UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549-1004 20549
FORM 10-Q
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þ | | 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,June 30, 2007, or |
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o | | 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 . |
Commission file number: 1-3754
GMAC LLC
(Exact name of registrant as specified in its charter)
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Delaware | | 38-0572512 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
200 Renaissance Center
P.O. Box 200 Detroit, Michigan
48265-2000
(Address of principal executive offices)
(Zip Code)
(313) 556-5000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
Yesþ Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non- accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act). (Check one):
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Large accelerated filer o | Accelerated filer o | Non-accelerated filerþ |
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).
Yeso Noþ
PART I.I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
GMAC LLC
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2006
| | | Three months ended June 30, | | Six months ended June 30, | |
| | | | (As restated
| | | | | 2006
| | | | 2006
| |
Three months ended March 31,($ in millions) | | 2007 | | see Note 1) | | |
| | | | | (As restated
| | | | (As restated
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($ in millions) | | | 2007 | | see Note 1) | | 2007 | | see Note 1) | |
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Revenue | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | $2,528 | | | | $2,569 | | | | $2,438 | | | | $2,587 | | | | $4,966 | | | | $5,156 | |
Commercial | | | 723 | | | | 726 | | | | 754 | | | | 782 | | | | 1,477 | | | | 1,508 | |
Loans held for sale | | | 479 | | | | 481 | | | | 396 | | | | 371 | | | | 874 | | | | 851 | |
Operating leases | | | 1,568 | | | | 1,929 | | | | 1,728 | | | | 2,026 | | | | 3,296 | | | | 3,954 | |
| | Total financing revenue | | | 5,298 | | | | 5,705 | | | | 5,316 | | | | 5,766 | | | | 10,613 | | | | 11,469 | |
Interest expense | | | 3,673 | | | | 3,814 | | | | 3,735 | | | | 4,023 | | | | 7,407 | | | | 7,836 | |
| | Net financing revenue before provision for credit losses | | | 1,625 | | | | 1,891 | | | | 1,581 | | | | 1,743 | | | | 3,206 | | | | 3,633 | |
Provision for credit losses | | | 681 | | | | 166 | | | | 430 | | | | 268 | | | | 1,111 | | | | 434 | |
| | Net financing revenue | | | 944 | | | | 1,725 | | | | 1,151 | | | | 1,475 | | | | 2,095 | | | | 3,199 | |
Servicing fees | | | 559 | | | | 472 | | | | 556 | | | | 446 | | | | 1,116 | | | | 918 | |
Amortization and impairment of servicing rights | | | — | | | | (23 | ) | | | — | | | | — | | | | — | | | | (23 | ) |
Servicing asset valuation and hedge activities, net | | | (302 | ) | | | (186 | ) | | | (152 | ) | | | (171 | ) | | | (454 | ) | | | (356 | ) |
| | Net loan servicing income | | | 257 | | | | 263 | | | | 404 | | | | 275 | | | | 662 | | | | 539 | |
Insurance premiums and service revenue earned | | | 1,041 | | | | 1,010 | | | | 1,051 | | | | 1,052 | | | | 2,092 | | | | 2,062 | |
(Loss) gain on sale of mortgage and automotive loans | | | (37 | ) | | | 364 | | |
Gain on sale of mortgage and automotive loans, net | | | | 399 | | | | 504 | | | | 363 | | | | 869 | |
Investment income | | | 309 | | | | 258 | | | | 227 | | | | 297 | | | | 535 | | | | 555 | |
Gain on sale of equity method investments, net | | | | — | | | | 411 | | | | — | | | | 411 | |
Other income | | | 866 | | | | 1,004 | | | | 786 | | | | 983 | | | | 1,651 | | | | 1,986 | |
| | Total net financing revenue and other income | | | 3,380 | | | | 4,624 | | | | 4,018 | | | | 4,997 | | | | 7,398 | | | | 9,621 | |
Expense | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation expense on operating lease assets | | | 1,081 | | | | 1,440 | | | | 1,173 | | | | 1,346 | | | | 2,255 | | | | 2,786 | |
Compensation and benefits expense | | | 635 | | | | 718 | | | | 647 | | | | 665 | | | | 1,281 | | | | 1,383 | |
Insurance losses and loss adjustment expenses | | | 573 | | | | 597 | | | | 563 | | | | 653 | | | | 1,136 | | | | 1,250 | |
Other operating expenses | | | 1,246 | | | | 1,152 | | | | 1,183 | | | | 1,186 | | | | 2,429 | | | | 2,337 | |
| | Total noninterest expense | | | 3,535 | | | | 3,907 | | | | 3,566 | | | | 3,850 | | | | 7,101 | | | | 7,756 | |
Income (loss) before income tax expense | | | (155 | ) | | | 717 | | |
Income before income tax expense | | | | 452 | | | | 1,147 | | | | 297 | | | | 1,865 | |
Income tax expense | | | 150 | | | | 222 | | | | 159 | | | | 360 | | | | 309 | | | | 582 | |
| | Net income (loss) | | | ($305 | ) | | | $495 | | | | $293 | | | | $787 | | | | ($12 | ) | | | $1,283 | |
| | Preferred interests dividends | | | (52 | ) | | | — | | | | (53 | ) | | | — | | | | (104 | ) | | | — | |
| | Net income (loss) available to members | | | ($357 | ) | | | $495 | | | | $240 | | | | — | | | | ($116 | ) | | | — | |
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The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
3
GMAC LLC
| | | | | | | | | | | | | | | | |
| | March 31,
| | December 31,
| | | June 30,
| | December 31,
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($ in millions) | | 2007 | | 2006 | | | 2007 | | 2006 | |
| | | | |
Assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | $9,657 | | | | $15,459 | | | | $12,223 | | | | $15,459 | |
Investment securities | | | 17,516 | | | | 16,791 | | | | 20,261 | | | | 16,791 | |
Loans held for sale | | | 22,086 | | | | 27,718 | | | | 20,268 | | | | 27,718 | |
Finance receivables and loans, net of unearned income | | | | | | | | | | | | | | | | |
Consumer | | | 126,023 | | | | 130,542 | | | | 121,638 | | | | 130,542 | |
Commercial | | | 42,727 | | | | 43,904 | | | | 44,018 | | | | 43,904 | |
Allowance for credit losses | | | (3,733 | ) | | | (3,576 | ) | | | (3,464 | ) | | | (3,576 | ) |
| | Total finance receivables and loans, net | | | 165,017 | | | | 170,870 | | | | 162,192 | | | | 170,870 | |
Investment in operating leases, net | | | 25,881 | | | | 24,184 | | | | 28,893 | | | | 24,184 | |
Notes receivable from General Motors | | | 2,231 | | | | 1,975 | | | | 2,118 | | | | 1,975 | |
Mortgage servicing rights | | | 5,108 | | | | 4,930 | | | | 6,041 | | | | 4,930 | |
Premiums and other insurance receivables | | | 2,116 | | | | 2,016 | | | | 2,206 | | | | 2,016 | |
Other assets | | | 25,520 | | | | 23,496 | | | | 25,076 | | | | 23,496 | |
| | Total assets | | | $275,132 | | | | $287,439 | | | | $279,278 | | | | $287,439 | |
| | Liabilities | | | | | | | | | | | | | | | | |
Debt | | | | | | | | | | | | | | | | |
Unsecured | | | $106,729 | | | | $113,500 | | | | $110,816 | | | | $113,500 | |
Secured | | | 116,998 | | | | 123,485 | | | | 113,638 | | | | 123,485 | |
| | Total debt | | | 223,727 | | | | 236,985 | | | | 224,454 | | | | 236,985 | |
Interest payable | | | 2,289 | | | | 2,592 | | | | 2,403 | | | | 2,592 | |
Unearned insurance premiums and service revenue | | | 5,051 | | | | 5,002 | | | | 5,168 | | | | 5,002 | |
Reserves for insurance losses and loss adjustment expenses | | | 2,627 | | | | 2,630 | | | | 3,081 | | | | 2,630 | |
Accrued expenses and other liabilities | | | 23,083 | | | | 22,659 | | | | 25,238 | | | | 22,659 | |
Deferred income taxes | | | 1,063 | | | | 1,007 | | | | 1,121 | | | | 1,007 | |
| | Total liabilities | | | 257,840 | | | | 270,875 | | | | 261,465 | | | | 270,875 | |
Preferred interests | | | 2,226 | | | | 2,195 | | | | 2,226 | | | | 2,195 | |
Equity | | | | | | | | | | | | | | | | |
Members’ interest | | | 7,745 | | | | 6,711 | | | | 7,744 | | | | 6,711 | |
Retained earnings | | | 6,816 | | | | 7,173 | | | | 7,057 | | | | 7,173 | |
Accumulated other comprehensive income | | | 505 | | | | 485 | | | | 786 | | | | 485 | |
| | Total equity | | | 15,066 | | | | 14,369 | | | | 15,587 | | | | 14,369 | |
| | Total liabilities, preferred interests and equity | | | $275,132 | | | | $287,439 | | | | $279,278 | | | | $287,439 | |
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The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
4
GMAC LLC
ThreeSix Months Ended March 31,June 30, 2007 and 2006
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common
| | | | | | Accumulated
| | | | | | | Common
| | | | | | Accumulated
| | | | | |
| | stock and
| | | | | | other
| | | | | | | stock and
| | | | | | other
| | | | | |
| | paid-in
| | Members’
| | Retained
| | comprehensive
| | Total
| | Comprehensive
| | | paid-in
| | Members’
| | Retained
| | comprehensive
| | Total
| | Comprehensive
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($ in millions) | | capital | | interest | | earnings | | income | | equity | | income (loss) | | | capital | | interest | | earnings | | income | | equity | | income | |
| | | | |
Balance at January 1, 2006 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(As restated, see Note 1) | | | $5,760 | | | | $— | | | | $15,095 | | | | $830 | | | | $21,685 | | | | | | | | $5,760 | | | | $— | | | | $15,095 | | | | $830 | | | | $21,685 | | | | | |
Net income | | | — | | | | — | | | | 495 | | | | — | | | | 495 | | | | $495 | | | | — | | | | — | | | | 1,283 | | | | — | | | | 1,283 | | | | $1,283 | |
Cumulative effect of a change in accounting principle, net of tax: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfer of unrealized loss for certain available for sale securities to trading securities | | | — | | | | — | | | | (17 | ) | | | 17 | | | | — | | | | | | | | — | | | | — | | | | (17 | ) | | | 17 | | | | — | | | | — | |
Recognize mortgage servicing rights at fair value | | | — | | | | — | | | | 4 | | | | — | | | | 4 | | | | 4 | | | | — | | | | — | | | | 4 | | | | — | | | | 4 | | | | 4 | |
Dividends paid | | | | — | | | | — | | | | (1,411 | ) | | | — | | | | (1,411 | ) | | | — | |
Other comprehensive income | | | — | | | | — | | | | — | | | | 85 | | | | 85 | | | | 85 | | | | — | | | | — | | | | — | | | | 132 | | | | 132 | | | | 132 | |
| | Balance at March 31, 2006 (As restated, see Note 1) | | | $5,760 | | | | $— | | | | $15,577 | | | | $932 | | | | $22,269 | | | | $584 | | |
Balance at June 30, 2006 | | | | | | | | | | | | | | | | | | | | | | | | | |
(As restated, see Note 1) | | | | $5,760 | | | | $— | | | | $14,954 | | | | $979 | | | | $21,693 | | | | $1,419 | |
| | Balance at January 1, 2007 | | | $— | | | | $6,711 | | | | $7,173 | | | | $485 | | | | $14,369 | | | | | | | | $— | | | | $6,711 | | | | $7,173 | | | | $485 | | | | $14,369 | | | | | |
Net loss | | | — | | | | — | | | | (305 | ) | | | — | | | | (305 | ) | | | ($305 | ) | | | — | | | | — | | | | (12 | ) | | | — | | | | (12 | ) | | | ($12 | ) |
Preferred interests dividends | | | — | | | | — | | | | (52 | ) | | | — | | | | (52 | ) | | | | | |
Preferred interest dividends | | | | — | | | | — | | | | (104 | ) | | | — | | | | (104 | ) | | | — | |
Capital contributions | | | — | | | | 1,034 | | | | — | | | | — | | | | 1,034 | | | | | | | | — | | | | 1,033 | | | | — | | | | — | | | | 1,033 | | | | — | |
Other comprehensive income | | | — | | | | — | | | | — | | | | 20 | | | | 20 | | | | 20 | | | | — | | | | — | | | | — | | | | 301 | | | | 301 | | | | 301 | |
| | Balance at March 31, 2007 | | | $— | | | | $7,745 | | | | $6,816 | | | | $505 | | | | $15,066 | | | | ($285 | ) | |
Balance at June 30, 2007 | | | | $— | | | | $7,744 | | | | $7,057 | | | | $786 | | | | $15,587 | | | | $289 | |
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The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
5
GMAC LLC
ThreeSix Months Ended March 31,June 30, 2007 and 2006
| | | | | | | | | | | | | | | | |
($ in millions) | | 2007 | | 2006 | | | 2007 | | 2006 | |
| | | | |
Operating activities | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | | $4,872 | | | | ($1,978 | ) | | | $6,422 | | | | ($4,471 | ) |
| | Investing activities | | | | | | | | | | | | | | | | |
Purchases of available for sale securities | | | (11,960 | ) | | | (5,399 | ) | | | (8,892 | ) | | | (11,416 | ) |
Proceeds from sale of available for sale securities | | | 2,343 | | | | 1,290 | | |
Proceeds from sales of available for sale securities | | | | 3,563 | | | | 2,323 | |
Proceeds from maturities of available for sale securities | | | 9,976 | | | | 3,618 | | | | 3,511 | | | | 7,912 | |
Net decrease (increase) in finance receivables and loans | | | 580 | | | | (24,943 | ) | |
Net increase in finance receivables and loans | | | | (47,973 | ) | | | (51,739 | ) |
Proceeds from sales of finance receivables and loans | | | 5,147 | | | | 32,782 | | | | 55,742 | | | | 63,595 | |
Purchases of operating lease assets | | | (4,621 | ) | | | (4,524 | ) | | | (11,579 | ) | | | (9,070 | ) |
Disposals of operating lease assets | | | 1,861 | | | | 1,625 | | | | 5,307 | | | | 3,411 | |
Change in notes receivable from General Motors | | | (252 | ) | | | (206 | ) | |
Net increase in notes receivable from General Motors | | | | (121 | ) | | | (512 | ) |
Purchases of mortgage servicing rights, net | | | — | | | | (56 | ) | | | — | | | | (55 | ) |
Acquisitions of subsidiaries, net of cash acquired | | | — | | | | (322 | ) | | | (287 | ) | | | (324 | ) |
Proceeds from sale of business unit, net of cash (a) | | | — | | | | 7,943 | | |
Proceeds from sale of business units, net of cash (a) | | | | — | | | | 8,550 | |
Settlement of residual support and risk sharing obligations with GM | | | | — | | | | 1,074 | |
Other, net (b) | | | (984 | ) | | | (801 | ) | | | 2,358 | | | | (585 | ) |
| | Net cash provided by investing activities | | | 2,090 | | | | 11,007 | | | | 1,629 | | | | 13,164 | |
| | Financing activities | | | | | | | | | | | | | | | | |
Net change in short-term debt | | | (797 | ) | | | (5,567 | ) | | | (3,565 | ) | | | (6,927 | ) |
Proceeds from issuance of long-term debt | | | 13,678 | | | | 23,766 | | | | 33,531 | | | | 42,226 | |
Repayments of long-term debt | | | (26,478 | ) | | | (26,749 | ) | | | (43,029 | ) | | | (43,205 | ) |
Other financing activities (c) | | | 836 | | | | 1,081 | | | | 1,897 | | | | 1,918 | |
Dividends paid | | | (21 | ) | | | — | | | | (74 | ) | | | (1,411 | ) |
| | Net cash used in financing activities | | | (12,782 | ) | | | (7,469 | ) | | | (11,240 | ) | | | (7,399 | ) |
| | Effect of exchange rate changes on cash and cash equivalents | | | 18 | | | | (3 | ) | | | (47 | ) | | | 97 | |
| | Net (decrease) increase in cash and cash equivalents | | | (5,802 | ) | | | 1,557 | | | | (3,236 | ) | | | 1,391 | |
Cash and cash equivalents at beginning of year | | | 15,459 | | | | 15,795 | | | | 15,459 | | | | 15,795 | |
| | Cash and cash equivalents at March 31, | | | $9,657 | | | | $17,352 | | |
Cash and cash equivalents at June 30, | | | | $12,223 | | | | $17,186 | |
| |
| |
(a) | Includes proceeds from the March 23, 2006, sale of GMAC Commercial Mortgage of approximately $1.5 billion and proceeds from repayment of intercompany loans of approximately $7.3 billion $250 of which $250 was received in preferred equity and net of cash transferred to purchaser of approximately $650. |
(b) | Includes $618 and $558$491 for the threesix months ended March 31,June 30, 2007 and 2006, respectively, related to securities lending transactions where cash collateral is received and a corresponding liability is recorded, both of which are presented in investing activities. |
(c) | Includes $1 billion capital contribution from General Motors during the threesix months ended March 31,June 30, 2007, pursuant to the terms of General Motors’ November 30, 2006, sale of a 51% interest in GMAC to FIM Holdings LLC. |
The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
6
GMAC LLC
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Basis of Presentation
GMAC LLC (referred to herein as GMAC, we, our or us) was founded in 1919 as a wholly owned subsidiary of General Motors Corporation (General Motors or GM). On November 30, 2006, GM sold a 51% interest in us for approximately $7.4 billion (the Sale Transactions) to FIM Holdings LLC (FIM Holdings). FIM Holdings is an investment consortium led by Cerberus FIM Investors, LLC, the sole managing member, andmember. The consortium also includingincludes Citigroup Inc., Aozora Bank Ltd., and a subsidiary of The PNC Financial Services Group, Inc.
The Condensed Consolidated Financial Statements as of March 31,June 30, 2007, and for the first quarterthree months and six months ended March 31,June 30, 2007 and 2006, are unaudited but, in management’s opinion, include all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the results for the interim periods.
The interim periodinterim-period consolidated financial statements, including the related notes, are condensed and are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim reporting. These interim periodinterim-period Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements, which are included in our Annual Report onForm 10-K for the year ended December 31, 2006, filed with the United States Securities and Exchange Commission (SEC) on March 13, 2007.
Restatement of Previously Issued Condensed Consolidated Financial Statements
As discloseddiscussed in our 2006Form 10-K and discussed in Note 2 to the Condensed Consolidated Financial Statements, we are restating our historical Condensed Consolidated Balance Sheet as of March 31, 2006,June 30, 2006; our Condensed Consolidated StatementStatements of Income for the three and six months ended March 31, 2006,June 30, 2006; and our Condensed Consolidated Statement of Changes in Equity for the threesix months ended March 31,June 30, 2006. This restatement relates to the accounting treatment for certain hedging transactions under Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted (SFAS 133). We are also correcting certain otherout-of-period errors whichthat were deemed immaterial, individually and in the aggregate, in the periods in which they were originally recorded and identified. These items relate to transactions involving certain transfers of financial assets, valuations of certain financial instruments, amortization of unearned income on certain products, income taxes, and other inconsequential items. Because of this derivative restatement, we are correcting these amounts to record them in the proper period.
Share-Based Compensation Plans
TheDuring the fourth quarter of 2006, the Compensation Committee approved two, new, shared-based compensation plans for executives, during the fourth quarter of 2006, which include a Long-Term Phantom Interest Plan (LTIP) and a Management Profits Interest Plan (MPI). These compensation plans provide our executives with an opportunity to share in the future growth in value of GMAC. While the plans were formed in 2006, no grants were made until the first quarter of 2007.
The LTIP is an incentive plan for executives based on the appreciation of GMAC’s value in excess of a preferred return of 10% to certain of our investors during a three-year performance period. The awards vest at the end of the performance period and are paid in cash following a valuation of GMAC performed by FIM Holdings. The awards do not entitle the participant to an equity ownership interest in GMAC. The plan authorizes 500 units to be granted for the performance period ending December 31, 2009. GMAC2009, of which 358 units were granted 50 units on Januaryand outstanding at June 30, 2007, and 314 units on March 19, 2007. The LTIP awards are accounted for under SFAS No. 123(R),Share-Based Payment(SFAS 123(R)), as they meet the definition of share-based compensation awards. Under SFAS 123(R), the awards require liability treatment and are remeasured quarterly at fair market value until they are settled. The compensation cost related to these awards will be ratably charged to expense over the requisite
7
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
service period, which is the vesting period ending December 31, 2009. The quarterly fair value remeasurement will encompass changes in the market and industry, as well as our latest forecasts for the performance period. Changes in fair value relating to the portion of the awards
7
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
that have vested will be recognized in earnings in the period in which suchthe changes occur. The fair market value of the awards granted during the first quarter ofoutstanding at June 30, 2007, was approximately $78$48 million, as of March 31, 2007, of which $4$2 million wasand $6 million were recognized as expense induring the first quarter of 2007.three months and six months ended June 30, 2007, respectively.
The MPI is an incentive plan whereby Class C Membership interests in GMAC held by a management company are granted to senior executives. The total Class C Membership interests are 5,820, of which 3,7033,561 were awarded on January 3,outstanding at June 30, 2007. Half of the awards vest based on a service requirement, and half vest based on meeting operating performance objectives. The service portion vests ratably over five years beginning January 3, 2008, and on each of the next four anniversaries thereafter. The performance portion vests based on five separate annual targets established at the beginning of each year. If the performance objectives are met, that year’s pro rata share of the awards vest. If the current year objectives are not met, but the annual performance objectives of a subsequent year are met, all unvested shares from previous years will vest. Any unvested awardawards as of December 31, 2011, shall be forfeited. The MPI awards are accounted for under SFAS 123(R) as they meet the definition of share-based compensation awards. Under SFAS 123(R), the awards require equity treatment and are fair valued as of their grant date using assumptions such as our forecasts, historical trends, and the overall industry and market environment. Annual performance objectives for periods after 2007 have not been established. Therefore, awards with these objectives are not deemed to be granted under SFAS 123(R) as the terms and conditionconditions for vesting have not been communicated to the participants. Compensation expense for the MPI shares is ratably charged to expense over the five-year requisite service period for service basedservice-based awards and over each one-year requisite service period for the performance basedperformance-based awards, both to the extent ofthe awards that actually vest. The fair market value of the 2,2212,137 awards deemed granted in the first quarter ofand outstanding at June 30, 2007, was approximately $12 million, of which $1 million wasand $2 million were recognized as expense induring the first quarter of 2007.three months and six months ended June 30, 2007, respectively.
Change in Accounting Principle
Financial Accounting Standards Board (FASB) Interpretation No. 48 — On January 1, 2007, we adopted FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes (FIN(FIN 48), which clarifies SFAS No. 109,Accounting for Income Taxes, by defining the confidence level that an incomea tax position must meet in order to be recognized in the financial statements. FIN 48 requires that the tax effects of a position be recognized only if it is “more-likely-than-not” to be sustained solely on its technical merits. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position. If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the tax position are to be recognized. The cumulative effect of applying FIN 48 is to be recorded directly to retained earnings and reported as a change in accounting principle. The adoption of this interpretation as of January 1, 2007, did not have a material impact on our consolidated financial position. Gross unrecognized tax benefits totaled approximately $126 million at January 1, 2007, of which approximately $124 million would affect our effective tax rate, if recognized.
We recognize interest and penalties accrued related to uncertain income tax positions in interest expense and other operating expenses, respectively. As of January 1, 2007, we had approximately $116 million accrued for the payment of interest and penalties.
There werehave been no significant changes to the liability for uncertain income tax positions duringsince the quarter ended March 31, 2007.adoption of FIN 48.
Effective November 28, 2006, GMAC, in connection with the Sale Transactions, along with certain U.S. subsidiaries, became disregarded or pass-through entities for U.S. federal income tax purposes. Our banking, insurance, and foreign subsidiaries are generally corporations and continue to be subject to and
8
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
provide for U.S. federal, state, and local, andor foreign income taxes. With few exceptions, we are no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years before 1999. We anticipate the Internal Revenue Service examination of our U.S. income tax returns for 2001 through 2003, along with examinations by various state and local jurisdictions, will be completed by the end of 2007. As such,Therefore, it is possible that certain tax positions may be settled, and the unrecognized tax benefits would decrease by approximately $11 million.
8
GMAC LLCmillion over the next twelve months.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Recently Issued Accounting Standards
Statement of Position05-1— In September 2005 the American Institute of Certified Public Accountants (AICPA) issued Statement of Position05-1,Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts(SOP 05-1).SOP 05-1 provides guidance on accounting for deferred acquisition costs on internal replacements of insurance contracts.SOP 05-1 defines an internal replacement and specifies the conditions that determine whether the replacement contract is substantially or unsubstantially changed from the replaced contract. An internal replacement determined to result in a substantially changed contract should be accounted for as an extinguishment of the replaced contract; unamortized deferred acquisition costs and unearned revenue liabilities of the replaced contract should no longer be deferred. An internal replacement determined to result in an unsubstantially changed contract should be accounted for as a continuation of the replaced asset.SOP 05-01 introduces the terms “integrated” and “non-integrated” contract features and specifies that non-integrated features do not change the base contract and are to be accounted for in a manner similar to a separately issued contract. Integrated features are evaluated in conjunction with the base contract.SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. Adoption ofSOP 05-1 did not have a material impact on our consolidated financial condition or results of operations.
SFAS No. 155 — In February 2006 the FASB issued SFAS No. 155Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140(SFAS 155). This standard permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS 155 allows an entity to make an irrevocable election to measure such a hybrid financial instrument at fair value on aninstrument-by-instrument basis. The standard eliminates the prohibition on a Qualifying Special Purpose Entity (QSPE) from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 also clarifies which interest-only and principal-only strips are not subject to the requirements of SFAS 133, as well as determines that concentrations of credit risk in the form of subordination are not embedded derivatives. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of the fiscal year that begins after September 15, 2006. Adoption of SFAS 155 did not have a material impact on our consolidated financial condition or results of operations.
FASB Staff Position (FSP)No. 13-2 — In July 2006 the FASB issued FSPNo. 13-2,Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction(FSP13-2), which amends SFAS No. 13,Accounting for Leases, by requiring lessors to recalculate the rate of return and periodic income allocation for leveraged-lease transactions when there is a change or projected change in the timing of income tax cash flows related to the lease.FSP 13-2 requires lessors to use the model in FIN 48 to determine the timing and amount of expected tax cash flows in leveraged-lease calculations and recalculations. FSP13-2 is effective in the same period as FIN 48. At the date of adoption, the lessor is required to reassess projected income tax cash flows related to leveraged leases using the FIN 48 model for recognition and measurement. Revisions to the net investment in a leveraged lease required whenFSP 13-2 is adopted would be recorded as an adjustment to the beginning balance of retained earnings and reported as a change in accounting principle. Adoption ofFSP 13-2 did not have a material impact on our consolidated financial condition or results of operations.
SFAS No. 157 — In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements(SFAS 157)157), which provides a definition of fair value, establishes a framework for measuring fair value and requires expanded disclosures about fair value measurements. The standard applies when GAAP requires or allows assets or liabilities to be measured at fair value, and therefore, does not expand the use of fair value in any new circumstance. Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an arm’s length transaction between market participants, in suchthe markets where we conduct business. SFAS 157 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in
9
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
active markets and the lowest priority to data lacking transparency. The level of the reliability of inputs utilized for fair value calculations drives the extent of disclosure requirements of the valuation methodologies used under the standard. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The provisions of SFAS 157 should be applied prospectively.prospectively, except for certain financial instruments for which the standard should be applied retrospectively. Management is assessing the potential impact on our consolidated financial condition and results of operations.
SFAS No. 158— In September 2006, the FASB issued SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans(SFAS 158), which amends SFAS No. 87,Employers’ Accounting for Pensions,; SFAS No. 88,Employer’sEmployers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,; SFAS No. 106,Employer’sEmployers’ Accounting for Postretirement Benefits Other Than Pensions,; and SFAS No. 132(R),Employers’ Disclosures about Pensions and Other Postretirement Benefits(revised (revised 2003). This Statement requires companies to recognize an asset or liability for the overfunded or underfunded status of their benefit plans in their financial statements. The asset or liability is the offset to other accumulated comprehensive income, consisting of previously unrecognized prior service costs and credits, actuarial gains or losses, and accumulated transition obligations and assets. SFAS 158 also requiredrequires the measurement date for plan assets and liabilities to coincide with the sponsor’s year end. The standard provides two transition alternatives for companies to make the measurement-date provisions. The recognition of the asset orand liability related to funded status provision is effective for us for fiscal years ending after June 15, 2007, and the change in measurement is effective for fiscal years ending after December 15, 2008. Adoption of this guidance is not expected to have a material impact on our consolidated financial condition or results of operations.
SFAS No. 159— In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(SFAS 159). SFAS 159 permits entities to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. Subsequent changes in fair value for designated items will be required to be reported in earnings in the current period. SFAS 159 also establishes presentation and disclosure requirements for similar types of assets and liabilities measured at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently assessing the effect of implementing this guidance, which directly depends on the nature and extent of eligible items elected to be measured at fair value, upon initial application of the standard on January 1, 2008.
FASB Staff Position (FSP)FIN 39-1 — In April 2007, the FASB issued FSPFIN 39-1,Amendment of FASB Interpretation No. 39. FSPFIN 39-1 defines “right of setoff” and specifies what conditions must be met
9
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
for a derivative contract to qualify for this right of setoff. It also addresses the applicability of a right of setoff to derivative instruments and clarifies the circumstances in which it is appropriate to offset amounts recognized for those instruments in the statement of financial position. In addition, this FSP permits offsetting of fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting arrangement and fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from the same master netting arrangement as the derivative instruments. This interpretation is effective for fiscal years beginning after November 15, 2007, with early application permitted. The adoption of FSPFIN 39-1 is not expected to have a material impact on our condensed consolidated financial statements.
FSPFIN 48-1 — In May 2007, the FASB issued FSPFIN 48-1,Definition of Settlement in FASB Interpretation No. 48. FSPFIN 48-1 provides guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSPFIN 48-1 is applied retrospectively to our initial adoption of FIN 48 on January 1, 2007. The adoption of FSPFIN 48-1 did not have a material impact on our condensed consolidated financial statements.
2. Restatement of Previously Issued Condensed Consolidated Financial Statements
As previously disclosed in our 2006 Annual Report onForm 10-K, subsequent to the issuance of our Condensed Consolidated Financial Statements for the three and six months ended March 31,June 30, 2006, management concluded that our hedge accounting documentation and hedge effectiveness assessment methodologies related to particular hedges of callable fixed ratefixed-rate debt instruments funding our North American automotive operations did not satisfy the requirements of SFAS 133. One of the requirements of SFAS 133 is that hedge accounting is appropriate only for those hedging relationships for which a company has a sufficiently documented expectation that suchthe relationships will be highly effective in achieving offsetting changes in fair values attributable to the risk being hedged at the inception of the hedging relationship. To determine whether transactions continue to satisfy this requirement, companies must periodically assess the effectiveness of hedging relationships both prospectively and retrospectively.
Management determined that hedge accounting treatment should not have been applied to these hedging relationships. As a result, we should not have recorded any adjustments on the debt instruments included in the hedging relationships related to changes in fair value due to movements in the designated benchmark interest rate. Accordingly, we have restated our historical Condensed Consolidated Balance Sheet at March 31, 2006,June 30, 2006; our Condensed Consolidated Statement of Income for the three and six months ended March 31, 2006,June 30, 2006; and our Condensed Consolidated Statement of Changes in Equity for the threesix months ended March 31,June 30, 2006, from the amounts previously reported to remove suchthe recorded adjustments on these debt instruments from our reported interest expense during 2006. The elimination of hedge accounting treatment introduces increased
10
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
funding cost volatility in our restated results. The changes in the fair value of fixed rate debt previously recorded were affected by changes in the designated benchmark interest rate (LIBOR). Prior toBefore the restatement, adjustments to record increases in the value of this debt occurred in periods when interest rates declined, and adjustments to record decreases in value were made in periods when interest rates rose. As a result, changes in the benchmark interest rates caused volatility in the debt’s fair value adjustments that were recognized in our historical earnings, which were mitigated by the changes in the value of the interest rate swaps in the hedge relationships. The interest rate swaps, which economically hedgehedged these debt instruments continueprior to beMay 1, 2007, were recorded at fair value with changes in fair value recorded in earnings. Refer to Note 8 to the Condensed Consolidated Financial Statements for accounting treatment beginning May 1, 2007. We are also correcting certain otherout-of-period errors whichthat were deemed immaterial, individually and in the aggregate, in the periods in which they were originally recorded and identified. These items relate to transactions involving certain transfers of financial assets, valuations of certain financial instruments, amortization of unearned income on certain products, income taxes, and other inconsequential items. Because of this derivative restatement, we are correcting these amounts to record them in the proper period.
10
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The following table sets forth a reconciliation of previously reported and restated net income for the period shown. The restatement decreased January 1, 2006 retained earnings to $15,095 million from $15,190 million. The decrease of $95 million was comprisedcomposed of a $191 million decrease related tofor the elimination of a hedge accounting related tofor certain debt instruments and an increase of $96 million relatedfor other items previously deemed to other immaterial items.be immaterial.
| | | | |
| | Net income for the
|
| | three months
|
($ in millions) | | ended March 31, 2006 |
|
Previously reported net income | | | $672 | |
Elimination of hedge accounting related to certain debt instruments | | | (191 | ) |
Other, net | | | (80 | ) |
|
|
Total pre-tax | | | (271 | ) |
Related income tax effects | | | 94 | |
|
|
Restated net income | | | $495 | |
|
|
% change | | | (26 | ) |
|
|
| | | | | | | | |
| | Three months ended
| | | Six months ended
| |
($ in millions) | | June 30, 2006 | | | June 30, 2006 | |
| |
Previously reported net income | | | $900 | | | | $1,572 | |
Elimination of hedge accounting related to certain debt instruments | | | (192 | ) | | | (383 | ) |
Other, net | | | 9 | | | | (70 | ) |
|
|
Total pre-tax | | | (183 | ) | | | (453 | ) |
Related income tax effects | | | 70 | | | | 164 | |
|
|
Restated net income | | | $787 | | | | $1,283 | |
|
|
% change | | | (13 | ) | | | (18 | ) |
|
|
11
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The following table presents the effects of the restatement on the Condensed Consolidated Statement of Income. Certain amounts in the previously reported columns have been reclassified to conform to the 2007 presentation. The most significant reclassifications relate to servicing fees; amortization and impairment of servicing rights; servicing asset valuation and hedge activities, net; and gain on sale of mortgage and automotive loans, which were previously included in mortgage banking income and other income and are now reflected as separate components of total net financing revenue and other income.
| | | | | | | | |
| | 2006 |
| | Previously
| | |
Three months ended March 31,($ in millions) | | reported | | Restated |
|
Revenue | | | | | | | | |
Consumer | | | $2,566 | | | | $2,569 | |
Commercial | | | 726 | | | | 726 | |
Loans held for sale | | | 481 | | | | 481 | |
Operating leases | | | 1,929 | | | | 1,929 | |
|
|
Total financing revenue | | | 5,702 | | | | 5,705 | |
Interest expense | | | 3,562 | | | | 3,814 | |
|
|
Net financing revenue before provision for credit losses | | | 2,140 | | | | 1,891 | |
Provision for credit losses | | | 135 | | | | 166 | |
|
|
Net financing revenue | | | 2,005 | | | | 1,725 | |
Servicing fees | | | 472 | | | | 472 | |
Amortization and impairment of servicing rights | | | (23 | ) | | | (23 | ) |
Servicing asset valuation and hedge activities | | | (186 | ) | | | (186 | ) |
|
|
Net loan servicing income | | | 263 | | | | 263 | |
Insurance premiums and service revenue earned | | | 1,010 | | | | 1,010 | |
Gain on sale of mortgage and automotive loans | | | 364 | | | | 364 | |
Investment income | | | 258 | | | | 258 | |
Other income | | | 1,016 | | | | 1,004 | |
|
|
Total net financing revenue and other income | | | 4,916 | | | | 4,624 | |
Expense | | | | | | | | |
Depreciation expense on operating lease assets | | | 1,440 | | | | 1,440 | |
Compensation and benefits expense | | | 718 | | | | 718 | |
Insurance losses and loss adjustment expenses | | | 597 | | | | 597 | |
Other operating expenses | | | 1,173 | | | | 1,152 | |
|
|
Total noninterest expense | | | 3,928 | | | | 3,907 | |
Income before income tax expense | | | 988 | | | | 717 | |
Income tax expense | | | 316 | | | | 222 | |
|
|
Net income | | | $672 | | | | $495 | |
|
|
| | | | | | | | | | | | | | | | |
| | Three months ended
| | | Six months ended
| |
| | June 30, 2006 | | | June 30, 2006 | |
| | Previously
| | | | | | Previously
| | | | |
($ in millions) | | reported | | | Restated | | | reported | | | Restated | |
| |
Revenue | | | | | | | | | | | | | | | | |
Consumer | | | $2,548 | | | | $2,587 | | | | $5,114 | | | | $5,156 | |
Commercial | | | 782 | | | | 782 | | | | 1,508 | | | | 1,508 | |
Loans held for sale | | | 371 | | | | 371 | | | | 851 | | | | 851 | |
Operating leases | | | 2,026 | | | | 2,026 | | | | 3,954 | | | | 3,954 | |
|
|
Total financing revenue | | | 5,727 | | | | 5,766 | | | | 11,427 | | | | 11,469 | |
Interest expense | | | 3,819 | | | | 4,023 | | | | 7,380 | | | | 7,836 | |
|
|
Net financing revenue before provision for credit losses | | | 1,908 | | | | 1,743 | | | | 4,047 | | | | 3,633 | |
Provision for credit losses | | | 285 | | | | 268 | | | | 420 | | | | 434 | |
|
|
Net financing revenue | | | 1,623 | | | | 1,475 | | | | 3,627 | | | | 3,199 | |
Servicing fees | | | 446 | | | | 446 | | | | 918 | | | | 918 | |
Amortization and impairment of servicing rights | | | — | | | | — | | | | (23 | ) | | | (23 | ) |
Servicing asset valuation and hedge activities, net | | | (171 | ) | | | (171 | ) | | | (356 | ) | | | (356 | ) |
|
|
Net loan servicing income | | | 275 | | | | 275 | | | | 539 | | | | 539 | |
Insurance premiums and service revenue earned | | | 1,052 | | | | 1,052 | | | | 2,062 | | | | 2,062 | |
Gain on sale of mortgage and automotive loans, net | | | 504 | | | | 504 | | | | 869 | | | | 869 | |
Investment income | | | 297 | | | | 297 | | | | 555 | | | | 555 | |
Gain on sale of equity method investments, net | | | 411 | | | | 411 | | | | 411 | | | | 411 | |
Other income | | | 1,003 | | | | 983 | | | | 2,018 | | | | 1,986 | |
|
|
Total net financing revenue and other income | | | 5,165 | | | | 4,997 | | | | 10,081 | | | | 9,621 | |
Expense | | | | | | | | | | | | | | | | |
Depreciation expense on operating lease assets | | | 1,346 | | | | 1,346 | | | | 2,786 | | | | 2,786 | |
Compensation and benefits expense | | | 665 | | | | 665 | | | | 1,383 | | | | 1,383 | |
Insurance losses and loss adjustment expenses | | | 653 | | | | 653 | | | | 1,250 | | | | 1,250 | |
Other operating expenses | | | 1,171 | | | | 1,186 | | | | 2,344 | | | | 2,337 | |
|
|
Total noninterest expense | | | 3,835 | | | | 3,850 | | | | 7,763 | | | | 7,756 | |
Income before income tax expense | | | 1,330 | | | | 1,147 | | | | 2,318 | | | | 1,865 | |
Income tax expense | | | 430 | | | | 360 | | | | 746 | | | | 582 | |
|
|
Net income | | | $900 | | | | $787 | | | | $1,572 | | | | $1,283 | |
|
|
12
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The following table presents the effects of the restatement on the Condensed Consolidated Balance Sheet:Sheet.
| | | | | | | | | | | | | | | | |
| | Previously
| | | | June 30, 2006 | |
March 31, 2006($ in millions) | | reported | | Restated | |
| | | Previously
| | | |
($ in millions) | | | reported | | Restated | |
| | | |
Assets | | | | | | | | | | | | | | |
Cash and cash equivalents | | | $17,352 | | | | $17,352 | | | | $17,186 | | | | $17,186 | |
Investment securities | | | 18,269 | | | | 18,269 | | | | 18,808 | | | | 18,808 | |
Loans held for sale | | | 18,171 | | | | 18,171 | | | | 20,455 | | | | 20,455 | |
Finance receivables and loans, net of unearned income | | | | | | | | | | | | | | |
Consumer | | | 139,395 | | | | 139,407 | | | | 134,736 | | | | 134,784 | |
Commercial | | | 44,770 | | | | 44,770 | | | | 47,568 | | | | 47,568 | |
Allowance for credit losses | | | (2,911 | ) | | | (2,911 | ) | | | (2,883 | ) | | | (2,866 | ) |
| | Total finance receivables and loans, net | | | 181,254 | | | | 181,266 | | | | 179,421 | | | | 179,486 | |
Investment in operating leases, net | | | 32,567 | | | | 32,567 | | | | 34,495 | | | | 34,495 | |
Notes receivable from General Motors | | | 4,785 | | | | 4,785 | | | | 5,140 | | | | 5,140 | |
Mortgage servicing rights | | | 4,526 | | | | 4,526 | | | | 5,093 | | | | 5,093 | |
Premiums and other insurance receivables | | | 2,116 | | | | 2,116 | | | | 2,147 | | | | 2,147 | |
Other assets | | | 24,765 | | | | 24,692 | | | | 25,637 | | | | 25,535 | |
| | Total assets | | | $303,805 | | | | $303,744 | | | | $308,382 | | | | $308,345 | |
| | Liabilities | | | | | | | | | | | | | | |
Debt | | | | | | | | | | | | | | |
Unsecured | | | $121,654 | | | | $122,135 | | | | $122,833 | | | | $123,506 | |
Secured | | | 124,287 | | | | 124,287 | | | | 124,945 | | | | 124,945 | |
| | Total debt | | | 245,941 | | | | 246,422 | | | | 247,778 | | | | 248,451 | |
Interest payable | | | 2,829 | | | | 2,829 | | | | 3,200 | | | | 3,200 | |
Unearned insurance premiums and service revenue | | | 5,210 | | | | 5,210 | | | | 5,183 | | | | 5,183 | |
Reserves for insurance losses and loss adjustment expenses | | | 2,725 | | | | 2,725 | | | | 2,642 | | | | 2,642 | |
Accrued expenses and other liabilities | | | 20,032 | | | | 19,760 | | | | 23,041 | | | | 22,713 | |
Deferred income taxes | | | 4,529 | | | | 4,529 | | | | 4,463 | | | | 4,463 | |
| | Total liabilities | | | 281,266 | | | | 281,475 | | | | 286,307 | | | | 286,652 | |
Equity | | | | | | | | | | | | | | |
Common stock and paid-in capital | | | 5,760 | | | | 5,760 | | | | 5,760 | | | | 5,760 | |
Retained earnings | | | 15,849 | | | | 15,577 | | | | 15,338 | | | | 14,954 | |
Accumulated other comprehensive income | | | 930 | | | | 932 | | | | 977 | | | | 979 | |
| | Total equity | | | 22,539 | | | | 22,269 | | | | 22,075 | | | | 21,693 | |
| | Total liabilities and equity | | | $303,805 | | | | $303,744 | | | | $308,382 | | | | $308,345 | |
| |
13
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The following table presents the effects of the restatement on the Condensed Consolidated Statement of Changes in Equity at March 31, 2006:Equity.
| | | | | | | | | |
| | | | | | | | | | Six months ended
| |
| | 2006 | | June 30, 2006 | |
| | Previously
| | | | Previously
| | | |
($ in millions) | | reported | | Restated | | reported | | Restated | |
| | | |
Common stock and paid-in capital | | | | | | | | | | | | | | |
Balance at January 1, and at March 31, | | | $5,760 | | | | $5,760 | | |
| |
| |
Balance at January 1 and at June 30, | | | | $5,760 | | | | $5,760 | |
Retained earnings | | | | | | | | | | | | | | |
Balance at January 1, | | | 15,190 | | | | 15,095 | | | | 15,190 | | | | 15,095 | |
Net income | | | 672 | | | | 495 | | | | 1,572 | | | | 1,283 | |
Cumulative effect of a change in accounting principle, net of tax: | | | | | | | |
Cumulative effect of a change in accounting principle, net of income taxes: | | | | | | | | | |
Transfer of unrealized loss for certain available for sale securities to trading securities | | | (17 | ) | | | (17 | ) | | | (17 | ) | | | (17 | ) |
Recognize mortgage service rights at fair value | | | 4 | | | | 4 | | | | 4 | | | | 4 | |
Dividends paid | | | | (1,411 | ) | | | (1,411 | ) |
| | Balance at March 31, | | | 15,849 | | | | 15,577 | | |
Balance at June 30, | | | | 15,338 | | | | 14,954 | |
| | Accumulated other comprehensive income | | | | | | | | | | | | | | |
Balance at January 1, | | | 828 | | | | 830 | | | | 828 | | | | 830 | |
Other comprehensive income | | | | 132 | | | | 132 | |
Transfer of unrealized loss for certain available for sale securities to trading securities | | | 17 | | | | 17 | | | | 17 | | | | 17 | |
Other comprehensive income | | | 85 | | | | 85 | | |
| | Balance at March 31, | | | 930 | | | | 932 | | |
Balance at June 30, | | | | 977 | | | | 979 | |
| | Total equity | | | | | | | | | | | | | | |
Balance at January 1, | | | 21,778 | | | | 21,685 | | | | 21,778 | | | | 21,685 | |
Net income | | | 672 | | | | 495 | | | | 1,572 | | | | 1,283 | |
Recognize mortgage servicing rights at fair value | | | 4 | | | | 4 | | | | 4 | | | | 4 | |
Dividends paid | | | | (1,411 | ) | | | (1,411 | ) |
Other comprehensive income | | | 85 | | | | 85 | | | | 132 | | | | 132 | |
| | Total equity at March 31, | | | $22,539 | | | | $22,269 | | |
Total equity at June 30, | | | | $22,075 | | | | $21,693 | |
| | Comprehensive income | | | | | | | | | | | | | | |
Net income | | | $672 | | | | $495 | | | | $1,572 | | | | $1,283 | |
Other comprehensive income | | | 85 | | | | 85 | | | | 132 | | | | 132 | |
Recognize mortgage servicing rights at fair value | | | 4 | | | | 4 | | | | 4 | | | | 4 | |
| | Comprehensive income | | | $761 | | | | $584 | | | | $1,708 | | | | $1,419 | |
| |
14
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
3. Other Income
Details of our other income were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31,($ in millions) | | 2007 | | 2006 | |
| | | Three months ended
| | Six months ended
| |
| | | June 30, | | June 30, | |
($ in millions) | | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | |
Real estate related revenue and other investment income | | $ | 172 | | | | $142 | | | $ | 158 | | | $ | 202 | | | | $329 | | | | $344 | |
Interest and service fees on transactions with GM (a) | | | 74 | | | | 147 | | | | 85 | | | | 147 | | | | 159 | | | | 294 | |
Interest on cash equivalents | | | 118 | | | | 119 | | | | 91 | | | | 178 | | | | 209 | | | | 297 | |
Other interest revenue | | | 141 | | | | 120 | | | | 157 | | | | 128 | | | | 297 | | | | 249 | |
Full service leasing fees | | | 75 | | | | 64 | | | | 80 | | | | 71 | | | | 155 | | | | 135 | |
Late charges and other administrative fees | | | 44 | | | | 41 | | | | 43 | | | | 41 | | | | 87 | | | | 82 | |
Mortgage processing fees | | | 11 | | | | 71 | | | | 31 | | | | 41 | | | | 64 | | | | 116 | |
Interest on restricted cash deposits | | | 43 | | | | 28 | | | | 43 | | | | 31 | | | | 86 | | | | 59 | |
Insurance service fees | | | 42 | | | | 30 | | | | 36 | | | | 28 | | | | 78 | | | | 57 | |
Factoring commissions | | | 13 | | | | 15 | | | | 14 | | | | 15 | | | | 27 | | | | 30 | |
Specialty lending fees | | | 11 | | | | 15 | | | | 10 | | | | 15 | | | | 21 | | | | 30 | |
Fair value adjustment on certain derivatives (b) | | | 17 | | | | (8 | ) | | | 18 | | | | (14 | ) | | | 35 | | | | (22 | ) |
Other | | | 105 | | | | 220 | | | | 20 | | | | 100 | | | | 104 | | | | 315 | |
| | Total other income | | $ | 866 | | | | $1,004 | | | $ | 786 | | | $ | 983 | | | $ | 1,651 | | | $ | 1,986 | |
| |
| |
(a) | Refer to Note 9 to the Condensed Consolidated Financial Statements for a description of related party transactions. |
(b) | Refer to Note 8 to the Condensed Consolidated Financial Statements for a description of derivative instruments and hedging activities. |
4. Other Operating Expenses
Details of other operating expenses were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31,($ in millions) | | 2007 | | 2006 | |
| | | Three months ended
| | Six months ended
| |
| | | June 30, | | June 30, | |
($ in millions) | | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | |
Insurance commissions | | | $240 | | | | $243 | | | | $225 | | | | $211 | | | | $465 | | | | $454 | |
Technology and communications expense | | | 145 | | | | 130 | | | | 156 | | | | 134 | | | | 301 | | | | 264 | |
Professional services | | | 93 | | | | 105 | | | | 106 | | | | 111 | | | | 199 | | | | 216 | |
Advertising and marketing | | | 70 | | | | 84 | | | | 83 | | | | 92 | | | | 153 | | | | 176 | |
Premises and equipment depreciation | | | 51 | | | | 65 | | | | 48 | | | | 62 | | | | 100 | | | | 126 | |
Rent and storage | | | 54 | | | | 67 | | | | 60 | | | | 54 | | | | 114 | | | | 121 | |
Full service leasing vehicle maintenance costs | | | 70 | | | | 60 | | | | 68 | | | | 63 | | | | 137 | | | | 123 | |
Lease and loan administration | | | 53 | | | | 54 | | | | 53 | | | | 53 | | | | 106 | | | | 107 | |
Auto remarketing and repossession | | | 45 | | | | 47 | | | | 49 | | | | 75 | | | | 93 | | | | 122 | |
Operating lease disposal loss (gain) | | | 12 | | | | (49 | ) | |
Operating lease disposal (gain) loss | | | | (18 | ) | | | 21 | | | | (6 | ) | | | (28 | ) |
Other | | | 413 | | | | 346 | | | | 353 | | | | 310 | | | | 767 | | | | 656 | |
| | Total other operating expenses | | | $1,246 | | | | $1,152 | | | $ | 1,183 | | | $ | 1,186 | | | $ | 2,429 | | | $ | 2,337 | |
| |
15
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. Finance Receivables and Loans
The composition of finance receivables and loans outstanding was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2007 | | December 31, 2006 | | | June 30, 2007 | | December 31, 2006 | |
($ in millions) | | Domestic | | Foreign | | Total | | Domestic | | Foreign | | Total | | | Domestic | | Foreign | | Total | | Domestic | | Foreign | | Total | |
| | | | |
Consumer | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Retail automotive | | | $39,363 | | | | $21,410 | | | | $60,773 | | | | $40,568 | | | | $20,538 | | | | $61,106 | | | | $36,401 | | | | $22,572 | | | | $58,973 | | | | $40,568 | | | | $20,538 | | | | $61,106 | |
Residential mortgages | | | 61,975 | | | | 3,275 | | | | 65,250 | | | | 65,928 | | | | 3,508 | | | | 69,436 | | | | 59,552 | | | | 3,113 | | | | 62,665 | | | | 65,928 | | | | 3,508 | | | | 69,436 | |
| | Total consumer | | | 101,338 | | | | 24,685 | | | | 126,023 | | | | 106,496 | | | | 24,046 | | | | 130,542 | | | | 95,953 | | | | 25,685 | | | | 121,638 | | | | 106,496 | | | | 24,046 | | | | 130,542 | |
Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Automotive: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Wholesale | | | 12,502 | | | | 8,464 | | | | 20,966 | | | | 12,723 | | | | 7,854 | | | | 20,577 | | | | 16,173 | | | | 8,435 | | | | 24,608 | | | | 12,723 | | | | 7,854 | | | | 20,577 | |
Leasing and lease financing | | | 335 | | | | 760 | | | | 1,095 | | | | 326 | | | | 901 | | | | 1,227 | | | | 338 | | | | 868 | | | | 1,206 | | | | 326 | | | | 901 | | | | 1,227 | |
Term loans to dealers and other | | | 2,697 | | | | 770 | | | | 3,467 | | | | 1,843 | | | | 764 | | | | 2,607 | | | | 2,021 | | | | 802 | | | | 2,823 | | | | 1,843 | | | | 764 | | | | 2,607 | |
Commercial and industrial | | | 11,657 | | | | 2,258 | | | | 13,915 | | | | 14,068 | | | | 2,213 | | | | 16,281 | | | | 9,212 | | | | 2,592 | | | | 11,804 | | | | 14,068 | | | | 2,213 | | | | 16,281 | |
Real estate construction and other | | | 2,975 | | | | 309 | | | | 3,284 | | | | 2,969 | | | | 243 | | | | 3,212 | | | | 3,169 | | | | 408 | | | | 3,577 | | | | 2,969 | | | | 243 | | | | 3,212 | |
| | Total commercial | | | 30,166 | | | | 12,561 | | | | 42,727 | | | | 31,929 | | | | 11,975 | | | | 43,904 | | | | 30,913 | | | | 13,105 | | | | 44,018 | | | | 31,929 | | | | 11,975 | | | | 43,904 | |
| | Total finance receivables and loans (a) | | | $131,504 | | | | $37,246 | | | | $168,750 | | | | $138,425 | | | | $36,021 | | | | $174,446 | | | | $126,866 | | | | $38,790 | | | | $165,656 | | | | $138,425 | | | | $36,021 | | | | $174,446 | |
| |
| | |
| (a) | Net of unearned income of $5.6$5.3 billion and $5.7 billion as of March 31,June 30, 2007, and December 31, 2006, respectively. |
The following table presents an analysis of the activity in the allowance for credit losses on finance receivables and loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31,
| | 2007 | | 2006 | |
| | | Three months ended June 30, | |
| | | 2007 | | 2006 | |
($ in millions) | | Consumer | | Commercial | | Total | | Consumer | | Commercial | | Total | | Consumer | | Commercial | | Total | | Consumer | | Commercial | | Total | |
| | | |
Allowance at beginning of period | | | $2,969 | | | | $607 | | | | $3,576 | | | | $2,652 | | | | $433 | | | | $3,085 | | |
Allowance at April 1, | | | | $3,070 | | | | $663 | | | | $3,733 | | | | $2,542 | | | | $369 | | | | $2,911 | |
Provision for credit losses | | | 499 | | | | 182 | | | | 681 | | | | 188 | | | | (22 | ) | | | 166 | | | | 384 | | | | 46 | | | | 430 | | | | 241 | | | | 30 | | | | 271 | |
Charge-offs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Domestic | | | (426 | ) | | | (78 | ) | | | (504 | ) | | | (321 | ) | | | (46 | ) | | | (367 | ) | | | (417 | ) | | | (303 | ) | | | (720 | ) | | | (320 | ) | | | (24 | ) | | | (344 | ) |
Foreign | | | (41 | ) | | | (51 | ) | | | (92 | ) | | | (45 | ) | | | (1 | ) | | | (46 | ) | | | (46 | ) | | | (5 | ) | | | (51 | ) | | | (39 | ) | | | (3 | ) | | | (42 | ) |
| | Total charge-offs | | | (467 | ) | | | (129 | ) | | | (596 | ) | | | (366 | ) | | | (47 | ) | | | (413 | ) | | | (463 | ) | | | (308 | ) | | | (771 | ) | | | (359 | ) | | | (27 | ) | | | (386 | ) |
| | Recoveries | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Domestic | | | 57 | | | | — | | | | 57 | | | | 53 | | | | 5 | | | | 58 | | | | 53 | | | | 4 | | | | 57 | | | | 50 | | | | 2 | | | | 52 | |
Foreign | | | 10 | | | | 1 | | | | 11 | | | | 13 | | | | 2 | | | | 15 | | | | 17 | | | | 1 | | | | 18 | | | | 11 | | | | — | | | | 11 | |
| | Total recoveries | | | 67 | | | | 1 | | | | 68 | | | | 66 | | | | 7 | | | | 73 | | | | 70 | | | | 5 | | | | 75 | | | | 61 | | | | 2 | | | | 63 | |
| | Net charge-offs | | | (400 | ) | | | (128 | ) | | | (528 | ) | | | (300 | ) | | | (40 | ) | | | (340 | ) | | | (393 | ) | | | (303 | ) | | | (696 | ) | | | (298 | ) | | | (25 | ) | | | (323 | ) |
Impacts of foreign currency translation | | | 2 | | | | 2 | | | | 4 | | | | 1 | | | | (2 | ) | | | (1 | ) | | | 1 | | | | (4 | ) | | | (3 | ) | | | 6 | | | | — | | | | 6 | |
Securitization activity | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
| | Allowance at March 31, | | | $3,070 | | | | $663 | | | | $3,733 | | | | $2,542 | | | | $369 | | | | $2,911 | | |
Allowance at June 30, | | | | $3,062 | | | | $402 | | | | $3,464 | | | | $2,492 | | | | $374 | | | | $2,866 | |
| |
16
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, | |
| | 2007 | | | 2006 | |
($ in millions) | | Consumer | | | Commercial | | | Total | | | Consumer | | | Commercial | | | Total | |
| |
Allowance at January 1, | | | $2,969 | | | | $607 | | | | $3,576 | | | | $2,652 | | | | $433 | | | | $3,085 | |
Provision for credit losses | | | 884 | | | | 227 | | | | 1,111 | | | | 429 | | | | 5 | | | | 434 | |
Charge-offs | | | | | | | | | | | | | | | | | | | | | | | | |
Domestic | | | (843 | ) | | | (382 | ) | | | (1,225 | ) | | | (641 | ) | | | (70 | ) | | | (711 | ) |
Foreign | | | (87 | ) | | | (56 | ) | | | (143 | ) | | | (85 | ) | | | (4 | ) | | | (89 | ) |
|
|
Total charge-offs | | | (930 | ) | | | (438 | ) | | | (1,368 | ) | | | (726 | ) | | | (74 | ) | | | (800 | ) |
|
|
Recoveries | | | | | | | | | | | | | | | | | | | | | | | | |
Domestic | | | 110 | | | | 5 | | | | 115 | | | | 103 | | | | 6 | | | | 109 | |
Foreign | | | 28 | | | | 1 | | | | 29 | | | | 24 | | | | 3 | | | | 27 | |
|
|
Total recoveries | | | 138 | | | | 6 | | | | 144 | | | | 127 | | | | 9 | | | | 136 | |
|
|
Net charge-offs | | | (792 | ) | | | (432 | ) | | | (1,224 | ) | | | (599 | ) | | | (65 | ) | | | (664 | ) |
Impacts of foreign currency translation | | | 1 | | | | — | | | | 1 | | | | 8 | | | | 1 | | | | 9 | |
Securitization activity | | | — | | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
|
|
Allowance at June 30, | | | $3,062 | | | | $402 | | | | $3,464 | | | | $2,492 | | | | $374 | | | | $2,866 | |
|
|
6. Mortgage Servicing Rights
The following table summarizes activity related to mortgage servicing rights (MSRs) carried at fair value.
| | | | | | | | | | | | | | | | |
Three months ended March 31,($ in millions) | | 2007 | | 2006 | | |
| | | | Six months ended
| |
Estimated fair value at beginning of period | | | $4,930 | | | | $4,021 | | |
| | | June 30, | |
($ in millions) | | | 2007 | | 2006 | |
| | | |
Estimated fair value at January 1, | | | | $4,930 | | | | $4,021 | |
Additions obtained from sales of financial assets | | | 441 | | | | 310 | | | | 928 | | | | 770 | |
Additions from purchases of servicing rights | | | | — | | | | 5 | |
Changes in fair value: | | | | | | | | | | | | | | | | |
Due to changes in valuation inputs or assumptions used in the valuation model | | | (104 | ) | | | 359 | | | | 506 | | | | 654 | |
Other changes in fair value | | | (158 | ) | | | (164 | ) | | | (322 | ) | | | (355 | ) |
Other changes that affect the balance | | | (1 | ) | | | — | | | | (1 | ) | | | (2 | ) |
| | Estimated fair value at March 31, | | | $5,108 | | | | $4,526 | | |
Estimated fair value at June 30, | | | | $6,041 | | | | $5,093 | |
| |
As of June 30, 2007, we pledged MSRs of $3.2 billion as collateral for borrowings, compared to $2.4 billion as of December 31, 2006. For a description of MSRs and the related hedging strategy, refer to Notes 9 and 15 to our 2006 Annual Report onForm 10-K.
Changes in fair value, due to changes in valuation inputs or assumptions used in the valuation models, include all changes due to a revaluation by a model or by a benchmarking exercise. This line item also includes changes in fair value due toresulting from a change in valuation assumptions and/or model calculations.calculations or both. Other changes in fair value primarily include the accretion of the present value of the discount related to forecasted cash flows and the economic run-off of the portfolio, as well as foreign currency adjustments and the extinguishment of MSRs related toclean-up calls of securitization transactions.
17
The following are keyGMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Key assumptions we use in valuing our MSRs:MSRs are as follows:
| | | | | | | | |
March 31, | | 2007 | | | 2006 | |
| |
Range of prepayment speeds | | | 1.0 – 43.6 | % | | | 7.0 – 38.4 | % |
Range of discount rate | | | 8.0 – 13.0 | % | | | 8.0 – 14.0 | % |
|
|
| | | | | | | | |
| | June 30, | |
| | 2007 | | | 2006 | |
| |
Range of prepayment speeds | | | 0.0–39.7 | % | | | 7.0–38.5 | % |
Range of discount rates | | | 8.0–13.0 | % | | | 8.0–14.0 | % |
|
|
OurThe primary risk of our servicing rights’ primary riskrights is interest rate risk and the resulting impact on prepayments. A significant decline in interest rates could lead to higher than expectedhigher-than-expected prepayments, which could reduce the value of the MSRs. We economically hedge the income statement impact of these risks with both derivative and non-derivative financial instruments. These instruments include interest rate swaps, caps and floors, options to purchase these items, futures, and forward contracts and/or purchasing or selling U.S. Treasury and principal-only securities. At March 31,June 30, 2007, the fair value of derivative financial instruments and non-derivative financial instruments used to mitigate these risks amounted to $188$127 million and $1.5$1 billion, respectively. The change in the fair value of the derivative financial instruments amounted to a loss of $41$638 million and $381$655 million for the threesix months ended March 31,June 30, 2007 and 2006, respectively, and is included in servicing asset valuation and hedge activities, net in the Condensed Consolidated Statement of Income.
The components of servicing fees were as follows:
| | | | | | | | | | | | | | | | |
Three months ended March 31,($ in millions) | | 2007 | | 2006 | | |
| | | Six months ended
| |
| | | June 30, | |
($ in millions) | | | 2007 | | 2006 | |
| | | | |
Contractual servicing fees, net of guarantee fees and including subservicing | | | $380 | | | | $321 | | | | $764 | | | | $640 | |
Late fees | | | 38 | | | | 30 | | | | 74 | | | | 62 | |
Ancillary fees | | | 29 | | | | 23 | | | | 61 | | | | 59 | |
| | Total | | | $447 | | | | $374 | | | | $899 | | | | $761 | |
| |
At March 31, 2007, we pledged MSRs of $2.6 billion as collateral for borrowings. For a description of MSRs and the related hedging strategy, refer to Notes 9 and 15 to our 2006 Annual Report onForm 10-K.
1718
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
7. Debt
The presentation of debt inIn the following table, is classified betweenwe classify domestic and foreign baseddebt on the basis of the location of the office recording the transaction.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2007 | | December 31, 2006 | | | June 30, 2007 | | December 31, 2006 | |
($ in millions) | | Domestic | | Foreign | | Total | | Domestic | | Foreign | | Total | | | Domestic | | Foreign | | Total | | Domestic | | Foreign | | Total | |
| | | | |
Short-term debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial paper | | | $707 | | | | $1,090 | | | | $1,797 | | | | $742 | | | | $781 | | | | $1,523 | | | | $724 | | | | $1,278 | | | | $2,002 | | | | $742 | | | | $781 | | | | $1,523 | |
Demand notes | | | 6,444 | | | | 184 | | | | 6,628 | | | | 5,917 | | | | 157 | | | | 6,074 | | | | 6,372 | | | | 216 | | | | 6,588 | | | | 5,917 | | | | 157 | | | | 6,074 | |
Bank loans and overdrafts | | | 1,431 | | | | 6,007 | | | | 7,438 | | | | 991 | | | | 5,272 | | | | 6,263 | | | | 887 | | | | 6,272 | | | | 7,159 | | | | 991 | | | | 5,272 | | | | 6,263 | |
Repurchase agreements and other (a) | | | 21,746 | | | | 5,179 | | | | 26,925 | | | | 22,506 | | | | 7,232 | | | | 29,738 | | | | 17,039 | | | | 6,446 | | | | 23,485 | | | | 22,506 | | | | 7,232 | | | | 29,738 | |
| | Total short-term debt | | | 30,328 | | | | 12,460 | | | | 42,788 | | | | 30,156 | | | | 13,442 | | | | 43,598 | | | | 25,022 | | | | 14,212 | | | | 39,234 | | | | 30,156 | | | | 13,442 | | | | 43,598 | |
Long-term debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Senior indebtedness: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Due within one year | | | 15,626 | | | | 14,083 | | | | 29,709 | | | | 20,010 | | | | 15,204 | | | | 35,214 | | | | 16,166 | | | | 15,278 | | | | 31,444 | | | | 20,010 | | | | 15,204 | | | | 35,214 | |
Due after one year | | | 128,495 | | | | 22,804 | | | | 151,299 | | | | 135,693 | | | | 22,589 | | | | 158,282 | | | | 128,367 | | | | 26,168 | | | | 154,535 | | | | 135,693 | | | | 22,589 | | | | 158,282 | |
| | Total long-term debt | | | 144,121 | | | | 36,887 | | | | 181,008 | | | | 155,703 | | | | 37,793 | | | | 193,496 | | | | 144,533 | | | | 41,446 | | | | 185,979 | | | | 155,703 | | | | 37,793 | | | | 193,496 | |
Fair value adjustment (b) | | | (15 | ) | | | (54 | ) | | | (69 | ) | | | (3 | ) | | | (106 | ) | | | (109 | ) | | | (644 | ) | | | (115 | ) | | | (759 | ) | | | (3 | ) | | | (106 | ) | | | (109 | ) |
| | Total debt | | | $174,434 | | | | $49,293 | | | | $223,727 | | | | $185,856 | | | | $51,129 | | | | $236,985 | | | | $168,911 | | | | $55,543 | | | | $224,454 | | | | $185,856 | | | | $51,129 | | | | $236,985 | |
| |
| |
(a) | Repurchase agreements consist of secured financing arrangements with third parties at our mortgage operations. Other primarily includes non-bank secured borrowings, as well as Notes payable to GM. Refer to Note 9 to our Condensed Consolidated Financial Statements for further details. |
(b) | To adjust designated fixed rate debt for changes in fair value due toresulting from changes in the designated benchmark interest rate in accordance with SFAS 133. |
The following table summarizes assets that are restricted as collateral for the payment of the related debt obligationobligations. These restrictions primarily arisingarise from securitization transactions accounted for as secured borrowings and repurchase agreements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2007 | | December 31, 2006 | | | June 30, 2007 | | December 31, 2006 | |
| | | | Related
| | | | Related
| | | | | Related
| | | | Related
| |
| | | | secured
| | | | secured
| | | | | secured
| | | | secured
| |
($ in millions) | | Assets | | debt (a) | | Assets | | debt (a) | | | Assets | | debt (a) | | Assets | | debt (a) | |
| | | | |
Loans held for sale | | | $18,387 | | | | $16,190 | | | | $22,834 | | | | $20,525 | | | | $14,903 | | | | $12,773 | | | | $22,834 | | | | $20,525 | |
Mortgage assets held for investment and lending receivables | | | 73,896 | | | | 62,422 | | | | 80,343 | | | | 68,333 | | | | 69,482 | | | | 58,088 | | | | 80,343 | | | | 68,333 | |
Retail automotive finance receivables | | | 20,389 | | | | 18,344 | | | | 20,944 | | | | 18,858 | | | | 27,778 | | | | 21,122 | | | | 20,944 | | | | 18,858 | |
Wholesale automotive finance receivables | | | 325 | | | | 189 | | | | 376 | | | | 240 | | | | 287 | | | | 152 | | | | 376 | | | | 240 | |
Investment securities | | | 4,794 | | | | 5,248 | | | | 3,662 | | | | 4,523 | | | | 4,273 | | | | 4,449 | | | | 3,662 | | | | 4,523 | |
Investment in operating leases, net | | | 10,583 | | | | 9,865 | | | | 6,851 | | | | 6,456 | | | | 13,364 | | | | 12,157 | | | | 6,851 | | | | 6,456 | |
Real estate investments and other assets | | | 7,723 | | | | 4,740 | | | | 8,025 | | | | 4,550 | | | | 9,583 | | | | 4,897 | | | | 8,025 | | | | 4,550 | |
| | Total | | | $136,097 | | | | $116,998 | | | | $143,035 | | | | $123,485 | | | | $139,670 | | | | $113,638 | | | | $143,035 | | | | $123,485 | |
| |
| |
(a) | Included as part of secured debt are repurchase agreements of $12.6$9.0 billion and $11.5 billion where we have pledged assets, reflected as investment securities as collateral for approximately the same amount of debt at March 31,June 30, 2007, and December 31, 2006, respectively. |
1819
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Liquidity Facilities
Liquidity facilities represent additional funding sources, if required.sources. The financial institutions providing the uncommitted facilities are not legally obligated to advance funds under them. The following table summarizes the liquidity facilities maintained by us.that we maintain.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Committed
| | Uncommitted
| | Total liquidity
| | Unused liquidity
| | | Committed
| | Uncommitted
| | Total liquidity
| | Unused liquidity
| |
| | facilities | | facilities | | facilities | | facilities | | | facilities | | facilities | | facilities | | facilities | |
| | Mar 31,
| | Dec 31,
| | Mar 31,
| | Dec 31,
| | Mar 31,
| | Dec 31,
| | Mar 31,
| | Dec 31,
| | | Jun 30,
| | Dec 31,
| | Jun 30,
| | Dec 31,
| | Jun 30,
| | Dec 31,
| | Jun 30,
| | Dec 31,
| |
($ in billions) | | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 | | | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | |
Automotive Finance operations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Syndicated multi-currency global credit facility (a) | | | $7.6 | | | | $7.6 | | | | $— | | | | $— | | | | $7.6 | | | | $7.6 | | | | $7.6 | | | $ | 7.6 | | |
Syndicated multi-currency global credit facilities (a) | | | | $6.0 | | | | $7.6 | | | | $— | | | | $— | | | | $6.0 | | | | $7.6 | | | | $6.0 | | | | $7.6 | |
ResCap (b) | | | 3.9 | | | | 3.9 | | | | 2.0 | | | | 1.9 | | | | 5.9 | | | | 5.8 | | | | 2.5 | | | | 2.7 | | | | 3.9 | | | | 3.9 | | | | 2.0 | | | | 1.9 | | | | 5.9 | | | | 5.8 | | | | 3.0 | | | | 2.7 | |
Other: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. asset-backed commercial paper liquidity and receivables facilities (c) | | | 18.3 | | | | 18.3 | | | | — | | | | — | | | | 18.3 | | | | 18.3 | | | | 18.3 | | | | 18.3 | | | | 12.0 | | | | 18.3 | | | | — | | | | — | | | | 12.0 | | | | 18.3 | | | | 12.0 | | | | 18.3 | |
Other foreign facilities (d) | | | 3.4 | | | | 3.3 | | | | 9.4 | | | | 8.8 | | | | 12.8 | | | | 12.1 | | | | 3.1 | | | | 3.1 | | | | 3.5 | | | | 3.3 | | | | 10.3 | | | | 8.8 | | | | 13.8 | | | | 12.1 | | | | 4.1 | | | | 3.1 | |
| | Total bank liquidity facilities | | | 33.2 | | | | 33.1 | | | | 11.4 | | | | 10.7 | | | | 44.6 | | | | 43.8 | | | | 31.5 | | | | 31.7 | | | | 25.4 | | | | 33.1 | | | | 12.3 | | | | 10.7 | | | | 37.7 | | | | 43.8 | | | | 25.1 | | | | 31.7 | |
| | Secured funding facilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Automotive Finance operations (e) | | | 44.9 | | | | 36.6 | | | | — | | | | — | | | | 44.9 | | | | 36.6 | | | | 16.2 | | | | 9.8 | | |
Secured funding facilities Automotive Finance operations (e) | | | | 48.0 | | | | 36.6 | | | | — | | | | — | | | | 48.0 | | | | 36.6 | | | | 17.2 | | | | 9.8 | |
ResCap (f) | | | 30.4 | | | | 29.4 | | | | 75.1 | | | | 73.3 | | | | 105.5 | | | | 102.7 | | | | 67.4 | | | | 59.7 | | | | 32.4 | | | | 29.4 | | | | 100.5 | | | | 73.3 | | | | 132.9 | | | | 102.7 | | | | 99.7 | | | | 59.7 | |
Whole loan forward flow agreements | | | 44.0 | | | | 45.5 | | | | — | | | | — | | | | 44.0 | | | | 45.5 | | | | 44.0 | | | | 45.5 | | |
Whole-loan forward flow agreements | | | | 42.5 | | | | 45.5 | | | | — | | | | — | | | | 42.5 | | | | 45.5 | | | | 42.5 | | | | 45.5 | |
Other (g) | | | 3.9 | | | | 3.9 | | | | — | | | | — | | | | 3.9 | | | | 3.9 | | | | 2.1 | | | | 2.3 | | | | 3.0 | | | | 3.9 | | | | — | | | | — | | | | 3.0 | | | | 3.9 | | | | 1.1 | | | | 2.3 | |
| | Total secured funding facilities | | | 123.2 | | | | 115.4 | | | | 75.1 | | | | 73.3 | | | | 198.3 | | | | 188.7 | | | | 129.7 | | | | 117.3 | | | | 125.9 | | | | 115.4 | | | | 100.5 | | | | 73.3 | | | | 226.4 | | | | 188.7 | | | | 160.5 | | | | 117.3 | |
| | Total | | | $156.4 | | | | $148.5 | | | | $86.5 | | | | $84.0 | | | | $242.9 | | | | $232.5 | | | | $161.2 | | | $ | 149.0 | | | | $151.3 | | | | $148.5 | | | | $112.8 | | | | $84.0 | | | | $264.1 | | | | $232.5 | | | | $185.6 | | | | $149.0 | |
| |
| |
(a) | The entire $7.6$6.0 is available for use in the U.S., $0.8United States, $0.7 is available for use by GMAC (UK) plcInternational Finance B.V. and $0.8$0.5 is available for use by GMAC International Finance B.V. in Europe.General Motors Acceptance Corporation (UK) plc. |
(b) | ResCap maintains $3.9 of syndicated bank facilities, consisting of a $1.8 syndicated term loan committed through July 2008, an $875 million syndicated line of credit committed through July 2008,June 2010, an $875 million syndicated line of credit committed through July 2007,June 2008, and a $354$386 million Canadian syndicated bank line committed through December 2007. |
(c) | Relates to New Center Asset Trust (NCAT), which is a special purpose entity administered by us for the purpose of funding assets as part of our securitization funding programs. This entity funds assets primarily through the issuance of asset-backed commercial paper and it represents an important source of liquidity to us. At March 31,June 30, 2007, NCAT had commercial paper outstanding of $7.6,$6.5, which is not consolidatedincluded in the Condensed Consolidated Balance Sheet. |
(d) | Consists primarily of committed and uncommitted credit facilities supporting operations in Canada, Europe, Latin America and Asia-Pacific. |
(e) | In March 2007 we establishedConsists primarily of U.S. and international conduits, a new $6 variable note funding facility. The facility, is available to fund U.S. dealer floor plan receivables in certain circumstances, including in the eventas well as a $10 facility with a subsidiary of GM filing for Chapter 11 bankruptcy reorganization.Citigroup. |
| |
(f) | ResCap’s primary sources of secured funding include whole-loan sales, secured aggregation facilities, asset-backed commercial paper facilities, and repurchase agreements. In addition, ResCap’s collateralized borrowings in securitized trusts totaled $48.8$45.1 and $53.3 as of March 31,June 30, 2007, and December 31, 2006, respectively. In addition, MINT I, LLC (MINT I) was created during the second quarter of 2007 to provide ResCap with additional financing through the issuance of extendable notes, which are secured by mortgage loans and warehouse lending receivables. MINT I is an on-balance sheet secured aggregation vehicle that provides us with financing for mortgage loans during the aggregation period and for warehouse lending receivables. MINT I obtains financing through the issuance of extendable notes, which are secured by the mortgage loans and warehouse lending receivables. As of June 30, 2007, MINT I had uncommitted liquidity of approximately $25 with approximately $106 million of extendable notes outstanding. |
| |
(g) | Consists primarily of Commercial Finance secured funding facilities. |
The syndicated multi-currency global credit facility includesfacilities include a $4.35$3.0 billion five-year facility (expires June 2008)2012) and a $3.25$3.0 billion364-day facility (expires June 2007)2008). The364-day facility includes a term outterm-out option, which if exercised by us prior tobefore expiration, carries a one-year term. Additionally, a leverage covenant
20
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
in the liquidity facilities and certain other funding facilities restricts the ratio of consolidated borrowed funds (excluding certain obligations of bankruptcy remotebankruptcy-remote special purpose entities) to consolidated net worth (including the existing preferred membership interests) to be no greater than 11.0:1, under certain conditions.
More specifically, the covenant is only applicable on the last day of any fiscal quarter (other than the fiscal quarter during which a change in rating occurs) during such times that we have senior, unsecured, long-term debt outstanding, without third-party enhancement, which is rated
19
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
BBB+ or less (by Standard & Poor’s), or Baa1 or less (by Moody’s).
Our leverage ratio covenant was 9.5:8.0:1 at March 31, 2007, andJune 30, 2007; therefore we are therefore, in compliance with this covenant.covenant as of this date.
8. Derivative Instruments and Hedging Activities
We enter into interest rate and foreign currencyforeign-currency futures, forwards, options, and swaps in connection with our market risk management activities. In accordance with SFAS 133, as amended, we record derivative financial instruments on the balance sheet as assets or liabilities at fair value. Changes in fair value are accounted for depending on the use of the derivative financial instrument and whether it qualifies for hedge accounting treatment.
Effective May 1, 2007, we designated certain interest rate swaps as fair value hedges of callablefixed-rate debt instruments funding our North American automotive operations. Prior to May 1, 2007, these swaps were economic hedges of this callable fixed rate debt.
Effectiveness of these hedges is assessed using regression of thirty quarterly data points for each relationship, the results of which must meet thresholds forR-squared, slope,F-statistic, andT-statistic. Any ineffectiveness measured in these relationships is recorded in earnings.
21
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The following table summarizes the pre-tax earnings effect for each type of hedge classification, segregated by the asset or liability being hedged.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31,
| | | | | | | |
| | | Three months ended June 30, | | Six months ended June 30, | | |
($ in millions) | | 2007 | | 2006 | | Income statement classification | | 2007 | | 2006 | | 2007 | | 2006 | | Income statement classification |
| Fair value hedge ineffectiveness loss: | | | | | | | | | | | |
Fair value hedge ineffectiveness (loss) gain: | | | | | | | | | | | | | | | | | | | |
Debt obligations | | | | ($78 | ) | | | $— | | | | ($78 | ) | | | $— | | | Interest expense |
Loans held for sale | | | ($1 | ) | | | $— | | | (Loss) gain on sale of mortgage and automotive loans | | | — | | | | 1 | | | | (1 | ) | | | 1 | | | Gain on sale of mortgage and automotive loans, net |
Cash flow hedge ineffectiveness gain: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt obligations | | | — | | | | 1 | | | Interest expense | | | — | | | | — | | | | — | | | | 1 | | | Interest expense |
Economic hedge change in fair value: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Off-balance sheet securitization activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financing operations | | | 11 | | | | (8 | ) | | Other income | | | 19 | | | | (13 | ) | | | 30 | | | | (21 | ) | | Other income |
Foreign currency debt (a) | | | 6 | | | | 52 | | | Interest expense | |
Foreign-currency debt (a) | | | | (6 | ) | | | 6 | | | | — | | | | 58 | | | Interest expense, Other operating expenses |
Loans held for sale or investment | | | (35 | ) | | | 110 | | | (Loss) gain on sale of mortgage and automotive loans, net | | | 214 | | | | 48 | | | | 179 | | | | 158 | | | Gain on sale of mortgage and automotive loans, net |
Mortgage servicing rights | | | (41 | ) | | | (381 | ) | | Servicing asset valuation and hedge activities, net | | | (596 | ) | | | (275 | ) | | | (638 | ) | | | (655 | ) | | Servicing asset valuation and hedge activities, net |
Mortgage related securities | | | (14 | ) | | | (7 | ) | | Investment income | | | (54 | ) | | | (23 | ) | | | (68 | ) | | | (30 | ) | | Investment income |
Callable debt obligations | | | 47 | | | | (229 | ) | | Interest expense | | | (12 | ) | | | (225 | ) | | | 35 | | | | (454 | ) | | Interest expense |
Other | | | (3 | ) | | | 17 | | | Other income, Interest expense, Other operating expenses | | | (11 | ) | | | 10 | | | | (13 | ) | | | 26 | | | Other income, Interest expense, Other operating expenses |
| | Net losses | | | ($30 | ) | | | ($445 | ) | | | | | ($524 | ) | | | ($471 | ) | | | ($554 | ) | | | ($916 | ) | | |
| |
| | |
| (a) | Amount represents the difference between the changes in the fair values of the currency swap, net of the revaluation of the related foreign currency denominatedforeign-denominated debt. |
2022
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
9. Related Party Transactions
Balance Sheet
A summary of the balance sheet effect of transactions with GM, FIM Holdings and affiliated companies is as follows:
| | | | | | | | | | | | | | | | |
| | March 31,
| | December 31,
| | June 30,
| | December 31,
| |
($ in millions) | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | |
Assets: | | | | | | | | | | | | | | |
Available for sale investment in asset-backed security (a) | | | $438 | | | | $471 | | | | $406 | | | | $471 | |
Finance receivables and loans, net of unearned income (b) | | | | | | | | | | | | | | |
Wholesale auto financing(b) | | | 884 | | | | 938 | | | | 816 | | | | 938 | |
Term loans to dealers(b) | | | 203 | | | | 207 | | | | 200 | | | | 207 | |
Investment in operating leases, net (c) | | | 293 | | | | 290 | | |
Notes receivable from GM (d) | | | 2,231 | | | | 1,975 | | |
Lending receivables (c) | | | | 234 | | | | — | |
Investment in operating leases, net (d) | | | | 303 | | | | 290 | |
Notes receivable from GM (e) | | | | 2,118 | | | | 1,975 | |
Other assets | | | | | | | | | | | | | | |
Receivable related to taxes due from GM (e) | | | — | | | | 317 | | |
Receivable related to taxes due from GM (f) | | | | — | | | | 317 | |
Other | | | 44 | | | | 50 | | | | 54 | | | | 50 | |
Liabilities: | | | | | | | | | | | | | | |
Unsecured debt | | | | | | | | | | | | | | |
Notes payable to GM | | | 50 | | | | 60 | | | | 422 | | | | 60 | |
Other | | | | 2 | | | | — | |
Accrued expenses and other liabilities | | | | | | | | | | | | | | |
Wholesale payable | | | 1,045 | | | | 499 | | | | 1,000 | | | | 499 | |
Subvention receivables (rate and residual support) | | | (473 | ) | | | (309 | ) | | | (427 | ) | | | (309 | ) |
Lease pull ahead receivable | | | (88 | ) | | | (62 | ) | | | (62 | ) | | | (62 | ) |
Other receivables | | | (14 | ) | | | (100 | ) | |
Other (payables) receivables | | | | 42 | | | | (100 | ) |
Preferred interests | | | 2,226 | | | | 2,195 | | | | 2,226 | | | | 2,195 | |
Equity: | | | | | | | | | | | | | | |
Dividends paid to GM (f) | | | — | | | | 9,739 | | |
Capital contributions received (g) | | | 1,033 | | | | 951 | | |
Dividends to members (g) | | | | — | | | | 9,739 | |
Capital contributions received (h) | | | | 1,033 | | | | 951 | |
Preferred interest accretion to redemption value and dividends | | | 52 | | | | 295 | | | | 104 | | | | 295 | |
| |
| | |
| (a) | In November 2006, GMAC retained an investment in a note secured by operating lease assets transferred to GM. As part of the transfer, GMAC provided a note to a trust, a wholly owned subsidiary of GM. The note is classified in Investment securities on our Condensed Consolidated Balance Sheet. |
| (b) | Represents wholesale financing and term loans to certain dealerships wholly owned by GM or in which GM has an interest. |
| (c) | Primarily represents loans with various affiliates of FIM Holdings. |
| (d) | Includes vehicles, buildings, and other equipment classified as operating lease assets that are leased to GM affiliatedGM-affiliated and FIM Holdings-affiliated entities. |
| (d)(e) | Includes borrowing arrangements with GM Opel and arrangements related to our funding of GM company-owned vehicles, rental car vehicles awaiting sale at auction, our funding of the sale of GM vehicles through the use of overseas distributors, and amounts related to GM trade supplier finance program. In addition, we provide wholesale financing to GM for vehicles, parts, and accessories in which GM retains title while consigned to us or dealers in the UK, Italy, and Germany. The financing to GM remains outstanding until the title is transferred to the dealers. The amount of financing provided to GM under this arrangement varies based on inventory levels. |
| | |
| (e)(f) | In November 2006, GMAC transferred NOL tax receivables to GM for entities converting to an LLC. For all non-converting entities, the amount was reclassified to deferred income taxes on the Condensed Consolidated Balance Sheet. At December 31, 2006, this balance represents ana 2006 overpayment of taxes from GMAC to GM under our former tax-sharing arrangement and was included in Accrued expenses and other liabilities on our Consolidated Balance Sheet. At March 31,June 30, 2007, this balance was included in Notes receivable from GM on the Condensed Consolidated Balance Sheet. The note bears interest at a fixed annual rate of 7% and is due in quarterly installments of interest only starting June 15, 2007, with one final payment of all unpaid amounts on December 15, 2007. |
| | |
| (f)(g) | Amount includes cash dividends of $4.8 billion and non-cash dividends of $4.9 billion in 2006. During the fourth quarter of 2006, in connection with the Sale Transactions, GMAC madepaid $7.8 billion of dividends to GM, which was comprisedcomposed of the followingfollowing: (i) a cash dividend of $2.7 billion representing a one-time distribution to GM primarily to reflect the increase in GMAC’s equity resulting from the elimination of a portion of our net deferred tax liabilities arising from the conversion of GMAC and certain of our subsidiaries to a limited liability company,company; (ii) certain assets with respect to automotive leases owned by GMAC and its affiliates having a net book value of approximately $4.0 billion and related deferred tax liabilities of $1.8 billion,billion; (iii) certain Michigan properties with a carrying value of approximately $1.2 billion to GM,GM; (iv) intercompany receivables from GM related to tax attributes of $1.1 billion,billion; (v) net contingent tax assets of $491$491; and (vi) other miscellaneous transactions. |
| | |
| (g)(h) | During the first quarter of 2007, under the terms of the purchase and sale agreement between FIM Holdings and GM,Sale Transactions, GM made a capital contribution of $1 billion to GMAC. AmountThe amount in 2006 is comprisedwas composed of the following: (i) approximately $801 of liabilities related to U.S. and Canadian based GM sponsoredCanadian-based, GM-sponsored other postretirement programs and related deferred tax assets of $302,$302; (ii) contingent tax liabilities of $384 assumed by GMGM; and (iii) deferred tax assets transferred from GM of $68. |
2123
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Income Statement
A summary of the income statement effect of transactions with GM, FIM Holdings, and affiliated companies is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31,($ in millions) | | 2007 | | 2006 | | |
| | | Three months ended
| | Six months ended
| |
| | | June 30, | | June 30, | |
($ in millions) | | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | |
Net financing revenue: | | | | | | | | | | | | | | | | | | | | | | | | |
GM and affiliates lease residual value support (a) | | | $219 | | | | $167 | | | | $233 | | | | $208 | | | | $450 | | | | $375 | |
Wholesale subvention and service fees from GM | | | 65 | | | | 43 | | | | 66 | | | �� | 45 | | | | 131 | | | | 88 | |
Interest received (paid) on loans with GM | | | 1 | | | | (17 | ) | |
Interest paid on loans with GM | | | | (5 | ) | | | (10 | ) | | | (4 | ) | | | (27 | ) |
Interest on loans with FIM Holdings affiliates | | | | 4 | | | | — | | | | 11 | | | | — | |
Consumer lease payments from GM (b) | | | 7 | | | | 40 | | | | 5 | | | | 21 | | | | 12 | | | | 61 | |
Insurance premiums earned from GM | | | 67 | | | | 72 | | | | 63 | | | | 77 | | | | 129 | | | | 157 | |
Other income: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest on notes receivable from GM and affiliates | | | 32 | | | | 69 | | | | 33 | | | | 67 | | | | 65 | | | | 136 | |
Interest on wholesale settlements (c) | | | 38 | | | | 44 | | | | 49 | | | | 49 | | | | 87 | | | | 93 | |
Revenues from GM leased properties, net | | | 3 | | | | 26 | | | | 3 | | | | 28 | | | | 6 | | | | 54 | |
Derivatives (d) | | | 2 | | | | — | | | | 5 | | | | — | | | | 8 | | | | — | |
Service fee income: | | | | | | | | | | | | | | | | | | | | | | | | |
Rental car repurchases held for resale (e) | | | — | | | | 8 | | | | — | | | | 4 | | | | — | | | | 11 | |
U.S. Automotive operating leases (f) | | | 3 | | | | — | | | | 9 | | | | — | | | | 13 | | | | — | |
Expense: | | | | | | | | | | | | | | | | | | | | | | | | |
Employee retirement plan costs allocated by GM | | | 8 | | | | 29 | | | | — | | | | 30 | | | | — | | | | 64 | |
Off-lease vehicle selling expense reimbursement (g) | | | (8 | ) | | | (5 | ) | | | (9 | ) | | | 8 | | | | (17 | ) | | | 14 | |
Payments to GM for services, rent and marketing expenses (h) | | | 38 | | | | 14 | | | | 35 | | | | 24 | | | | 76 | | | | 47 | |
| |
| | |
| (a) | Represents total amount of residual support and risk sharing paid (or invoiced)earned under the residual support and risk sharing programs and earned revenue previously deferred revenue related to the settlement of residual support and risk sharing obligations in 2006 for a portion of the lease portfolio. |
| (b) | GM sponsors lease pull-ahead programs whereby consumers are encouraged to terminate lease contracts early in conjunction with the acquisition of a new GM vehicle, with the customer’s remaining payment obligation waived. For certain programs, GM compensates us for the waived payments, adjusted based on the remarketing results associated with the underlying vehicle. |
| (c) | The settlement terms related to the wholesale financing of certain GM products are at shipment date. To the extent that wholesale settlements with GM are made prior tobefore the expiration of transit, we receive interest from GM. |
| (d) | Represents income related to derivative transactions enteredthat we enter into with GM as counterparty. |
| (e) | We receiveRepresents a servicing fee from GM related to the resale of rental car repurchases. At December 31, 2006, this program was terminated. |
| | |
| (f) | Represents servicing income related to automotive leases distributed to GM on November 22, 2006. |
| | |
| (g) | An agreement with GM provides for the reimbursement of certain selling expenses incurred by us on off-lease vehicles sold by GM at auction. |
| (h) | We reimburse GM provides usfor certain other services and facilities services for which we reimburse them. Included in thisprovided to us. This amount areincludes rental payments for our primary executive and administrative offices located in the Renaissance Center in Detroit, Michigan. |
2224
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Retail and Lease Programs
GM may elect to sponsor incentive programs (on both retail contracts and operating leases) by supporting financing rates below the standard market rates at which we purchase retail contracts and leases. SuchThese marketing incentives are also referred to as rate support or subvention. When GM utilizes these marketing incentives, it pays us the present value of the difference between the customer rate and our standard rate at contract inception, which we defer and recognize as a yield adjustment over the life of the contract.
GM may also sponsor lease residual support programs as a way to lower customer monthly payments. Under residual support programs, the customer’s contractual residual value is adjusted above our standard residual values. Historically, GM reimbursed us at the time of the vehicle’s disposal if remarketing sales proceeds were less than the customer’s contractual residual value limited to our standard residual value. In addition to residual support programs, GM also participated in a risk sharing arrangement whereby GM shared equally in residual losses to the extent that remarketing proceeds were below our standard residual values (limited to a floor).
In connection with the Sale Transactions, GM settled its estimated liabilities with respect to residual support and risk sharing on a portion of our operating lease portfolio and on the entire U.S. balloon retail receivables portfolio in a series of lump-sum payments. A negotiated amount totaling approximately $1.4 billion was agreed to by GM under these leases and balloon contracts and was paid to us. The payments were recorded as a deferred amount in Accrued expenses and other liabilities in our Condensed Consolidated Balance Sheet and are treated as sales proceeds on the underlying assets, as theSheet. As these contracts terminate and the vehicles are sold at auction, the payments are treated as a component of sales proceeds in recognizing the gain or loss on sale.sale of the underlying assets.
In addition, with regard to U.S. lease originations and all U.S. balloon retail contract originations occurring after April 30, 2006, that remained with us after the consummation of the Sale Transactions, GM agreed to begin payment of the present value of the expected residual support owed to us at the time of contract origination as opposed to after contract termination at the time of sale of the related vehicle. The residual support amount GM actually owes us is “trued up”finalized as the leases actually terminate and,terminate. Under the terms of the residual support program, in cases where the estimate was incorrect, GM may be obligated to pay us, or we may be obligated to reimburse GM, under the terms of the residual support program.GM. For the affected contracts originated through Marchduring the three months and six months ended June 30, 2007, GM paid or agreed to pay us a total of $280$327 million and $607 million in 2007.2007, respectively.
Based on the March 31,June 30, 2007 outstanding U.S. operating lease portfolio, the additional maximum amount that could be paid by GM under the residual support programs is approximately $427$662 million and would only be paid in the unlikely event that the proceeds from the entire portfolio of lease assets were lower than both the contractual residual value and our standard residual rates. Based on the March 31,June 30, 2007 outstanding U.S. operating lease portfolio, the maximum amount that could be paid under the risk sharing arrangements is approximately $599$781 million and would only be paid in the unlikely event that the proceeds from all outstanding lease vehicles were lower than our standard residual rates.
25
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Retail and lease contracts acquired by us that included rate and residual subvention from GM, payable directly or indirectly to GM dealers as a percent of total new retail and lease contracts acquired, are noted in the table.
| | | | | | | | | | | | | | | | |
Three months ended March 31, | | 2007 | | 2006 | | |
| | | Six months ended
| |
| | | June 30, | |
| | | 2007 | | 2006 | |
| | | | |
GM and affiliates subvented contracts acquired: | | | | | | | | | | | | | | | | |
North American operations | | | 85% | | | | 89% | | | | 86% | | | | 89 | % |
International operations (a) | | | 39% | | | | 58% | | | | 42% | | | | 57 | % |
| |
| | |
| (a) | The decrease in 2007 is primarily due to a price repositioning in Mexico, which improved the competitiveness of non-subvented products and increased Mexico’s retail penetration by 3%4% in comparison with 2006 levels. |
As a result of GM sponsoredGM-sponsored rate incentive programs, our North American operations recognized $373$359 million and $381$351 million in consumer financing revenue as yield adjustments on GM subvented retail loans for the three months ended March 31,June 30, 2007 and 2006, respectively, and $727 and $729 for the six months ended June 30, 2007 and 2006, respectively.
23
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Other
We have entered into various services agreements with GM that are designed to document and maintain the current and historical relationship between us. We are required to pay GM fees in connection with certain of these agreements related to our financing of GM consumers and dealers in certain parts of the world.
GM also provides payment guarantees on certain commercial assets we have outstanding with certain third-party customers. As of March 31,June 30, 2007, and December 31, 2006, commercial obligations guaranteed by GM were $129$115 million and $216 million, respectively. In addition, we have a consignment arrangement with GM for commercial inventories in Europe. As of March 31,June 30, 2007, and December 31, 2006, commercial inventories related to this arrangement were $142$105 million and $151 million, respectively, and are reflected in Other assets in the Condensed Consolidated Balance Sheet.
In addition, we may enter into various transactions with companies that are affiliated with FIM Holdings. At March 31, 2007, we had $278 million in outstanding commercial receivables and approximately $7 million of related revenue for the quarter ended March 31, 2007, from warehouse loans provided in our mortgage operations with Aegis Mortgage Corporation, an affiliate of FIM Holdings. In addition, we are a party to various other immaterial transactions with other companies that are affiliated or associated with FIM Holdings.
2426
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
10. Segment Information
Financial results for our reporting segments are summarized as follows:below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Automotive Finance Operations (a) | | | | | | | | | | Automotive Finance
| | | | | | | | | |
| | North
| | | | | | | | | | | | operations (a) | | | | | | | | | |
Three months ended March 31,
| | American
| | International
| | | | Insurance
| | | | | |
| | | North
| | | | | | | | | | | |
Three months ended June 30,
| | | American
| | International
| | | | Insurance
| | | | | |
($ in millions) | | Operations | | Operations (b) | | ResCap | | Operations | | Other (c) | | Consolidated | | operations (a) | | operations (b) | | ResCap | | operations | | Other (c) | | Consolidated | |
| | | |
2007 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net financing revenue before provision for credit losses | | | $946 | | | | $445 | | | | $173 | | | | $— | | | | $61 | | | | $1,625 | | | | $1,021 | | | | $452 | | | | $57 | | | | $— | | | | $51 | | | | $1,581 | |
Provision for credit losses | | | (99 | ) | | | (36 | ) | | | (542 | ) | | | — | | | | (4 | ) | | | (681 | ) | | | (67 | ) | | | (36 | ) | | | (327 | ) | | | — | | | | — | | | | (430 | ) |
Other revenue | | | 768 | | | | 119 | | | | 328 | | | | 1,172 | | | | 49 | | | | 2,436 | | | | 757 | | | | 129 | | | | 788 | | | | 1,166 | | | | 27 | | | | 2,867 | |
| | Total net financing revenue (loss) and other income | | | 1,615 | | | | 528 | | | | (41 | ) | | | 1,172 | | | | 106 | | | | 3,380 | | |
Total net financing revenue and other income | | | | 1,711 | | | | 545 | | | | 518 | | | | 1,166 | | | | 78 | | | | 4,018 | |
Noninterest expense | | | 1,301 | | | | 406 | | | | 810 | | | | 981 | | | | 37 | | | | 3,535 | | | | 1,391 | | | | 434 | | | | 722 | | | | 978 | | | | 41 | | | | 3,566 | |
| | Income (loss) before income tax expense | | | 314 | | | | 122 | | | | (851 | ) | | | 191 | | | | 69 | | | | (155 | ) | | | 320 | | | | 111 | | | | (204 | ) | | | 188 | | | | 37 | | | | 452 | |
Income tax expense | | | 9 | | | | 31 | | | | 59 | | | | 48 | | | | 3 | | | | 150 | | | | 18 | | | | 31 | | | | 50 | | | | 57 | | | | 3 | | | | 159 | |
| | Net income (loss) | | | $305 | | | | $91 | | | | ($910 | ) | | | $143 | | | | $66 | | | | ($305 | ) | | | $302 | | | | $80 | | | | ($254 | ) | | | $131 | | | | $34 | | | | $293 | |
| | Total assets | | | $124,273 | | | | $25,125 | | | | $121,244 | | | | $12,878 | | | | ($8,388 | ) | | | $275,132 | | | | $130,860 | | | | $27,107 | | | | $116,890 | | | | $13,956 | | | | ($9,535 | ) | | | $279,278 | |
| | 2006 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net financing revenue before provision for credit losses | | | $1,031 | | | | $402 | | | | $265 | | | | $— | | | | $193 | | | | $1,891 | | | | $972 | | | | $400 | | | | $263 | | | | $— | | | | $108 | | | | $1,743 | |
Provision for credit losses | | | (14 | ) | | | 7 | | | | (123 | ) | | | — | | | | (36 | ) | | | (166 | ) | | | (130 | ) | | | (22 | ) | | | (123 | ) | | | — | | | | 7 | | | | (268 | ) |
Other revenue | | | 742 | | | | 166 | | | | 799 | | | | 1,141 | | | | 51 | | | | 2,899 | | | | 823 | | | | 131 | | | | 1,434 | | | | 1,157 | | | | (23 | ) | | | 3,522 | |
| | Total net financing revenue and other income | | | 1,759 | | | | 575 | | | | 941 | | | | 1,141 | | | | 208 | | | | 4,624 | | | | 1,665 | | | | 509 | | | | 1,574 | | | | 1,157 | | | | 92 | | | | 4,997 | |
Noninterest expense | | | 1,675 | | | | 391 | | | | 602 | | | | 955 | | | | 284 | | | | 3,907 | | | | 1,642 | | | | 408 | | | | 695 | | | | 1,040 | | | | 65 | | | | 3,850 | |
| | Income (loss) before income tax expense | | | 84 | | | | 184 | | | | 339 | | | | 186 | | | | (76 | ) | | | 717 | | |
Income tax (expense) benefit | | | (27 | ) | | | (55 | ) | | | (138 | ) | | | (57 | ) | | | 55 | | | | (222 | ) | |
Income before income tax expense | | | | 23 | | | | 101 | | | | 879 | | | | 117 | | | | 27 | | | | 1,147 | |
Income tax (benefit) expense | | | | (40 | ) | | | 27 | | | | 331 | | | | 37 | | | | 5 | | | | 360 | |
| | Net income (loss) | | | $57 | | | | $129 | | | | $201 | | | | $129 | | | | ($21 | ) | | | $495 | | |
Net income | | | | $63 | | | | $74 | | | | $548 | | | | $80 | | | | $22 | | | | $787 | |
| | Total assets | | | $155,382 | | | | $27,168 | | | | $121,914 | | | | $13,739 | | | | ($14,459 | ) | | | $303,744 | | | | $157,131 | | | | $23,827 | | | | $124,552 | | | | $13,475 | | | | ($10,640 | ) | | | $308,345 | |
| |
| |
(a) | North American Operations consistoperations consists of automotive financing in the U.S.United States and Canada, and certain other corporate activities. International Operationsoperations consists of automotive financing and full service leasing in all other countries and Puerto Rico through March 31, 2006. Beginning April 1, 2006, Puerto Rico has been included in North American Operations.operations. |
(b) | Amounts include intra-segment eliminations between the North American Operationsoperations and International Operations.operations. |
(c) | Represents our Commercial Finance business, equity interest in Capmark, certain corporate activities related to mortgage activities, and reclassifications and eliminationeliminations between the reporting segments. |
2527
GMAC LLC
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Automotive Finance
| | | | | | | | | | | | | |
| | operations (a) | | | | | | | | | | | | | |
| | North
| | | | | | | | | | | | | | | | |
Six months ended June 30,
| | American
| | | International
| | | | | | Insurance
| | | | | | | |
($ in millions) | | operations (a) | | | operations (b) | | | ResCap | | | operations | | | Other (c) | | | Consolidated | |
| |
2007 | | | | | | | | | | | | | | | | | | | | | | | | |
Net financing revenue before provision for credit losses | | | $1,965 | | | | $899 | | | | $230 | | | | $— | | | | $112 | | | | $3,206 | |
Provision for credit losses | | | (165 | ) | | | (73 | ) | | | (869 | ) | | | — | | | | (4 | ) | | | (1,111 | ) |
Other revenue | | | 1,525 | | | | 250 | | | | 1,116 | | | | 2,338 | | | | 74 | | | | 5,303 | |
|
|
Total net financing revenue and other income | | | 3,325 | | | | 1,076 | | | | 477 | | | | 2,338 | | | | 182 | | | | 7,398 | |
Noninterest expense | | | 2,692 | | | | 841 | | | | 1,532 | | | | 1,959 | | | | 77 | | | | 7,101 | |
|
|
Income (loss) before income tax expense | | | 633 | | | | 235 | | | | (1,055 | ) | | | 379 | | | | 105 | | | | 297 | |
Income tax expense | | | 25 | | | | 63 | | | | 110 | | | | 105 | | | | 6 | | | | 309 | |
|
|
Net income (loss) | | | $608 | | | | $172 | | | | ($1,165 | ) | | | $274 | | | | $99 | | | | ($12 | ) |
|
|
2006 | | | | | | | | | | | | | | | | | | | | | | | | |
Net financing revenue before provision for credit losses | | | $2,003 | | | | $803 | | | | $527 | | | | $— | | | | $300 | | | | $3,633 | |
Provision for credit losses | | | (144 | ) | | | (15 | ) | | | (245 | ) | | | — | | | | (30 | ) | | | (434 | ) |
Other revenue | | | 1,564 | | | | 296 | | | | 2,234 | | | | 2,298 | | | | 30 | | | | 6,422 | |
|
|
Total net financing revenue and other income | | | 3,423 | | | | 1,084 | | | | 2,516 | | | | 2,298 | | | | 300 | | | | 9,621 | |
Noninterest expense | | | 3,315 | | | | 798 | | | | 1,297 | | | | 1,995 | | | | 351 | | | | 7,756 | |
|
|
Income (loss) before income tax expense | | | 108 | | | | 286 | | | | 1,219 | | | | 303 | | | | (51 | ) | | | 1,865 | |
Income tax expense (benefit) | | | (12 | ) | | | 83 | | | | 469 | | | | 94 | | | | (52 | ) | | | 582 | |
|
|
Net income | | | $120 | | | | $203 | | | | $750 | | | | $209 | | | | $1 | | | | $1,283 | |
|
|
| |
(a) | North American operations consists of automotive financing in the United States and Canada, and certain other corporate activities. International operations consists of automotive financing and full service leasing in all other countries and Puerto Rico through March 31, 2006. Beginning April 1, 2006, Puerto Rico has been included in North American operations. |
(b) | Amounts include intra-segment eliminations between the North American operations and International operations. |
(c) | Represents our Commercial Finance business, equity interest in Capmark, certain corporate activities related to mortgage activities, and reclassifications and eliminations between the reporting segments. |
28
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and |
Results of Operations
Overview
GMAC is a leading, independent, globalglobally diversified, financial services firm with approximately $275$279 billion of assets and operations in approximately 40 countries. Founded in 1919 as a wholly owned subsidiary of General Motors Corporation (General Motors or GM), GMAC was originally established to provide GM dealers with the automotive financing necessary for the dealers to acquire and maintain vehicle inventories and to provide retail customers the means by which to finance vehicle purchases through GM dealers. On November 30, 2006, GM sold a 51% interest in us for approximately $7.4 billion (the Sale Transactions) to FIM Holdings LLC (FIM Holdings), an investment consortium led by Cerberus FIM Investors LLC, the sole managing member, andmember. The consortium also includingincludes Citigroup Inc., Aozora Bank Ltd., and a subsidiary of The PNC Financial Services Group, Inc.
Our products and services have expanded beyond automotive financing as we currently operate in the following lines of business — Automotive Finance, Mortgage (Residential Capital, LLC or ResCap), and Insurance. The following table summarizes the operating results of each line of business for the three months and six months ended March 31,June 30, 2007 and 2006. Operating results for each of the lines of business are more fully described in the MD&A sections that follow.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2006
| | 2007-2006
| | Three months ended
| | Six months ended
| |
Three months ended March 31,($ in millions) | | 2007 | | (Restated) | | % change | |
| | | June 30, | | June 30, | |
| | | | | | | 2007-2006
| | | | | | 2007-2006
| |
($ in millions) | | | 2007 | | 2006 | | % Change | | 2007 | | 2006 | | % Change | |
| | | |
Net financing revenue and other income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Automotive Finance | | $ | 2,143 | | | $ | 2,334 | | | | (8 | ) | | $ | 2,256 | | | | $2,174 | | | | 4 | | | | $4,401 | | | $ | 4,507 | | | | (2 | ) |
ResCap | | | (41 | ) | | | 941 | | | | (104 | ) | | | 518 | | | | 1,574 | | | | (67 | ) | | | 477 | | | | 2,516 | | | | (81 | ) |
Insurance | | | 1,172 | | | | 1,141 | | | | 3 | | | | 1,166 | | | | 1,157 | | | | 1 | | | | 2,338 | | | | 2,298 | | | | 2 | |
Other | | | 106 | | | | 208 | | | | (49 | ) | | | 78 | | | | 92 | | | | (15 | ) | | | 182 | | | | 300 | | | | (39 | ) |
| | | | |
| | |
Net income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Automotive Finance | | | 396 | | | $ | 186 | | | | 113 | | | $ | 382 | | | | $137 | | | | 179 | | | | $780 | | | $ | 323 | | | | 141 | |
ResCap | | | (910 | ) | | | 201 | | | | (553 | ) | | | (254 | ) | | | 548 | | | | (146 | ) | | | (1,165 | ) | | | 750 | | | | (255 | ) |
Insurance | | | 143 | | | | 129 | | | | 11 | | | | 131 | | | | 80 | | | | 64 | | | | 274 | | | | 209 | | | | 31 | |
Other | | | 66 | | | | (21 | ) | | | 414 | | | | 34 | | | | 22 | | | | 55 | | | | 99 | | | | 1 | | | | n/m | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| |
• | Our Automotive Finance operations offer a wide range of financial services and products (directly and indirectly) to retail automotive consumers, automotive dealerships, and other commercial businesses. Our Automotive Finance operations are comprisedconsist of two separate reporting segments — North American Automotive Finance Operationsoperations and International Automotive Finance Operations.operations. The products and services offered by our Automotive Finance operations include the purchase of retail installment sales contracts and leases, offering of term loans, dealer floor plan financing and other lines of credit to dealers, fleet leasing, and vehicle remarketing services. While most of our operations focus on prime automotive financing to and through GM or GM affiliatedGM-affiliated dealers, our Nuvell operation, which is part of our North American Automotive Finance Operations,operations, focuses on nonprime automotive financing to GM-affiliated and non-GM dealers. Our Nuvell operation also provides private-label automotive financing. In addition, our Automotive Financing operations utilize asset securitization and whole loanwhole-loan sales as a critical component of our diversified funding strategy. |
|
• | Our ResCap operations engage in the origination, purchase, servicing, sale, and securitization of consumer (i.e., residential) and mortgage loans and mortgage-related products (e.g., real estate services). Typically, mortgage loans are originated and sold to investors in the secondary market, including securitization transactions in which the assets are legally sold but are accounted for as secured financings. In March 2005, we transferred ownership of GMAC Residential and GMAC-RFC to a newly formed, wholly owned, |
29
| |
| subsidiary holding company, ResCap. As part of this transfer of ownership, certain agreements were put in place between ResCap and us that restrict ResCap’s ability to declare dividends or prepay subordinated indebtedness owed to us. While we believe the restructuring of these operations and the agreements between ResCap and us allow ResCap to access more attractive sources of capital, the agreements inhibit our ability to return funds for dividends and debt payments. For additional information, |
26
| |
| please refer to ResCap’s Annual Report onForm 10-K for the period ended December 31, 2006, filed separately with the SEC, which report is not deemed incorporated into any of our filings under the Securities Act or the Exchange Act. |
| |
• | Our Insurance operations offer automobilevehicle service contracts and underwrite personal automobile insurance coverage (ranging from preferred to non-standard risks) and selected commercial insurance and reinsurance coverage. We are a leading provider of automotive extendedvehicle service contracts with mechanical breakdown and maintenance coverages. Our automotive extendedvehicle service contracts offer vehicle owners and lessees mechanical repair protection and roadside assistance for new and used vehicles beyond the manufacturer’s new vehicle warranty. We underwrite and market non-standard, standard, and preferred riskpreferred-risk physical damage and liability insurance coverages for passenger automobiles, motorcycles, recreational vehicles, and commercial automobiles through independent agency, direct response, and internet channels. Additionally, we market private-label insurance through a long-term agency relationship with Homesite Insurance, a national provider of home insurance products. We provide commercial insurance, primarily covering dealers’ wholesale vehicle inventory, and reinsurance products. Internationally, ABA Seguros provides certain commercial business insurance exclusively in Mexico. |
|
• | Other operations consist of our Commercial Finance Group, an equity investment in Capmark (our former commercial mortgage operations), certain corporate activities, and reclassifications and eliminationeliminations between the reporting segments. |
Restatement of Condensed Consolidated Financial Statements
As discussed in Notes 1 and 2 to the Condensed Consolidated Financial Statements, we restated our historical Condensed Consolidated Balance Sheet as of March 31, 2006, our Condensed Consolidated Statement of Income, and our Condensed Consolidated Statement of Changes in Equity for the three months ended March 31, 2006. This restatement relates to the accounting treatment for certain hedging transactions under Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted (SFAS 133). We also corrected certain otherout-of-period errors, which were deemed immaterial, individually and in the aggregate, in the periods in which they were originally recorded and identified. These items relate to transactions involving certain transfers of financial assets, valuations of certain financial instruments, amortization of unearned income on certain products, income taxes and other inconsequential items. Because of this derivative restatement, we corrected these amounts to record them in the proper period.
The following table sets forth a reconciliation of previously reported and restated net income for the period shown. The restatement decreased January 1, 2006, retained earnings to $15,095 million from $15,190 million. The decrease of $95 million was comprised of a $191 million decrease related to the elimination of a hedge accounting related to certain debt instruments and an increase of $96 million related to other immaterial items.
| | | | |
| | Net income for the three months
|
($ in millions) | | ended March 31, 2006 |
|
Previously reported net income | | | $672 | |
Elimination of hedge accounting related to certain debt instruments | | | (191 | ) |
Other, net | | | (80 | ) |
|
|
Total pre-tax | | | (271 | ) |
Related income tax effects | | | 94 | |
|
|
Restated net income | | | $495 | |
|
|
% change | | | (26 | ) |
|
|
As a result of a review of our hedge documentation for certain fair value hedges, management concluded that such documentation and hedge effectiveness assessment methodologies related to particular hedges of callable fixed rate debt instruments funding our North American Automotive Finance operations did not satisfy the requirements of SFAS 133. One of the requirements of SFAS 133 is that hedge accounting is appropriate only for those hedging relationships for which a company has a sufficiently documented
27
expectation that such relationships will be highly effective in achieving offsetting changes in fair values or cash flows attributable to the risk being hedged at the inception of the hedging relationship. To determine whether transactions continue to satisfy this requirement, companies must periodically assess and document the effectiveness of hedging relationships both prospectively and retrospectively.
Management determined that hedge accounting treatment should not have been applied to these hedging relationships. As a result, we should not have recorded any adjustments on the debt instruments included in the hedging relationships related to changes in fair value due to movements in the designated benchmark interest rate. Accordingly, we have restated our Condensed Consolidated Balance Sheet as of March 31, 2006, our Condensed Consolidated Statement of Income, and our Condensed Consolidated Statement of Changes in Equity for the three months ended March 31, 2006, from the amounts previously reported to remove such recorded adjustments on these debt instruments from our reported interest expense during the affected years. The elimination of hedge accounting treatment introduces increased funding cost volatility in our restated results. The changes in the fair value of fixed rate debt previously recorded were affected by changes in the designated benchmark interest rate (LIBOR). Prior to the restatement, adjustments to record increases in the value of this debt occurred in periods when interest rates declined, and adjustments to record decreases in value were made in periods when interest rates rose. As a result, changes in the benchmark interest rates caused volatility in the debt’s fair value adjustments that were recognized in our historical earnings, which were mitigated by the changes in the value of the interest rate swaps in the hedge relationships. The interest rate swaps, which economically hedge these debt instruments, continue to be recorded at fair value with changes in fair value recorded in earnings.
The accompanying MD&A considers the effects of thisthe restatement described above and described in Notes 1 and 2 to our Condensed Consolidated Financial Statements.
30
Consolidated Results of Operations
The following table summarizes our consolidated operating results for the periods indicated.shown. Refer to the reporting segment sections for a more complete discussion offollowing operating results by line of business.business for a more complete discussion.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2006
| | 2007-2006
| | | Three months ended
| | Six months ended
| |
Three months ended March 31,($ in millions) | | 2007 | | (Restated) | | % change | | |
| | | June 30, | | June 30, | |
| | | | | | | 2007-2006
| | | | | | 2007-2006
| |
($ in millions) | | | 2007 | | 2006 | | % change | | 2007 | | 2006 | | % change | |
| | | | |
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total financing revenue | | | $5,298 | | | | $5,705 | | | | (7 | ) | | | $5,316 | | | | $5,766 | | | | (8 | ) | | | $10,613 | | | | $11,469 | | | | (7 | ) |
Interest expense | | | (3,673 | ) | | | (3,814 | ) | | | (4 | ) | | | (3,735 | ) | | | (4,023 | ) | | | (7 | ) | | | (7,407 | ) | | | (7,836 | ) | | | (5 | ) |
Provision for credit losses | | | (681 | ) | | | (166 | ) | | | 310 | | | | (430 | ) | | | (268 | ) | | | 60 | | | | (1,111 | ) | | | (434 | ) | | | 156 | |
| | | | | |
| | |
Net financing revenue | | | 944 | | | | 1,725 | | | | (45 | ) | | | 1,151 | | | | 1,475 | | | | | (22 | ) | | | | 2,095 | | | | 3,199 | | | | | (35 | ) |
Net loan servicing income | | | 257 | | | | 263 | | | | (2 | ) | | | 404 | | | | 275 | | | | 47 | | | | 662 | | | | 539 | | | | 23 | |
Insurance premiums and service revenue | | | 1,041 | | | | 1,010 | | | | 3 | | |
(Loss) gain on sale of mortgage and automotive loans | | | (37 | ) | | | 364 | | | | (110 | ) | |
Insurance premiums and service revenue earned | | | | 1,051 | | | | 1,052 | | | | — | | | | 2,092 | | | | 2,062 | | | | 1 | |
Gain on sale of mortgage and automotive loans, net | | | | 399 | | | | 504 | | | | (21 | ) | | | 363 | | | | 869 | | | | (58 | ) |
Investment income | | | 309 | | | | 258 | | | | 20 | | | | 227 | | | | 297 | | | | (24 | ) | | | 535 | | | | 555 | | | | (4 | ) |
Gain on sale of equity method investments, net | | | | — | | | | 411 | | | | (100 | ) | | | — | | | | 411 | | | | (100 | ) |
Other income | | | 866 | | | | 1,004 | | | | (14 | ) | | | 786 | | | | 983 | | | | (20 | ) | | | 1,651 | | | | 1,986 | | | | (17 | ) |
| | | | | |
| | |
Total net financing revenue and other income | | | 3,380 | | | | 4,624 | | | | (27 | ) | | | 4,018 | | | | 4,997 | | | | | (20 | ) | | | | 7,398 | | | | 9,621 | | | | | (23 | ) |
Depreciation expense on operating leases | | | (1,081 | ) | | | (1,440 | ) | | | (25 | ) | |
Depreciation expense on operating lease assets | | | | (1,173 | ) | | | (1,346 | ) | | | (13 | ) | | | (2,255 | ) | | | (2,786 | ) | | | (19 | ) |
Insurance losses and loss adjustment expenses | | | (573 | ) | | | (597 | ) | | | (4 | ) | | | (563 | ) | | | (653 | ) | | | (14 | ) | | | (1,136 | ) | | | (1,250 | ) | | | (9 | ) |
Other expense | | | (1,881 | ) | | | (1,870 | ) | | | 1 | | | | (1,830 | ) | | | (1,851 | ) | | | (1 | ) | | | (3,710 | ) | | | (3,720 | ) | | | — | |
| | | | | |
| | |
Income (loss) before income tax expense | | | (155 | ) | | | 717 | | | | (122 | ) | |
Income before income tax expense | | | | 452 | | | | 1,147 | | | | | (61 | ) | | | | 297 | | | | 1,865 | | | | | (84 | ) |
Income tax expense | | | (150 | ) | | | (222 | ) | | | (32 | ) | | | (159 | ) | | | (360 | ) | | | (56 | ) | | | (309 | ) | | | (582 | ) | | | (47 | ) |
| | | | | |
| | |
Net income (loss) | | | ($305 | ) | | | $495 | | | | (162 | ) | | | $293 | | | | $787 | | | | | (63 | ) | | | | ($12 | ) | | | $1,283 | | | | | (101 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
We reported net income of $293 million for the three months ended June 30, 2007, compared to $787 million for the same period in 2006, and a net loss of $305$12 million infor the first quarter ofsix months ended June 30, 2007, as compared to the first quarter 2006 net income of $495 million.$1.3 billion for the same period in 2006. This reflects strong earnings in the global automotive finance and insurance businesses that provided earnings support forwhich offset losses in our ResCap business, which wascontinued to be adversely affected by a decline in the residential housing market and deterioration in the nonprime securitization market in the U.S.United States.
Total financing revenue decreased by 8% and 7% in the first three months ofand six months ended June 30, 2007, compared to the same period ofperiods in 2006, primarily due to decreases in operating lease income. Operating lease income declined 19%15% in the three months ended June 30, 2007, and 17% in the first six months of 2007, as compared to 2006, due to a
28
reduction in our operating lease portfolio, which was primarily driven by the transfer of operating lease assets to GM during November 2006, as part of the Sale Transactions. Similarly, depreciation expense decreased 25% during13% in the three months ended June 30, 2007, and 19% in the first six months of 2007, compared to the same periodperiods in 2006, as a result of these reductions in our operating lease portfolio.this reduction.
Interest expense decreased slightly7% and 5% in the three months and six months ended June 30, 2007, compared to the same periods in 2006. The decrease resulted fromFor both periods this reduction was primarily due to lower levels of outstanding debt and the reduction in cash and cash equivalents and our repurchasethe level of deferred interest debentures during the third quarterunfavorable impact of 2006.mark-to-market adjustments on certain cancelable swaps, which economically hedge callable debt. This decrease was partially offset by an increase in market interest rates.
31
The provision for credit losses increased 310%60% and 156% in the three months and six months ended June 30, 2007, respectively, as compared to the same periods in 2006. The increase was primarily due toincreases were driven by higher delinquencies at ResCap, attributableprimarily due to general economic conditions including slower home price appreciation andthe continued deterioration in the domestic housing market and the market for nonprime credit performance.loans.
(Loss)Net loan servicing income increased 47% and 23% in the three months and six months ended June 30, 2007, respectively, as compared to the same periods in 2006. These increases were attributable to higher average primary and master servicing portfolios at ResCap as well as increased asset securitization activity and whole-loan sales by our automotive finance business in comparison with 2006 levels.
The gain on sale of mortgage and automotive loans decreased by 110%21% and 58% in the three months and six months ended June 30, 2007, respectively, as compared to the same periods in 2006. The decrease isdecreases are primarily attributable to a declinedeclines in fair value of ourResCap’s nonprime and prime second-lien delinquent loans held for sale at ResCap. Thestemming from lower investor demand and lack of market liquidity. As a result, the pricing for these mortgage loans declined significantlyvarious loan product types continued to deteriorate in the fourth quarter of 2006 and continued into the first quartersix months of 2007, as our ability to securitize these loans was severely restricted as investor uncertainty grew in regards toremained high concerning the performance of these loans. This trend wasThese trends were partially offset by higher gains realized by our automotive finance business on the sale of retail installment contracts for both periods.
The decrease in gain on sale of equity method investments, net, relates entirely to a gain on sale of ResCap’s equity investment in a regional homebuilder in the three months ended June 30, 2006. We have realized no similar gains in 2007.
Other income for both the three and six months ended June 30, 2007, has decreased from the securitization2006 levels due to a decrease in interest income commensurate with decreases in cash and cash equivalents and decreased interest and service fees from lending activity of our auto finance business.with GM.
Insurance losses and loss adjustment expenses improved slightlydecreased 14% and 9% in the three months and six months ended June 30, 2007, respectively, as compared to the same periods in 2006. The decrease is primarily due to favorable weather conditions in 2007 compared to 2006 driven byin our U.S. commercial and personal lines businesses, as well as favorable loss trends experienced in extendedour vehicle service contract business as well as decreased losses in our domestic personal lines.product line.
Our consolidated tax expense for the first quarter ofthree months and six months ended June 30, 2007, is $150$159 million and $309 million, respectively, a decrease of 32%56% from the first quarter ofthree months ended June 30, 2006, and 47% from the six months ended June 30, 2006, primarily due to the mix of earnings in limited liability company (LLC) and non-LLC entities. Results for the first quartersix months of 2007 reflect a change in tax status for certain of our subsidiaries due to the conversion of a number of our unregulated U.S. subsidiaries to flow-through LLCs in conjunction with the Sale Transaction.Transactions. These domestic subsidiaries are generally not taxed at the entity level and, therefore, our effective tax rate on a consolidated basis is significantly higher infor both the second quarter and first quartersix months of 2007 thanin comparison with the same periodperiods in 2006. The primary reason for this is that the majority of the net loss experienced at ResCap in the first six months of 2007 is attributable to its LLCs and no tax benefits for these losses are recorded. Excluding ResCap, the consolidated effective tax rate is approximately 14%15%, which represents the provision for taxes at our non-LLC subsidiaries combined with taxable income that is not subject to tax at our LLC subsidiaries. The effective tax rates applicable to our non-LLC subsidiaries remain comparable with 2006.
2932
Automotive Finance Operations
Results of Operations
The following table summarizes the operating results of our Automotive Finance operations for the periods indicated.shown. The amounts presented are before the elimination of balances and transactions with our other reporting segments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31,
| | | | 2006
| | 2007-2006
| | |
| | | Three months ended
| | Six months ended
| |
| | | June 30, | | June 30, | |
| | | | | | | 2007-2006
| | | | | | 2007-2006
| |
($ in millions) | | 2007 | | (Restated) | | % change | | | 2007 | | 2006 | | % change | | 2007 | | 2006 | | % change | |
| | | | |
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consumer | | | $1,386 | | | | $1,430 | | | | (3 | ) | | | $1,399 | | | | $1,367 | | | | 2 | | | | $2,785 | | | | $2,796 | | | | — | |
Commercial | | | 382 | | | | 368 | | | | 4 | | | | 443 | | | | 419 | | | | 6 | | | | 825 | | | | 788 | | | | 5 | |
Operating leases | | | 1,568 | | | | 1,926 | | | | (19 | ) | | | 1,729 | | | | 2,023 | | | | (15 | ) | | | 3,297 | | | | 3,949 | | | | (17 | ) |
| | | | | |
| | |
Total financing revenue | | | 3,336 | | | | 3,724 | | | | (10 | ) | | | 3,571 | | | | 3,809 | | | | | (6 | ) | | | | 6,907 | | | | 7,533 | | | | | (8 | ) |
Interest expense | | | (1,945 | ) | | | (2,291 | ) | | | (15 | ) | | | (2,098 | ) | | | (2,437 | ) | | | (14 | ) | | | (4,043 | ) | | | (4,727 | ) | | | (14 | ) |
Provision for credit losses | | | (135 | ) | | | (7 | ) | | | n/m | | | | (103 | ) | | | (152 | ) | | | (32 | ) | | | (238 | ) | | | (159 | ) | | | 50 | |
| | | | | |
| | |
Net financing revenue | | | 1,256 | | | | 1,426 | | | | (12 | ) | | | 1,370 | | | | 1,220 | | | | | 12 | | | | | 2,626 | | | | 2,647 | | | | | (1 | ) |
Servicing fees | | | 112 | | | | 59 | | | | 90 | | | | 104 | | | | 59 | | | | 76 | | | | 217 | | | | 117 | | | | 85 | |
Net gains on the sale of loans | | | 198 | | | | 54 | | | | 267 | | | | 226 | | | | 129 | | | | 75 | | | | 424 | | | | 184 | | | | 130 | |
Investment income | | | 96 | | | | 87 | | | | 10 | | | | 105 | | | | 147 | | | | (29 | ) | | | 201 | | | | 235 | | | | (14 | ) |
Other income | | | 481 | | | | 708 | | | | (32 | ) | | | 451 | | | | 619 | | | | (27 | ) | | | 933 | | | | 1,324 | | | | (30 | ) |
| | | | | |
| | |
Total net automotive financing revenue and other income | | | 2,143 | | | | 2,334 | | | | (8 | ) | | | 2,256 | | | | 2,174 | | | | | 4 | | | | | 4,401 | | | | 4,507 | | | | | (2 | ) |
Depreciation expense on operating leases | | | (1,081 | ) | | | (1,439 | ) | | | (25 | ) | | | (1,173 | ) | | | (1,344 | ) | | | (13 | ) | | | (2,254 | ) | | | (2,782 | ) | | | (19 | ) |
Noninterest expense | | | (626 | ) | | | (627 | ) | | | — | | | | (652 | ) | | | (706 | ) | | | (8 | ) | | | (1,279 | ) | | | (1,331 | ) | | | (4 | ) |
Income tax expense | | | (40 | ) | | | (82 | ) | | | (51 | ) | |
| | | | | |
| | |
Income tax (expense) benefit | | | | (49 | ) | | | 13 | | | | 477 | | | | (88 | ) | | | (71 | ) | | | 24 | |
Net income | | | $396 | | | | $186 | | | | 113 | | | | $382 | | | | $137 | | | | | 179 | | | | | $780 | | | | $323 | | | | | 141 | |
| | | | | |
| | |
Total assets | | | $149,398 | | | | $182,550 | | | | (18 | ) | | | $157,967 | | | | $180,958 | | | | | (13 | ) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
Automotive Finance operations net income increased 113%to $382 million and $780 million for the first quarter of 2007.three months and six months ended June 30, 2007, respectively, as compared to $137 million and $323 million, respectively, for the same periods in 2006. These results reflect both improved margins in North America despiteand continued margin pressure overseas. The improvementNorth America also benefited from strong lease residuals, stable credit performance, and increases in servicing income. Also contributing to the increase in North America is due to an increasewas a reduction in servicing incomethe level of unfavorable mark-to-market adjustments related to the growth in our whole loan serviced portfolio and lower debt levels due to the continued use of whole loan sales, and a favorable mark to market effect of $59 million related to the accounting treatment for certain derivative activities.
Total financing revenue decreased 10% in6% and 8% for the first quarter ofthree months and six months ended June 30, 2007, respectively, as compared to the prior year. The decreasesame periods in consumer2006. Consumer revenue isfor the periods was consistent with the reduction2006 and reflects a modest change in consumer asset levels as a result of continued whole loanwhole-loan sale activity. Consumer finance receivables declined by $5$3.4 billion, or approximately 8%5%, since March 31,June 30, 2006. Operating lease revenue (along with the related depreciation expense) decreased year over yearfor the three months and six months ended June 30, 2007, compared to the same periods in 2006, consistent with the decrease in the size of the operating lease portfolio (approximately 20%16% since MarchJune 2006), as a result of the dividend of certain operating lease assets to GM pursuant to the terms and conditions of the Sale Transactions. The decrease in total financing revenue was partially offset by the growth of our international operations during the six months ended June 30, 2007.
Interest expense decreased 15%14% for the first quarter ofthree months and six months ended June 30, 2007, as compared to the first quarter ofsame periods in 2006. ThisFor both periods this reduction was primarily due to lower levels of outstanding
33
debt and the favorablereduction in the level of unfavorable impact of the mark to marketmark-to-market adjustments on certain cancelable swaps which economically hedge callable debt.
Our provision for credit losses increased $128 milliondecreased 32% during the first quarter ofthree months ended June 30, 2007, as compared to the same period during 2006, while increasing 50% for the 2006 year.six months ended June 30, 2007, compared to the same period during 2006. The increasedecrease during the three months ended June 30, 2007, was primarily related to lower on-balance sheet consumer finance receivables in our North American operations, which was partially offset by increases in the provision is consistent withfor credit losses of our International operations. In addition, delinquency trends were favorable during the increasethree months ended June 30, 2007, compared to the three months ended March 31, 2007, whereas delinquency trends were unfavorable in the three months ended June 30, 2006, compared to the three months ended March 31, 2006. Overall, however, delinquency trends in our delinquency experienceNorth American operations for the first six months of 2007 have deteriorated compared to the same period in 2006, and this trend has been magnified by increases in the frequency of loss in 2007 compared to 2006. This also reflects a higher loss provision expense in our International operations driven by increases in the size of our loan portfolio as well as increased loss frequency and loss severity.severity in Latin America. These trends were partially offset by lower levels of on-balance sheet consumer finance receivables in our North American operations.
Net gains on the sale of loans increased 267%75% and 130% for the first three months ofand six months ended June 30, 2007, respectively, as compared to the same periodperiods in 2006. The increase was primarily the result of higher gains on the sale of retail installment contracts in the first quarter of 2007, as compared to the same period in 2006, despite a decrease in volume.for both periods. Automotive Finance operations continue to utilize asset securitization and whole loanwhole-loan sales as a critical component of our diversified funding strategy. As a result of the growth in the whole loanwhole-loan serviced portfolio, servicing fees increased 90%76% and 85% during the first quarter ofthree months and six months ended June 30, 2007, respectively, as compared to the same periodperiods in 2006.
30
Investment income increased 10%decreased 29% and 14% for the first three and six months ofended June 30, 2007, respectively, as compared to the same periodperiods in 2006. The increasedecrease during both periods was largely a result of higher short-term interest rates and asset balancesa decrease in 2007.the average size of the investment securities portfolio. Other income decreased 32% in comparison27% and 30% for the three and six months ended June 30, 2007, respectively, as compared to the first quarter ofsame periods in 2006, due to lower revenue on GM loans and intercompany loans due to lower lending levels.levels for both periods, in addition to lower interest income as a result of a decrease in the average balance of cash and cash equivalents.
Total income tax expense decreasedincreased by $42$62 million and $17 million for the first three and six months ofended June 30, 2007, respectively, as compared to the same periodperiods in 2006, primarily due to changes in Canadian corporate and provincial tax rates and the elimination of the large corporation tax in Canada during the three months ended June 30, 2006. This was partially offset by our election to be treated as a disregarded or pass-through entity in connection with our conversion to an LLC during the third quarter ofin November 2006. As a result of the conversion, a federal tax provision is no longer required for the majority of the U.S. Automotive Finance operations.
34
Automotive Financing Volume
The following table summarizes our new and used vehicle consumer and wholesale financing volume and our share of GM consumer and wholesale volume.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Share of
| | | Three months ended
| | Six months ended
| |
| | GMAC volume | | GM sales | | | June 30, | | June 30, | |
Three months ended March 31,(units in thousands) | | 2007 | | 2006 | | | | 2007 | | 2006 | | |
| | | GMAC
| | Share of
| | GMAC
| | Share of
| |
| | | volume | | GM sales | | volume | | GM sales | |
(units in thousands) | | | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | |
Consumer automotive financing | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
GM new vehicles | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
North America | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Retail contracts | | | 201 | | | | 188 | | | | | 27% | | | | 26% | | | | 214 | | | | 218 | | | | 25 | % | | | 25 | % | | | 415 | | | | 406 | | | | 26 | % | | | 25 | % |
Leases | | | 135 | | | | 165 | | | | | 18% | | | | 22% | | | | 164 | | | | 168 | | | | 20 | % | | | 19 | % | | | 299 | | | | 333 | | | | 19 | % | | | 21 | % |
Total North America | | | 336 | | | | 353 | | | | | 45% | | | | 48% | | | | 378 | | | | 386 | | | | 45 | % | | | 44 | % | | | 714 | | | | 739 | | | | 45 | % | | | 46 | % |
International (retail contracts and leases) | | | 142 | | | | 135 | | | | | 25% | | | | 25% | | | | 139 | | | | 129 | | | | 24 | % | | | 23 | % | | | 280 | | | | 264 | | | | 24 | % | | | 24 | % |
Total GM new units financed | | | 478 | | | | 488 | | | | | 36% | | | | 38% | | | | 517 | | | | 515 | | | | | 36 | % | | | 36 | % | | | | 994 | | | | 1,003 | | | | | 36 | % | | | 37 | % |
Non-GM new units financed | | | 22 | | | | 16 | | | | | | | | | | | | | 29 | | | | 17 | | | | | | | | | | | | | | 51 | | | | 34 | | | | | | | | | | |
Used units financed | | | 124 | | | | 99 | | | | | | | | | | | |
Used units refinanced | | | | 130 | | | | 95 | | | | | | | | | | | | 254 | | | | 194 | | | | | | | | | |
Total consumer automotive financing volume | | | 624 | | | | 603 | | | | | | | | | | | | | 676 | | | | 627 | | | | | | | | | | | | | | 1,299 | | | | 1,231 | | | | | | | | | | |
Wholesale financing of new vehicles | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
GM vehicles | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
North America | | | 758 | | | | 920 | | | | | 73% | | | | 76% | | | | 868 | | | | 921 | | | | 77 | % | | | 75 | % | | | 1,626 | | | | 1,841 | | | | 75 | % | | | 75 | % |
International | | | 653 | | | | 660 | | | | | 89% | | | | 89% | | | | 729 | | | | 694 | | | | 88 | % | | | 85 | % | | | 1,428 | | | | 1,354 | | | | 88 | % | | | 88 | % |
Total GM units financed | | | 1,411 | | | | 1,580 | | | | | 77% | | | | 82% | | | | 1,597 | | | | 1,615 | | | | | 82 | % | | | 79 | % | | | | 3,054 | | | | 3,195 | | | | | 81 | % | | | 80 | % |
Non-GM units financed | | | 43 | | | | 41 | | | | | | | | | | | | | 51 | | | | 35 | | | | | | | | | | | | | | 95 | | | | 73 | | | | | | | | | | |
Total wholesale volume | | | 1,454 | | | | 1,621 | | | | | | | | | | | | | 1,648 | | | | 1,650 | | | | | | | | | | | | | | 3,149 | | | | 3,268 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Our consumer automotive financing volume and penetration levels are significantly impactedinfluenced by the nature, timing, and extent of GM’s use of rate, residual, and other financing incentives for marketing purposes on consumer retail automotive contracts and leases. Our penetration levels during the three and six months ended June 30, 2007, were slightly lower in 2007 thanconsistent with what was experienced in 2006, mainly due to a decline in thecontinued use of incentive programs by GM. Our International operations’GM and increased dealer incentives offered by GMAC. The consumer penetration levels of our International operations were relatively flat in 2007 compared to 2006.
3135
Allowance for Credit Losses
The following table summarizes activity related to the consumer allowance for credit losses for our Automotive Finance operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended June 30,
| | | 2007 | | 2006 | |
($ in millions) | | Consumer | | Commercial | | Total | | Consumer | | Commercial | | Total | | Consumer | | Commercial | | Total | |
| | | |
Balance at January 1, 2006 | | | $1,618 | | | | $86 | | | | $1,704 | | |
| |
Balance at April 1, | | | | $1,410 | | | | $71 | | | | $1,481 | | | | $1,463 | | | | $65 | | | | $1,528 | |
Provision for credit losses | | | 28 | | | | (21 | ) | | | 7 | | | | 100 | | | | 3 | | | | 103 | | | | 148 | | | | 4 | | | | 152 | |
Charge-offs | | | (236 | ) | | | — | | | | (236 | ) | | | (199 | ) | | | (3 | ) | | | (202 | ) | | | (200 | ) | | | (1 | ) | | | (201 | ) |
Recoveries | | | 51 | | | | — | | | | 51 | | | | 55 | | | | 2 | | | | 57 | | | | 51 | | | | — | | | | 51 | |
Other | | | 2 | | | | — | | | | 2 | | | | — | | | | (7 | ) | | | (7 | ) | | | 5 | | | | 2 | | | | 7 | |
| | Balance at March 31, 2006 | | | 1,463 | | | | 65 | | | | 1,528 | | |
| |
| |
Balance at January 1, 2007 | | | 1,460 | | | | 69 | | | | 1,529 | | |
Provision for credit losses | | | 134 | | | | 1 | | | | 135 | | |
Charge-offs | | | (239 | ) | | | (1 | ) | | | (240 | ) | |
Recoveries | | | 52 | | | | 1 | | | | 53 | | |
Other | | | 3 | | | | 1 | | | | 4 | | |
| |
| |
Balance at March 31, 2007 | | | $1,410 | | | | $71 | | | | $1,481 | | |
Balance at June 30, | | | | $1,366 | | | | $66 | | | | $1,432 | | | | $1,467 | | | | $70 | | | | $1,537 | |
| | Allowance coverage (a) | | | | | | | | | | | | 2.28 | % | | | 0.23 | % | | | 1.62 | % | | | 2.35 | % | | | 0.26 | % | | | 1.71 | % |
March 31, 2006 | | | 2.23 | % | | | 0.25 | % | | | 1.66 | % | |
March 31, 2007 | | | 2.32 | % | | | 0.28 | % | | | 1.72 | % | |
| |
(a) Represents the related allowance for credit losses as a percentage of total on-balance sheet automotive contracts.
| | | | | | | | | | | | | | | | | | | | | | | | |
Six months ended June 30,
| | 2007 | | | 2006 | |
($ in millions) | | Consumer | | | Commercial | | | Total | | | Consumer | | | Commercial | | | Total | |
| |
|
Balance at January 1, | | | $1,460 | | | | $69 | | | | $1,529 | | | | $1,618 | | | | $86 | | | | $1,704 | |
Provision for credit losses | | | 235 | | | | 3 | | | | 238 | | | | 176 | | | | (17 | ) | | | 159 | |
Charge-offs | | | (437 | ) | | | (4 | ) | | | (441 | ) | | | (437 | ) | | | (1 | ) | | | (438 | ) |
Recoveries | | | 108 | | | | 2 | | | | 110 | | | | 102 | | | | — | | | | 102 | |
Other | | | — | | | | (4 | ) | | | (4 | ) | | | 8 | | | | 2 | | | | 10 | |
|
|
Balance at June 30, | | | $1,366 | | | | $66 | | | | $1,432 | | | | $1,467 | | | | $70 | | | | $1,537 | |
|
|
Allowance coverage (a) | | | 2.28 | % | | | 0.23 | % | | | 1.62 | % | | | 2.35 | % | | | 0.26 | % | | | 1.71 | % |
|
|
(a) Represents the related allowance for credit losses as a percentage of total on-balance sheet automotive contracts.
The allowance for credit losses as a percentage of the total on-balance sheet consumer portfolio has experienced an increasea slight decrease in comparison with the first quarter of 2006. The increase was relatedcomparison is favorable in 2007 due to the impact of Hurricane Katrina, which caused a slightsignificant increase in loss frequencyour allowance in late 2005 and severity of our consumer portfolio for North American operations, compared to 2006 levels.into 2006.
The consumer allowance for credit losses was $1,410$1,366 million and $1,463$1,467 million as of March 31, 2007 and 2006, respectively. The consumer portfolio incurred net charge-offs of $187 million and $185 million for the three months ended March 31,June 30, 2007 and 2006, respectively. Decreases in the level of allowance from 2006 levels are reflective of proportional decreases in the on-balance sheet consumer portfolio over the same period. The consumer portfolio incurred net charge offs for the three months ended June 30, 2007 and 2006, of $144 million and $149 million, respectively. Net charge-offs for the six months ended June 30, 2007 and 2006, were $329 million and $335 million, respectively.
Consumer Credit
The following tables summarize pertinent loss experience in the consumer managed and on-balance sheet automotive retail contract portfolios. The managed portfolio includes retail receivables held on-balance sheet for investment and off-balance sheet receivables. The off-balance sheet portion of the managed portfolio includes receivables securitized and sold that we continue to service and in which we retain an interest or risk of loss but excludes securitized and sold finance receivables that we continue to service but in which we retain no interest or risk of loss. The process of creating a pool of retail finance receivables for securitization or sale typically excludes accounts that are greater than 30 days delinquent at suchthat time. In addition, the process involves selecting from a pool of receivables that are currently outstanding and, therefore, represent seasoned accounts. A seasoned portfolio that excludes delinquent accounts historically results in better credit performance in the managed portfolio than in the on-balance sheet portfolio of retail finance receivables. In addition, the current off-balance sheet transactions are comprised mainly consist of subvented ratesubvented-rate retail finance receivables,
36
which generally attract customers with higher credit quality (or otherwise cash purchasers) than customers typically associated with non-subvented receivables.
We believe that the disclosure of the credit experience of the managed portfolio presents a more complete presentation of our risk of loss in the underlying assets (typically in the form of a subordinated retained interest). Consistent with the presentation in the Condensed Consolidated Balance Sheet, retail contracts
32
presented in the table represent the principal balance of the finance receivables discounted for any unearned interest income and rate support received from GM.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average
| | Charge-offs,
| | | | | | | Average
| | Charge-offs,
| | | | | |
| | retail
| | net of
| | Annualized net
| | | retail
| | net of
| | Annualized net
| |
Three months ended March 31,
| | contracts | | recoveries (a) | | charge-off rate (b) | | |
Three months ended June 30,
| | | contracts | | recoveries (a) | | charge-off rate | |
($ in millions) | | 2007 | | 2007 | | 2006 | | 2007 | | 2006 | | | 2007 | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | |
Managed | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
North America | | | $50,134 | | | | $162 | | | | $164 | | | | 1.29% | | | | 1.21% | | |
North America (b) | | | | $49,603 | | | | $128 | | | | $120 | | | | 1.03% | | | | 1.07 | % |
International | | | 16,318 | | | | 27 | | | | 27 | | | | 0.66% | | | | 0.73% | | | | 16,979 | | | | 22 | | | | 23 | | | | 0.52% | | | | 0.61 | % |
| | | | | | | | | | | | | | | | | | |
| | | | |
Total managed | | | $66,452 | | | | $189 | | | | $191 | | | | 1.14% | | | | 1.11% | | | | $66,582 | | | | $150 | | | | $143 | | | | 0.90% | | | | 0.97 | % |
| | On-balance sheet | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
North America | | | $44,047 | | | | $157 | | | | $159 | | | | 1.43% | | | | 1.29% | | | | $42,660 | | | | $123 | | | | $118 | | | | 1.15% | | | | 1.17 | % |
International | | | 16,318 | | | | 27 | | | | 27 | | | | 0.66% | | | | 0.73% | | | | 16,979 | | | | 22 | | | | 23 | | | | 0.52% | | | | 0.61 | % |
| | | | | | | | | | | | | | | | | | |
| | | | |
Total on-balance sheet | | | $60,365 | | | | $184 | | | | $186 | | | | 1.22% | | | | 1.17% | | | | $59,639 | | | | $145 | | | | $141 | | | | 0.97% | | | | 1.04 | % |
| |
| | |
| (a) | Net charge-offs exclude amounts related to the lump-sum payments on balloon finance contracts. The amount totaled $3($1) and $7 for the first quarterthree months ended March 31, 2007. | June 30, 2007 and 2006. |
|
(b) | North America 2006 annualized charge-offs, net of recoveries, includes $15$25 of certain expenses related to repossessed vehicles, which are included in other operating expenses on the Condensed Consolidated Statement of Income. |
| | | | | | | | | | | | | | | | | | | | |
| | Average
| | | Charge-offs,
| | | | | | | |
| | retail
| | | net of
| | | Annualized net
| |
Six months ended June 30,
| | contracts | | | recoveries (a) | | | charge-off rate | |
($ in millions) | | 2007 | | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| |
|
Managed | | | | | | | | | | | | | | | | | | | | |
North America (b) | | | $49,868 | | | | $289 | | | | $281 | | | | 1.16% | | | | 1.13 | % |
International | | | 16,649 | | | | 48 | | | | 50 | | | | 0.58% | | | | 0.67 | % |
| | | | | | | | |
| | | | | | | | |
Total managed | | | $66,517 | | | | $337 | | | | $331 | | | | 1.01% | | | | 1.03 | % |
|
|
On-balance sheet | | | | | | | | | | | | | | | | | | | | |
North America | | | $43,353 | | | | $279 | | | | $277 | | | | 1.29% | | | | 1.23 | % |
International | | | 16,649 | | | | 48 | | | | 50 | | | | 0.58% | | | | 0.67 | % |
| | | | | | | | |
| | | | | | | | |
Total on-balance sheet | | | $60,002 | | | | $327 | | | | $327 | | | | 1.09% | | | | 1.11 | % |
|
|
| | |
| (a) | Net charge-offs exclude amounts related to the lump-sum payments on balloon finance contracts. The amount totaled $2 and $7 for the six months ended June 30, 2007 and 2006. |
| (b) | North America 2006 annualized charge-offs, net of recoveries, includes $40 of certain expenses related to repossessed vehicles, which are included in other operating expenses on the Condensed Consolidated Statement of Income. |
37
The following table summarizes pertinent delinquency experience in the consumer automotive retail contract portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Percent of retail contracts
| | | Percent of retail contracts
| |
| | 30 days or more past due (a) | | | 30 days or more past due (a) | |
| | Managed | | On-balance sheet | | | Managed | | On-balance sheet | |
March 31, | | 2007 | | 2006 | | 2007 | | 2006 | | |
June 30, | | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | |
North America | | | 2.51% | | | | 2.34% | | | | 2.80% | | | | 2.53% | | | | 2.44% | | | | 2.35% | | | | 2.72% | | | | 2.57 | % |
International | | | 2.52% | | | | 2.54% | | | | 2.52% | | | | 2.54% | | | | 2.58% | | | | 2.64% | | | | 2.58% | | | | 2.64 | % |
| | Total | | | 2.51% | | | | 2.40% | | | | 2.69% | | | | 2.53% | | | | 2.49% | | | | 2.52% | | | | 2.67% | | | | 2.63 | % |
| |
| | |
| (a) | Past due contracts are calculated on the basis of the average number of contracts delinquent during a month and exclude accounts in bankruptcy. |
Credit fundamentals in our North American consumer automotive portfolio have deteriorated in recent quarters. Delinquencies and loss severityquarters, with delinquencies in the North American portfolio deterioratedincreasing as compared to 2006. The increase in delinquency trends is the result of athe shrinking and aging of the asset base due to an increase in whole loanwhole-loan sales activity and a weaker U.S. economy as compared to the prior year. The increase in loss severity is illustrated by an increase in the average loss per new vehicle repossessed, which increased from $8,248 in the first quarter of 2006 to $8,760 in the first quarter of 2007. International consumer credit portfolio performance remains strongstable as both delinquencies and charge-offs have declined asmodestly compared to prior year levels.
In addition to the preceding loss and delinquency data, the following table summarizes bankruptcies and repossession information for the United States consumer automotive retail contract portfolio (which represents approximately 50%46% and 58% of our on-balance sheet consumer automotive retail contract portfolio):portfolio as of June 30, 2007 and 2006, respectively).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Managed | | On-balance sheet | | | Managed | | On-balance sheet | |
Three months ended March 31, | | 2007 | | 2006 | | 2007 | | 2006 | | |
Three months ended June 30, | | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | |
Average retail contracts in bankruptcy(in units)(a) | | | 67,307 | | | | 103,521 | | | | 66,317 | | | | 101,863 | | | | 61,530 | | | | 92,961 | | | | 60,105 | | | | 91,952 | |
Bankruptcies as a percent of average number of contracts outstanding | | | 2.26 | % | | | 2.83 | % | | | 2.56 | % | | | 2.93 | % | | | 2.11 | % | | | 2.74 | % | | | 2.43 | % | | | 2.92 | % |
Retail contract repossessions(in units) | | | 18,936 | | | | 25,133 | | | | 18,155 | | | | 24,883 | | | | 16,757 | | | | 21,432 | | | | 15,757 | | | | 21,081 | |
Annualized repossessions as a percent of average number of contracts outstanding | | | 2.57 | % | | | 2.73 | % | | | 2.83 | % | | | 2.84 | % | | | 2.28 | % | | | 2.51 | % | | | 2.53 | % | | | 2.66 | % |
| |
| | |
| (a) | Includes those accounts where the customer has filed for bankruptcy and is not yet discharged, the customer was discharged from bankruptcy but did not reaffirm their loan with GMAC, and other special situations where the customer is protected by applicable law with respect to GMAC’s normal collection policies and procedures. |
| | | | | | | | | | | | | | | | |
| | Managed | | | On-balance sheet | |
Six months ended June 30, | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| |
Average retail contracts in bankruptcy(in units)(a) | | | 64,419 | | | | 98,598 | | | | 63,211 | | | | 97,265 | |
Bankruptcies as a percent of average number of contracts outstanding | | | 2.19 | % | | | 2.80 | % | | | 2.50 | % | | | 2.93 | % |
Retail contract repossessions(in units) | | | 35,693 | | | | 46,565 | | | | 33,912 | | | | 45,964 | |
Annualized repossessions as a percent of average number of contracts outstanding | | | 2.42 | % | | | 2.62 | % | | | 2.68 | % | | | 2.75 | % |
|
|
| | |
| (a) | Includes those accounts where the customer has filed for bankruptcy and is not yet discharged, the customer was discharged from bankruptcy but did not reaffirm their loan with GMAC, and other special situations where the customer is protected by applicable law with respect to GMAC’s normal collection policies and procedures. |
New bankruptcy filings in the U.S.United States increased dramatically in October 2005, prior tobefore the change in bankruptcy laws that made it more difficult for some consumers to qualify for certain protections under prior
33
bankruptcy laws. Subsequent toAfter this change in bankruptcy laws, we experienced a decrease in bankruptcy filings during 2006, as well as the first quarter ofthree months and six months ended June 30, 2007. Similarly, repossession experience has also improved since the first quarter ofthree months and six months ended June 30, 2006.
38
Commercial Credit
Our credit risk on the commercial portfolio is markedlyconsiderably different from that of our consumer portfolio. Whereas the consumer portfolio represents a homogenous pool of retail contracts that exhibit fairly predictable and stable loss patterns, the commercial portfolio exposures are less predictable. In general, the credit risk of the commercial portfolio is tied to overall economic conditions in the countries in which we operate, as well as the particular circumstances of individual borrowers.
At March 31,June 30, 2007, the only commercial receivables that had been securitized and accounted for as off-balance sheet transactions represent wholesale lines of credit extended to automotive dealerships, which historically experience low charge-offs. As a result, the amount of charge-offs on our managed portfolio is similar to the on-balance sheet portfolio, and only the on-balance sheet commercial portfolio credit experience is presented in the following table:table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total
| | | | Total
| | | |
| | loans | | Impaired loans (a) | | loans | | Impaired loans (a) | |
| | March 31,
| | March 31,
| | Dec 31,
| | March 31,
| | June 30,
| | June 30,
| | Dec 31,
| | June 30,
| |
($ in millions) | | 2007 | | 2007 | | 2006 | | 2006 | | 2007 | | 2007 | | 2006 | | 2006 | |
| | | |
Wholesale | | | $20,966 | | | | $311 | | | | $338 | | | | $294 | | | | $24,608 | | | | $254 | | | | $338 | | | | $286 | |
| | | | | | 1.48 | % | | | 1.64 | % | | | 1.35 | % | | | | | | | 1.03 | % | | | 1.64 | % | | | 1.22 | % |
Other commercial automotive financing | | | 4,569 | | | | 45 | | | | 52 | | | | 45 | | |
Other commercial financing | | | | 4,037 | | | | 29 | | | | 52 | | | | 43 | |
| | | | | | 0.98 | % | | | 1.35 | % | | | 1.00 | % | | | | | | | 0.72 | % | | | 1.35 | % | | | 1.08 | % |
| | Total on-balance sheet | | | 25,535 | | | | $356 | | | | $390 | | | | $339 | | | | $28,645 | | | | $283 | | | | $390 | | | | $329 | |
| | | | | | 1.39 | % | | | 1.60 | % | | | 1.29 | % | | | | | | | 0.99 | % | | | 1.60 | % | | | 1.20 | % |
| |
| | |
| (a) | Includes loans where it is probable that we will be unable to collect all amounts due according to the terms of the loan. |
Charge-offs on the wholesale portfolio remained at traditionally low levels in the first quarterthree months and six months ended June 30, 2007, as these receivables are generally secured by vehicles, real estate, and other forms of 2007.collateral, which help mitigate losses on such loans in the event of default.
39
ResCap Operations
Results of Operations
The following table summarizes the operating results for ResCap for the periods indicated.shown. The amounts presented are before the elimination of balances and transactions with our other reporting segments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2007-2006
| | Three months ended
| | Six months ended
| |
Three months ended March 31,($ in millions) | | 2007 | | 2006 | | % change | |
| | | June 30, | | June 30, | |
| | | | | | | 2007-2006
| | | | | | 2007-2006
| |
($ in millions) | | | 2007 | | 2006 | | % change | | 2007 | | 2006 | | % change | |
| | | |
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total financing revenue | | | $1,874 | | | | $1,700 | | | | 10 | | | | $1,667 | | | | $1,821 | | | | (8 | ) | | | $3,541 | | | | $3,521 | | | | 1 | |
Interest expense | | | (1,701 | ) | | | (1,435 | ) | | | 19 | | | | (1,610 | ) | | | (1,558 | ) | | | 3 | | | | (3,311 | ) | | | (2,994 | ) | | | 11 | |
Provision for credit losses | | | (542 | ) | | | (123 | ) | | | 341 | | | | (327 | ) | | | (123 | ) | | | 166 | | | | (869 | ) | | | (245 | ) | | | 255 | |
| | | | |
| | |
Net financing (loss) revenue | | | (369 | ) | | | 142 | | | | (360 | ) | | | (270 | ) | | | 140 | | | | | (293 | ) | | | | (639 | ) | | | 282 | | | | | (327 | ) |
Mortgage servicing fees | | | 447 | | | | 375 | | | | 19 | | | | 452 | | | | 387 | | | | 17 | | | | 899 | | | | 762 | | | | 18 | |
Servicing asset valuation and hedge activities, net | | | (302 | ) | | | (186 | ) | | | 62 | | | | (152 | ) | | | (171 | ) | | | (11 | ) | | | (454 | ) | | | (356 | ) | | | 28 | |
| | | | |
| | |
Net loan servicing income | | | 145 | | | | 189 | | | | (23 | ) | | | 300 | | | | 216 | | | | | 39 | | | | | 445 | | | | 406 | | | | | 10 | |
Net (loss) gains on sale of loans | | | (235 | ) | | | 267 | | | | (188 | ) | |
Net gain (loss) on sale of loans | | | | 173 | | | | 375 | | | | (54 | ) | | | (61 | ) | | | 642 | | | | (110 | ) |
Other income | | | 418 | | | | 343 | | | | 22 | | | | 315 | | | | 843 | | | | (63 | ) | | | 732 | | | | 1,186 | | | | (38 | ) |
Noninterest expense | | | (810 | ) | | | (602 | ) | | | 35 | | | | (722 | ) | | | (695 | ) | | | 4 | | | | (1,532 | ) | | | (1,297 | ) | | | 18 | |
Income tax expense | | | (59 | ) | | | (138 | ) | | | (57 | ) | | | (50 | ) | | | (331 | ) | | | (85 | ) | | | (110 | ) | | | (469 | ) | | | (77 | ) |
| | | | |
| | |
Net income (loss) | | | ($910 | ) | | | $201 | | | | (553 | ) | | | ($254 | ) | | | $548 | | | | | (146 | ) | | | | ($1,165 | ) | | | $750 | | | | | (255 | ) |
| | | | |
| | |
Total assets | | | $121,244 | | | | $121,914 | | | | | | | $116,890 | | | | $124,552 | | | | (6 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
34
ResCap experienced a net loss of $910$254 million for the three months ended June 30, 2007, compared to net income of $548 million for the same period in 2006, and a net loss of $1.2 billion for the six months ended June 30, 2007, compared to net income of $750 million for the same period in 2006. The 2007 results continue to be adversely affected by domestic economic conditions, which include increases in nonprime delinquencies, a significant deterioration in the first quarter of 2007, down 553% from first quarter 2006 earnings of $201 million. While ResCap’s international business experienced record performancenonprime securitization market, and instability in the quarter,residential housing market.
A net financing loss of $270 million and $639 million was incurred in the U.S. residential mortgagethree months and six months ended June 30, 2007, respectively, as compared to net financing revenue of $140 million and $282 million for the same periods in 2006. Total financing revenue decreased for the three months ended June 30, 2007, compared to 2006, due primarily to a decline in nonprime asset balances, lower warehouse lending balances, and an increase in non-accrual loans due to unfavorable market continuedconditions. The modest increase in total financing revenue the six months ended June 30, 2007, compared to experience a radical slow-down, with declining home prices and weakening consumer credit, which put significant pressurethe same period in 2006, is primarily due to longer holding periods on performance. ResCap’s first quarter results reflect difficult market conditions and limited liquidity for nonprime mortgages held for sale assets due to lower investor demand, which were sold or marked at significantlymore than offset the decline in interest income due to higher nonaccrual loans and lower market values.
Net financing revenue decreased 360% and was negatively impacted by higherwarehouse lending balances. The increase in interest expense during the three months and six months ended June 30, 2007, compared to the same periods in 2006, was primarily driven by an increase in short-term market interest rates as well asthe cost of funds due to an increase in the average amount of interest bearing liabilities outstanding. market rates.
The increase in the provision for credit losses wasincreased to $327 million and $869 million in the three and six months ended June 30, 2007, respectively, compared to the same periods in 2006. The increases for both periods were driven by the continued deterioration in the domestic housing market, and the market for nonprime loans. These market conditionswhich resulted in the increasehigher loss severity, an increased number of loss estimates for the numberdelinquent loans, and amount of estimated incurred losses.home price stagnation. The increase in interest expense andthe provision for creditloan losses was partially offsetfor the six months ended June 30, 2007, also related to adjustable rate mortgage reset risk and financial stress experienced by an increase incertain warehouse lending customers; both primarily affecting the first quarter of 2007. Mortgage loans held for investment past due 60 days or more increased to 16% of the total financing revenueunpaid principal balance as of June 30, 2007, from increased yields on outstanding loans.14% at March 31, 2007, and 10% at June 30, 2006.
40
Net loan servicing income decreasedincreased 39% and 10% for the three months and six months ended June 30, 2007, respectively, as compared to $145 million, a decline of 23%,the same periods in 2006, due to negative servicing asset valuations, which were partially offset by an increase in the size and value of the mortgage servicing rights portfolio. Gainportfolio during both periods. The domestic servicing portfolio was approximately $425 billion as of June 30, 2007, representing an increase of approximately $43 billion from June 30, 2006. The value of the mortgage servicing rights increased during the three months ended June 30, 2007, primarily due to the positive impacts of rising interest rates and lower market volatility on the valuation of servicing assets. The positive valuation adjustments were largely offset by results of derivative hedging activity. The increase in servicing asset valuation and hedge activities for the first six months of 2007 was primarily driven by negative servicing valuations including derivative hedging activity and unfavorable assumption updates.
The net gain (loss) on sales of loans decreased 54% and 110% for the three months and six months ended June 30, 20007, respectively, as compared to the same periods in 2006. These decreases were primarily due to the decline in fair value of ourthe nonprime and prime second-lien delinquent loans held for sale. Thesale, lower investor demand, and lack of market liquidity. As a result, the pricing for various loan product types continued to deteriorate in the first quartersix months of 2007, as investor uncertainty remained high.high regarding the performance of these loans.
Other income increased 22%decreased 63% and 38% during the first quarter ofthree months and six months ended June 30, 2007, respectively, as compared to the same periodperiods in 2006, due to higher residential real estate income asthe gain on the sale of an equity interest in a result of continued growth in residential real estate investments and gains on U.S. Treasury and principal-only securities.regional homebuilder that was realized during the three months ended June 30, 2006.
Noninterest expense increased 35% in4% and 18% during the first quarterthree months and six months ended June 30, 2007, respectively, as compared to the first quarter ofsame periods in 2006. The increase for both periods is primarily due to an increase forincreases in the expense associated with the provision for losses associated withfor assets sold with recourse and the necessity for usan increase in expenses related to include representations for early-payment defaultsproperties acquired through foreclosure due to competitive pressures.higher inventory levels. During the three months ended June 30, 2007, the increase in noninterest expense was partially offset by reduced compensation and benefit costs as a result of cost cutting initiatives as well as lower incentive compensation.
Income tax expense decreased 57%85% and 77% during the first quarterthree months and six months ended of 2007, respectively, as compared to the firstsame periods in 2006. Nearly all significant domestic legal entities were converted to LLCs during the fourth quarter of 2006. The decrease in expense reflects the conversion of principal domestic operations to LLC, and net pre-tax losses within these operations for which no tax benefits are recorded at the LLC level. As a result, of the conversion, a federal tax provision isconverted entities are no longer required for the majority of U.S. based operations.subject to federal and most state income taxes.
Mortgage Loan Production, Sales and Servicing
DuringResCap’s mortgage loan production for the first three months ended June 30, 2007, was $35 billion, a decrease of 2007, our loan production decreased26% compared to approximately $38 billion from approximately $42$47 billion in 2006. These decreases were due primarilythe same period in 2006, and $72 billion for the six months ended June 30, 2007, a decrease of 18% compared to the decrease$89 billion in non-prime loan production. Our domestic loan production declined 14% and international loan production increased 17% compared to the same period in 2006. OurResCap’s domestic loan production decreased 33% in the three months ended June 30, 2007, and 24% in the six months ended June 30, 2007, while international loan production increased 15% and 16% respectively, compared to the overallsame periods in 2006. ResCap’s domestic mortgage originationloan production decreased due to a decline in nonprime, prime-nonconforming and prime second-lien products as a result of unfavorable market remained flat, resultingconditions. Nonprime loan production totaled $1 billion and $4 billion for the three months and six months ended June 30, 2007, respectively, compared to $6 billion and $15 billion for the same periods in a decrease2006. ResCap’s international production increased primarily due to growth in our market share.Continental Europe.
3541
The following summarizes mortgage loan production for the periods indicated.shown.
| | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31,($ in millions) | | 2007 | | 2006 | | |
| | | Three months ended
| | Six months ended
| |
| | | June 30, | | June 30, | |
($ in millions) | | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | | |
Consumer: | | | | | | | | | | | | | | | | | | | | | | | | |
Principal amount by product type: | | | | | | | | | | | | | | | | | | | | | | | | |
Prime conforming | | | $9,569 | | | | $8,569 | | | | $12,682 | | | | $11,965 | | | | $22,251 | | | | $20,534 | |
Prime nonconforming | | | 12,317 | | | | 11,727 | | | | 9,849 | | | | 14,638 | | | | 22,166 | | | | 26,365 | |
Government | | | 584 | | | | 861 | | | | 828 | | | | 1,081 | | | | 1,412 | | | | 1,942 | |
Nonprime | | | 3,259 | | | | 9,096 | | | | 685 | | | | 6,060 | | | | 3,944 | | | | 15,156 | |
Prime second-lien | | | 5,313 | | | | 5,815 | | | | 3,107 | | | | 6,585 | | | | 8,420 | | | | 12,400 | |
| | Total U.S. production | | | 31,042 | | | | 36,068 | | | | 27,151 | | | | 40,329 | | | | 58,193 | | | | 76,397 | |
International | | | 6,472 | | | | 5,512 | | | | 7,718 | | | | 6,693 | | | | 14,190 | | | | 12,205 | |
| | Total | | | $37,514 | | | | $41,580 | | | | $34,869 | | | | $47,022 | | | | $72,383 | | | | $88,602 | |
| | Principal amount by origination channel: | | | | | | | | | | | | | | | | | | | | | | | | |
Retail and direct channels | | | $6,031 | | | | $6,678 | | | | $7,007 | | | | $7,424 | | | | $13,038 | | | | $14,102 | |
Correspondent and broker channels | | | 25,011 | | | | 29,390 | | | | 20,144 | | | | 32,905 | | | | 45,155 | | | | 62,295 | |
| | Total U.S. production | | | $31,042 | | | | $36,068 | | | | $27,151 | | | | $40,329 | | | | $58,193 | | | | $76,397 | |
| | Number of loans(in units): | | | | | | | | | |
| | |
Number of loans (in units): | | | | | | | | | | | | | | | | | |
Retail and direct channels | | | 47,638 | | | | 60,888 | | | | 54,053 | | | | 65,011 | | | | 101,691 | | | | 125,899 | |
Correspondent and broker channels | | | 163,439 | | | | 190,852 | | | | 99,511 | | | | 208,747 | | | | 262,950 | | | | 399,599 | |
| | Total U.S. production | | | 211,077 | | | | 251,740 | | | | 153,564 | | | | 273,758 | | | | 364,641 | | | | 525,498 | |
| |
The following table summarizes the primary domestic mortgage loan servicing portfolio for which we hold the corresponding mortgage servicing rights:rights.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. mortgage loan servicing portfolio | | U.S. mortgage loan servicing portfolio | |
| | March 31, 2007 | | December 31, 2006 | | June 30, 2007 | | December 31, 2006 | |
| | Number of
| | Dollar amount
| | Number of
| | Dollar amount
| | Number
| | Dollar amount
| | Number
| | Dollar amount
| |
($ in millions) | | loans | | of loans | | loans | | of loans | | of loans | | of loans | | of loans | | of loans | |
| | | |
Prime conforming | | | 1,469,640 | | | | $207,038 | | | | 1,456,344 | | | | $203,927 | | |
| |
Principal conforming | | | | 1,485,416 | | | | $211,463 | | | | 1,456,344 | | | | $203,927 | |
Prime nonconforming | | | 325,284 | | | | 104,786 | | | | 319,255 | | | | 101,138 | | | | 348,653 | | | | 112,562 | | | | 319,255 | | | | 101,138 | |
Government | | | 179,431 | | | | 18,692 | | | | 181,563 | | | | 18,843 | | | | 175,588 | | | | 18,166 | | | | 181,563 | | | | 18,843 | |
Nonprime | | | 394,523 | | | | 54,307 | | | | 409,516 | | | | 55,750 | | | | 352,752 | | | | 48,040 | | | | 409,516 | | | | 55,750 | |
Prime second-lien | | | 817,217 | | | | 34,421 | | | | 784,170 | | | | 32,726 | | | | 806,617 | | | | 34,377 | | | | 784,170 | | | | 32,726 | |
| | Total primary servicing portfolio | | | 3,186,095 | | | | $419,244 | | | | 3,150,848 | | | | $412,384 | | |
Total primary servicing portfolio (a) | | | | 3,169,026 | | | | $424,608 | | | | 3,150,848 | | | | $412,384 | |
| |
| | |
| (a) | Excludes loans for which we acted as a subservicer. Subserviced loans totaled 328,425291,917 with an unpaid principal balance of approximately $66$62 billion at March 31,June 30, 2007, and 290,992 with an unpaid principal balance of approximately $55 billion at December 31, 2006. |
Our international servicing portfolio was comprised of approximately $34included $35.9 billion and $36.2 billion of mortgage loans as of MarchJune 30, 2007, and December 31, 2007.2006, respectively.
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Allowance for Credit Losses
The following table summarizes the activity related to the allowance for loan losses:losses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended June 30,
| | | 2007 | | 2006 | |
($ in millions) | | Consumer | | Commercial | | Total | | Consumer | | Commercial | | Total | | Consumer | | Commercial | | Total | |
| | | |
Balance at January 1, 2006 | | | $1,066 | | | | $187 | | | | $1,253 | | |
| |
Balance at April 1, | | | | $1,660 | | | | $525 | | | | $2,185 | | | | $1,079 | | | | $182 | | | | $1,261 | |
Provision for credit losses | | | 128 | | | | (5 | ) | | | 123 | | | | 284 | | | | 43 | | | | 327 | | | | 111 | | | | 12 | | | | 123 | |
Charge-offs | | | (130 | ) | | | — | | | | (130 | ) | | | (263 | ) | | | (294 | ) | | | (557 | ) | | | (158 | ) | | | (6 | ) | | | (164 | ) |
Recoveries | | | 15 | | | | — | | | | 15 | | | | 15 | | | | — | | | | 15 | | | | 10 | | | | — | | | | 10 | |
| | Balance at March 31, 2006 | | | 1,079 | | | | 182 | | | | 1,261 | | |
Balance at June 30, | | | | $1,696 | | | | $274 | | | | $1,970 | | | | $1,042 | | | | $188 | | | | $1,230 | |
| | Balance at January 1, 2007 | | | 1,508 | | | | 397 | | | | 1,905 | | |
Provision for credit losses | | | 365 | | | | 177 | | | | 542 | | |
Charge-offs | | | (228 | ) | | | (49 | ) | | | (277 | ) | |
Recoveries | | | 15 | | | | — | | | | 15 | | |
Allowance as a percentage of total (a) | | | | 2.71 | % | | | 2.47 | % | | | 2.67 | % | | | 1.44 | % | | | 1.32 | % | | | 1.42 | % |
| | Balance at March 31, 2007 | | | $1,660 | | | | $525 | | | | $2,185 | | |
| |
| |
Allowance as a percent of total | | | | | | | | | | |
March 31, 2006 (a) | | | 1.46 | % | | | 1.44 | % | | | 1.46 | % | |
March 31, 2007 (a) | | | 2.54 | % | | | 4.10 | % | | | 2.80 | % | |
| |
| |
| | |
| (a) | Represents the related allowance for credit losses as a percentage of total on-balance sheet residential mortgage loans. |
The provision for loan losses was $542 million for the three months ended March 31, 2007, compared to $123 million in the same period in 2006, representing an increase of $419 million. The increase in the provision was primarily due to the increase in the mortgage loans held for investment portfolio, which includes more delinquent loans than the same period last year. Delinquent mortgage loans held for investment totaled $13 billion, or 20%, of total mortgage loans held for investment at March 31, 2007, compared to $11 billion, or 15%, at March 31, 2006. | | | | | | | | | | | | | | | | | | | | | | | | |
Six months ended June 30,
| | 2007 | | | 2006 | |
($ in millions) | | Consumer | | | Commercial | | | Total | | | Consumer | | | Commercial | | | Total | |
| |
|
Balance at January 1, | | | $1,508 | | | | $397 | | | | $1,905 | | | | $1,066 | | | | $187 | | | | $1,253 | |
Provision for credit losses | | | 649 | | | | 220 | | | | 869 | | | | 239 | | | | 6 | | | | 245 | |
Charge-offs | | | (491 | ) | | | (343 | ) | | | (834 | ) | | | (288 | ) | | | (6 | ) | | | (294 | ) |
Recoveries | | | 30 | | | | — | | | | 30 | | | | 25 | | | | 1 | | | | 26 | |
|
|
Balance at June 30, | | | $1,696 | | | | $274 | | | | $1,970 | | | | $1,042 | | | | $188 | | | | $1,230 | |
|
|
Allowance as a percentage of total (a) | | | 2.71 | % | | | 2.47 | % | | | 2.67 | % | | | 1.44 | % | | | 1.32 | % | | | 1.42 | % |
|
|
| | |
| (a) | Represents the related allowance for credit losses as a percentage of total on-balance sheet residential mortgage loans. |
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Nonperforming Assets
The following table summarizes the nonperforming assets in ourthe on-balance sheet held for sale and held for investment residential mortgage loan portfolios. Nonperforming assets are nonaccrual loans, foreclosed assets, and restructured loans. Mortgage loans and lending receivables are generally placed on nonaccrual status when they are 60 and 90 days past due, respectively, or when the timely collection of the principal of the loan, in whole or in part, is doubtful.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31,
| | December 31,
| | March 31,
| | June 30,
| | December 31,
| | June 30,
| |
($ in millions) | | 2007 | | 2006 | | 2006 | | 2007 | | 2006 | | 2006 | |
| | | |
| Nonaccrual loans: | | | | | | | | | | | | | | | | | | | | | |
Mortgage loans: | | | | | | | | | | | | | | | | | | | | | |
Prime conforming | | | $8 | | | | $11 | | | | $6 | | | | $14 | | | | $11 | | | | $9 | |
Prime nonconforming | | | 472 | | | | 419 | | | | 343 | | | | 558 | | | | 419 | | | | 328 | |
Prime second-lien | | | 156 | | | | 142 | | | | 190 | | | | 161 | | | | 142 | | | | 70 | |
Nonprime (a) | | | 7,133 | | | | 6,736 | | | | 5,680 | | | | 8,066 | | | | 6,736 | | | | 5,587 | |
Lending receivables: | | | | | | | | | | | | | | | | | | | | | |
Warehouse (b) | | | 1,301 | | | | 1,318 | | | | 25 | | | | 189 | | | | 1,318 | | | | 21 | |
Construction (c) | | | 115 | | | | 69 | | | | 9 | | | | 130 | | | | 69 | | | | 13 | |
Commercial real estate | | | — | | | | — | | | | 17 | | |
| | Total nonaccrual assets | | | 9,185 | | | | 8,695 | | | | 6,270 | | | | 9,118 | | | | 8,695 | | | | 6,028 | |
Restructured loans | | | 8 | | | | 8 | | | | 19 | | | | 35 | | | | 8 | | | | 17 | |
Foreclosed assets | | | 1,466 | | | | 1,141 | | | | 626 | | | | 1,592 | | | | 1,141 | | | | 728 | |
| | Total nonperforming assets | | | $10,659 | | | | $9,844 | | | | $6,915 | | | | $10,745 | | | | $9,844 | | | | $6,773 | |
| | Total nonperforming assets as a percentage of total ResCap assets | | | 8.8 | % | | | 7.5 | % | | | 5.7 | % | | | 9.2 | % | | | 7.5 | % | | | 5.4 | % |
| |
| | |
| (a) | Includes $481 as of March 31, 2007, $415 as of December 31, 2006, and $242 as of March 31, 2006, of loans that were purchased distressed and already in nonaccrual status.status of $871 as of June 30, 2007; $415 as of December 31, 2006; and $180 as of June 30, 2006. In addition, includes nonaccrual loans that are not included in Restructured loans in the amount of $9 as of June 30, 2007; and $3 as of December 31, 2006, respectively. |
| (b) | Includes $406 and $10 million of nonaccrual restructuredRestructured loans as of March 31, 2007, and December 31, 2006, respectively, that are not included in Restructured loans.loans of $0 as of June 30, 2007; $10 as of December 31, 2006; and $0 as of June 30, 2006. |
| (c) | Includes $18 million$0 as of March 31, 2007,June 30, 2007; $19 million as of December 31, 2006,2006; and $9 million as of March 31,June 30, 2006, that are not included in Restructured loans. |
37
OurThe classification of a loan as nonperforming does not necessarily indicate that the principal amount of the loan is ultimately uncollectible in whole or in part. In certain cases, borrowers make payments to bring their loans contractually current and, in all cases, our mortgage loans are collateralized by residential real estate. As a result, ourResCap’s experience has been that any amount of ultimate loss is substantially less than the unpaid principal balance of a nonperforming loan.
44
Insurance Operations
Results of Operations
The following table summarizes the operating results of our Insurance operations for the periods indicated.shown. The amounts presented are before the elimination of balances and transactions with our other operating segments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2007-2006
| | | Three months ended
| | Six months ended
| |
Three months ended March 31,($ in millions) | | 2007 | | 2006 | | % change | | |
| | | June 30, | | June 30, | |
| | | | | | | 2007-2006
| | | | | | 2007-2006
| |
($ in millions) | | | 2007 | | 2006 | | % change | | 2007 | | 2006 | | % change | |
| | | | |
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Insurance premiums and service revenue earned | | | $1,032 | | | | $1,004 | | | | 3 | | | | $1,042 | | | | $1,042 | | | | — | | | | $2,074 | | | | $2,046 | | | | 1 | |
Investment income | | | 95 | | | | 105 | | | | (10 | ) | | | 81 | | | | 84 | | | | (4 | ) | | | 176 | | | | 189 | | | | (7 | ) |
Other income | | | 45 | | | | 32 | | | | 41 | | | | 43 | | | | 31 | | | | 39 | | | | 88 | | | | 63 | | | | 40 | |
| | | | | |
| | |
Total insurance premiums and other income | | | 1,172 | | | | 1,141 | | | | 3 | | | | 1,166 | | | | 1,157 | | | | 1 | | | | | 2,338 | | | | 2,298 | | | | 2 | |
Insurance losses and loss adjustment expenses | | | (573 | ) | | | (597 | ) | | | (4 | ) | | | (563 | ) | | | (653 | ) | | | (14 | ) | | | (1,136 | ) | | | (1,250 | ) | | | (9 | ) |
Acquisition and underwriting expense | | | (386 | ) | | | (330 | ) | | | 17 | | | | (396 | ) | | | (363 | ) | | | 9 | | | | (782 | ) | | | (693 | ) | | | 13 | |
Premium tax and other expense | | | (22 | ) | | | (28 | ) | | | (21 | ) | | | (19 | ) | | | (24 | ) | | | (21 | ) | | | (41 | ) | | | (52 | ) | | | (21 | ) |
| | | | | |
| | |
Income before income taxes | | | 191 | | | | 186 | | | | 3 | | | | 188 | | | | 117 | | | | 61 | | | | | 379 | | | | 303 | | | | 25 | |
Income tax expense | | | (48 | ) | | | (57 | ) | | | (16 | ) | | | (57 | ) | | | (37 | ) | | | 54 | | | | (105 | ) | | | (94 | ) | | | 12 | |
| | | | | |
| | |
Net income | | | $143 | | | | $129 | | | | 11 | | | | $131 | | | | $80 | | | | 64 | | | | | $274 | | | | $209 | | | | 31 | |
| | | | | |
| | |
Total assets | | | $12,878 | | | | $13,739 | | | | (6 | ) | | | $13,956 | | | | $13,475 | | | | 4 | | | | | | | | | | | | | | |
| | | | | |
| | |
Insurance premiums and service revenue written | | | $1,070 | | | | $1,070 | | | | — | | | | $964 | | | | $1,030 | | | | (6 | ) | | | $2,034 | | | | $2,131 | | | | (5 | ) |
| | | | | |
| | |
Combined ratio (a) | | | 91.0 | % | | | 91.3 | % | | | | | | | 90.2 | % | | | 96.2 | % | | | | | | | | 90.6 | % | | | 93.8 | % | | | | |
| |
| |
(a) | Management uses the combined ratio as a primary measure of underwriting profitability, with its components measured using GAAP. Underwriting profitability is indicated by a combined ratio under 100% and is calculated as the sum of all reportedincurred losses and expenses (excluding interest and income tax expense) divided by the total of premiums and service revenues earned and other income. |
Net income from Insurance operations totaled $143$131 million and $274 million for the first three months ofand six months ended June 30, 2007, respectively, as compared to $129$80 million and $209 million for the same periodperiods in 2006. Net income increased due to favorable underwriting results and a lower effective tax rate partially offsetprimarily driven by lower realized capital gains. Underwriting results grew from an increase in insurance premium and revenue earned coupled with a lower level of losses and loss adjustment expenses, as exhibited by the decrease in the combined ratio. The increase was partially offset by higherunfavorable acquisition and underwriting expenses.expenses and lower realized capital gains.
Insurance premiums and service revenue written totaled $1.0 billion and $2.0 billion for the three months and six months ended June 30, 2007, respectively, as compared to $1.0 billion and $2.1 billion for the same periods in 2006. Written premium and service revenue remained at $1.1 billion. Growth has been primarilydeclined slightly in our domestic operations due to constrained pricing in the competitive U.S. insurance market and declining GM retail sales for the three months and six months ended June 30, 2007. The decline for these periods was partially offset by favorable growth within the reinsurance and international product lines. The reinsurance business, both domestic and international, has been driven by organic growth andlines, which have new business initiatives which have expandedexpanding our product and geographic footprint. The international personal lines business has experienced revenue and contract growth primarily through favorable pricing and new fleet contracts. This growth was offset by challenging conditions being faced by our domestic personal lines and extended service contract business, resulting from competition and declining GM retail sales.
Earned premium was higherThe combination of investment and other income increased 8% and 5% in the first three months ofand six months ended June 30, 2007, respectively, as compared to the same period in 2006 caused in part by extended service contracts sold in prior years entering higher earning rate periods and growth in the reinsurance business and international markets. However, a portion of this increase in earned premium was negated by revenue challenges at domestic personal lines.
Investmentperiods. Other income was lower in the first three months of 2007increased primarily due to lower capital gains. Investment income, excluding capital gains, increased 20% in the first three months of 2007, as compared to the samehigher service fees obtained from our international operations through organic growth.
3845
period
Investment income was slightly lower due to a decline in 2006. The rebalancing of the portfolio in the fourth quarter of 2006 resulted in a larger portion of the portfolio being comprised of fixed income securities, which led to an increase in the investment yield. Fixed income securities comprised 92% of the total portfolio in the first quarter of 2007, as compared to 68% for the same period in 2006. The investment portfolio was $6.7 billion at March 31, 2007, comprised of $6.1 billion of fixed incomerealized capital gains offset by higher interest and $0.6 billion of equity securities. This is compared to $7.9 billion at March 31, 2006, comprised of $5.4 billion of fixed income and $2.5 billion of equity securities. The decrease in the investment portfolio was largely the result of a $950 million inter-company dividend payment in the first quarter of 2007.income.
Insurance losses and loss adjustment expenses decreased slightly14% and 9% in the three months and six months ended June 30, 2007, respectively, as a result of improved frequency and severitycompared to the same 2006 periods. The decreases are primarily due to lower loss experience in our extendedU.S. vehicle service contract business while milddriven by lower claim counts by policies in force and dealer inventory insurance driven by favorable weather drove lower losses in our domestic personal lines.conditions. Conversely, acquisition and underwriting expenses were greater duringhigher due to dealer costs in our vehicle service contract business.
On June 15, 2007, we completed the period commensurate with higher insurance premiumspurchase of Provident Insurance, an automotive insurer in the United Kingdom. Provident Insurance distributes its products through a broad network of brokers and service revenue earned.through an online business, yesinsurance. The acquisition is intended to complement GMAC’s existing UK operations and support European growth initiatives.
Other Operations
Net income for our Other operations was $66$34 million and $99 million for the first quarter ofthree months and six months ended June 30, 2007, respectively, as compared to a loss of $21$22 million and $1 million in the first quarter of 2006. This increasethree months and six months ended June 30, 2006, respectively. The increases in net income wasfor both these periods primarily due toreflect improved profitability of our Commercial Finance Group lower net income in 2006 driven by losses related to the sale of our former commercial mortgage business and certain other corporate activities.
Net income of our Commercial Finance Group increased fromto $10 million and $29 million in the three months and six months ended June 30, 2007, respectively, as compared to $1 million and $11 million in the three months and six months ended June 30, 2006, respectively. Compared with 2006, net income increased in both these periods because of decreased interest expense and a lower provision for credit losses. The Commercial Finance Group achieved lower interest expense by decreasing its cost of borrowing through a greater use of secured funding. The lower provision for credit losses resulted from generally favorable credit experience. Improved results for the first quartersix months of 2006 to $20 million in2007 also reflect the first quarter of 2007. The increase was primarily related to a $12 million favorable net income impact recognized during February 2007 relating to the sale of certain loans.
Funding and Liquidity
Funding Sources and Strategy
Our liquidity and our ongoing profitability are, in large part, dependent upon our timely access to capital and the costs associated with raising funds in different segments of the capital markets. Over the past several years, our funding strategy has focused on the development of diversified funding sources across a global investor base, both public and private and, as appropriate, the extension of debt maturities. This diversification has been achieved in a variety of ways, including whole loanwhole-loan sales, the public debt capital markets, conduit facilities, and asset-backed securities, as well as through deposit-gathering and other financing activities.
DuringSince June 30, 2007, the first quartermortgage and capital markets have continued to experience stress due to numerous nonprime related market and counterparty events. ResCap’s liquidity has been impacted by the declines in market values of 2007, under the terms of the Sale Transactions between FIM Holdingsmortgage assets. However, our conservative liquidity position has allowed us to meet all margin calls and GM, a final purchase price adjustment was requiredother collateral events. We continue to the extent that GMAC’s equity upon the November 30, 2006, closing of the sale transaction differed from a specified level. As a result, we received a capital contribution from GM of approximately $1 billion, based on these final settlement provisions.exercise prudent liquidity management oversight and maintain sufficient reserve liquidity including considerable unused committed facilities.
3946
The following table summarizes debt and other sources of funding by source for the periods indicated:shown.
| | | | | | | | | | | | | | | | |
| | Outstanding | | | Outstanding | |
| | March 31,
| | December 31,
| | | June 30,
| | December 31,
| |
($ in millions) | | 2007 | | 2006 | | | 2007 | | 2006 | |
| | | | |
| |
Commercial paper | | | $1,798 | | | | $1,523 | | | | $2,002 | | | | $1,523 | |
Institutional term debt | | | 63,291 | | | | 70,266 | | | | 69,148 | | | | 70,266 | |
Retail debt programs | | | 28,370 | | | | 29,308 | | | | 27,653 | | | | 29,308 | |
Secured financings | | | 116,998 | | | | 123,485 | | | | 113,638 | | | | 123,485 | |
Bank loans and other | | | 13,339 | | | | 12,512 | | |
Bank loans, and other | | | | 12,772 | | | | 12,512 | |
| | Total debt (a) | | | 223,796 | | | | 237,094 | | | | 225,213 | | | | 237,094 | |
Bank deposits (b) | | | 10,007 | | | | 10,488 | | | | 10,408 | | | | 10,488 | |
Off-balance sheet securitizations (c) | | | | | | | | | | | | | | | | |
Retail finance receivables | | | 6,375 | | | | 7,456 | | | | 7,165 | | | | 7,456 | |
Wholesale loans | | | 19,357 | | | | 18,624 | | | | 16,982 | | | | 18,624 | |
Mortgage loans | | | 129,676 | | | | 118,918 | | | | 137,726 | | | | 118,918 | |
| | Total funding | | | 389,211 | | | | 392,580 | | | | 397,494 | | | | 392,580 | |
Less: cash reserves (d) | | | (12,816 | ) | | | (18,252 | ) | | | (17,524 | ) | | | (18,252 | ) |
| | Net funding | | | $376,395 | | | | $374,328 | | | | $379,970 | | | | $374,328 | |
| | Leverage ratio covenant (e) | | | 9.5:1 | | | | 10.8:1 | | | | 8.0:1 | | | | 10.8:1 | |
| | Funding Commitments($ in billions) | | | | | | | | | | | | | | | | |
Bank liquidity facilities (f) | | | $44.6 | | | | $43.8 | | | | $37.7 | | | | $43.8 | |
Secured funding facilities (g) | | | $198.3 | | | | $188.7 | | | | $226.4 | | | | $188.7 | |
| |
| | |
| (a) | Excludes fair value adjustment as described in Note 7 to our Condensed Consolidated Financial Statements. |
| (b) | Includes consumer and commercial bank deposits and dealer wholesale deposits. |
| (c) | Represents net funding from securitizations of retail and wholesale automotive receivables and mortgage loans accounted for as sales, as further described in Note 7 to the Consolidated Financial Statements in our 2006 Annual Report onForm 10-K. |
| (d) | Includes $9.6$12.2 billion cash and cash equivalents and $3.2$5.3 billion invested in certain marketable securities at March 31,June 30, 2007, and $15.5 billion and $2.8 billion, respectively at December 31, 2006. |
| (e) | As described in Note 7 to our Condensed Consolidated Financial Statements, our liquidity facilities and certain other funding facilities contain a leverage ratio covenant of 11.0:1, which excludes from debt, certain securitization transactions that are accounted for on-balance sheet as secured financings (totaling $80,251$81,655 and $81,461 at March 31,June 30, 2007, and December 31, 2006, respectively). |
| (f) | Represents both committed and uncommitted bank liquidity facilities. Refer to Note 7 to our Condensed Consolidated Financial Statements for details. |
| (g) | Represents both committed and uncommitted secured funding facilities. Includes commitments with third-party asset-backed commercial paper conduits, as well as forward flow sale agreements with third parties, securities purchase commitments with third parties and repurchase facilities. Refer to Note 7 to our Condensed Consolidated Financial Statements for further details. |
Short-term Debt
We obtain short-term funding from the sale of floating ratefloating-rate demand notes under a program referred to as GMAC LLC Demand Notes. These notes can be redeemed at any time at the option of the holder thereof without restriction.
Long-term Unsecured Debt
Our long-term unsecured financings are generated to fund long-term assets, over-collateralization required to support our conduits, the liquidity portfolio and the continued growth of our loan portfolios. We meet these financing needs from a variety of sources, including public corporate debt and credit facilities. The public corporate debt markets are a key source of financing for us. We access these markets by issuing senior unsecured notes but are pursuing other structures that will provide efficient sources of term liquidity. FollowingDuring the Sale Transactions and after being absent from the U.S.three months ended June 30, 2007, our Automotive Finance operations raised approximately $4.5 billion in unsecured debt in different markets for approximately two years, on December 15, 2006, we issued $1and currencies while ResCap raised another $4 billion of Senior Unsecured Notes due December 15, 2011.in several unsecured
47
GMAC hasmarkets. In addition, we have various liquidity facilities with a number of different lenders in multiple jurisdictions. As a result of having to restate prior period financial information to eliminate hedge accounting treatment that had
40
been applied to certain callable debt hedged with derivatives, it is possible that some of our lenders under certain of our liquidity facilities could claim that they are not obligated to honor their commitments. While such a claim would not be entirely unreasonable, we believe that any such claims would not be sustainable. Nor do we believe that this matter is likely to be tested, because we have no current need or intention to draw on any of the more significant existing facilities, and renewal and revision of them is imminent, which likely will eliminate the issue. There can be no assurance that we are correct in our assessments. If we are not, and multiple claims were asserted and substantiated, available funding under certain of our liquidity facilities could be adversely impacted. However, we believe such an impact is manageable because of our current, substantial liquidity position, including $12.8 billion of global cash balances, among various other sources of liquidity.
We have also been able to diversify our unsecured funding through the formation of ResCap. ResCap, an indirect wholly owned subsidiary, was formed as the holding company of our residential mortgage businesses and, in the second quarter of 2005, successfully achieved an investment grade rating (separate from GMAC). In the fourth quarter of 2005, ResCap filed a $12 billion shelf registration statement and has subsequently issued $8.5 billion of notes through March 31, 2007.
Secured Financings and Off-Balance Sheet Securitizations
As part of our ongoing funding and risk management practices, we have established secondary market trading and securitization arrangements that provide long-term financing primarily for our automotive and mortgage loans. We have had consistent and reliable access to these markets through our securitization activities in the past and expect to continue to access the securitization markets.
InFor the first quartersix months of 2007, approximately 96%86% of our U.S. Automotive volume was funded through a secured funding arrangementarrangements or automotive whole loan sale.whole-loan sales. The increased use of whole loanwhole-loan sales is part of the migration to an “originate and sell” model for our U.S. Automotive Finance business. In the firstsecond quarter of 2007, we executed approximately $3.5$2.5 billion in automotive whole loanwhole-loan sales.
Customer Deposits
Through our banking activities in our Automotive Finance and ResCap operations, bank deposits (certificates of deposits and brokered deposits) have become an important funding source for us.
Cash Reserves
We maintain a large cash reserve, including certain marketable securities that can be utilized to meet our obligations in the event of anya market disruption. Cash and cash equivalents and certain marketable securities totaled $12.8$17.5 billion as of March 31,June 30, 2007, down from $18.3 billion on December 31, 2006. This decrease largely stems from our repayment of significant debt maturities during the first quarter of 2007 without a corresponding amount of new debt issuances during the same period.
Funding Commitments
We actively manage our liquidity and mitigate our liquidity risk by maintaining sufficient short-term and long-term financing, maintaining diversified, secured funding programs and maintaining sufficient reserve liquidity. In MarchJune 2007, we established a new $6 billion variable not funding facility. The facility is available to fund U.S. dealer floor plan receivables in certain circumstances, includingrenewed five syndicated bank facilities totaling approximately $20 billion. These committed drawable credit facilities are an important source of liquidity and provide additional flexibility in the eventcash management strategies of GM filingGMAC and ResCap. Our funding included $6.0 billion of unsecured revolving credit facilities ($3.0 billion364-day facility and $3.0 billion5-year term facility) and a $12.0 billion secured facility for Chapter 11 bankruptcy reorganization. Refer to Note 7 for further detail.the New Center Asset Trust (NCAT). ResCap also renewed $1.75 billion of unsecured revolving credit facilities, which included an $875 million364-day facility and an $875 million3-year term facility. Both companies successfully achieved their target funding commitment levels.
Mortgage Interest Networking Trust (MINT) is an off-balance sheet, secured aggregation vehicle that provides us with financing for mortgage loans during the aggregation period and for warehouse lending receivables. MINT obtains financing through the issuance of asset-backed commercial paper and similar discounted notes, both of which are secured by the mortgage loans and warehouse lending receivables.
MINT I, LLC (MINT I) was created during the second quarter of 2007, increasing outstanding liquidity by $25 billion. MINT I is an on-balance sheet secured aggregation vehicle that provides ResCap with financing for mortgage loans during the aggregation period and for warehouse lending receivables. MINT I obtains financing through the issuance of extendable notes, which are secured by the mortgage loans and warehouse lending receivables. As of June 30, 2007, MINT I had uncommitted liquidity of approximately $25 billion with approximately $106 million of extendable notes outstanding.
During the third quarter of 2007, our intent is to replace the amounts financed with MINT with extendable notes issued by MINT I and to terminate the MINT program as soon as practicable thereafter, causing a reduction of liquidity from prior levels.
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Credit Ratings
The cost and availability of unsecured financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security or obligation.company. Lower ratings generally result in higher borrowing costs as well as reduced access to capital markets. This is particularly true for certain term debt institutional investors whose investment guidelines require investment gradeinvestment-grade term ratings and for short-term institutional investors (money market investors in particular) whose investment guidelines require the two highest rating categories for short-term debt. Substantially all of our debt has been rated by nationally recognized statistical rating organizations.
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The following table summarizes our current ratings and outlook by the respective nationally recognized rating agencies.
| | | | | | | | |
Rating
| | Commercial
| | Senior
| | | | |
Agencyagency | | Paperpaper | | Debtdebt | | Outlook | | |
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Fitch | | B | | BB+ | | Positive | | |
Moody’s | | Not-Prime | | Ba1 | | Negative | | |
S&P | | B-1 | | BB+ | | Negative | | |
DBRS | | R-2 (low)R-3 | | BBB (low) | | Stable | | |
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In addition, ResCap, our indirect wholly owned subsidiary, has investment gradeinvestment-grade ratings (separate from GMAC) from the nationally recognized rating agencies. The following table summarizes ResCap’s current ratings and outlook by the respective agency.
| | | | | | | | |
Rating
| | Commercial
| | Senior
| | | | |
Agencyagency | | Paperpaper | | Debtdebt | | Outlook | | |
|
Fitch | | F2 | | BBB | | Negative | | |
Moody’s | | P-3 | | Baa3 | | Negative | | |
S&P | | A-3 | | BBB–BBB− | | Stable | | |
DBRS | | R-2 (middle) | | BBB (low) | | Stable | | |
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Off-Balance Sheet Arrangements
We use off-balance sheet entities as an integral part of our operating and funding activities. For further discussion of our use of off-balance sheet entities, refer to the Off-balance Sheet Arrangements section in our 2006 Annual Report onForm 10-K.
The following table summarizes assets carried off-balance sheet in these entities.
| | | | | | | | | | | | | | | | | | | | |
| | March 31,
| | December 31,
| | | | June 30,
| | December 31,
| | |
($ in billions) | | 2007 | | 2006 | | | | 2007 | | 2006 | | |
| | |
| Securitization (a) | | | | | | | | | | | | | | | | | | |
Retail finance receivables | | | $7.0 | | | | $8.2 | | | | | | $7.9 | | | | $8.2 | | | |
Wholesale loans | | | 21.3 | | | | 19.9 | | | | | | 18.7 | | | | 19.9 | | | |
Mortgage loans | | | 131.4 | | | | 121.7 | | | | | | 139.1 | | | | 121.7 | | | |
| | Total securitization | | | 159.7 | | | | 149.8 | | | | | | 165.7 | | | | 149.8 | | | |
Other off-balance sheet activities | | | | | | | | | | | | | | | | | | |
Mortgage warehouse | | | 0.4 | | | | 0.3 | | | | | | 0.4 | | | | 0.3 | | | |
Other mortgage | | | 0.1 | | | | 0.1 | | | | | | 0.1 | | | | 0.1 | | | |
| | Total off-balance sheet activities | | | $160.2 | | | | $150.2 | | | | | | $166.2 | | | | $150.2 | | | |
| |
| | |
| (a) | Includes only securitizations accounted for as sales under SFAS 140, as further described in Note 7 to the Consolidated Financial Statements in our 2006 Annual Report onForm 10-K. |
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Contractual Commitments
During the three months ended June 30, 2007, we entered into multiple agreements with various service providers to provide us with human resource services over the next seven years. The agreements represent fixed payment obligations with termination and renewal provisions. Future payment obligations under these agreements totaled $175 million and are due as follows: $3 million in the remainder of 2007, $26 million in 2008, $28 million in 2009, 2010, and 2011, and $62 million after 2012.
Critical Accounting Estimates
We have identified critical accounting estimates that, as a result of judgments, uncertainties, uniqueness, and complexities of the underlying accounting standards and operations involved, could result in material changes to our financial condition, results of operations, or cash flows under different conditions or using different assumptions.
Our most critical accounting estimates are:
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| • | Determination of the allowance for credit losses |
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| • | Valuation of automotive lease residuals |
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| • | Valuation of mortgage servicing rights |
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| • | Valuation of interests in securitized assets |
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| | |
| • | Determination of reserves for insurance losses and loss adjustment expenses |
There have been no significant changes in the methodologies and processes used in developing these estimates from what iswas described in our 2006 Annual Report onForm 10-K.
Recently Issued Accounting Standards
Statement of Position05-1 — In September 2005 the American Institute of Certified Public Accountants (AICPA) issued Statement of Position05-1,Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts(SOP 05-1).SOP 05-1 provides guidance on accounting for deferred acquisition costs on internal replacements of insurance contracts.SOP 05-1 defines an internal replacement and specifies the conditions that determine whether the replacement contract is substantially or unsubstantially changed from the replaced contract. An internal replacement determinedRefer to result in a substantially changed contract should be accounted for as an extinguishmentNote 1 of the replaced contract; unamortized deferred acquisition costs and unearned revenue liabilities of the replaced contract should no longer be deferred. An internal replacement determinedNotes to result in an unsubstantially changed contract should be accounted for as a continuation of the replaced asset.SOP 05-01 introduces the terms “integrated” and “non-integrated” contract features and specifies that non-integrated features do not change the base contract and are to be accounted for in a manner similar to a separately issued contract. Integrated features are evaluated in conjunction with the base contract.SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. Adoption ofSOP 05-1 did not have a material impact on our consolidated financial condition or results of operations.
SFAS No. 155— In February 2006 theCondensed Consolidated Financial Accounting Standards Board (FASB) issued SFAS No. 155,Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140(SFAS 155). This standard permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS 155 allows an entity to make an irrevocable election to measure such a hybrid financial instrument at fair value on aninstrument-by-instrument basis. The standard eliminates the prohibition on a Qualifying Special Purpose Entity (QSPE) from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 also clarifies which interest-only and principal-only strips are not subject to the requirements of SFAS 133, as well as determines that concentrations of credit risk in the form of subordination are not embedded derivatives. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of the fiscal year that begins after September 15, 2006. Adoption of SFAS 155 did not have a material impact on our consolidated financial condition or results of operations.
FASB Staff Position (FSP)No. 13-2— In July 2006 the FASB issued FSPNo. 13-2,Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction(FSP13-2), which amends SFAS No. 13,Accounting for Leases, by requiring lessors to recalculate the rate of return and periodic income allocation for leveraged-lease transactions when there is a change or projected change in the timing of income tax cash flows related to the lease. FSP13-2 requires lessors to use the model in FIN 48 to determine the timing and amount of expected tax cash flows in leveraged-lease calculations and recalculations. FSP13-2 is effective in the same period as FIN 48. At the date of adoption, the lessor is required to reassess projected income tax cash flows related to leveraged leases using the FIN 48 model for recognition and measurement. Revisions to the net investment in a leveraged lease required when FSP13-2 is adopted would be recorded as an adjustment to the beginning balance of retained earnings and reported as a change in accounting principle. Adoption of FSP13-2 did not have a material impact on our consolidated financial condition or results of operations.
SFAS No. 157 — In September 2006 the FASB issued SFAS No. 157,Fair Value Measurements(SFAS 157), which provides a definition of fair value, establishes a framework for measuring fair value and requires expanded disclosures about fair value measurements. The standard applies when GAAP requires or allows assets or liabilities to be measured at fair value, and therefore, does not expand the use of fair value in any new circumstance. Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an arm’s length transaction between market participants, in such markets where we conduct business. SFAS 157 clarifies that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency. The level of the reliability of inputs utilized for
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fair value calculations drives the extent of disclosure requirements of the valuation methodologies used under the standard. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The provisions of SFAS 157 should be applied prospectively. Management is assessing the potential impact on our financial condition and results of operations.
SFAS No. 158— In September 2006 the FASB issued SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans(SFAS 158), which amends SFAS No. 87Employers’ Accounting for Pensions, SFAS No. 88Employer’s Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, SFAS No. 106Employer’s Accounting for Postretirement Benefits Other Than Pensions, and SFAS No. 132(R)Employers’ Disclosures about Pensions and Other Postretirement Benefits (revised 2003). This Statement requires companies to recognize an asset or liability for the overfunded or underfunded status of their benefit plans in their financial statements. The asset or liability is the offset to other comprehensive income, consisting of previously unrecognized prior service costs and credits, actuarial gains or losses and transition obligations and assets. SFAS 158 also required the measurement date for plan assets and liabilities to coincide with the sponsor’s year end. The standard provides two transition alternatives for companies to make the measurement-date provisions. The recognition of the asset or liability related to funded status provision is effective for us for fiscal years ending after June 15, 2007, and the change in measurement is effective for fiscal years ending after December 15, 2008. Adoption of this guidance is not expected to have a material impact on our consolidated financial condition or results of operations.
SFAS No. 159— In February 2007 the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(SFAS 159). SFAS 159 permits entities to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. Subsequent changes in fair value for designated items will be required to be reported in earnings in the current period. SFAS 159 also establishes presentation and disclosure requirements for similar types of assets and liabilities measured at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently assessing the effect of implementing this guidance, which directly depends on the nature and extent of eligible items elected to be measured at fair value, upon initial application of the standard on January 1, 2008.Statements.
Forward Looking Statements
The foregoing Management’s Discussion and Analysis of Financial Condition and Results of Operations and other portions of thisForm 10-Q contains various forward-looking statements within the meaning of applicable federal securities laws, including the Private Securities Litigation Reform Act of 1995, that are based upon our current expectations and assumptions concerning future events, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated.
The words “anticipate,” “estimate,” “believe,” “expect,” “intend,” “may,” “plan,” “project,” “future” and “should” and any similar expressions are intended to identify forward-looking statements. Forward-looking statements involve a number of risks, uncertainties and other factors, including (but not limited to) the Risk Factors described in Item 1A of our 2006 Annual Report onForm 10-K, as updated in thisForm 10-Q, and which may be revised or supplemented in subsequent reports on SECForms 10-Q and8-K. Such factors include, among others, the following:
| | |
| • | Rating agencies may downgrade their ratings for GMAC or ResCap in the future, which would adversely affect our ability to raise capital in the debt markets at attractive rates and increase the interest that we pay on our outstanding publicly traded notes, which could have a material adverse effect on our results of operations and financial condition; |
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| • | Our business requires substantial capital, and if we are unable to maintain adequate financing sources, our profitability and financial condition will suffer and jeopardize our ability to continue operations; |
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| • | The profitability and financial condition of our operations are dependent upon the operations of GM, and we have substantial credit exposure to GM; |
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| | |
| • | Recent developments in the residential mortgage market, especially in the nonprime sector, may adversely affect our revenues, profitability, and financial condition; and |
44
| | |
| • | The worldwide financial services industry is highly competitive. If we are unable to compete successfully or if there is increased competition in the automotive financing, mortgage,and/or insurance markets or generally in the markets for securitizations or asset sales, our margins could be materially adversely affected. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Our automotive financing, mortgage, and insurance activities give rise to market risk, representing the potential loss in the fair value of assets or liabilities caused by movements in market variables, such as interest rates, foreign exchange rates, and equity prices. We are primarily exposed to interest rate risk arising from changes in interest rates related to financing, investing and cash management activities. More specifically, we have entered into contracts to provide financing, to retain mortgage servicing rights, and to retain various assets related to securitization activities, all of which are exposed in varying degrees to changes in value due to movements in interest rates. Interest rate risk arises from the mismatch between assets and the related liabilities used for funding. We enter into various financial instruments, including derivatives, to maintain the desired level of exposure to the risk of interest rate fluctuations. Refer to Note 8 to our Condensed Consolidated Financial Statements for further information.
We are exposed to foreign currencyforeign-currency risk arising from the possibility that fluctuations in foreign exchange rates will impactaffect future earnings or asset and liability values related to our global operations. Our most significant foreign currencyforeign-currency exposures relate to the Euro, the Canadian dollar, the British pound sterling, Brazilian real, Mexican peso, and the Australian dollar.
We are also exposed to equity price risk, primarily in our Insurance operations, which invests in equity securities that are subject to price risk influenced by capital market movements. Our equity securities are considered investments and we do not enter into derivatives to modify the risks associated with our Insurance investment portfolio.
While the diversity of our activities from our complementary lines of business may partially mitigate market risk, we also actively manage this risk. We maintain risk management control systems to monitor interest rate, foreign currencyforeign-currency exchange rate and equity price risks and related hedge positions. Positions are monitored using a variety of analytical techniques including market value, sensitivity analysis and value at risk models.
Since December 31, 2006, there have been no material changes in these market risks. Refer to our Annual Report onForm 10-K for the year ended December 31, 2006, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, filed with the Securities and Exchange Commission, for further discussion on value at risk and sensitivity analysis.
Item 4. Controls and Procedures
| |
Item 4. | Controls and Procedures |
We maintain disclosure controls and procedures, (asas defined inRule 13a-15(e) under the Securities Exchange Act of 1934, as amended [the(the Exchange Act])Act), designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods. As of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures. Based on management’sour evaluation and solely because of the material weaknessweaknesses in internal control over financial reporting related to our controls over the adherence to our formal change management control process and the preparation, review and monitoring of the account reconciliation for a specific clearing account described below and related to our controls over our application of SFAS No. 133Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted, GMAC’s Chief Executive and Chief Financial Officers each concluded that our disclosure controls and procedures were not effective as of March 31,June 30, 2007.
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A material weakness is a deficiency, or combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
During the period covered by this quarterly report, we identified control deficiencies that aggregate to a material weakness in internal controls over financial reporting at June 30, 2007. These deficiencies relate to the operating effectiveness of our change management process and review of account reconciliations at our ResCap operations. Operational changes were made to the processes relating to the repurchase of certain sold whole-loans that were not serviced by ResCap. These operational changes were implemented without following our formal change management control process, which is designed to ensure appropriate information and communication between functional groups and appropriate controls are in place for new processes and other changes that may impact financial reporting. Additionally, other compensating controls were not effective due to the lack of adequate managerial review over the preparation and review of account reconciliations. This was highlighted by an account reconciliation review relating to a specific clearing account containing servicing released repurchased loans, that was not effective in ensuring that reconciling items originated during the three months ended June 30, 2007, were resolved on a timely basis. These items have been subsequently reconciled and appropriately recorded in the quarter ended June 30, 2007. We are working on a plan to improve compliance with our formal change management process and increase our managerial review over account reconciliations which will include items such as additional training, reviewing responsibility assignments and monitoring controls over aged reconciling items, and specific change management awareness training. We will monitor, evaluate and test the operating effectiveness of these enhanced controls during 2007.
At December 31, 2006, management identified a material weakness related to our controls over our application of SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted (SFAS 133). This weakness has not been fully remediated at June 30, 2007. In order to address and remediate this material weakness in our internal control over financial reporting, we are designing and implementing a number of enhancements to the hedge accounting policy and hedge documentation controls to ensure future applications of hedge accounting for similar transactions satisfy the initial and periodic documentation as well as the hedge effectiveness assessment requirements of SFAS 133. Management will monitor, evaluate and test the operating effectiveness of these enhanced controls during 2007.
There were no other changes in our internal controls over financial reporting other than those discussed above (as defined inRule 13a-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols over financial reporting.
Our management, including our CEO and CFO, does not expect that our disclosure controls or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within GMAC have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II.II — OTHER INFORMATION
Item 1. Legal Proceedings
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Item 1. | Legal Proceedings |
We are subject to potential liability under laws and government regulations and various claims and legal actions that are pending or may be asserted against us. The following update supplements our Legal Proceedings section in our 2006 Annual Report onForm 10-K.Please refer to the Legal Proceedings section in our 2006 Annual Report onForm 10-K, as supplemented by our March 31, 2007,Form 10-Q,for additional information regarding thepending legal action noted below and other pending governmental proceedings, claims and legal actions.
As disclosed in our 2006Form 10-K, on February 27, 2007, the U.S. District Court for the Eastern District of Michigan issued an opinion granting the GM and GMAC defendants’ motion to dismiss and dismissing the consolidated bondholder class action complaint with respect to claims filed by plaintiffsJ&R Marketing,ZielezienskiandMager. The plaintiffs filed a notice of appeal in this matter on March 27, 2007.proceedings.
Other than with respect to the risk factors provided below, there have been no material changes to the Risk Factors
The following risk factors, which were disclosed described in our 2006 Annual Report onForm 10-K10-K.
Risks Related to Our Business
Our business requires substantial capital, and if we are unable to maintain adequate financing sources, our profitability and financial condition will suffer and jeopardize our ability to continue operations.
Our liquidity and ongoing profitability are, in large part, dependent upon our timely access to capital and the costs associated with raising funds in different segments of the capital markets. Currently, our primary sources of financing include public and private securitizations and whole loan sales. To a lesser extent, we also use institutional unsecured term debt, commercial paper, and retail debt offerings. Reliance on any one source can change going forward.
We depend and will continue to depend on our ability to access diversified funding alternatives to meet future cash flow requirements and to continue to fund our operations. Negative credit events specific to us or our 49% owner, GM, or other events affecting the overall debt markets have not materially changed since we filed these Reports. Referadversely impacted our funding sources, and continued or additional negative events could further adversely impact our funding sources, especially over the long term. As an example, an insolvency event for GM would curtail our ability to utilize certain of our 2006 Annual Reportautomotive wholesale loan securitization structures as a source of funding in the future. Furthermore, ResCap’s access to capital can be impacted by changes in the market value of its mortgage products and the willingness of market participants to provide liquidity for such products.
ResCap’s liquidity may also be adversely affected by margin calls under certain of its secured credit facilities that are dependent in part onForm 10-K for a complete discussion the lenders’ valuation of the collateral securing the financing. Each of these risk factors.credit facilities allows the lender, to varying degrees, to revalue the collateral to values that the lender considers to reflect market. If a lender determines that the value of the collateral has decreased, it may initiate a margin call requiring ResCap to post additional collateral to cover the decrease. When ResCap is subject to such a margin call, it must provide the lender with additional collateral or repay a portion of the outstanding borrowings with minimal notice. Any such margin call could harm ResCap’s 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.
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| • | Rating agencies may downgrade their ratings for GMAC or ResCap in the future, which would adversely affect our ability to raise capital in the debt markets at attractive rates and increase the interest that we pay on our outstanding publicly traded notes, which could have a material adverse effect on our results of operations and financial condition. |
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| • | Our business requires substantial capital and, if we are unable to maintain adequate financing sources, our profitability and financial condition will suffer and jeopardize our ability to continue operations. |
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| • | Our indebtedness and other obligations are significant and could materially adversely affect our business. |
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| • | The profitability and financial condition of our operations are dependent upon the operations of General Motors Corporation. |
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| • | We have substantial credit exposure to General Motors Corporation. |
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| • | Our earnings may decrease because of increases or decreases in interest rates. |
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| • | Our hedging strategies may not be successful in mitigating our risks associated with changes in interest rates and could affect our profitability and financial condition, as could our failure to comply with hedge accounting principles and interpretations. |
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| • | Our residential mortgage subsidiary’s ability to pay dividends to us is restricted by contractual arrangements. |
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| • | A failure of or interruption in the communications and information systems on which we rely to conduct our business could adversely affect our revenues and profitability. |
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| • | We use estimates and assumptions in determining the fair value of certain of our assets, in determining our allowance for credit losses, in determining lease residual values and in determining our reserves for insurance losses and loss adjustment expenses. If our estimates or assumptions prove to be incorrect, our cash flow, profitability, financial condition and business prospects could be materially adversely affected. |
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| • | Our business outside the United States exposes us to additional risks that may cause our revenues and profitability to decline. |
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| • | Our business could be adversely affected by changes in currency exchange rates. |
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| • | We are exposed to credit risk which could affect our profitability and financial condition. |
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| • | Recent developments in the residential mortgage market, especially in the nonprime sector, may adversely affect our revenues, profitability and financial condition. |
Recent developments in the market for many types of mortgage products (including mortgage-backed securities) have resulted in reduced liquidity for these assets. Although this reduction in liquidity has been most acute with regard to nonprime assets, there has been an overall reduction in liquidity across the credit spectrum of mortgage products. One consequence of this reduction is that ResCap may decide to retain interests in securitized mortgage pools that in other circumstances it would sell to investors, and ResCap will have to secure additional financing for these retained interests. If ResCap is unable to secure sufficient financing for them, or if there is further general deterioration of liquidity for mortgage products, it will adversely impact ResCap’s business. If ResCap is unable to maintain adequate financing or if other sources of capital are not available, it could be forced to suspend, curtail, or reduce certain aspects of its operations, which could harm ResCap’s revenues, profitability, financial condition and business prospects.
Furthermore, we utilize asset and mortgage securitizations and sales as a critical component of our diversified funding strategy. Several factors could affect our ability to complete securitizations and sales,
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| | |
| • | General business and economic conditions of the industries and geographic areas in which we operate affect our revenues, profitability and financial condition. |
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| • | Our profitability and financial condition may be materially adversely affected by decreases in the residual value of off-lease vehicles. |
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| • | Fluctuations in valuation of investment securities or significant fluctuations in investment market prices could negatively affect revenues. |
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| • | Changes in existing U.S. government-sponsored mortgage programs, or disruptions in the secondary markets in the United States or in other countries in which our mortgage subsidiaries operate, could adversely affect the profitability and financial condition of our mortgage business. |
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| • | We may be required to repurchase contracts and provide indemnification if we breach representations and warranties from our securitization and whole loan transactions, which could harm our profitability and financial condition. |
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| • | Significant indemnification payments or contract, lease or loan repurchase activity of retail contracts or leases or mortgage loans could harm our profitability and financial condition. |
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| • | A loss of contractual servicing rights could have a material adverse effect on our financial condition, liquidity and results of operations. |
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| • | The regulatory environment in which we operate could have a material adverse effect on our business and earnings. |
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| • | The worldwide financial services industry is highly competitive. If we are unable to compete successfully or if there is increased competition in the automotive financing, mortgage and/or insurance markets or generally in the markets for securitizations or asset sales, our margins could be materially adversely affected. |
including conditions in the securities markets generally, conditions in the asset-backed or mortgage-backed securities markets, the credit quality and performance of our contracts and loans, our ability to service our contracts and loans, and a decline in the ratings given to securities previously issued in our securitizations. Any of these factors could negatively affect the pricing of our securitizations and sales, resulting in lower proceeds from these activities.
We use estimates and assumptions in determining the fair value of certain of our assets, in determining our allowance for credit losses, in determining lease residual values, and in determining our reserves for insurance losses and loss adjustment expenses. If our estimates or assumptions prove to be incorrect, our cash flow, profitability, financial condition, and business prospects could be materially adversely affected.
We use estimates and various assumptions in determining the fair value of many of our assets, including retained interests and securitizations of loans and contracts, mortgage servicing rights, and other investments, which do not have an established market value or are not publicly traded. We also use estimates and assumptions in determining our allowance for credit losses on our loan and contract portfolios, in determining the residual values of leased vehicles and in determining our reserves for insurance losses and loss adjustment expenses. It is difficult to determine the accuracy of our estimates and assumptions, and our actual experience may differ materially from these estimates and assumptions. As an example, the continued decline of the domestic housing market, especially (but not exclusively) with regard to the nonprime sector, has resulted in increases of the allowance for loan losses at ResCap for 2006 and the first half of 2007. A material difference between our estimates and assumptions and our actual experience may adversely affect our cash flow, profitability, financial condition, and business prospects.
Recent developments in the residential mortgage market may adversely affect our revenues, profitability, and financial condition.
Recently, the residential mortgage market in the United States has experienced a variety of difficulties and changed economic conditions that adversely affected our earnings and financial condition in the fourth quarter of 2006 and the first half of 2007. Delinquencies and losses with respect to ResCap’s nonprime mortgage loans increased significantly and may continue to increase. Housing prices in many states have also declined or stopped appreciating, after extended periods of significant appreciation. In addition, the liquidity provided to the nonprime sector has recently been significantly reduced, which has caused ResCap’s 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 ResCap’s related liquidity needs and businesses. These trends have resulted in significant writedowns to ResCap’s mortgage loans held for sale portfolio and additions to allowance for loan losses for its mortgage loans held for investment and warehouse lending receivables portfolios. The lack of liquidity may also have the effect of reducing the margin available to ResCap in its sales and securitizations of nonprime mortgage loans.
Another factor that may result in higher delinquency rates on mortgage loans is the scheduled increase in monthly payments on adjustable rate mortgage loans. This increase in borrowers’ monthly payments, together with any increase in prevailing market interest rates, may result in significantly increased monthly payments for borrowers with adjustable rate mortgage loans. Borrowers seeking to avoid these increased monthly payments by refinancing their mortgage loans may no longer be able to fund available replacement loans at comparably low interest rates. A decline in housing prices may also leave borrowers with insufficient equity in their homes to permit them to refinance their loans or sell their homes. In addition, these mortgage loans may have prepayment premiums that inhibit refinancing.
Certain government regulators have observed these issues involving nonprime mortgages and have indicated an intention to review the mortgage loan programs. To the extent that regulators restrict the volume, terms and/or type of nonprime mortgage loan, the liquidity of our nonprime mortgage loan production and our profitability from nonprime mortgage loans could be negatively impacted. Such activity could also negatively impact our Warehouse Lending volumes and profitability.
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The events surrounding the nonprime segment have forced certain originators to exit the market. Such activities may limit the volume of nonprime mortgage loans available for us to acquire and/or our Warehouse Lending volumes, which could negatively impact our profitability.
These events, alone or in combination, may contribute to higher delinquency rates, reduce origination volumes or reduce Warehouse Lending volumes at ResCap. These events could adversely affect our revenues, profitability, and financial condition.
Recent negative developments in the secondary mortgage markets have led credit rating agencies to make requirements for rating mortgage securities more stringent, and market participants are still evaluating the impact.
The credit rating agencies that rate most classes of ResCap’s mortgage securitization transactions establish criteria for both security terms and the underlying mortgage loans. Recent deterioration in the residential mortgage market in the United States, and especially in the nonprime sector, has led the rating agencies to increase their required credit enhancement for certain loan features and security structures. These changes, and any similar changes in the future, may reduce the volume of securitizable loans ResCap is able to produce in a competitive market. Similarly, increased credit enhancement to support ratings on new securities may reduce the profitability of ResCap’s mortgage securitization operations and, accordingly, its overall profitability and financial condition.
We may be required to repurchase contracts and provide indemnification if we breach representations and warranties from our securitization and whole loan transactions, which could harm our profitability and financial condition.
When we sell retail contracts or leases through whole loan sales or securitize retail contracts, leases, or wholesale loans to dealers, we are required to make customary representations and warranties about the contracts, leases, or loans to the purchaser or securitization trust. Our whole loan sale agreements generally require us to repurchase retail contracts or provide indemnification if we breach a representation or warranty given to the purchaser. Likewise, we are required to repurchase retail contracts, leases, or loans and may be required to provide indemnification if we breach a representation or warranty in connection with our securitizations. Similarly, sales by our mortgage subsidiaries of mortgage loans through whole loan sales or securitizations require us to make customary representations and warranties about the mortgage loans to the purchaser or securitization trust. Our whole loan sale agreements generally require us to repurchase or substitute loans if we breach a representation or warranty given to the purchaser. In addition, our mortgage subsidiaries may be required to repurchase mortgage loans as a result of borrower fraud or if a payment default occurs on a mortgage loan shortly after its origination. Likewise, we are required to repurchase or substitute mortgage loans if we breach a representation or warranty in connection with our securitizations. The remedies available to a purchaser of mortgage loans may be broader than those available to our mortgage subsidiaries against the original seller of the mortgage loan. If a mortgage loan purchaser enforces its remedies against our mortgage subsidiaries, we may not be able to enforce the remedies we have against the seller of the loan or the borrower.
Like others in its industry, ResCap has experienced a material increase in repurchase requests. Significant repurchase activity could harm ResCap’s profitability and financial condition.
We have concluded that material weaknesses exist in the design and operation of our internal controls as of June 30, 2007, which, if our remediation efforts fail, could result in material misstatements in our financial statements in future periods.
We have concluded that material weaknesses exist in the design and operation of our internal controls as of June 30, 2007. A material weakness is defined by the Public Company Accounting Oversight Board as a deficiency, or combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses are described above under “Item 4. Controls and Procedures.”
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As described above, we are in the process of designing and implementing enhanced controls to remediate the material weaknesses. If we are unable to design and implement enhanced controls or if they are insufficient to address the identified material weaknesses, or if additional material weaknesses in our internal controls are identified in the future, we may fail to meet our future reporting obligations and our financial statements may contain material misstatements. Any such failure could also adversely affect the results of the periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Not applicable
Item 3. Defaults Upon Senior Securities
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Item 3. | Defaults Upon Senior Securities |
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
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Item 4. | Submission of Matters to a Vote of Security Holders |
Not applicable
Item 5. Other Information
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Item 5. | Other Information |
None
Item 6. Exhibits
The exhibits listed on the accompanying Index of Exhibits are filed as a part of this report. SuchThis Index is incorporated herein by reference.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, this 8th6th day of May,August 2007.
GMAC LLC
(Registrant)
Sanjiv Khattri
Executive Vice President and
Chief Financial Officer
Linda K. Zukauckas
Vice President and Corporate Controller
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INDEX OF EXHIBITS
| | | | | | | | | | | | |
Exhibit | Exhibit | | Description | | Method of Filing | Exhibit | | Description | | Method of Filing |
| | 10 | .1 | | Intellectual Property License Agreement, dated November 30, 2006, by and between General Motors Corporation and GMAC LLC | | Filed herewith. | 3 | .1 | | Amendment No. 1 to Amended and Restated Limited Liability Company Operating Agreement of GMAC LLC dated April 16, 2007 | | Filed herewith. |
| | 10 | .1 | | Separation Agreement and Release of Claims, dated July 25, 2007, between Residential Funding Company LLC and Bruce Paradis | | Filed herewith. |
| 12 | | | Computation of Ratio of Earnings to Fixed Charges | | Filed herewith. | 12 | | | Computation of Ratio of Earnings to Fixed Charges | | Filed herewith. |
| | 31 | .1 | | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | | Filed herewith. |
| 31 | .1 | | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | | Filed herewith. | 31 | .2 | | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | | Filed herewith. |
| | |
The following exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that Section. In addition, Exhibit No. 32 shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. | | The following exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that Section. In addition, Exhibit No. 32 shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. |
| 31 | .2 | | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | | Filed herewith. | |
| | 32 | | | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 | | Filed herewith. |
The following exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that Section. In addition Exhibit No. 32 shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. | |
| | |
| 32 | | | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350 | | Filed herewith. | |
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