 31, 2008
was $40.1 billion, of which $6.0 billion was
classified as short-term or current portion of long-term debt
and $34.2 billion was classified as long-term. As of
December 31, 2007, total debt was $39.4 billion, of
which $6.0 billion was short-term or current portion of
long-term debt and $33.4 billion was long-term. This
increase in total debt was primarily a result changes in foreign
exchange rates which caused non-U. S. Dollar denominated debt to
increase and new overseas borrowing facilities.
Short-term borrowing and current portion of long-term debt of
$6.0 billion includes $2.0 billion of debt issued by
our subsidiaries and consolidated affiliates and
$2.5 billion of related party debt, mainly dealer wholesale
floor plan financing from GMAC. We have various debt maturities
other than current of $2.5 billion in 2009 and
$0.3 billion in 2010 and various debt maturities of
$31.4 billion thereafter. We believe we have adequate
liquidity to settle those obligations as they become due.
In order to provide financial flexibility to us and our
suppliers, we maintain a trade payables program through GMAC
Commercial Finance (GMACCF). Under the terms of an agreement
with GMAC, we will be permitted to continue administering the
program through GMACCF so long as we provide the funding of
advance payments to suppliers under the program. As of
May 1, 2006, we commenced funding of the advance payments,
and as a result, as of March 31, 2008, there was no
outstanding balance owed by us to GMACCF under the program.
Net debt, calculated as cash, marketable securities and $0.7 of
readily-available assets of the VEBA trust, ($0.6 as of
December 31, 2007), less the short-term borrowings and
long-term debt, was $16.2 billion as of March 31,
2008, compared with $12.1 billion as of December 31,
2007.
65
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Financing
and Insurance Operations
|
Prior to the consummation of the GMAC Transaction, GMAC paid a
dividend to us of lease-related assets, having a net book value
of $4 billion and related deferred tax liabilities of
$1.8 billion. This dividend resulted in the transfer to us
of two bankruptcy-remote subsidiaries that hold equity interests
in ten trusts that own leased vehicles and issued asset-backed
securities collateralized by the vehicles. GMAC originated these
securitizations and remains as the servicer of the
securitizations. In August 2007 we entered into a secured
revolving credit arrangement of up to $1.3 billion that is
secured by the equity interest on these ten securitization
trusts. In connection with this credit facility, we contributed
these two bankruptcy remote subsidiaries into a third bankruptcy
remote subsidiary. We consolidate the bankruptcy-remote
subsidiaries and the ten trusts for financial reporting purposes.
As of March 31, 2008, in connection with these
bankruptcy-remote subsidiaries we had vehicles subject to
operating leases of $5.3 billion compared to
$6.7 billion as of December 31, 2007, other assets of
$1.6 billion compared to $1.4 billion as of
December 31, 2007, outstanding secured debt of
$3.8 billion compared to $4.9 billion as of
December 31, 2007 and equity of $3.1 billion compared
to $3.3 billion as of December 31, 2007.
The decrease in operating leases, secured debt and equity from
December 31, 2007 is the result of the termination of some
leases in the three months ended March 31, 2008 and the
repayment of the related secured debt. The secured debt has
recourse solely to the leased vehicles and related assets. We
continue to be obligated to the bankruptcy-remote subsidiaries
for residual support payments on the leased vehicles in an
amount estimated to equal $0.7 billion as of March 31,
2008 and $0.9 billion as of December 31, 2007,
respectively. However, neither the securitization investors nor
the trusts have any rights to the residual support payments. We
expect the operating leases and related securitization debt to
gradually amortize over the next three to four years, resulting
in the release to these two bankruptcy-remote subsidiaries of
certain cash flows related to their ownership of the
securitization trusts and related operating leases.
The cash flow that we expect to realize from the leased vehicle
securitizations over the next three to four years will come from
three principal sources: (1) cash released from the
securitizations on a monthly basis as a result of available
funds exceeding debt service and other required payments in that
month; (2) cash received upon and following termination of
a securitization to the extent of remaining over
collateralization; and (3) return of the residual support
payments owing from us each month. In the three months ended
March 31, 2008, the total cash flows released to these two
bankruptcy-remote subsidiaries was $155 million. In
aggregate, since the consummation of the GMAC transaction,
$1.1 billion have been released from these subsidiaries.
Our fixed income securities are rated by four independent credit
rating agencies: Dominion Bond Rating Services (DBRS),
Moodys Investor Service (Moodys), Fitch Ratings
(Fitch), and Standard & Poors (S&P). The
ratings indicate the agencies assessment of a
companys ability to pay interest, distributions,
dividends, and principal on these securities. Lower credit
ratings generally represent higher borrowing costs and reduced
access to capital markets for a company. Their ratings of us are
based on information provided by us as well as other sources.
The agencies consider a number of factors when determining a
rating including, but not limited to, cash flows, liquidity,
profitability, business position and risk profile, ability to
service debt, and the amount of debt as a component of total
capitalization.
DBRS, Moodys, Fitch, and S&P currently rate our
credit at non-investment grade. The following table summarizes
our credit ratings as of May 1, 2008:
|
|
|
|
|
|
|
|
|
Rating Agency
|
|
Corporate
|
|
Secured
|
|
Senior Unsecured
|
|
Outlook
|
|
DBRS
|
|
B (high)
|
|
Not Rated
|
|
B
|
|
Stable
|
Fitch
|
|
B
|
|
BB
|
|
B−
|
|
Negative
|
Moodys
|
|
B3
|
|
Ba3
|
|
Caa1
|
|
Negative
|
S&P
|
|
B
|
|
BB−
|
|
B−
|
|
Credit Watch Negative
|
66
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Rating actions taken by each of the credit rating agencies from
January 1, 2008 through May 1, 2008 are as follows:
DBRS: No actions taken.
Fitch: On February 27, 2008, Fitch affirmed our
issuer-default rating at B with Negative
outlook.
Moodys: On April 25, 2008 Moodys affirmed our
Corporate debt rating at B3 and placed the credit
rating on Negative outlook from Stable
outlook.
S&P: On March 17, 2008 S&P affirmed our Corporate
debt rating at B and placed the credit rating on
Credit Watch with Negative Implications from
Stable outlook.
While our non-investment grade ratings have increased our
borrowing costs and limited our access to unsecured debt
markets, we have mitigated these results by actions taken over
the past few years to focus on increased use of liquidity
sources other than institutional unsecured markets that are not
directly affected by ratings on unsecured debt, including
secured funding sources and conduit facilities. Further
reductions of our credit ratings could increase the possibility
of additional terms and conditions contained in any new or
replacement financing arrangements. As a result of specific
funding actions taken over the past few years, we believe that
we will continue to have access to sufficient capital to meet
our ongoing funding needs over the short- and medium-term.
Notwithstanding the foregoing, we believe that our current
ratings situation and outlook increase the level of risk for
achieving our funding strategy as well as the importance of
successfully executing our plans to improve operating results.
Fair
Value Measurements
On January 1, 2008, we adopted SFAS No. 157,
which addresses aspects of the expanding application of fair
value accounting. Refer to Note 11 to the condensed
consolidated financial statements for additional information
regarding the adoption and effects of SFAS No. 157.
|
|
|
Fair
Value Measurements on a Recurring Basis
|
In connection with the adoption of SFAS No. 157, we
used Level 3, or significant unobservable inputs to measure
6.0% of the total assets that we measured at fair value, and
1.0% of the total liabilities that we measured at fair value.
Level 3 inputs are estimates that require significant
judgment and are therefore subject to change.
The more significant assets, with the related Level 3
inputs, are as follows:
|
|
|
|
|
Mortgage-backed securities Level 3 inputs
utilized in the fair value measurement process include estimated
prepayment and default rates on the underlying portfolio which
are embedded in a proprietary discounted cash flow projection
model.
|
|
|
|
Corporate debt and other securities Significant
components of this security category include structured
investment vehicles, which trade in a market with limited
liquidity. Level 3 inputs utilized in the fair value
measurement process include estimated recovery rates on the
underlying portfolio which are embedded in a proprietary
discounted cash flow projection model.
|
|
|
|
Commodity derivatives Commodity derivatives include
purchase contracts from various suppliers that are gross settled
in the physical commodity. Level 3 inputs utilized in the
fair value measurement process include estimated projected
selling prices, quantities purchased and counterparty credit
ratings, which are then discounted to the expected cash flow.
|
We adopted SFAS No. 157 on January 1, 2008 and
had no transfers in or out of Level 3 in the three months
ended March 31, 2008.
67
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Fair
Value Measurements on a Nonrecurring Basis
|
The following table presents the financial instruments measured
at fair value on a nonrecurring basis in periods subsequent to
initial recognition in the three months ended March 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
March 31,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total Losses
|
|
|
|
(Dollars in millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in GMAC Common Membership Interests
|
|
$
|
5,391
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,391
|
|
|
$
|
(1,310
|
)
|
Investment in GMAC Preferred Membership Interests
|
|
|
902
|
|
|
|
|
|
|
|
|
|
|
|
902
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,293
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,293
|
|
|
$
|
(1,452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the provisions of Accounting Principles Board
Opinion No. 18, The Equity Method of Accounting for
Investments in Common Stock (APB No. 18), our
investment in GMAC Common Membership Interests, with a
pre-impairment carrying amount of $6.7 billion as of
March 31, 2008, was written down to its fair value of
$5.4 billion as of March 31, 2008, after considering
the impact of recording our share of GMACs results for the
three months ended March 31, 2008. The resulting impairment
charge of $1.3 billion was recorded in Equity in loss of
GMAC LLC. Additionally, our investment in GMAC Preferred
Membership Interests, with a pre-impairment carrying amount of
$1.0 billion as of March 31, 2008, was written down to
its fair value of $902 million as of March 31, 2008.
The resulting impairment charge of $142 million was
recorded in Automotive interest income and other non-operating
income, net.
In order to determine the fair value of our investment in GMAC
Common Membership Interests, we first determined a fair value of
GMAC by applying various valuation techniques to its significant
business units, and then applied our 49% equity interest to the
resulting fair value. Our determination of the fair value of
GMAC encompassed applying valuation techniques, which included
Level 3 inputs, to GMACs significant business units
as follows:
|
|
|
|
|
Auto Finance We obtained industry data, such as
equity and earnings ratios, for other industry participants, and
developed average multiples for these companies based upon a
comparison of their businesses to Auto Finance.
|
|
|
|
Insurance We developed a peer group, based upon such
factors as equity and earnings ratios and developed average
multiples for these companies.
|
|
|
|
Residential Capital, LLC We obtained industry data
for an industry participant who we believe to be comparable, and
also utilized the publicly announced acquisition price of an
industry participant who we believe to be comparable.
|
|
|
|
Commercial Finance Group We obtained industry data,
such as price and earnings ratios, for other industry
participants, and developed average multiples for these
companies based upon a comparison of their businesses to the
Commercial Finance Group.
|
In order to determine the fair value of our investment in GMAC
Preferred Membership Interests, we determined a fair value by
applying valuation techniques, which included Level 3
inputs, to various characteristics of the GMAC Preferred
Membership Interests as follows:
|
|
|
|
|
Utilizing information as to the pricing on similar investments
and changes in yields of other GMAC securities for the three
months ended March 31, 2008, we developed a discount rate
for the valuation.
|
|
|
|
Utilizing assumptions as to the receipt of dividends on the GMAC
Preferred Membership Interests, the expected call date and a
discounted cash flow model, we developed a present value of the
related cash flows.
|
68
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Off-Balance
Sheet Arrangements
|
We use off-balance sheet arrangements where the economics and
sound business principles warrant their use. Our principal use
of off-balance sheet arrangements occurs in connection with the
securitization and sale of financial assets.
The financial assets sold by us consist principally of trade
receivables that are part of a securitization program in which
we have participated since 2004. As part of this program, we
sell receivables to a wholly-owned bankruptcy remote special
purpose entity (SPE). The SPE is a separate legal entity that
assumes the risks and rewards of ownership of those receivables.
In September 2007, we renewed an agreement to sell undivided
interests in eligible trade receivables up to $600 million
directly to banks and to a bank conduit which funds its
purchases through issuance of commercial paper. Receivables sold
under the program are sold at fair market value and are excluded
from our condensed consolidated balance sheets. The banks and
the bank conduits had no beneficial interest in the eligible
pool of receivables as of March 31, 2008 and
December 31, 2007 and $25 million as of March 31,
2007. We do not have a retained interest in the receivables
sold, but perform collection and administrative functions. We
did not receive any gross proceeds from the sale of receivables
under this program in the three months ended March 31,
2008; and received $0.5 billion in the three months ended
March 31, 2007.
In addition to this securitization program, we participate in
other trade receivable securitization programs in Europe. Some
of our direct or indirect subsidiaries have entered into
factoring agreements to sell certain trade receivables to banks
and to factoring companies. Limits are based on contractually
agreed upon amounts
and/or on
the entities balance of participating trade receivables.
In 2007 the average facility limits for the participating
entities were $89 million in total. The banks and factoring
companies had a beneficial interest of $11 million,
$26 million, and $17 million in the participating pool
of trade receivables as of March 31, 2008,
December 31, 2007 and March 31, 2007, respectively.
We lease real estate and equipment from various off-balance
sheet entities that have been established to facilitate the
financing of those assets for us by nationally prominent lessors
that we believe are creditworthy. These assets consist
principally of office buildings and machinery and equipment. The
use of such entities allows the parties providing the financing
to isolate particular assets in a single entity and thereby
syndicate the financing to multiple third parties. This is a
conventional financing technique used to lower the cost of
borrowing and, thus, the lease cost to a lessee such as us.
There is a well-established market in which institutions
participate in the financing of such property through their
purchase of ownership interests in these entities, and each is
owned by institutions that are independent of, and not
affiliated with, us. We believe that no officers, directors or
employees of ours or our affiliates hold any direct or indirect
equity interests in such entities.
Assets in off-balance sheet entities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Assets leased under operating leases
|
|
$
|
2,152
|
|
|
$
|
2,164
|
|
|
$
|
2,170
|
|
Trade receivables sold
|
|
|
11
|
|
|
|
87
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,163
|
|
|
$
|
2,251
|
|
|
$
|
2,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
Dividends may be paid on our common stock when, as, and if
declared by our Board of Directors in its sole discretion out of
amounts available for dividends under applicable law. Under
Delaware law, our Board may declare dividends only to the extent
of our statutory surplus (i.e., total assets minus
total liabilities, in each case at fair market value, minus
statutory capital), or if there is no such surplus, out of our
net profits for the then current
and/or
immediately preceding fiscal year.
Our policy is to distribute dividends on our common stock based
on the outlook and indicated capital needs of the business. Cash
dividends per share on common stock were $0.25 for the three
months ended March 31, 2008 and $1.00 in 2007 ($0.25 per
quarter). At the February 5, 2008 and May 6, 2008
meetings of our Board of Directors, the Board approved the
payment of a $0.25 quarterly dividend on common stock in three
months ended March 31, 2008 and June 30, 2008,
respectively.
69
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Employees
As of March 31, 2008, we employed 266,000 employees. The
following represents our employment by region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
GMNA (a)
|
|
|
136
|
|
|
|
139
|
|
|
|
145
|
|
GME
|
|
|
58
|
|
|
|
57
|
|
|
|
59
|
|
GMLAAM
|
|
|
35
|
|
|
|
34
|
|
|
|
33
|
|
GMAP
|
|
|
35
|
|
|
|
34
|
|
|
|
34
|
|
Other
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
266
|
|
|
|
266
|
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes approximately 3,475 employees of Allison Transmission
at March 31, 2007. |
Critical
Accounting Estimates
Our condensed consolidated financial statements are prepared in
conformity with United States generally accepted accounting
principles, which requires the use of estimates, judgments and
assumptions that affect the reported assets and liabilities as
of the financial statement dates and the reported revenues and
expenses for the periods presented. Our significant accounting
policies and critical accounting estimates are consistent with
those described in Note 2 to the consolidated financial
statements and the MD&A section in our 2007
10-K. There
were no significant changes in our application of our critical
accounting policies in the three months ended March 31,
2008 with the exception that we adopted the provisions of
SFAS No. 157, as further described in Note 11 to
the condensed consolidated financial statements, and the changes
discussed below regarding deferred taxes and the valuation of
cost and equity method investments. We believe the accounting
policies related to our defined benefit pension and other post
retirement benefits plans, sales incentives, provision for
policy, warranty and recalls, impairment of long-lived assets,
derivatives and valuation of vehicle operating lease and lease
residuals are most critical to aid in fully understanding and
evaluating our reported financial condition and results of
operations.
We believe 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. We
have discussed the development, selection and disclosures of our
critical accounting estimates with the Audit Committee of our
Board of Directors, and the Audit Committee has reviewed the
disclosures relating to these estimates.
Pursuant to SFAS No. 109, valuation allowances have
been established for deferred tax assets based on a more
likely than not threshold. Our ability to realize our
deferred tax assets depends on our ability to generate
sufficient taxable income within the carryback or carryforward
periods provided for in the tax law for each applicable tax
jurisdiction. We have considered the following possible sources
of taxable income when assessing the realization of our deferred
tax assets:
|
|
|
|
|
Future reversals of existing taxable temporary differences;
|
|
|
|
Future taxable income exclusive of reversing temporary
differences and carryforwards;
|
|
|
|
Taxable income in prior carryback years; and
|
|
|
|
Tax-planning strategies.
|
Pursuant to SFAS No. 109, concluding that a valuation
allowance is not required is difficult when there is significant
negative evidence which is objective and verifiable, such as
cumulative losses in recent years. We utilize a rolling three
years of actual and current year anticipated results as our
primary measure of our cumulative losses in recent years.
However, because a
70
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
substantial portion of those cumulative losses related to
various non-recurring matters and the implementation of our
North American Turnaround Plan, we adjusted those three-year
cumulative results for the effect of these items. The analysis
performed in the three months ended September 30, 2007 and
our current analysis indicates that in the United States,
Canada, Germany and the United Kingdom, we have cumulative three
year losses on an adjusted basis. In Spain, we anticipate being
in a cumulative three-year loss position in the near-term. This
is considered significant negative evidence which is objective
and verifiable and therefore, difficult to overcome. In
addition, as discussed in Near-Term Market
Challenges our near-term financial outlook in these
jurisdictions has deteriorated. Accordingly, in the three months
ended September 30, 2007, we concluded that the objectively
verifiable negative evidence of our recent historical losses
combined with our challenging near-term outlook out-weighed
other factors and that it is more likely than not that we will
not generate taxable income to realize our net deferred tax
assets, in whole or in part in these jurisdictions. Although our
three year adjusted cumulative loss in the United States at
March 31, 2008 has decreased from that at December 31,
2007, we continue to believe this conclusion is appropriate. As
it relates to our assessment in the United States, many factors
in our evaluation are not within our control, particularly:
|
|
|
|
|
The possibility for continued or increasing price competition in
the highly competitive U.S. market;
|
|
|
|
Continued high fuel prices and the possible effect that may have
on consumer preferences related to our most profitable products,
fullsize trucks and utility vehicles;
|
|
|
|
Uncertainty over the effect on our cost structure from more
stringent U.S. fuel economy and global emissions standards which
may require us to sell a significant volume of alternative fuel
vehicles across our portfolio;
|
|
|
|
Uncertainty as to the future operating results of GMACs
ResCap mortgage business; and
|
|
|
|
Acceleration of tax deductions for OPEB liabilities as compared
to prior expectations due to changes associated with the
Settlement Agreement.
|
We recorded full valuation allowances against our net deferred
tax assets in the United States, Canada and Germany in the three
months ended September 30, 2007 and in Spain and the United
Kingdom in the three months ended March 31, 2008. With
regard to the United States, Canada and Germany we continue to
believe that full valuation allowances are needed against our
net deferred tax assets in these tax jurisdictions. The factors
leading to our decision to record full valuation allowances
against our net deferred tax assets in the United Kingdom and
Spain are discussed in Corporate and Other operations in this
MD&A.
If, in the future, we generate taxable income in the United
States, Canada, Germany, the United Kingdom and Spain on a
sustained basis, our conclusion regarding the need for full
valuation allowances in these tax jurisdictions could change in
the future, resulting in the reversal of some or all of the
valuation allowances. If our U.S., Canadian, German, United
Kingdom, or Spanish operations generate taxable income prior to
reaching profitability on a sustained basis, we would reverse a
portion of the valuation allowance related to the corresponding
realized tax benefit for that period, without changing our
conclusions on the need for a full valuation allowance against
the remaining net deferred tax assets.
|
|
|
Valuation
of Cost and Equity Method Investments
|
Equity investees accounted for under the cost or equity method
of accounting are evaluated for impairment in accordance with
Accounting Principles Board Opinion No. 18, The
Equity Method of Accounting for Investments in Common
Stock. An impairment loss would be recorded whenever a
decline in value of an equity investment below its carrying
amount is determined to be other than temporary. In determining
if a decline is other than temporary we consider such factors as
the length of time and extent to which the fair value of the
investment has been less than the carrying amount of the equity
affiliate, the near-term and longer-term operating and financial
prospects of the affiliate and our intent and ability to hold
the investment for a period of time sufficient to allow for any
anticipated recovery.
When available, we use quoted market prices to determine fair
value. If quoted market prices are not available, fair value is
based upon valuation techniques that use, where possible,
market-based inputs. Generally, fair value is estimated using a
combination of the income approach and the market approach.
Under the income approach, estimated future cash flows are
discounted at a rate commensurate with the risk involved using
marketplace assumptions. Under the market approach,
71
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
valuations are based on actual comparable market transactions
and market earnings and book value multiples for comparable
entities. The assumptions used in the income and market
approaches have a significant effect on the determination of
fair value. Significant assumptions include estimated future
cash flows, appropriate discount rates, and adjustments to
market transactions and market multiples for differences between
the market data and the equity affiliate being valued. Changes
to these assumptions could have a significant effect on the
valuation of our equity affiliates.
Accounting
Standards Not Yet Adopted
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS No. 141(R)),
which retained the underlying concepts under existing standards
in that all business combinations are still required to be
accounted for at fair value under the acquisition method of
accounting but SFAS No. 141(R) changed the method of
applying the acquisition method in a number of significant
aspects. SFAS No. 141(R) will require that:
(1) for all business combinations, the acquirer records all
assets and liabilities of the acquired business, including
goodwill, generally at their fair values; (2) certain
pre-acquisition contingent assets and liabilities acquired be
recognized at their fair values on the acquisition date;
(3) contingent consideration be recognized at its fair
value on the acquisition date and, for certain arrangements,
changes in fair value will be recognized in earnings until
settled; (4) acquisition-related transaction and
restructuring costs be expensed rather than treated as part of
the cost of the acquisition and included in the amount recorded
for assets acquired; (5) in step acquisitions, previous
equity interests in an acquiree held prior to obtaining control
be re-measured to their acquisition-date fair values, with any
gain or loss recognized in earnings; and (6) when making
adjustments to finalize initial accounting, companies revise any
previously issued post-acquisition financial information in
future financial statements to reflect any adjustments as if
they had been recorded on the acquisition date.
SFAS No. 141(R) is effective on a prospective basis
for all business combinations for which the acquisition date is
on or after the beginning of the first annual period subsequent
to December 15, 2008, with the exception of the accounting
for valuation allowances on deferred taxes and acquired tax
contingencies. SFAS No. 141(R) amends
SFAS No. 109 such that adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective
date of this statement should also apply the provisions of
SFAS No. 141(R). Once effective, this standard will be
applied to all future business combinations.
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Noncontrolling
Interests in Consolidated Financial Statements
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In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB 51
(SFAS No. 160), which amends Accounting Research
Bulletin (ARB) No. 51 Consolidated Financial
Statements (ARB No. 51) to establish new
standards that will govern the accounting for and reporting of
noncontrolling interests in partially owned consolidated
subsidiaries and the loss of control of subsidiaries. Also,
SFAS No. 160 requires that: (1) noncontrolling
interest, previously referred to as minority interest, be
reported as part of equity in the consolidated financial
statements; (2) losses be allocated to the noncontrolling
interest even when such allocation might result in a deficit
balance, reducing the losses attributed to the controlling
interest; (3) changes in ownership interests be treated as
equity transactions if control is maintained; and (4) upon
a loss of control, any gain or loss on the interest sold be
recognized in earnings. SFAS No. 160 is effective on a
prospective basis for all fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008, except for the presentation and
disclosure requirements, which will be applied retrospectively.
We are currently evaluating the effects that
SFAS No. 160 will have on our financial condition and
results of operations.
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Disclosures
about Derivative Instruments and Hedging Activities
an Amendment of FASB Statement No. 133
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In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an Amendment of FASB Statement
No. 133 (SFAS No. 161), that expands the
disclosure requirements of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133).
SFAS No. 161 requires additional disclosures
regarding: (1) how and why an entity uses derivative
instruments; (2) how derivative instruments and related
hedged items are accounted for under SFAS No. 133; and
(3) how derivative instruments and related hedged items
affect an entitys financial position, financial
performance, and cash flows. In addition, SFAS No. 161
requires qualitative disclosures about objectives and strategies
for using derivatives described in the context of an
entitys risk exposures, quantitative disclosures about the
location
72
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
and fair value of derivative instruments and associated gains
and losses, and disclosures about credit-risk-related contingent
features in derivative instruments. SFAS No. 161 is
effective for fiscal years and interim periods within these
fiscal years, beginning after November 15, 2008.
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Accounting
for Collaborative Arrangements
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In December 2007, the FASB ratified EITF Issue
No. 07-1,
Accounting for Collaborative Arrangements (EITF
No. 07-1),
which requires revenue generated and costs incurred by the
parties in the collaborative arrangement be reported in the
appropriate line in each companys financial statement
pursuant to the guidance in EITF Issue
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent (EITF
No. 99-19)
and not account for such arrangements on the equity method of
accounting. This Issue also includes enhanced disclosure
requirements regarding the nature and purpose of the
arrangement, rights and obligations under the arrangement,
accounting policy, and the amount and income statement
classification of collaboration transactions between the
parties. EITF
No. 07-1
is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years, and shall
be applied retrospectively (if practicable) to all prior periods
presented for all collaborative arrangements existing as of the
effective date. We are currently evaluating the effects, if any,
that EITF
No. 07-1
may have on the presentation and classification of these
activities in our financial statements.
Forward-Looking
Statements
In this report and in reports we subsequently file with the SEC
on
Forms 10-K
and 10-Q and
file or furnish on
Form 8-K,
and in related comments by our management, our use of the words
expect, anticipate,
estimate, forecast,
initiative, objective, plan,
goal, project, outlook,
priorities, target, intend,
when, evaluate, pursue,
seek, may, would,
could, should, believe,
potential, continue,
designed, impact or the negative of any
of those words or similar expressions is intended to identify
forward-looking statements that represent our current judgment
about possible future events. All statements in this report and
subsequent reports which we may file with the SEC on
Forms 10-K
and 10-Q or
file or furnish on
Form 8-K,
other than statements of historical fact, including without
limitation, statements about future events and financial
performance, are forward-looking statements that involve certain
risks and uncertainties. We believe these judgments are
reasonable, but these statements are not guarantees of any
events or financial results, and our actual results may differ
materially due to a variety of important factors that may be
revised or 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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Our ability to realize production efficiencies, to achieve
reductions in costs as a result of the turnaround restructuring
and health care cost reductions and to implement capital
expenditures at levels and times planned by management;
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The pace of product introductions and development of technology
associated with the products;
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Shortages of and price increases for fuel;
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Market acceptance of our new products;
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Significant changes in the competitive environment and the
effect of competition in our markets, including on our pricing
policies;
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Our ability to maintain adequate liquidity and financing sources
and an appropriate level of debt;
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Changes in the existing, or the adoption of new laws,
regulations, policies or other activities of governments,
agencies and similar organizations where such actions may affect
the production, licensing, distribution or sale of our products,
the cost thereof or applicable tax rates;
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Costs and risks associated with litigation;
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The final results of investigations and inquiries by the SEC;
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Changes in the ability of GMAC to make distributions on the
Preferred Membership Interests we hold;
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73
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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Changes in accounting principles, or their application or
interpretation, and our ability to make estimates and the
assumptions underlying the estimates, including the estimates
for the Delphi pension benefit guarantees, which could result in
an impact on earnings;
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Negotiations and bankruptcy court actions with respect to
Delphis obligations to us and our obligations to Delphi,
negotiations with respect to our obligations under the benefit
guarantees to Delphi employees and our ability to recover any
indemnity claims against Delphi;
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Labor strikes or work stoppages at our facilities or our key
suppliers such as Delphi and American Axle or financial
difficulties at our key suppliers such as Delphi;
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Additional credit rating downgrades and the effects thereof;
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Changes in relations with unions and employees/retirees and the
legal interpretations of the agreements with those unions with
regard to employees/retirees, including the negotiation of new
collective bargaining agreements with unions representing our
employees in the United States other than the UAW;
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Completion of the final settlement with the UAW and UAW
retirees, including obtaining court approval in a form
acceptable to us, the UAW, and class counsel; treatment of the
terms of the 2007 National Agreement pursuant to the Settlement
Agreement in a form acceptable to us, the UAW and class counsel;
our completion of discussions with the staff of the SEC
regarding accounting treatment with respect to the New VEBA and
the Post-Retirement Medical Benefits for the Covered Group as
set forth in the Settlement Agreement, on a basis reasonably
satisfactory to us; and as applicable, a determination by us
that the New VEBA satisfies the requirements of
section 302(c)(5) of the Labor-Management Relations Act of
1947, as amended, as well as bank and other regulatory approval;
and
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Changes in economic conditions, commodity prices, currency
exchange rates or political stability in the markets in which we
operate.
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In addition, GMACs actual results may differ materially
due to numerous important factors that are described in
GMACs most recent report on SEC
Form 10-K,
which may be revised or supplemented in subsequent reports on
SEC
Forms 10-K,
10-Q and
8-K. The
factors identified by GMAC include, among others, the following:
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Rating agencies may downgrade their ratings for GMAC or ResCap
in the future, which would adversely affect GMACs ability
to raise capital in the debt markets at attractive rates and
increase the interest that it pays on its outstanding publicly
traded notes, which could have a material adverse effect on its
results of operations and financial condition;
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GMACs business requires substantial capital, and if it is
unable to maintain adequate financing sources, its profitability
and financial condition will suffer and jeopardize its ability
to continue operations;
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The profitability and financial condition of its operations are
dependent upon our operations, and it has substantial credit
exposure to us;
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Recent developments in the residential mortgage market,
especially in the nonprime sector, may adversely affect
GMACs revenues, profitability and financial condition;
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The worldwide financial services industry is highly competitive.
If GMAC is unable to compete successfully or if there is
increased competition in the automotive financing, mortgage
and/or
insurance markets or generally in the markets for
securitizations or asset sales, its margins could be materially
adversely affected;
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
We caution investors not to place undue reliance on
forward-looking statements. We undertake no obligation to update
publicly or otherwise revise any forward-looking statements,
whether as a result of new information, future events or other
factors that affect the subject of these statements, except
where we are expressly required to do so by law.
* * * * * *
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Item 3.
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Quantitative
And Qualitative Disclosures About Market Risk
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There have been no significant changes in our exposure to market
risk since December 31, 2007. Refer to Item 7A in our
2007 10-K.
* * * * * *
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Item 4.
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Controls
and Procedures
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Disclosure
Controls and Procedures
We maintain disclosure controls and procedures designed to
ensure that information required to be disclosed in reports
filed under the Securities Exchange Act of 1934, as amended
(Exchange Act), is recorded, processed, summarized, and reported
within the specified time periods and accumulated and
communicated to our management, including our principal
executive officer, principal operating officer and principal
financial officer, as appropriate to allow timely decisions
regarding required disclosure.
Our management, with the participation of our Chairman and Chief
Executive Officer (CEO) and our Executive Vice President and
Chief Financial Officer (CFO), evaluated the effectiveness of
our disclosure controls and procedures (as defined in
Rules 13a-15(e)
or 15d-15(e) promulgated under the Exchange Act), as of
March 31, 2008. Based on that evaluation, our CEO and CFO
concluded that, as of that date, our disclosure controls and
procedures required by paragraph (b) of Exchange Act
Rules 13a-15
or 15d-15 were not effective at a reasonable assurance level
because of the identification of material weaknesses in our
internal control over financial reporting, which we view as an
integral part of our disclosure controls and procedures. The
effect of such weaknesses on our disclosure controls and
procedures, as well as remediation actions taken and planned,
are described in Item 9A, Controls and Procedures, of our
Annual Report on
Form 10-K
for the year ended December 31, 2007.
Remediation
and Changes in Internal Controls
We developed and are in the process of implementing remediation
plans to address our material weaknesses. In the three months
ended March 31, 2008, the following specific remedial
actions have been put in place:
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Named a new Controller for GMNA experienced with the complex
financial and reporting requirements of our largest region and
who is responsible for accounting operations, internal controls,
product cost and profit analysis.
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Established and named a new Assistant Controller of Operations
and Consolidations and divided responsibility from financial
planning, forecasting and competitive analysis to provide
greater role clarity and focus.
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Hired a new Director of Compensation and Benefits Accounting
responsible for ensuring adequate involvement of technical
accounting resources relating to employee benefit arrangements.
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Continued the deployment of several key training classes and the
hiring of almost 50 additional resources in accounting positions.
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Hired additional staff in the Tax Accounting Group to support
and assist in the execution of our remediation plans.
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Implemented a project plan utilizing internal and external
resources to support the re-design of our consolidation process.
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75
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
As previously noted, we augmented the resources in Corporate
Accounting, the Tax Department and other key departments by
utilizing approximately 160 external resources and implemented
additional closing procedures during 2007 and 2008. As a result,
we believe that there are no material inaccuracies or omissions
of material fact and, to the best of our knowledge, believe that
the condensed consolidated financial statements as of and for
the three months ended March 31, 2008, fairly present in
all material respects the financial condition and results of
operations in conformity with accounting principles generally
accepted in the United States of America.
Other than as described above, there have not been any other
changes in our internal control over financial reporting in the
three months ended March 31, 2008, which have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Limitations
on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that
our disclosure controls or our internal control over financial
reporting will prevent or detect all errors and all fraud. A
control system cannot provide absolute assurance due to its
inherent limitations; it is a process that involves human
diligence and compliance and is subject to lapses in judgment
and breakdowns resulting from human failures. A control system
also can be circumvented by collusion or improper management
override. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because
of such limitations, disclosure controls and internal control
over financial reporting cannot prevent or detect all
misstatements, whether unintentional errors or fraud. However,
these inherent limitations are known features of the financial
reporting process, therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
* * * * * *
PART II
Item 1.
Legal Proceedings
Canadian
Export Antitrust Class Actions
In the previously reported antitrust class action consolidated
in the U.S. District Court for the District of Maine, In re
New Market Vehicle Canadian Export Antitrust Litigation
Cases, the U.S. Court of Appeals for the First Circuit
reversed the certification of the injunctive class and ordered
dismissal of the injunctive claim on March 28, 2008. The
U.S. Court of Appeals for the First Circuit also vacated the
certification of the damages class and remanded to the U.S.
District Court for the District of Maine for determination of
several issues concerning federal jurisdiction and, if such
jurisdiction still exists, for reconsideration of that class
certification on a more complete record. On April 11, 2008,
plaintiffs filed a motion with the U.S. Court of Appeals for the
First Circuit for rehearing en banc of its decisions regarding
the injunctive class.
* * * * * *
Health
Care Litigation 2007 Agreement
In the previously reported class lawsuit brought in the U.S.
District Court for the Eastern District of Michigan by the UAW
and eight putative class representatives, UAW, et al. v.
General Motors Corporation, we completed settlement
negotiations and entered into the Settlement Agreement with the
UAW and the putative classes on February 21, 2008. The
Court certified the class
76
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
and granted preliminary approval of the Settlement Agreement on
March 4, 2008. Notice of the settlement has been mailed to
520,000 class members, and the final hearing to review the
fairness of the Settlement Agreement is scheduled for
June 3, 2008.
* * * * * *
Shareholder
Derivative Suits
In the previously reported case, Salisbury v. Barnevik,
et al., brought in the Circuit Court of Wayne County,
Michigan, the Court has continued the stay in the proceedings
until July 2008.
* * * * * *
GMAC
Bondholder Class Actions
With respect to the previously reported litigation consolidated
under the caption Zielezienski, et al. v. General Motors
Corporation, et al., on March 6, 2008, the U.S. Court
of Appeals for the Sixth Circuit affirmed the dismissal of this
case by the U.S. District Court for the Eastern District of
Michigan. Plaintiffs have filed a motion for a rehearing.
* * * * * *
ERISA
Class Actions
In connection with the previously reported cases of Young, et
al. v. General Motors Investment Management Corporation, et
al. and Mary M. Brewer, et al. v. General Motors
Investment Management Corporation, et al., on March 24,
2008 the U.S. District Court for the Southern District of New
York granted GMs motions to dismiss both of these cases on
statute of limitations grounds. Plaintiffs have appealed the
dismissal in both cases.
* * * * * *
Coolant
System Class Action Litigation
With respect to this previously reported subject of litigation,
in October 2007 the parties reached a tentative settlement that
would resolve certain claims in the putative class actions
related to alleged defects in the engine cooling systems in our
vehicles. This settlement has been documented in formal written
agreements, which have been preliminarily approved by the state
courts in California (covering claims in 49 states) and
Missouri. If finally approved, the settlement as negotiated will
resolve claims related to vehicles sold in the U.S. with a 3.1,
3.4 or 3.8-liter engine or to the use of DexCool engine coolant
in sport utility vehicles and pickup trucks with a 4.3-liter
engine from 1996 through 2000. Hearings to consider final
approval of the settlement have been scheduled for
August 29, 2008 in California and September 5, 2008 in
Missouri. The settlement does not include claims asserted in
several different alleged class actions related to alleged
gasket failures in certain other engines, including 4.3, 5.0 and
5.7-liter engines (without model year restrictions), or claims
relating to alleged coolant related failures in vehicles other
than those listed above. Such claims are to be dismissed without
prejudice.
* * * * * *
Environmental
Matters
Greenhouse
Gas Lawsuit
In the case of California ex rel. Lockyer v. General
Motors Corporation, et al., which has been previously
reported, the State of California filed its appeal brief in
January 2008, and the defendants filed their responsive brief in
March 2008. Several groups
77
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
filed amicus briefs in support of the defendants, including the
State of Michigan, the U.S. Chamber of Commerce and the National
Association of Manufacturers.
* * * * * *
Other than discussed below, there have been no material changes
to the Risk Factors as previously disclosed in Part I,
Item 1A Risk Factors in our 2007
10-K.
New laws, regulations or policies of governmental
organizations regarding increased fuel economy requirements and
reduced greenhouse gas emissions, or changes in existing ones,
may have a significant negative impact on how we do
business.
We are affected significantly by a substantial amount of
governmental regulations that increase costs related to the
production of our vehicles. We anticipate that the number and
extent of these regulations, and the costs to comply with them,
will increase significantly in the future. In the United States
and Europe, for example, governmental regulation is primarily
driven by concerns about the environment (including
CO2
emissions), vehicle safety and fuel economy. These government
regulatory requirements complicate our plans for global product
development and may result in substantial costs, which can be
difficult to pass through to our customers.
The Corporate Average Fuel Economy (CAFE) requirements mandated
by the U.S. government pose special concerns. In December 2007,
the United States enacted the Energy Independence and Security
Act of 2007, a new energy law that will require significant
increases in CAFE requirements applicable to cars and light
trucks beginning in the 2011 model year in order to increase the
combined U.S. fleet average for cars and light trucks to 35 mpg
by 2020, a 40% increase. The estimated cost to the automotive
industry of complying with this new standard will likely exceed
$100 billion, and our compliance cost could require us to
alter our capital spending and research and development plans,
curtail sales of our higher margin vehicles, cease production of
certain models or even exit certain segments of the vehicle
market. The National Highway Traffic Safety Administration
(NHTSA) has issued a proposed rule to set the car and truck
standards for the 2011-2015 model years and to make changes to
the form of the standards and the associated credit mechanism.
We are evaluating the proposal and will submit comments to NHTSA.
In addition, California and 12 other states have adopted a set
of rules establishing
CO2
emission standards that effectively impose similarly increased
fuel economy standards for new vehicles sold in those states (AB
1489 Rules). In addition, there are several other states
considering the adoption of such standards. If stringent
CO2
emission standards are imposed on us on a
state-by-state
basis, the result could be even more disruptive to our business
than the higher CAFE standards discussed above. The automotive
industry has filed legal challenges to these state standards in
California, Vermont and Rhode Island and dealers have filed a
similar challenge in New Mexico. On September 12, 2007, the
U.S. District Court for the District of Vermont rejected the
industrys position that such state regulation of
CO2
emissions is preempted by federal fuel economy and air pollution
laws. While the plaintiffs including us have appealed this
decision and submitted opening briefs, there can be no assurance
that the lower courts order will be reversed. In addition,
a growing number of countries in Europe that are adopting or
amending regulations that establish
CO2
emission standards or other frameworks that effectively
impose similarly increased fuel economy standards for vehicles
sold in those countries, or establish vehicle-related tax
structures based on them.
On December 12, 2007, the U.S. District Court for the
Eastern District of California ruled against the federal
preemption arguments made by the automotive industry but did not
lift its order enjoining California from enforcing the AB 1493
Rules in the absence of a waiver by the Environmental Protection
Agency (EPA). The industry has responded to that ruling by
seeking a permanent injunction against the AB 1493 Rules. A
related challenge in California state court is pending. On
December 21, 2007, the U.S. District Court for the District
of Rhode Island denied the states motion to dismiss the
industry challenge and announced steps for the case to proceed
to trial. The defendants in the Rhode Island case have moved for
dismissal of our complaint, and we are preparing a response.
There can be no assurance that these legal challenges to the AB
1493 Rules will succeed.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
On February 29, 2008, the EPA formally denied
Californias request for a waiver of federal preemption of
its AB 1493 Rules. As a result, at this time the AB 1493 Rules
cannot be enforced in California or any other state. California
and many other states and non-governmental organizations,
however, have filed actions in several federal courts to have
the EPAs denial overturned. The EPA and automotive
industry have filed to have these cases dismissed. In addition,
all three current Presidential candidates have expressed support
for the AB 1493 Rules, and this could result in a future
administration reversing the EPAs decision, thereby
permitting those Rules to be enforced in all the states that
have adopted/will adopt them. There can be no assurance that the
legal efforts to dismiss or deny the challenges to the
EPAs action will succeed. As a result of the failure of
the legal efforts, or a decision by a successor EPA
Administrator, the AB 1493 Rules might become enforceable.
Delphi is unlikely to emerge from bankruptcy in the
near-term.
In January 2008, the U.S. Bankruptcy Court entered an order
confirming Delphis POR and related agreements including a
Master Restructuring Agreement, as amended (MRA) and a Global
Settlement Agreement, as amended (GSA) with us. On April 4,
2008 Delphi announced that, although it had met the conditions
required to substantially consummate its POR, including
obtaining exit financing, Delphis plan investors refused
to participate in a closing that was commenced but not completed
on that date. As a result, it is unlikely that Delphi will
emerge from bankruptcy in the near term. We believe that Delphi
will seek alternative arrangements to emerge from bankruptcy,
but there can be no assurance that Delphi will be successful in
obtaining any alternative arrangements. The resulting
uncertainty could disrupt our ability to plan future production
and realize our cost reduction goals, and could affect our
relationship with the UAW and result in our providing additional
financial support to Delphi, receiving less than the
distributions that we expect from the resolution of
Delphis bankruptcy proceedings or assuming some of
Delphis obligations to its workforce and retirees.
Financial difficulties, labor stoppages or work slowdowns
at key suppliers could result in a disruption in our operations
and have a material adverse effect on our business.
We rely on many suppliers to provide us with the systems,
components and parts that we need to manufacture our automotive
products and operate our business. In recent years, a number of
these suppliers, including but not limited to Delphi, have
experienced severe financial difficulties and solvency problems
and some have reorganized under the U.S. Bankruptcy Code.
Financial difficulties or solvency problems at these or other
suppliers could materially adversely affect their ability to
supply us with the systems, components and parts that we need,
which could disrupt our operations including production of
certain of our higher margin vehicles. It may be difficult to
find a replacement for certain suppliers without significant
delay. Similarly, a substantial portion of many of these
suppliers workforces are represented by labor unions.
Workforce disputes that result in work stoppages (such as those
at American Axle) or slowdowns at these suppliers could also
have a material adverse effect on their ability to continue
meeting our needs.
Labor, work stoppages, or similar difficulties could
significantly disrupt our operations.
Substantially all of the hourly employees in our Canadian
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. Our current collective bargaining agreement with
the Canadian Auto Workers Union (CAW) will expire on
September 16, 2008, and we intend to pursue our cost
reduction goals vigorously in negotiating the new agreement.
Additionally, some of our manufacturing plants in the United
States represented by local UAW bargaining units are currently
operating without a local agreement. Several of these locals
have initiated work stoppages at certain of our plants that
assemble strategically important vehicles, including the GMC
Acadia, Buick Enclave and Chevrolet Malibu. Certain other local
units have threatened work stoppages unless contract issues
specific to the location are resolved. Any further work stoppage
or threats of work stoppages by these local units at a
strategically important plant in the United States or by the CAW
in Canada, could materially adversely affect our business. A
lengthy strike by the CAW that involves all or a significant
portion of our Canadian manufacturing facilities would have a
material adverse effect on our operations and financial
condition.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Risks
related to our 49% equity interest in GMAC
ResCap has significant near-term liquidity issues and
short-term debt maturities. There is a significant risk that
ResCap will not be able to meet its debt service obligations in
the near-term.
ResCap is highly leveraged relative to its cash flow with a
declining liquidity portfolio. As of March 31, 2008,
ResCaps liquidity portfolio (cash readily available to
cover operating demands from across its business operations and
maturing obligations) totaled $1.3 billion. In addition,
ResCap has expended a significant amount of its available cash
in recent weeks. ResCap has approximately $4.3 billion of
long-term unsecured debt maturing during the remainder of 2008,
consisting of approximately $1.2 billion aggregate
principal amount of notes due in June 2008, approximately
$1.8 billion of outstanding borrowings under its term loan
due in July 2008, and approximately $1.1 billion aggregate
principal amount of notes due in November 2008. Additionally,
ResCap had approximately $12.8 billion of secured,
short-term debt outstanding as of March 31, 2007 with
various maturity dates in 2008, excluding debt of GMAC Bank.
Between April 1, 2008 and December 31, 2008, ResCap
has $28.8 billion, or 98%, of its secured committed
capacity maturing. In the three months ended March 31,
2008, the combination of reduced credit commitments and lower
effective advance rates resulted in a substantial reduction of
secured liquidity.
In ResCaps efforts to address its near-term liquidity
situation and capital structure, and to generally reduce its
financial risk, ResCap has undertaken a plan, which includes:
the debt tender and exchange offers previously announced; a
proposed $3.5 billion secured credit facility between GMAC
and ResCap; amendments to substantially all of its secured
bilateral facilities unrelated to GMAC Bank that would extend
the maturities of such facilities and eliminate or modify the
tangible net worth covenant contained in such facilities; the
contribution to ResCap by GMAC of approximately
$350 million principal amount of outstanding ResCap notes
held by GMAC in exchange for additional ResCap preferred units;
and approximately $150 million in additional borrowings
under existing secured facilities between GMAC and ResCap, the
availability of which is subject to ResCap meeting certain
conditions. Even if ResCap is successful in implementing all of
the actions described above, satisfying its liquidity needs and
complying with any anticipated covenants to be included in
ResCaps new debt agreements requiring maintenance of
minimum cash balances may require ResCap to consummate in the
near-term certain asset sales or other capital generating
actions over and above ResCaps normal mortgage finance
activities to provide additional cash of approximately
$600 million by June 30, 2008. This additional cash
required is solely an estimate based upon internal monthly cash
forecasts targeting sufficient cash surpluses to prudently
operate ResCaps business and remain in excess of its
anticipated cash covenants.
If any of the components of ResCaps plan are unsuccessful
and its liquidity position does not otherwise improve, there is
a material risk that ResCap will be unable to meet certain of
its obligations as they come due, and meet certain financial
covenants in its credit facilities, and ResCap will be in a
negative liquidity position in June 2008.
Moreover, even if ResCap is successful in implementing all of
the actions described above, ResCaps ability to satisfy
its liquidity needs and comply with any covenants included in
its debt agreements requiring maintenance of minimum cash
balances may be affected by additional factors and events (such
as interest rate fluctuations and margin calls) that increase
ResCaps cash needs making it unable to independently
satisfy its near-term liquidity requirements.
GMACs business requires substantial capital, and if
it is unable to maintain adequate financing sources, its
profitability and financial condition will suffer and jeopardize
its ability to continue operations.
GMACs liquidity and ongoing profitability are, in large
part, dependent upon its timely access to capital and the costs
associated with raising funds in different segments of the
capital markets. GMAC depends and will continue to depend on its
ability to access diversified funding alternatives to meet
future cash flow requirements and to continue to fund its
operations. Negative credit events specific to GMAC or to us, or
other events affecting the overall debt markets have adversely
impacted GMACs funding sources, and continued or
additional negative events could further adversely impact its
funding sources, especially over the long-term.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ResCaps liquidity has been significantly impaired, and may
be further impaired, due to circumstances beyond GMACs
control, such as adverse changes in the economy and general
market conditions. Continued deterioration in ResCaps
business performance could limit, and recent reductions in
ResCaps credit ratings have limited, ResCaps ability
to access the capital markets on favorable terms. During recent
volatile times in the capital and secondary markets, especially
since August 2007, access to aggregation and other forms of
financing, as well as access to securitization and secondary
markets for the sale of ResCaps loans, has been severely
constricted. Furthermore, ResCaps access to capital has
been impacted by changes in the market value of its mortgage
products and the willingness of market participants to provide
liquidity for such products.
ResCaps liquidity may also be adversely affected by margin
calls under certain of its secured credit facilities that are
dependent in part on the lenders valuation of the
collateral securing the financing. Each of these credit
facilities allows the lender, to varying degrees, to revalue the
collateral to values that the lender considers to reflect market
values. If a lender determines that the value of the collateral
has decreased, it may initiate a margin call requiring ResCap to
post additional collateral to cover the decrease. When ResCap is
subject to such a margin call, it must provide the lender with
additional collateral or repay a portion of the outstanding
borrowings with minimal notice. Any such margin call could harm
ResCaps liquidity, results of operation, financial
condition and business prospects. Additionally, in order to
obtain cash to satisfy a margin call, ResCap may be required to
liquidate assets at a disadvantageous time, which could cause it
to incur further losses and adversely affect its results of
operations and financial condition. Furthermore, continued
volatility in the capital markets has made determination of
collateral values uncertain compared to historical experience,
and many of ResCaps lenders are taking a much more
conservative approach to valuations. As a result, the frequency
and magnitude of margin calls has increased, and GMAC expects
both to remain high compared to historical experience for the
foreseeable future.
Recent developments in the market for many types of mortgage
products (including mortgage-backed securities) have resulted in
reduced liquidity for these assets. Although this reduction in
liquidity has been most acute with regard to nonprime assets,
there has been an overall reduction in liquidity across the
credit spectrum of mortgage products. As a result, ResCaps
liquidity has been and will continue to be negatively impacted
by margin calls and changes to advance rates on its secured
facilities. One consequence of this funding reduction is that
ResCap may decide to retain interests in securitized mortgage
pools that in other circumstances it would sell to investors,
and ResCap will have to secure additional financing for these
retained interests. If ResCap is unable to secure sufficient
financing for them, or if there is further general deterioration
of liquidity for mortgage products, it will adversely impact
ResCaps business. In addition, a number of ResCaps
financing facilities have relatively short terms, typically one
year or less, and a number of facilities are scheduled to mature
during 2008. Additionally, ResCap has $4.3 billion of
unsecured long-term debt maturing in 2008, which includes
$2.3 billion of senior unsecured notes. Though ResCap has
generally been able to renew maturing facilities when needed to
fund its operations, in recent months counterparties have often
negotiated more conservative terms. Such terms have included,
among other things, shorter maturities upon renewal, lower
overall borrowing limits, lower ratios of funding to collateral
value for secured facilities and higher borrowing costs.
Facilities that were extended were generally for shorter terms
than ResCap previously has experienced. There can be no
assurance that ResCap will be able to renew other maturing
credit facilities on favorable terms, or at all.
Current conditions in the residential mortgage market and
housing markets may continue to adversely affect GMACs
earnings and financial condition.
Recently, the residential mortgage market in the United States
and Europe has experienced a variety of difficulties and changed
economic conditions that adversely affected ResCaps
earnings and financial condition in 2007 and through the three
months ended March 31, 2008. Delinquencies and losses with
respect to ResCaps nonprime mortgage loans increased
significantly and may continue to increase. Housing prices in
many parts of the United States and the United Kingdom have also
declined or stopped appreciating, after extended periods of
significant appreciation. In addition, the liquidity provided to
the mortgage sector has recently been significantly reduced.
This liquidity reduction combined with ResCaps decision to
reduce its exposure to the nonprime mortgage market caused
ResCaps nonprime mortgage production to decline, and such
declines may continue. Similar trends are emerging beyond the
nonprime sector, especially at the lower end of the prime credit
quality scale, and may have a similar effect on ResCaps
related liquidity needs and businesses in the United States and
Europe. These trends have resulted in significant writedowns to
ResCaps mortgage loans held for sale and trading
securities portfolios and additions to its allowance for loan
losses for mortgage loans held for investment and warehouse
lending receivables portfolios. A
81
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
continuation of these conditions, which GMAC anticipates in the
near-term, may continue to adversely affect ResCaps
financial condition and results of operations.
Moreover, the continued deterioration of the U.S. housing market
and decline in home prices in 2007 in many U.S. and
international markets, along with the expected continued decline
in 2008, are likely to result in increased delinquencies or
defaults on the mortgage assets ResCap owns and services.
Further, loans that were made based on limited credit or income
documentation also increase the likelihood of future increases
in delinquencies or defaults on mortgage loans. An increase in
delinquencies or defaults would result in a higher level of
credit losses and credit related expenses, which in turn will
reduce ResCaps revenues and profits. Higher credit losses
and credit-related expenses also could adversely affect
ResCaps financial condition.
ResCaps lending volume is generally related to the rate of
growth in U.S. residential mortgage debt outstanding and the
size of the U.S. residential mortgage market. Recently, the rate
of growth in total U.S. residential mortgage debt outstanding
has slowed sharply in response to the reduced activity in the
housing market and national declines in home prices. A decline
in the rate of growth in mortgage debt outstanding reduces the
number of mortgage loans available for ResCap to purchase or
securitize, which in turn could lead to a reduction in
ResCaps revenue, profits and business prospects.
Given the recent disruptions and changes in the mortgage market,
ResCap faces the need to make significant changes in its
business processes and activities. At the same time, ResCap is
experiencing losses of staff resources at many levels, as a
result of both attrition and its previously announced
restructuring. The loss of staff beyond ResCaps control
increases the difficulty it faces in executing these adaptive
changes to its business, and those difficulties represent an
additional risk to ResCaps business and operating results.
Recent negative developments in ResCaps mortgage
markets have led ResCap to reduce the number of mortgage
products it offers.
As a result of decreased liquidity for a number of mortgage
products, including nonprime mortgage products and many products
offered through ResCaps international businesses, ResCap
no longer offers those products in the affected markets. In
ResCaps domestic mortgage business, it has shifted the
bulk of its loan production to prime mortgage products that
conform to the requirements of government-sponsored enterprises.
In ResCaps international business, it generally restricts
originations to those products and markets for which liquidity
remains available. The products that are currently relatively
liquid are generally not as profitable as the broader range of
products ResCap has traditionally offered. In addition, in the
U.S. and some other markets, a number of competitors offer
similar mortgage products, resulting in compression on interest
margins and gains on sales. As a result, ResCaps
operations will generally be less profitable than they would be
if it were able to offer a more diversified product line.
Certain of GMACs owners are subject to a regulatory
agreement that may affect its control of GMAC Bank.
On February 1, 2008, Cerberus FIM, LLC, Cerberus FIM
Investors LLC and FIM Holdings LLC (collectively, FIM
Entities), submitted a letter to the FDIC requesting that
the FDIC waive certain of the requirements contained in a
two-year disposition agreement between each of the FIM Entities
and the FDIC. The agreement was entered into in connection with
our sale of 51% of the equity interest in GMAC to a consortium
of investors led by Cerberus FIM Entities and including
wholly-owned subsidiaries of Citigroup Inc., Aozora Bank Ltd.
and PNC Financial Services Group, Inc. The sale resulted in a
change of control of GMAC Bank, an industrial loan corporation,
which required the approval of the FDIC. At the time of the
sale, the FDIC had imposed a moratorium on the approval of any
applications for deposit insurance or change of control notices.
As a condition to granting the application in connection with
the change of control of GMAC Bank during the moratorium, the
FDIC required each of the FIM Entities to enter into a two-year
disposition agreement. As previously disclosed by the FDIC, that
agreement requires, among other things, that by no later than
November 30, 2008, the FIM Entities complete one of the
following actions: (1) become registered with the
appropriate federal banking agency as a depository institution
holding company pursuant to the Bank Holding Company Act or the
Home Owners Loan Act; (2) divest control of GMAC Bank
to one or more persons or entities other than prohibited
transferees; (3) terminate GMAC Banks status as an
FDIC-insured depository institution; or (4) obtain from the
FDIC a waiver of the requirements set forth in this sentence on
the ground that applicable law
82
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
and FDIC policy permit similarly situated companies to acquire
control of FDIC-insured industrial banks, provided that no
waiver request could be filed prior to January 31, 2008
unless, prior to that date, Congress enacted legislation
permitting, or the FDIC by regulation or order authorizes,
similarly situated companies to acquire control of FDIC-insured
industrial banks after January 31, 2007. GMAC cannot give
any assurance that the FDIC will approve the FIM Entities
waiver request, or, if it is approved, that it will impose no
conditions on its retention of GMAC Bank or on its operations.
However, it is worth noting that the House of Representatives
has passed a bill that would permit the FIM Entities to continue
to own GMAC Bank. The Senate Banking Committee has approved a
bill that would have the same effect. If the FDIC does not
approve the waiver GMAC could be required to sell GMAC Bank or
cause it to cease to be insured by the FDIC, or GMAC could be
subject to conditions on its retention of GMAC Bank or on its
operations in return for the waiver. Requiring GMAC to dispose
of GMAC Bank or relinquish deposit insurance would, and
imposition of such conditions, might materially adversely affect
its access to low cost liquidity and its business and operating
results.
* * * * * *
Item 2(C).
Purchases of Equity Securities
We made no purchases of our common stock in the three months
ended March 31, 2008.
* * * * * * * *
83
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Name
|
|
|
10
|
.a
|
|
Form of Restricted Stock Unit Grant made to certain executive
officers
|
|
10
|
.b
|
|
Form of Performance Contingent Stock Option Award made to
certain executive officers
|
|
23
|
|
|
Consent of Hamilton, Rabinovitz and Associates
|
|
31
|
.a
|
|
Section 302 Certification of the Chief Executive Officer
|
|
31
|
.b
|
|
Section 302 Certification of the Chief Financial Officer
|
|
32
|
.a
|
|
Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
32
|
.b
|
|
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
|
* * * * * * * *
84
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
(Registrant)
(Nick S. Cyprus, Controller and Chief Accounting Officer)
Date: May 8, 2008
85
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Name
|
|
|
10
|
.a
|
|
Form of Restricted Stock Unit Grant made to certain executive
officers
|
|
10
|
.b
|
|
Form of Performance Contingent Stock Option 2008 Award made to
certain executive officers
|
|
23
|
|
|
Consent of Hamilton, Rabinovitz and Associates
|
|
31
|
.a
|
|
Section 302 Certification of the Chief Executive Officer
|
|
31
|
.b
|
|
Section 302 Certification of the Chief Financial Officer
|
|
32
|
.a
|
|
Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
32
|
.b
|
|
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
|
86