UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549-1004

 

 

Form 10-Q

 

 

 

Commission file number 1-43

 

 

GENERAL MOTORS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

 

(313) 556-5000

Registrant’s 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):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

 

 

As of October 31, 2008, the number of shares outstanding of the Registrant’s common stock was 610,463,321 shares.

 

Website Access to Company’s Reports

 

General Motors Corporation’s 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

 

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
(Unaudited)

 

 

Reference should be made to the notes to the condensed consolidated financial statements.

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(Unaudited)

 

 

Reference should be made to the notes to the condensed consolidated financial statements.

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Dollars and shares in millions)
(Unaudited)

 

 

Reference should be made to the notes to the condensed consolidated financial statements.

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)

 

 

Reference should be made to the notes to the condensed consolidated financial statements.

Note 1. Nature of Operations

 

We (also General Motors Corporation, GM, the Corporation, our or us) 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). 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 United States Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles (GAAP) for complete financial statements. In 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.

 

 

We have had significant losses from 2005 through the nine months ended September 30, 2008, attributable to operations and to restructurings and other charges such as support for Delphi and future cost cutting measures. We have managed our liquidity during this time through a series of cost reduction initiatives, capital markets transactions and sales of assets. However, the global credit market crisis has had a dramatic effect on our industry. In the three months ended September 30, 2008, the turmoil in the mortgage and overall credit markets, continued reductions in U.S. housing values, historically high prices for energy, the high likelihood that the United States and Western Europe have entered into a recession and the slowdown of economic growth in the rest of the world, created a substantially more difficult business environment. Vehicle sales in North America and Western Europe contracted severely and the pace of vehicle sales in the rest of the world slowed. Our liquidity position, as well as our operating performance, were negatively affected by these economic and industry conditions and by other financial business factors, many of which are beyond our control. These conditions have generally worsened during October 2008, with sales of vehicles for the U.S. industry falling to 861,000 units, or a seasonally adjusted rate of 10.9 million units, which was the lowest level for October since 1982. We do not believe it is likely that these adverse economic conditions, and their effect on the automotive industry, will improve significantly in the near term, notwithstanding the unprecedented intervention by the U.S. and other governments in the global banking and financial systems.

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In the nine months ended September 30, 2008, we used $9.7 billion of cash in operations and our liquidity position deteriorated by $11.1 billion. Our cash flow deteriorated primarily due to our significant operating loss, increases in inventory balances of $2.0 billion and a decrease in accounts payable and accruals of $2.5 billion.

 

We have taken far reaching actions to restructure our U.S. business, but the effect of current global economic and credit market conditions on the automotive industry require that we obtain additional near-term liquidity support. Based on our estimated cash requirements through December 31, 2009, we do not expect our operations to generate sufficient cash flow to fund our obligations as they come due, and we do not currently have other traditional sources of liquidity available to fund these obligations.

 

On July 15, 2008, we announced a plan for a combination of operating and related initiatives, as well as asset sales and capital market activities, both to conserve cash and to generate incremental cash flows in a total amount of up to $15 billion. Reflecting the priority of addressing liquidity in the current financial environment, we announced additional operating changes on November 7, 2008. We expect these additional actions to provide an incremental $5 billion of cash savings through December 31, 2009, which combined with the previous initiatives announced on July 15, 2008, would conserve or generate cash of up to $20 billion. These various initiatives are described below, and many of them, particularly asset sales and capital market activities, will be very challenging given the current business and credit market environments. Moreover, the full impact of many of these actions will not be realized until the second half of 2009 or later, even if they are implemented successfully. Our plans also assume that we will not be required to provide additional financial support to Delphi or GMAC beyond the level previously agreed to and that our trade suppliers will continue to conduct business with us on terms consistent with historical practice.

 

Based on our most recently available information (updated after the Form 8-K filed on November 7, 2008), even if we implement the planned operating actions that are substantially within our control, our estimated liquidity during the remainder of 2008 will be at or near the minimum amount necessary to operate our business. Looking into the first two quarters of 2009, even with our planned actions, our estimated liquidity will fall significantly short of the minimum required to operate our business unless economic and automotive industry conditions significantly improve, we receive substantial proceeds from asset sales, we take more aggressive working capital initiatives, we gain access to capital markets and other private sources of funding, we receive government funding under one or more current or future programs, or some combination of the foregoing. We are actively pursuing all of these possible sources of funding, but there can be no assurance that they will supply funds in amounts and timing sufficient to meet our liquidity requirements in the first two quarters of 2009 and perhaps in later periods.

 

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is substantially dependent on the successful execution of many of the actions referred to above, on the timeline contemplated by our plan. Our interim condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that may be necessary should we be unable to continue as a going concern.

 

 

From 2005 through 2007, we took a number of steps to restructure our North American operations for sustainable profitability. These included reducing structural costs by $9 billion per year, with plans to eliminate additional annual structural costs by 2011. In addition, we reached a historic agreement with the UAW in 2007 that provided the basis for a fully competitive manufacturing base in the United States by 2010. The UAW agreement also provided for the funding of retiree health care obligations by an independent VEBA trust, commencing in 2010. We also modified our salaried employee and executive pension plans and health care coverage to reduce our unfunded liability and made significant reductions in North American manufacturing capacity and headcount.

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

During the period from 2005 to 2007, the U.S. total vehicle market ranged from 16.5 million to 17.5 million units per year, and as recently as May 2008, our operating plans were based on a market assumption of more than 15.5 million units in 2008 in the United States, which was in line with industry analysts’ consensus at that time. As global economic conditions deteriorated during 2008, we revised the assumptions underlying our operating plans and recognized that additional actions would be needed to position our operations for the continuing decline in new vehicle sales. A decline in vehicle sales and production results in outflows of cash greater than collections of accounts receivables, which has a negative impact on our working capital. This working capital impact has the effect of reducing our operating cash flow at a higher rate than the decline in vehicle unit volume.

 

On July 15, 2008, we announced new planning assumptions based on a U.S. total vehicle market of 14.3 million units in 2008 and 2009, which was at or below industry analysts’ consensus, and a U.S. market share of 21% in those years. Accordingly, we undertook a number of initiatives aimed at conserving or generating approximately $15.0 billion of cash on an incremental basis through the end of 2009. These initiatives included approximately $10 billion of operating actions that are substantially within our control, including structural cost reductions, reducing capital spending, improving working capital, reaching agreement to defer approximately $1.7 billion of scheduled payments to the UAW VEBA, and eliminating the dividend paid on our common stock. Further information about these actions follows:

 

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

The remaining $5 billion of our July liquidity plan included $2 billion to $4 billion of planned asset sales and $2 billion to $3 billion of fundraising in capital markets. We believed that these actions, together with the availability of $4.5 billion under our secured credit line, would provide sufficient liquidity for the balance of 2008 and 2009 as well. The status of these previously-announced activities as of November 7, 2008, is as follows:

 

 

 

Since July, U.S. auto industry sales have continued to erode, with light vehicle sales declining to a seasonally adjusted annual rate of 10.9 million units in October 2008. In addition to the general economic factors discussed above, conditions in the credit markets caused GMAC, like many other lenders, to suspend or severely curtail lease financing and tighten credit standards for traditional retail financing, with the result that consumers find it more difficult to finance purchases of new vehicles. GMAC and other lenders also increasingly restricted dealer financing. In light of the continued deterioration of industry vehicle sales and generally worsening economic conditions, we are now basing our operating plans on what we believe to be a conservative assumption of a 14.0 million unit U.S. total vehicle market in 2008 and 12.0 million for 2009, and we have concluded that our July 2008 initiatives will not be sufficient to ensure adequate liquidity through 2009 without further actions being taken.

 

As noted above, one consequence of the global economic downturn and credit crisis has been that capital markets have for all practical purposes been closed to GM for purposes of implementing the $2 billion to $3 billion of fundraising that was included in our July plan to bolster our liquidity during the remainder of 2008 and the first half of 2009. We explored a number of potential transactions to issue significant debt or equity capital during the three months ended September 30, 2008, but were unable to do so on acceptable terms. In the three months ended September 30, 2008, we exchanged $0.5 billion of principal amount of our outstanding Series D convertible bonds due in June 2009 for newly issued GM common stock. As it is unlikely we will be able to execute an additional capital markets transaction in the near term, our ability to meet our liquidity needs relies on our ability to successfully implement other initiatives in our liquidity plans. The global credit market further deteriorated in September with the failures of several large financial institutions and the merger of others. Accordingly, on September 24, 2008, in order to have certainty of access to funding, we drew down the remaining $3.4 billion of funding available under our secured revolving credit facility. We had previously drawn $1.0 billion on August 1, 2008 to assist in meeting our seasonal working capital needs.

 

Reflecting the priority of addressing liquidity, we announced additional operating changes and other actions on November 7, 2008. Taken together, we expect these actions to provide an incremental $5.0 billion of cash savings through December 31,

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

2009, which combined with previous initiatives announced on July 15, 2008, would conserve or generate cash of up to $20.0 billion. These additional actions include:

 

 

These actions are intended to conserve or generate cash of up to $20.0 billion in response to deterioration in the global economy, particularly the automotive industry, so that we can preserve adequate liquidity throughout the period from September 30, 2008 to December 31, 2009. However, the full effect of many of these actions will not be realized until later in 2009, even if they are successfully implemented. We are committed to exploring all of the initiatives discussed above because there is no assurance that industry or capital markets conditions will improve within that time frame. Our ability to continue as a going concern is substantially dependent on the successful execution of many of the actions referred to above, on the timeline contemplated by our plans.

 

 

We reclassified prior period results for the retroactive effect of discontinued operations. Refer to Note 3. In the nine months ended September 30, 2008, we reclassified immaterial amounts related to a vehicle assembly agreement from Automotive cost of sales to Automotive sales to report the arrangement on a net basis for all periods presented. Certain reclassifications, including inter-segment eliminations between Corporate and FIO, have been made to the 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 company-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

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

observable inputs to the valuation of an asset or liability at 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 Standards Board (FASB) approved FASB Staff Position (FSP) No. FAS 157-2, “Effective Date of FASB Statement No. 157” (FSP No. FAS 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 on a nonrecurring basis. FSP No. FAS 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 6 for the effect the adoption by GMAC of this standard had on our financial condition. Refer to Note 13 for more information regarding the effect of our adoption of SFAS No. 157 with respect to financial assets and liabilities. We are currently unable to quantify the effect, if any that the adoption of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities will have on our financial condition and results of operations.

 

 

On January 1, 2008 we adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (SFAS No. 159), which permits a company 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 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 effect on our results of operations. Refer to Note 6 for the effect the adoption by GMAC of this standard had on our financial condition.

 

 

In October 2008 the FASB issued FSP No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (FSP No. 157-3), which clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The effect of applying the guidance in FSP No. 157-3 at September 30, 2008 was not material.

 

 

On January 1, 2007 we adopted FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (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 were required to adjust their financial statements to reflect only those tax positions that are more likely than not to be sustained. We adopted FIN No. 48 at January 1, 2007, and recorded a decrease to Accumulated deficit of $137 million as a cumulative effect of a change in accounting principle with a corresponding decrease to our liability for uncertain tax positions.

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 that all business combinations be accounted for at fair value under the acquisition method of accounting. However, SFAS No. 141(R) changes 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 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 SFAS No. 141(R) should also apply the provisions of this standard. Once effective, this standard will be applied to all future business combinations.

 

 

In December 2007 the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51” (SFAS No. 160), which amends 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; (4) upon a loss of control, any gain or loss on the interest sold be recognized in earnings; and (5) the noncontrolling interest’s share be recorded at the fair value of net assets acquired, plus its share of goodwill. SFAS No. 160 is effective on a prospective basis for 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.

 

 

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), which 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 a company 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 a company’s 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 a company’s risk exposures, quantitative disclosures about the location and fair value of derivative instruments and associated gains and losses, and disclosures about credit-risk-related

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

contingent features in derivative instruments. SFAS No. 161 is effective for fiscal years and interim periods within those fiscal years, beginning after November 15, 2008.

 

 

In May 2008 the FASB ratified FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)” (FSP No. APB 14-1), which requires issuers of convertible debt securities within its scope to separate these securities into a debt component and an equity component, resulting in the debt component being recorded at fair value without consideration given to the conversion feature. Issuance costs are also allocated between the debt and equity components. FSP No. APB 14-1 will require that convertible debt within its scope reflect a company’s nonconvertible debt borrowing rate when interest expense is recognized. FSP No. APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and shall be applied retrospectively to all prior periods. We estimate that upon adoption, interest expense will increase for all periods presented with fiscal year 2009 pre-tax interest expense increasing by approximately $110 million based on our current level of indebtedness.

 

 

In June 2008 the FASB ratified FSP No EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (FSP No. EITF 03-6-1), which addresses whether instruments granted in share-based payment awards are participating securities prior to vesting and, therefore, must be included in the earnings allocation in calculating earnings per share under the two-class method described in SFAS No. 128, “Earnings per Share” (SFAS No. 128). FSP No. EITF 03-6-1 requires that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend-equivalents be treated as participating securities in calculating earnings per share. FSP No. EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and shall be applied retrospectively to all prior periods. We are currently evaluating the effects, if any, that FSP No. EITF 03-6-1 may have on our earnings per share.

 

 

In June 2008 the FASB ratified EITF No. 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (EITF No. 07-5), which requires that an instrument’s contingent exercise provisions be analyzed first. If this evaluation does not preclude consideration of an instrument as indexed to its own stock, the instrument’s settlement provisions are then analyzed. EITF No. 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, with recognition of a cumulative effect of a change in accounting principle for all instruments existing at the effective date to the balance of retained earnings. We are currently evaluating the effects, if any, that EITF No. 07-5 may have on our financial condition and results of operations.

 

 

In December 2007 the FASB ratified EITF 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 company’s financial statements pursuant to the guidance in EITF No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” (EITF No. 99-19), and not account for such arrangements using the equity method of accounting. EITF No. 07-1 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

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 consolidated financial statements.

 

 

In June 2008 the FASB ratified EITF No. 08-3, “Accounting by Lessees for Nonrefundable Maintenance Deposits” (EITF No. 08-3), which specifies that nonrefundable maintenance deposits that are contractually and substantively related to maintenance of leased assets be accounted for as deposit assets. EITF No. 08-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, with recognition of a cumulative effect of a change in accounting principle to the opening balance of retained earnings for the first year presented. We are currently evaluating the effects, if any, that EITF No. 08-3 may have on our financial condition and results of operations.

 

Note 3. Divesture of 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 our condensed consolidated financial statements as discontinued operations in the three and nine months ended September 30, 2007. Historically, Allison was reported within GMNA.

 

The following table summarizes the results of discontinued operations:

 

 

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 the same terms as our loan to the new parent company of Allison. At September 30, 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. Finance Receivables and Securitizations

 

We generate receivables from sales of vehicles to our dealer network domestically, as well as from service parts and powertrain sales. In connection with the related trade accounts receivables program, in September 2007 we renewed an agreement to sell undivided interests in eligible trade receivables of up to $600 million directly to banks and to a bank conduit. Under this agreement, the receivables were sold at fair market value and removed from our condensed consolidated balance sheet at the time of sale. This agreement expired in September 2008.

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In September 2008, we entered into a one year revolving securitization borrowing program that provides financing of up to $197 million. The trade receivables, which serve as security under this agreement, are isolated in wholly-owned bankruptcy remote special purpose entities, which in turn pledge the receivables to lending institutions. The pledged receivables are reported in Accounts and notes receivable, net and borrowings are reported as Short-term borrowings on the condensed consolidated balance sheet. At September 30, 2008, $451 million of receivables were pledged and borrowings of $180 million were outstanding under this program.

 

Note 5. Inventories

 

The following table summarizes the components of inventory:

 

 

Note 6. Investment in Nonconsolidated Affiliates

 

The following table summarizes information regarding our share of net income (loss) of our nonconsolidated affiliates:

 

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following tables summarize financial information of GMAC:

 

 

 

The following table summarizes information related to our Preferred and Common Membership Interests in GMAC:

 

 

In the three month periods ended March 31 and June 30, 2008, we determined that our investment in GMAC Common Membership Interests was impaired and in the three month periods ended March 31, June 30 and September 30, 2008 that our investment in GMAC Preferred Membership Interests was impaired and that such impairments were other than temporary.

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table summarizes the impairment charges we have recorded against our investment in GMAC Common and Preferred Membership Interests:

 

 

Impairment charges are recorded in Equity in loss of GMAC LLC and Automotive interest income and other non-operating income, net for our investment in GMAC Common and Preferred Membership Interests, respectively.

 

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 13 for further information on the specific valuation methodology.

 

In the nine months ended September 30, 2008, GMAC was not required under the terms of the Preferred Membership Interests to, and elected not to, pay a dividend on our Preferred Membership Interests. We accrued dividends of $39 million and $116 million in the three and nine months ended September 30, 2007, respectively, related to our Preferred Membership Interests and such dividends were subsequently paid to us by GMAC.

 

On January 1, 2008 GMAC adopted SFAS No. 157 and No. 159. As a result of its 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 its 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 $76 million in the nine months ended September 30, 2008 reflecting our proportionate share of the cumulative effect of GMAC’s adoption of SFAS No. 157 and No. 159.

 

Refer to Note 18 for a description of the related party transactions with GMAC.

 

 

In April 2008 we converted a note receivable with a basis of $37 million, which resulted from the sale of our Electro-Motive Division in April 2005, into a 30% common equity interest in Electro-Motive Diesel, Inc. the successor company (EMD). We subsequently sold our common equity interest in EMD for $80 million in cash and a note receivable of $7 million, due in December 2008. In the nine months ended September 30, 2008, we recognized a gain on the sale of our common equity interest of $50 million, which is recorded in Automotive interest income and other non-operating income, net.

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 7. Depreciation and Amortization

 

The following table summarizes depreciation and amortization, including asset impairment charges, included in Automotive cost of sales, Selling, general and administrative expense, and Financial services and insurance expense:

 

 

Note 8. Long-Term Debt and Revolving Credit Agreements

 

 

In September 2008, we entered into agreements with a qualified institutional holder of our 1.50% Series D convertible senior debentures due in 2009 (Series D debentures). Pursuant to these agreements, we issued an aggregate of 44 million shares of our common stock in exchange for $498 million principal amount of our Series D debentures. In accordance with the agreements, the amount of our common stock exchanged for the Series D debentures was based on the daily volume weighted average price of our common stock on the New York Stock Exchange (NYSE) in the contractual three- and four-day pricing periods.

 

We entered into the agreements, in part, to reduce our debt and interest costs, increase our equity, and thereby improve our liquidity. We did not receive any cash proceeds from the exchange of our common stock for the Series D debentures, which have been retired and cancelled. As a result of this exchange, we recorded a settlement gain of $19 million in Automotive interest income and other non-operating income, net in the three and nine months ended September 30, 2008.

 

On March 6, 2007, Series A convertible debentures in the amount of $1.1 billion were put to us and settled entirely in cash. At September 30, 2008 and 2007, the principal amount of outstanding Series A convertible debentures was $39 million.

 

 

On August 1, 2008 and September 24, 2008, we borrowed $1.0 billion and $3.4 billion, respectively, against our $4.5 billion standby revolving credit facility, which terminates in 2011. Under the secured facility, borrowings are limited to an amount based on the value of the underlying collateral. At September 30, 2008, $4.4 billion was outstanding under this facility, with no further availability.

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 9. Product Warranty Liability

 

The following table summarizes activity for policy, product warranty, recall campaigns and certified used vehicle warranty liabilities:

 

 

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 10. Pensions and Other Postretirement Benefits

 

The following tables summarize the components of Net periodic pension and other postretirement benefits (OPEB) (income) expense from continuing operations:

 

 

 

GENERAL MOTORS CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)