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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
- -- FOR THE YEAR ENDED DECEMBER 31, 2001, OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
- --- 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission file number 1-3754
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GENERAL MOTORS ACCEPTANCE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 38-0572512
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Renaissance Center P.O. Box 200
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Detroit, MI 48265-2000
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 313-556-5000
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The registrant meets the conditions set forth in General Instruction I(1) (a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
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<s>
6.00% Notes due February 1, 2002 7 1/8% Notes due May 1, 2003
6 3/4% Notes due February 7, 2002 8 3/4% Notes due July 15, 2005
Floating Rate Notes due April 29, 2002 6 5/8% Notes due October 15, 2005
7.00% Notes due September 15, 2002 6 1/8% Notes due January 22, 2008
Global Floating Rate Notes due September 25, 2002 8 7/8% Notes due June 1, 2010
6 5/8% Notes due October 1, 2002 6.00% Debentures due April 1, 2011
8 1/2% Notes due January 1, 2003 10.00% Deferred Interest Debentures due December 1, 2012
5 7/8% Notes due January 22, 2003 10.30% Deferred Interest Debentures due June 15, 2015
6 3/4% Notes due March 15, 2003 7.30% Public Income NotES (PINES) due March 9, 2031
All of the securities listed above are registered on the New York Stock
Exchange.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes X . No ___.
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As of December 31, 2001, there were outstanding 10 shares of the issuer's common
stock.
Documents incorporated by reference. None.
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CONTENTS
PART I Page No.
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Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29
Item 8. Financial Statements and Supplementary Data 32
Management's Responsibilities for Consolidated Financial Statements 32
Independent Auditors' Report 33
Consolidated Balance Sheet 34
Consolidated Statement of Income 35
Consolidated Statement of Changes in Stockholder's Equity 36
Consolidated Statement of Cash Flows 38
Notes to Consolidated Financial Statements 40
Supplementary Financial Data 78
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 79
Signatures 80
Exhibit Index 82
Ratio of Earnings to Fixed Charges 83
Independent Auditors' Consent 84
2
PART I
ITEM 1. BUSINESS
General Motors Acceptance Corporation (the "Company" or "GMAC"), a wholly-owned
subsidiary of General Motors Corporation ("General Motors" or "GM"), was
incorporated in 1997 under Delaware General Corporation Law. On January 1, 1998,
the Company merged with its predecessor, which was originally incorporated in
New York in 1919.
In conducting its primary line of business, financing, GMAC and its affiliated
companies have a presence in 41 countries and offer a wide variety of automotive
financial services to and through franchised General Motors dealers throughout
the world. GMAC also offers financial services to other automobile dealerships
and to the customers of those dealerships. Additionally, the Company provides
commercial financing for real estate, equipment and working capital to
automobile dealerships, GM suppliers and customers of GM affiliates. The Company
also provides commercial financing and factoring services for companies in the
apparel, textile, automotive supplier and numerous other industries. GMAC's
other financial services include insurance and mortgage banking. The Company had
29,390 and 28,569 employees worldwide as of December 31, 2001 and 2000,
respectively.
The Company operates directly and through its subsidiaries and affiliates
(including joint ventures) in which the Company or GM has equity investments. In
its principal markets, GMAC offers automotive financing and other services as
described below. The Company operates its automotive financing services outside
of the United States ("U.S.") in a similar manner, subject to local laws or
other circumstances that may cause it to modify its procedures accordingly. The
Company's policies and internal controls are designed to ensure compliance with
applicable laws and regulations.
The automotive financing industry is highly competitive. The Company's principal
competitors for retail financing and leasing are a large number of banks,
commercial finance companies, savings and loan associations and credit unions.
Wholesale and lease financing competitors are primarily comprised of other
manufacturers' affiliated finance companies, independent commercial finance
companies and banks. Neither the Company nor any of its competitors are
considered to be a dominant force in the industry when analyzed individually.
The Company's ability to offer competitive financing rates, the primary basis of
competition, is directly affected by its access to capital markets. The Company
applies a strategy of constantly reviewing funding alternatives to achieve its
business goals. The quality of integrated GM and GMAC products and services
provided to automotive dealerships and their customers contributes to the
Company's competitive advantages.
In the North American automotive business, seasonal retail sales fluctuations
cause production levels to vary from month to month. In addition, the changeover
period related to the annual new model introduction traditionally occurs in the
third quarter of each year, causing an unfavorable impact on the operating
results of automobile manufacturers. These factors produce minor fluctuations in
financing volume, with the second and third quarters of each year generally
experiencing the strongest activity. However, seasonal variations in vehicle
deliveries do not have a material impact on the Company's interim results.
Quarterly financing revenue remains relatively consistent throughout the year,
primarily due to the use of the straight-line method for recognition of
operating lease revenue and the interest method for recognition of income from
retail and lease financing transactions as well as consistent dealer inventory
levels.
As the financing of GM manufactured vehicles comprises a substantial portion of
the Company's business, any protracted reduction or suspension of GM's
production or sales resulting from a decline in demand, work stoppage,
governmental action, adverse publicity or other event could have a substantial
unfavorable effect on the Company's results of operations. Conversely, an
increase in production or a significant marketing program could positively
impact the Company's results. Information about GM's production and sales can be
found in GM's Annual Report on Form 10-K for the year ended December 31, 2001,
filed separately with the Securities and Exchange Commission.
3
ITEM 1. BUSINESS (continued)
RETAIL FINANCING
GMAC conducts its U.S. and Canadian retail automotive financing business under
the trade name GMAC Financial Services. The Company provides financial services
to customers through dealers who have established relationships with GMAC.
Retail installment obligations for new and used products that meet GMAC's credit
standards are purchased directly from dealers.
Outside the U.S. and Canada, GMAC conducts its retail automotive financing
business under various trade names, such as Opel Bank, Vauxhall Finance and
Holden Financial Services, primarily depending upon General Motors activity in
the country, while also considering local customs and requirements. Retail
automotive financing is provided in a similar manner as in the U.S., but in some
cases, GMAC enters into an installment obligation directly with the customer.
Effective December 2001, GMAC acquired in a transfer from its parent, GM, Saab
Financial Services in the U.S. and Saab Finance Limited in the United Kingdom
("U.K."). Similar to GMAC's other operations, GMAC will provide retail financial
services under the Saab name in the U.S. and the U.K. markets. Total assets and
total liabilities were approximately $395.0 million and $318.0 million at
December 31, 2001, respectively.
GMAC also provides subprime retail automotive financing and servicing to
customers in the U.S. and Europe. Subprime financing in the U.S. is provided
through Nuvell Credit Corporation and subprime servicing is provided through
Nuvell Financial Services Corp., wholly owned subsidiaries of GMAC. In Europe,
On:Line Financing Holdings, Ltd., a majority-owned subsidiary, provides standard
rate and used vehicle financing.
Retail obligations are generally secured by lien notation on vehicle titles
and/or other forms of security interest in the vehicles financed. After
satisfying local requirements, GMAC is generally able to repossess the vehicle
if the installment buyer fails to meet the obligations of the contract. The
interests of both GMAC and the retail buyer are usually protected by automobile
physical damage insurance. Collateral protection on certain vehicles is provided
by GMAC's wholly owned insurance subsidiary.
General Motors may elect to sponsor retail finance programs by supporting
special retail finance rates and/or guaranteeing residual values in excess of
those established by independently published residual value guidebooks used by
GMAC.
WHOLESALE FINANCING
Using GMAC's wholesale financing, qualifying dealers are able to finance new and
used vehicles held in inventory pending sale or lease to retail or fleet buyers.
When a dealer uses GMAC's Wholesale Finance Plan to acquire vehicles from a
manufacturer or other vehicle sources, GMAC is ordinarily granted a security
interest in those vehicles. GMAC is generally able to repossess the vehicle if
the dealer does not pay the amount advanced or fails to comply with other
conditions specified in the security agreement. Collateral protection on certain
vehicles is provided by GMAC's wholly owned insurance subsidiary.
TERM LOANS
GMAC provides term loans for real estate, equipment and working capital to
automobile dealerships, GM suppliers and customers of GM affiliates. The Company
generally secures the loans with liens on real estate, other dealership assets
and/or the personal guarantee of the dealer.
LEASING
In the U.S. and Canada, GMAC offers leasing plans to retail customers as well as
dealers or other companies that rent or lease vehicles to others. GMAC also
offers various lease products in 22 other countries.
4
ITEM 1. BUSINESS (continued)
LEASING (concluded)
Operating Leases
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GMAC's most successful leasing program, called SmartLease in the U.S. and
Canada, is a plan in which dealers originate the leases and offer them for
purchase by GMAC. GMAC also offers full-service individual and fleet leasing
products in Europe and Asia-Pacific. In addition to the maintenance management
services directly associated with the full-service lease, the Company offers
services including fleet management, accident management, fuel programs, title
and licensing services and short-term vehicle rental.
Under SmartLease, as GMAC assumes ownership of the vehicles from the dealers,
these leases are accounted for as operating leases, with the capitalized cost of
the vehicles recorded as depreciable assets (net investment in operating
leases). In the U.S. and Canada, dealers are not responsible for customers'
performances during the lease periods nor for the values of the vehicles at the
time of lease maturities. Credit standards for these programs are similar to
those applied to retail financing contracts. The SmartLease program encourages
shorter customer trading cycles. At lease termination, GMAC either sells the
vehicle to the dealer or customer at a pre-determined price or sells the vehicle
at either a physical or Internet auction for the market price.
General Motors may elect to sponsor retail leasing programs by supporting
special lease rates and/or guaranteeing residual values in excess of those
established by independently published residual value guidebooks used by GMAC.
Finance Leases
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GMAC also offers other leasing plans directly to individual customers and other
entities. Under these plans, the leases are accounted for as finance leases and
the receivables from the customers are recorded as finance receivables. GMAC
does not assume ownership of the vehicles. These leasing receivables essentially
represent installment sales of vehicles, with the vehicles usually being
acquired by the customers at the end of the lease contracts.
Lease Financing
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Dealers, their affiliates and other companies may obtain GMAC financing to buy
vehicles, which they lease or rent to others. These leases, sometimes referred
to as fleet leases, are categorized as finance receivables. GMAC generally has a
security interest in these vehicles and in the rental payments. However,
competitive factors occasionally result in a limited security interest in this
collateral. Approximately 51 percent of GMAC's fleet financing receivables are
covered by General Motors programs which provide a limited payment guarantee to
participating financing institutions as consideration for extending credit to a
fleet customer. Under these programs, General Motors reimburses the financing
institution, subject to certain limitations, for losses on the sales of vehicles
that are returned to the selling dealers or repossessed. As of January 1, 2002,
General Motors terminated these programs. Volume acquired prior to 2002 will
continue to be covered under the payment guarantee.
COMMERCIAL FINANCING
Through its subsidiaries GMAC Commercial Credit LLC and GMAC Business Credit
LLC, the Company provides secured financing in the U.S., U.K. and Canada to
companies in the apparel, textile, automotive supplier and numerous other
industries. Financing is provided to clients through revolving lines of credit,
term loans and the purchase of accounts receivable owed to clients from their
customers (known as "factoring"). The Company also provides
receivable/collection management products as well as guarantees amounts due
under letters of credit issued by its clients to their suppliers. Accounts
receivable and inventories are the primary security for commercial financing and
factoring products and services.
INSURANCE
GMAC Insurance Holdings, Inc. ("GMACI"), a holding company formed in 1997,
conducts insurance operations in the U.S., Canada, Europe, Latin America and
Asia Pacific through Motors Insurance Corporation ("MIC"), GMAC RE Corp. ("GMAC
RE"), Integon Corporation ("Integon") and other insurance subsidiaries. The
subsidiaries operate and market under the GMAC Insurance common brand. GMACI
insures and reinsures automobile service contracts, personal automobile
insurance coverages ranging from preferred to non-standard risks and selected
commercial insurance coverages.
5
ITEM 1. BUSINESS (continued)
INSURANCE (concluded)
GMAC Insurance is one of the world's largest underwriters of automotive extended
service and maintenance contracts. Such contracts offer vehicle owners and
lessees mechanical repair protection and extended roadside assistance for new
and used vehicles beyond a manufacturer's new vehicle warranty. These contracts
are marketed through automobile dealerships and on a direct response basis,
covering virtually all vehicle makes and models. A significant portion of
vehicle service contracts cover vehicles manufactured by General Motors.
GMAC RE underwrites diverse property and casualty risks, primarily in the U.S.
market. Commercial lines coverage is primarily insurance for dealer vehicle
inventories. MIC also provides collateral protection to GMAC on certain vehicles
securing GMAC retail installment contracts.
The personal lines operation primarily provides physical damage and liability
insurance coverages for automobiles and motorcycles, and also offers homeowners
and umbrella policies. Personal lines policies are offered on a direct response
basis through affinity groups, GM-employee programs and the Internet, and
through a network of approximately 11,400 independent agencies. Automobile and
motorcycle coverages are offered to nonstandard, standard and preferred drivers.
The personal lines group operates in 48 states and the District of Columbia.
The property casualty insurance industry is highly competitive. Competition in
the property casualty markets in which GMACI operates consists of large
multi-line companies and smaller specialty carriers. None of these companies,
including GMACI, holds a dominant position overall in these markets.
There are no material seasonal factors that affect the quarterly results of
GMACI.
MORTGAGE BANKING
GMAC Mortgage Group, Inc. and its subsidiaries ("GMACMG") perform a wide array
of real estate financial services including the origination, purchase, financing
and servicing of residential, commercial and multifamily mortgage loans as well
as the issuing, purchasing and selling of mortgage-backed securities. In
addition, GMACMG actively acquires mortgage servicing rights from other mortgage
bankers and financial institutions. Operations of GMACMG's various mortgage
banking subsidiaries are conducted through its three primary businesses: GMAC
Residential Holding Corp. ("GMACR"); GMAC Commercial Holding Corp. ("GMACCH");
and Residential Funding Corporation ("RFC").
GMACR provides residential real estate services nationwide. These services
primarily include the origination, sale and servicing of first and second lien
mortgage loans and high loan-to-value mortgage loans. GMACR also provides
bundled real estate services to the consumer. These bundled services include
real estate brokerage services utilizing a combination of franchised and company
owned offices, full service relocation services, mortgage services and
settlement services. Through GMAC Bank, which commenced operations in August
2001, GMACR offers a variety of personal financial products to its customers,
including consumer deposits, consumer loans and other consumer investment
services. During 2001, in connection with the creation of GMAC Bank, GMACR
became a Unitary Thrift Holding Company. GMACR also acquired a warehouse lending
operation in 2001 which provides interim financing to mortgage correspondents.
At December 31, 2001, according to National Mortgage News, GMACR ranks
nationally as the sixth largest servicer, with a servicing portfolio of $192.0
billion, and the seventh largest originator of residential mortgage loans. GMACR
originates mortgage loans by utilizing its retail branch network, direct lending
centers and correspondent/broker lender origination channels.
6
ITEM 1. BUSINESS (concluded)
MORTGAGE BANKING (concluded)
GMACCH, with a servicing portfolio of more than $134.6 billion, is a global
leader in commercial and multifamily mortgage loan servicing, loan origination,
asset management and securitization of commercial mortgages. Through a
subsidiary, GMACCH is also one of the largest underwriters of multifamily tax
exempt bonds in the U.S. GMACCH serves the domestic and global markets and is a
direct lender and correspondent for life insurance companies and pension funds.
GMACCH provides a wide range of innovative financial products and services
including long-term, interim and construction financing, appraisal services and
specialized lending units focused on healthcare and hospitality, as well as
e-commerce offerings through the Internet. GMACCH operates 75 offices in key
United States markets and also has operations in Canada, the United Kingdom,
France, Ireland and Japan. GMACCH has continued to diversify its operations and
grow operating revenues through strategic domestic and international corporate
and asset acquisitions focusing on commercial mortgage lending and related
services and technology products. In 2001, GMACCH established GMAC Commercial
Mortgage Bank (Ireland), PLC in Ireland which is regulated by the Central Bank
of Ireland and provides GMACCH with a regulatory platform for entering into
full-scale commercial mortgage banking activities in Europe.
RFC is engaged in several interrelated business lines including mortgage
securitization, investing, origination and lending operations. RFC is a top
issuer of private-label mortgage-backed securities in the U.S. based on dollar
volume of private-label mortgage-backed securities issued as of December 31,
2001. RFC purchases non-conforming, single-family residential mortgages from
mortgage lenders throughout the U.S., securitizes such mortgages into mortgage
pass-through certificates, sells the certificates to investors and performs
master servicing of these securities on behalf of investors. In addition to
prime residential mortgages, RFC also purchases and securitizes subprime
residential mortgages, home equity lines of credit and home improvement loans.
RFC also provides warehouse lending facilities to certain mortgage banking
customers secured principally by mortgage collateral, as well as long-term
secured lines of credit to construction lending project managers and national
and regional homebuilders. Additionally, RFC acquires seasoned or distressed
mortgage loans and other real estate for resolution or sale, as well as manages
its own portfolios of distressed unsecured consumer receivables and
mortgage-related securities that were acquired from unrelated bond issuers. RFC
maintains 53 offices in key United States markets and also has operations in the
United Kingdom, Mexico, Japan, Brazil and the Netherlands.
The mortgage banking business is highly competitive. GMACMG competes with other
mortgage banking companies, commercial banks, savings associations, credit
unions and other financial institutions in every aspect of its business,
including funding and purchasing loans from mortgage brokers, purchasing loans
from correspondents, securitizing and selling loans to investors and acquiring
loan servicing rights and origination capabilities.
Residential mortgage volume is generally subject to seasonal trends. These
trends reflect the general national pattern of sales and resales of homes, which
typically peak during the spring and summer seasons and decline to lower levels
from mid-November through February. However, the seasonal trends do not have a
material impact on GMACMG's interim results. Refinancings tend to be less
seasonal and more closely related to changes in interest rates. In addition to
having an effect on refinancing, changes in interest rates affect the volume of
loan originations and acquisitions, the interest rate spread on mortgage-related
investments and loans held for sale, the amount of gain or loss on the sale of
loans and the value of GMACMG's servicing portfolio.
FINANCIAL INFORMATION
Accounting policies and financial information regarding operating segments and
operations by geographic area are set forth in Notes 1 and 15, respectively, in
the Notes to Consolidated Financial Statements.
7
ITEM 2. PROPERTIES
The Company and its subsidiaries have 260 automotive financial services offices,
28 commercial financial services offices, 101 insurance offices and 604 mortgage
offices. Of the number of automotive financial services offices, 198 are in the
United States and Puerto Rico, 12 in Canada and 50 in other countries. Of the
number of commercial financial services offices, 20 are located in the United
States, 2 in Canada and 6 in the United Kingdom. There are 93 insurance offices
in the United States, 4 in Europe, 2 in Canada and 2 in Latin America. Of the
number of mortgage offices, 571 are located in the United States, 2 in Canada, 9
in Latin America, 4 in Asia and 18 in Europe. Substantially all premises are
occupied under lease.
The Company owns three properties in Michigan that were transferred from GM in
2000. GMAC leases these properties to GM as part of a sixteen-year lease
arrangement. Automobiles, office equipment and other real estate properties
owned and in use by the Company are not significant in relation to the total
assets of the Company.
ITEM 3. LEGAL PROCEEDINGS
GMAC is subject to potential liability under government regulations and various
claims and legal actions which are pending or may be asserted against them. Some
of the pending actions purport to be class actions. The aggregate ultimate
liability of GMAC under these government regulations and under these claims and
actions, was not determinable at December 31, 2001. After discussion with
counsel, it is the opinion of management that such liability is not expected to
have a material adverse effect on the Company's consolidated financial
condition, results of operations or cash flows.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company is a wholly-owned subsidiary of General Motors and, accordingly, all
shares of the Company's common stock are owned by General Motors. There is no
market for the Company's common stock.
The Company did not pay cash dividends to General Motors in 2001 and paid
$1,377.5 million and $75.0 million of dividends in 2000 and 1999, respectively.
8
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS
2001 2000 1999 1998 1997
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Income and net income retained for
use in the business (in millions of dollars)
Financing, insurance, and mortgage
Revenue and other income $ 25,475.8 $ 23,661.1 $ 20,218.0 $ 17,913.9 $ 16,595.4
----------- ----------- ----------- ------------ ------------
Interest and discount 7,599.3 8,294.7 6,526.2 5,786.9 5,255.5
Depreciation on operating leases 4,884.6 5,166.2 4,891.7 4,692.4 4,677.5
Operating expenses 7,135.6 5,599.1 4,518.9 3,565.1 2,852.2
Insurance losses and loss adjustment
Expenses 1,711.2 1,493.1 1,389.9 1,469.4 1,073.5
Provision for credit losses 1,346.4 551.6 403.8 463.1 522.7
----------- ----------- ----------- ------------ ------------
Total expenses 22,677.1 21,104.7 17,730.5 15,976.9 14,381.4
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Income before income taxes 2,798.7 2,556.4 2,487.5 1,937.0 2,214.0
United States, foreign and other 960.2
Income taxes 1,047.1 954.3 611.7 912.9
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Income before cumulative effect of
Accounting change 1,751.6 1,602.1 1,527.3 1,325.3 1,301.1
Cumulative effect of accounting
Change * 34.3 -- -- -- --
Cash dividends -- 1,377.5 75.0 300.0 750.0
----------- ----------- ----------- ------------ ------------
Net income retained in the year $ 1,785.9 $ 224.6 $ 1,452.3 $ 1,025.3 $ 551.1
=========== =========== =========== ============ ============
Total assets $ 192,720.9 $ 168,472.2 $ 148,837.8 $ 131,794.6 $ 109,725.6
=========== =========== =========== ============ ============
Debt
Short-term debt $ 36,214.2 $ 56,913.6 $ 50,838.5 $ 49,491.2 $ 41,464.5
Long-term debt 114,930.8 76,458.6 70,319.7 56,682.0 45,436.8
Mark to market adjustment ** 888.2 -- -- -- --
----------- ----------- ----------- ------------ ------------
Total debt $ 152,033.2 $ 133,372.2 $ 121,158.2 $ 106,173.2 $ 86,901.3
=========== =========== =========== ============ ============
* Refer to Notes 1 and 17 of the Notes to Consolidated Financial Statements.
**Refer to Note 8 of the Notes to Consolidated Financial Statements.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that management
believes to be relevant to an understanding of the Company's consolidated
results of operations and financial condition. The discussion should be read in
conjunction with the Consolidated Financial Statements and the notes thereto.
SIGNIFICANT ACCOUNTING POLICIES
The Company has identified the following significant accounting policies that,
as a result of the judgments, uncertainties, uniqueness and complexities of the
underlying accounting standards and operations involved, could result in
material changes to its financial condition or results of operations under
different conditions or using different assumptions.
Allowance for Credit Losses
- ---------------------------
The allowance for credit losses is generally established during the period in
which receivables are acquired and is maintained at a level deemed appropriate
by management based on historical and other factors that affect collectibility.
Such factors include the historical trends of repossession, charge-offs,
recoveries and credit losses; the careful monitoring of portfolio credit
quality, including the impact of acquisitions; and current and projected
economic and market conditions. The evaluation of these factors involves
complex, subjective judgments. Thus, changes in these factors may significantly
impact the Consolidated Financial Statements. For example, recent deterioration
in economic conditions in North America have contributed to an increase in net
finance receivable losses and, consequently, an increase in the allowance.
Different assumptions or changes in economic circumstances could result in
additional changes to the allowance for credit losses. See Notes 1, 2 and 13 in
the Notes to Consolidated Financial Statements.
Investments in Operating Leases
- -------------------------------
Investments in the residual values of the Company's leasing portfolio represent
an estimate of the values of the assets at the end of the lease contract and are
initially recorded based on appraisals and estimates. Management reviews
residual values periodically to determine that recorded amounts are appropriate
and the operating lease assets have not been impaired. In addition, the Company
actively manages the remarketing of off-lease vehicles to maximize the
realization of the recorded residuals. Upon disposal of the assets, the
provision for depreciation is adjusted for the difference between the net book
value and the proceeds of sale or salvage. As a result of a continued weakness
in off-lease residuals, the Company has experienced a decline in proceeds upon
disposal of its vehicles at termination. Changes in the estimation process used
to record the initial value of the residuals or the existence of other external
factors impacting the Company's future ability to market the vehicles under then
prevailing market conditions may significantly impact the realization of
residual values. See Notes 1 and 4 in the Notes to Consolidated Financial
Statements.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
SIGNIFICANT ACCOUNTING POLICIES (concluded)
Securitization Accounting
- -------------------------
The Company sells finance and mortgage loan receivables through special purpose
entities which then issue asset or mortgage-backed securities to private or
public investors. The Company records a gain or loss on the sale of receivables
and generally retains interests in the sold receivables, which include
interest-only strips and specific tranches in the securitization, including
subordinate tranches subject to first loss positions, as well as the right to
service the sold receivables. The recognition of a gain or loss and the
valuation of retained interests is based on an allocation of the cost of the
sold receivables between the portion sold and the portion retained based on
their relative fair values on the date of sale. The fair value of the retained
interests, including mortgage servicing rights, is estimated using the present
value of future expected cash flows, with market interest rates, discount rates
commensurate with the risks involved, estimated credit losses, credit spreads
and prepayment speeds comprising the key calculation assumptions. Such
assumptions are determined utilizing data obtained from other market
participants, where available. Otherwise, such assumptions are based on
historical information or derived from management's best estimate. Thus, the
selection of assumptions involves complex, subjective judgments which, when
changed, may significantly impact the financial statements. For example,
throughout most of 2001, interest rates declined, increasing actual and
potential mortgage refinancing activity and resulting in reduced expected future
cash flows that support the carrying value of the Company's mortgage servicing
rights, resulting in significant impairment charges. (See further discussion in
Mortgage Operations section of the Management's Discussion and Analysis of
Financial Condition and Results of Operations.) The selection of different
assumptions used in estimating fair value or the impact of changes in economic
circumstances could result in additional declines in fair value to the retained
interests in securitizations. See Notes 1, 3, 6, 13 and 14 in the Notes to
Consolidated Financial Statements.
Accounting for Derivatives and Other Contracts at Fair Value
- ------------------------------------------------------------
The Company uses derivatives in the normal course of business to reduce its
exposure to fluctuations in interest and foreign currency rates. Effective
January 1, 2001, the Company accounts for its derivatives on the Consolidated
Balance Sheet as assets or liabilities, at fair value in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. Such accounting is
complex, evidenced by significant interpretations of the primary accounting
standard which continues to evolve, as well as the significant judgments and
estimates involved in estimating fair value in the absence of quoted market
values. These estimates are based on valuation methodologies deemed appropriate
in the circumstances; however, the use of different assumptions may have a
material effect on the estimated fair value amounts. In addition, hedge
accounting requires that the Company assess effectiveness between changes in
fair value of derivatives designated as hedges compared to changes in fair value
of the underlying hedged assets or liabilities for each reporting period. The
effectiveness tests involve estimation of the fair values of future transactions
as well as an evaluation of the probability of occurrence of such transactions.
Using different assumptions and changing circumstances may impact the results of
the effectiveness testing and ultimately the timing of when changes in
derivative fair values are recorded in earnings. See Notes 1, 6, 8, 13, 14 and
17 in the Notes to Consolidated Financial Statements.
Insurance Losses and Loss Reserves
- ----------------------------------
The liability for losses and loss expenses represents the accumulation of
estimates for reported losses and a provision for losses incurred but not
reported, including claim adjustment expenses. Loss reserve projections are used
to estimate loss reporting patterns, loss payment patterns and ultimate claim
costs. An inherent assumption in such projections is that historical loss
patterns can be used to predict future patterns with reasonable accuracy.
Because many variables can affect past and future loss patterns, the effect of
changes in such variables on the results of loss projections must be carefully
evaluated. The evaluation of these factors involves complex, subjective
judgments which may significantly impact the financial statements. Insurance
liabilities are, therefore, necessarily based on estimates, and the ultimate
liability may vary from such estimates. These estimates are regularly reviewed
by management and adjustments to such are included in income on a current basis.
See Note 12 in the Notes to Consolidated Financial Statements.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
BUSINESS SEGMENT EARNINGS
GMAC earned consolidated net income of $1,785.9 million, up 11.5% from the
$1,602.1 million earned in 2000. These earnings set an annual record for GMAC,
with 2001 net income being the seventh straight year of increase. The following
table summarizes the most recent earnings of GMAC's automotive and other
financing, insurance and mortgage operations on a year-to-year basis:
Net Income ***
---------------------------------------
2001 2000 1999
---------- ----------- -------------
(in millions of dollars)
Automotive and other financing operations $1,254.9 $ 1,054.7 $ 1,056.9
Insurance operations * 200.2 220.0 209.9
Mortgage operations ** 330.8 327.4 260.5
---------- ----------- -------------
Consolidated total $1,785.9 $ 1,602.1 $ 1,527.3
========== =========== =============
* GMAC Insurance Holdings, Inc.
** GMAC Mortgage Group, Inc.
*** This section should be read in conjunction with Note 15 in the Notes to
Consolidated Financial Statements.
On a consolidated basis, GMAC's return on average equity capital was 12.0% in
2001, compared to 12.4% in 2000 and 14.7% in 1999. The Company did not pay cash
dividends to General Motors in 2001 and paid $1,377.5 million and $75.0 million
in 2000 and 1999, respectively.
In 2001, net income from automotive and other financing operations totaled
$1,254.9 million, compared to $1,054.7 million earned in the prior year. Lower
market interest rates and increased asset levels more than offset weakness in
off-lease residual values, higher credit losses and wider borrowing spreads that
occurred in the wake of negative rating agency actions. Net income in 2000 was
virtually unchanged from 1999. Increased financing volumes and asset levels were
offset by the negative impact stemming from the higher level of market interest
rates in 2000 over 1999.
Net income from insurance operations totaled $200.2 million in 2001, 9.0% and
4.6% lower than 2000 and 1999 earnings, respectively. The decrease from 2000 was
due to a reduction in capital gains, reflecting general weakness in the equity
markets, partially offset by improved underwriting results. The increase in 2000
from 1999 was primarily due to improved operating results and higher investment
income and capital gains.
Net income from mortgage operations totaled $330.8 million in 2001, 1.0% and
27.0% higher than 2000 and 1999 earnings, respectively. The results reflected
strong origination volumes and securitizations, which kept pace with the large
run-off of home mortgages that occurred during periods of high refinance
activity. Revenue growth during 2001 associated with strong residential loan
originations, increases in the servicing portfolio and realized gains on the
sale and securitization of mortgage loans, were largely offset by impairment
charges recorded on mortgage servicing rights due to higher mortgage prepayment
experience. Pre-tax gains on securitizations of mortgage loans were $994.6
million, 37.6% and 65.0% higher than gains in 2000 and 1999, respectively. The
increase in 2000 over 1999 performance reflected the benefit of strong
international growth, lower cost of servicing and increased mortgage
originations during the second half of 2000.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
AUTOMOTIVE AND OTHER FINANCING OPERATIONS
United States New Passenger Car and Truck Deliveries
U.S. deliveries of new GM vehicles during 2001 were slightly lower than 2000
levels. U.S. deliveries of new GM vehicles during 2000 were virtually unchanged
compared to 1999 levels. Financing penetration of new GM vehicle retail
deliveries during 2001 and 2000 grew as a result of an increase in GM-sponsored
retail incentives in each of these years.
For the Years Ended December 31,
--------------------------------
2001 2000 1999
------- ------- -------
(in millions of units)
Industry 17.5 17.8 17.4
General Motors 4.9 5.0 5.0
U.S. new GM vehicle deliveries financed by GMAC
Retail (installment sale contracts and
Operating leases) 50.0% 43.6% 40.6%
Fleet transactions (lease financing) 1.8% 1.7% 1.6%
Total 41.1% 34.7% 32.8%
Financing Volume
The number of new vehicle deliveries financed for GM and other dealers are
summarized below:
For the Years Ended December 31,
--------------------------------
2001 2000 1999
------- ------- -------
(in thousands of units)
United States
Retail installment sale contracts 1,589 1,012 867
Operating leases 399 680 774
Leasing 21 23 24
------- ------- -------
New deliveries financed 2,009 1,715 1,665
======= ======= =======
Other Countries
Retail installment sale contracts 487 483 470
Operating leases 265 273 291
Leasing 50 55 66
------- ------- -------
New deliveries financed 802 811 827
======= ======= =======
Worldwide
Retail installment sale contracts 2,076 1,495 1,337
Operating leases 664 953 1,065
Leasing 71 78 90
------- ------- -------
New deliveries financed 2,811 2,526 2,492
======= ======= =======
The change in the total number of vehicles financed since 1999 can be attributed
to the Company's continued increase in special rate financing programs sponsored
by GM. Most significantly, in the fourth quarter of 2001, GM launched the "Keep
America Rolling" zero percent financing program, which contributed to the
increase in retail contracts compared to 2000 and 1999. The decrease in
operating lease units over that time can be attributed to a shift from lease
incentive programs to special rate retail finance programs sponsored by GM for
both the U.S. and internationally.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Financing Volume (concluded)
The average new vehicle retail finance contract purchased by GMAC in the United
States during 2001 was $26,100 compared to $23,500 in 2000 and $22,300 in 1999.
The average term for new vehicle retail finance contracts purchased was 53
months in 2001, compared to 55 months in 2000 and 54 months in 1999, while the
monthly payment on such contracts purchased in 2001 averaged $493 compared to
$424 in 2000 and $412 in 1999. The increase in the average amount of a retail
finance contract purchased was primarily the result of a reduction in the
average customer downpayment and an increase in the average new vehicle cash
price. The increase in the average monthly payment resulted from the increase in
the average amount of a retail finance contract purchased and a shorter average
term, partially offset by a decrease in the average customer finance rate.
During 2001, the average capitalized cost for new vehicle retail operating lease
contracts entered into in the United States was $26,100 compared to $24,300 in
2000 and $23,700 in 1999. The average term of such new vehicle retail leases was
36 months in 2001, 2000 and 1999. The average monthly retail lease payments on
such contracts were $401 in 2001, $358 in 2000 and $340 in 1999. The changes in
average cost and monthly payment during 2001 were mainly attributable to a
continued shift in volume towards more expensive vehicle models.
GMAC also provides wholesale financing for GM and other dealers' new and used
vehicle inventories. In the United States, wholesale inventory financing was
provided for 3.4 million, 3.6 million and 3.5 million new GM vehicles,
representing 75.5%, 71.5% and 67.7% of all GM sales to U.S. dealers during 2001,
2000 and 1999, respectively. The increase in wholesale penetration was
attributable to marketing initiatives and competitive pricing strategies offered
by the Company.
Collection Results and Asset Quality
The following statistics, which include owned and sold automotive assets,
summarize the Company's delinquency, repossession and loss experience:
For the Years Ended December 31,
----------------------------------------
2001 2000 1999
------------ ---------- ------------
Retail - Worldwide
- ------------------
Accounts past due over 30 days (average) 2.4% 2.4% 2.6%
Repossessions of new vehicles 1.4% 1.3% 1.4%
Repossessions of used vehicles 3.5% 3.1% 2.9%
Net retail losses as a percent of
total average serviced receivables 0.77% 0.62% 0.63%
Net retail losses as a percent of liquidations
- ----------------------------------------------
Retail serviced - Worldwide 1.54% 1.19% 1.17%
New retail serviced - United States 1.21% 0.97% 0.93%
Retail sold - United States 0.66% 0.80% 0.78%
Charge-offs - Worldwide (in millions of dollars)
- ------------------------------------------------
Total serviced receivables, net of recoveries $ 588.8 $ 320.7 $ 295.6
Total owned receivables, net of recoveries 549.6 286.5 262.7
Allowance for credit losses as a percent of
total net serviced receivables - Worldwide 1.65% 1.24% 1.20%
Operating lease portfolio - United States (average)
- ---------------------------------------------------
Accounts past due over 30 days 1.88% 1.49% 1.30%
Early terminations by default as a percent of units outstanding 1.61% 1.23% 1.09%
Loss experience worsened in 2001 due to the deterioration in economic conditions
in North America. Loss experience in 2000 remained relatively consistent with
1999.
Revenue recognition was suspended on approximately 0.16% and 0.25% of gross
retail finance receivables as of December 31, 2001 and 2000, respectively.
Repossessed collateral with a net book value of $189.0 million and $139.2
million has been acquired in satisfaction of retail loans and leases outstanding
as of December 31, 2001 and 2000, respectively.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Financing Revenues
Financing revenue totaled $15.1 billion in 2001, compared to $15.5 billion and
$13.8 billion for 2000 and 1999, respectively. The decrease in 2001 was mainly
due to a decline in asset earning rates during 2001, a decrease in both
operating lease assets and wholesale receivables, which were offset by an
increase in retail receivables. The increase in 2000 over 1999 was mainly due to
higher average retail, wholesale and commercial and other loan receivable
balances.
Retail and lease financing revenue totaled $5,343.0 million in 2001, compared to
$4,773.8 million and $4,303.0 million for 2000 and 1999, respectively. The
increase in 2001 over 2000 and 1999 was mainly due to a significant increase in
average outstanding retail balances, which resulted from increased retail
financing incentives sponsored by GM. This was partially offset by lower asset
earning rates in 2001.
Operating lease revenue, net of depreciation, totaled $2,484.8 million in 2001,
compared to $2,740.5 million and $2,537.5 million in 2000 and 1999,
respectively. The decrease in 2001 was partially attributable to the decrease in
average outstanding operating lease assets, which was caused by the shift from
lease incentive programs to special rate retail finance and other programs
sponsored by GM. Additionally, lower realized gains from the sale of off-lease
vehicles, caused by a weakness in residual values, contributed to the decrease.
The increase in 2000 over 1999 was primarily attributable to increases in asset
earning rates, which was partially offset by decreases in operating lease
assets.
Wholesale, commercial and other loan financing revenue amounted to $2,371.1
million, compared with $2,812.9 million and $2,045.7 million in 2000 and 1999,
respectively. The decrease in 2001 from 2000 was attributable to the decrease in
serviced wholesale receivables due to lower dealer inventory levels, an increase
in wholesale securitization activity and a decline in asset earning rates. The
increase in 2000 from 1999 was mainly due to increased commercial loan
receivables due to GMAC Commercial Credit LLC's acquisitions of the factoring
businesses of Finova Capital Corporation. In addition, serviced wholesale loan
receivable balances increased due to higher dealer inventory levels as well as
an increase in wholesale penetration.
Pre-tax gains on sold retail receivables, included in other income, totaled
$210.4 million during 2001 compared with $13.7 million in 2000 and $64.2 million
in 1999. The increase in 2001 was due to greater securitization volume along
with the declining interest rate environment. Retail receivables sales generally
accelerate the recognition of income on retail contracts, net of servicing fees
and other related deferrals, into the period the receivables are sold. The
amount of such gains is affected by a number of factors and may create
variability in quarterly earnings depending on the type and amount of
receivables sold and the structure used to effect the sale, as well as interest
rate levels and prevailing financial market conditions.
This acceleration results in the pre-tax gains reflected above and can create
variability in annual earnings depending on the amount, timing and the net
margin between the average yield and all-in-cost of the sold receivables. The
acceleration also reduces profit potential in future periods. Although this
acceleration can significantly impact quarterly or year-to-year comparisons, it
should be noted that the Company generally recognizes approximately 70 percent
of interest and discount revenue in the first two years of a retail contract
(reflecting the term of the underlying contracts, revenue recognition methods
and historical prepayment experience). As such, depending on the timing of
receivables sales in a given year, the net impact on annual earnings may be
substantially less than the gains indicated.
Financing Expenses
As noted earlier, net retail losses as a percentage of total average serviced
automotive receivables was 0.77%, 0.62% and 0.63% in 2001, 2000 and 1999,
respectively. The increase was primarily due to the deterioration in economic
conditions in North America. The provision for credit losses, most of which
relates to retail receivables, totaled $1,346.4 million, $551.6 million and
$403.8 million in 2001, 2000 and 1999, respectively. Higher outstanding finance
receivables, increased commercial loan loss reserves, along with increased net
losses due to the deterioration in economic conditions contributed to the
increase in the provision for credit losses.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
INSURANCE OPERATIONS
Gross premiums written by GMACI and its subsidiaries totaled $2,811.6 million,
$2,395.5 million and $2,231.8 million in 2001, 2000 and 1999, respectively. Net
insurance premiums earned totaled $2,044.6 million in 2001, an increase of
$160.8 million from 2000 and an increase of $250.7 million over 1999. The gross
premiums written increase from 2000 was primarily due to strong volume in
mechanical business as a result of the Oldsmobile extended service contract and
"Keep America Rolling" promotions. Additionally, gross and net premiums earned
increased due to expanding customer relationships in assumed reinsurance
business and strong volume in dealer vehicle inventory insurance. The increases
from 1999 were mainly due to premium growth across all business lines.
Pre-tax capital gains at GMACI, which are included in other income, totaled
$84.7 million for 2001, a decrease of $80.8 million from 2000 and a decrease of
$74.1 million over 1999. Capital gains in 2001 were lower due to general
weakness in the equity markets. The change between 2000 and 1999 was attributed
to the timing of sales and overall market conditions.
Insurance losses and loss adjustment expenses totaled $1,711.2 million, $1,493.1
million and $1,389.9 million in 2001, 2000 and 1999, respectively. The increase
in 2001 from 2000 was primarily due to higher personal lines losses associated
with increased vehicle repair costs, increased premiums written in mechanical
and assumed reinsurance business and adverse weather-related losses in
commercial lines. The increase in 2000 from 1999 was primarily due to
deteriorating losses in the personal lines' agency business resulting from an
increase in frequency and severity of claims, as well as liability and personal
damage claims.
Net income from insurance operations totaled $200.2 million in 2001, 9.0% and
4.6% lower than 2000 and 1999 earnings, respectively. The decrease from 2000 was
due to a reduction in capital gains, reflecting general weakness in the equity
markets, partially offset by improved underwriting results. The increase in 2000
from 1999 was primarily due to improved operating results and higher investment
income and capital gains.
MORTGAGE OPERATIONS
During 2001, GMACMG continued to maintain its position as a leading real estate
financial services company in the United States. Loan origination, mortgage
servicing acquisitions and correspondent loan volume totaled $160.8 billion,
$86.0 billion and $91.6 billion for the years ended December 31, 2001, 2000 and
1999, respectively. The increase from 2001 over 2000 and 1999 was attributable
to volume increases caused by declining interest rates. The decrease from 2000
over 1999 was attributable to volume reduction caused by increasing interest
rates. Reflecting stronger business activities and acquisitions, the GMACMG
servicing portfolio at December 31, 2001, was $405.1 billion, 20.5% above the
$336.2 billion at December 31, 2000, excluding $3.8 billion and $3.7 billion of
GMAC term loans at December 31, 2001 and 2000, respectively. GMACMG ranked among
the leading originators and servicers of both residential and commercial
mortgages at December 31, 2001.
Mortgage revenue totaled $5,333.6 million, $3,907.2 million and $2,982.3 million
for the years ended December 31, 2001, 2000 and 1999, respectively, including
gains on securitization of mortgage loans of $994.6 million, $722.8 million and
$602.8 million, respectively. Revenue growth in 2001 was primarily attributable
to significantly stronger lending volumes, loan originations, securitizations
and an increase in the servicing portfolio, reflecting significant re-financing
activity prompted by the decline in interest rates observed throughout most of
2001. In addition, multiple acquisitions, including GMACMG's acquisition of
Nippon Asset Management in Japan in the second quarter of 2000, have increased
revenues from other lines of business. The increase in 2000 over 1999 was
primarily attributable to a large volume of securitizations, growth in the
servicing portfolio and acquisitions.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
MORTGAGE OPERATIONS (concluded)
Net income from mortgage operations totaled $330.8 million, $327.4 million and
$260.5 million for 2001, 2000 and 1999, respectively. Origination volume in the
residential mortgage sector grew at a record pace, but the related increase in
earnings was largely offset by the impairment charges recorded on mortgage
servicing rights due to higher levels of mortgage prepayments and higher
anticipated credit losses affecting the revaluation of retained interest
securities from securitizations. As a result, net income for 2001 was virtually
unchanged from 2000. The increase in 2000 earnings over 1999 was a result of
strong international growth, lower cost of servicing and increased mortgage
originations during the second half of 2000.
Interest rates, including those on originated loans for fifteen and thirty-year
residential mortgages, declined throughout most of 2001. This decline increased
actual and potential mortgage refinancing activity, resulting in a reduction in
the expected future cash flows that support the carrying value of the mortgage
servicing rights. As a result, the Company recorded after-tax impairment charges
of $242.5 million for the year ended December 31, 2001. Subsequent to December
31, 2001, mortgage rates continue to remain at historically low levels and
prepayment activity continues at a pace similar to the pace experienced in 2001.
As a result, the Company recorded after-tax impairment charges of $38.2 million
for the month ended January 31, 2002. If rates continue at these low levels and
in the event that the hedge positions prove to be not fully effective, the
Company may experience further impairment losses.
The Company estimates the fair value of its mortgage servicing rights based upon
assumptions that market participants would use. Typically, those assumptions are
derived from similar transactions which occur in the marketplace. Continued
industry consolidation and other factors have led to a substantial decline in
relevant market transactions for certain residential mortgage products,
particularly since April 2001. In order to improve the Company's estimation
process for assessing the fair value of certain of its mortgage servicing
rights, during the second quarter, the Company increased its reliance on its own
mortgage servicing rights cash flow history for certain assumptions and
continues to use market driven earning rates, discounting factors and prepayment
models.
In the third quarter, GMACR announced that its wholly-owned subsidiary, GMAC
Bank, a federal savings bank, received its charter from the Office of Thrift
Supervision. GMAC Bank offers a variety of banking and personal financial
services products. Along with deposit offerings, GMAC Bank originates and
purchases mortgage loans, as well as home equity loans and lines of credit. At
December 31, 2001, GMAC Bank maintained total assets of $1.0 billion. As of the
date of this filing, GMAC Bank has met all regulatory capital requirements.
In the third quarter, GMACCH provided a $563 million first mortgage loan secured
by a leasehold interest in four properties in the World Trade Center complex
(the Twin Towers and Four and Five World Trade Center). The mortgage loan was
securitized and $483 million of the bonds were sold to investors. GMACCH
retained $80 million of the subordinate bonds. The insurance, as required in
connection with GMAC's financing, does not exclude coverage for acts of
terrorism. The insurance is from a consortium of 22 large and well-rated
insurers. Although current litigation is outstanding regarding the use of those
insurance proceeds by the property owners, GMACCH expects to fully recover its
$80 million investment in subordinate bonds associated with the World Trade
Center.
BORROWING COSTS
The Company's worldwide cost of borrowing, including the effects of derivatives,
averaged 5.59% for 2001, compared to 6.52% and 5.67% for 2000 and 1999,
respectively. Total borrowing costs for U.S. operations averaged 5.51% for 2001,
compared to 6.64% and 5.66% for 2000 and 1999, respectively. The decrease in
average borrowing costs was mainly a result of a continued reduction in
short-term market rates during the year that was somewhat offset by wider
borrowing spreads and increased use of term funding.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
OTHER INCOME
Other income, including gains and fees related to sold finance receivables,
totaled $3,014.1 million for 2001, compared to $2,376.7 million and $1,663.9
million during the comparable 2000 and 1999 periods, respectively. The increase
in 2001 over 2000 was primarily a result of increased income from increased
securitization levels of retail and wholesale receivables. Additionally,
interest income increased due to the increase in cash and cash equivalents in
2001. The increase in 2000 over 1999 was mainly attributable to increases in
interest and servicing fees earned on receivables due from GM, along with
increases in GMAC Commercial Credit LLC's factoring commissions and other
servicing fees. GMAC Commercial Credit LLC was acquired in July 1999, resulting
in only six months of income in 1999. Additionally, other income related to
sales of receivables in 2000 increased mainly due to the increase in service
fees received, due to higher outstandings of secured notes and an increase in
other income due to increased securitization activity.
CONSOLIDATED EXPENSES
Consolidated interest and discount expense totaled $7,599.3 million, $8,294.7
million and $6,526.2 million in 2001, 2000 and 1999, respectively. The decrease
in 2001 over 2000 was a result of decreased borrowing costs due to lower market
interest rates, which was partially offset by higher debt levels. The increase
in 2000 over 1999 was due to increased borrowing costs in addition to higher
debt levels which were principally used to fund increased asset levels.
Consolidated salaries and benefits increased in 2001 to $1,973.4 million from
$1,865.9 million and $1,591.9 million in 2000 and 1999, respectively. The
increase was primarily related to acquisitions and significant growth at GMACCH
and RFC, along with higher employee benefit costs.
Consolidated amortization of intangibles totaled $1,185.9 million, $660.7
million and $516.9 million in 2001, 2000 and 1999, respectively. The increases
since 1999 were primarily attributable to an increase in the amortization and
impairment of mortgage servicing rights. Amortization of mortgage servicing
rights increased due to the growth in the servicing portfolio from $336.2
billion in 2000 to $405.1 billion at year-end 2001 and the corresponding
increase in mortgage servicing rights balance from $4.0 billion at year-end 2000
to $4.8 billion at year-end 2001. Further, declining interest rates throughout
most of 2001 contributed to higher loan prepayment levels, which created higher
levels of servicing asset impairment.
Consolidated other operating expenses totaled $3,976.3 million, $3,072.5 million
and $2,410.1 million in 2001, 2000 and 1999, respectively. The increase in 2001
was primarily related to continued growth and acquisitions as well as hedge
ineffectiveness at GMACMG. The increases in 2000 over 1999 primarily reflected
continued growth and acquisitions at GMACMG. Subsequent to December 31, 2001,
mortgage prepayment activity continues at a pace similar to 2001, resulting in
net hedge ineffectiveness of $11.4 million after-tax through January 31, 2002.
INCOME TAXES
Consolidated United States, foreign and other income taxes totaled $1,047.1
million, $954.3 million and $960.2 million for 2001, 2000 and 1999,
respectively. The effective income tax rate for 2001 was 37.4%, compared to
37.3% in 2000 and 38.6% in 1999. The decline from 1999 can be attributed to
decreases in accruals from prior years based upon periodic assessment of the
adequacy of such accruals primarily for tax liabilities of non-U.S. operations.
CONSOLIDATED ASSETS
At the end of 2001, the Company owned assets and serviced automotive receivables
totaling $220.1 billion, an increase of $34.4 billion over year-end 2000. Total
consolidated assets of the Company at December 31, 2001 were $192.7 billion,
$24.2 billion above the previous year. The year-to-year increases were primarily
the result of increases in serviced retail receivables, cash and cash
equivalents, mortgages held for sale, other assets, mortgage lending
receivables, mortgage loans held for investment, due and deferred from
receivable sales and mortgage servicing rights. These increases were partially
offset by decreases in serviced wholesale receivables, operating lease assets,
receivables due from GM and factored receivables.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
CONSOLIDATED ASSETS (continued)
Consolidated automotive and commercial finance receivables serviced by the
Company, including sold receivables, amounted to $130.6 billion and $112.5
billion at December 31, 2001 and 2000, respectively. The year-to-year increase
was primarily a result of a $24.3 billion increase in serviced retail
receivables, which was partially offset by a $5.3 billion decrease in serviced
wholesale receivables. Continued increased GM-sponsored retail financing
incentives contributed to the rise in serviced retail receivables. The decrease
in serviced wholesale receivables was due to lower dealer inventory levels.
Principal balances of active trusts of sold wholesale receivables (including
retained subordinated interests) increased $6.2 billion, due to the completion
of three sales in 2001. Additionally, outstanding principal balances of sold
retail automotive receivables (including retained subordinated interests)
increased by $3.5 billion due to the completion of five sales during 2001.
Cash and cash equivalents totaled $10.1 billion at December 31, 2001, compared
with $1.1 billion held at December 31, 2000. The increase was primarily due to
increased term funding activity during the period.
Mortgage loans held for sale totaled $10.2 billion at December 31, 2001,
compared to $5.8 billion at December 31, 2000. The low interest rate environment
throughout 2001 contributed to increases in loan acquisitions, loan
originations, financings and an overall increase in mortgage loan inventory.
Other assets totaled $15.7 billion and $12.0 billion at December 31, 2001 and
2000, respectively. Of the $3.7 billion increase, $1.7 billion was attributable
to the adoption of SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, which requires GMAC to reflect the fair market value of its
derivatives on the balance sheet. Other mortgage-related assets increased $1.4
billion from December 31, 2000 to December 31, 2001, reflecting increased loan
participations, counterparty collateral arrangements and broker/dealer
receivables resulting from increased business levels in 2001.
Mortgage lending receivables amounted to $4.5 billion at December 31, 2001,
compared to $3.0 billion at December 31, 2000. The increase relates to GMACR's
acquisition of the warehouse lending operations of GE Capital Mortgage Services,
Inc., and RFC's increased business growth in construction, warehouse and other
lending receivables throughout 2001.
Mortgage loans held for investment totaled $3.4 billion and $1.9 billion at
December 31, 2001 and 2000, respectively. The declining interest rate
environment throughout most of 2001 was conducive to loan origination, loan
refinancing and loan acquisitions. Further, in 2001, approximately $1.7 billion
of subprime adjustable rate mortgage loans were transferred from mortgage loans
held for sale to mortgage loans held for investment. Approximately, $1.2 billion
of these loans were securitized and accounted for as a collateralized borrowing
arrangement.
The Company's due and deferred from finance receivable sales (net) totaled $2.3
billion at December 31, 2001, compared to $1.2 billion at December 31, 2000. The
increase over year-end was mainly due to an increase in interest-only strips and
cash deposits held for trusts due to increased securitization of wholesale and
retail receivables.
Mortgage servicing rights amounted to $4.8 billion and $4.0 billion at December
31, 2001 and 2000, respectively. The increase was primarily attributed to
increases in loan originations and acquisitions resulting from declining
interest rates partially offset by impairment charges reflecting higher levels
of mortgage prepayments. The net increase in mortgage servicing rights during
2001 also reflected the adoption of SFAS No. 133 on January 1, 2001, which
included the reclassification of derivative financial instruments used to hedge
the change in fair value in mortgage servicing rights from Mortgage servicing
rights to Other assets.
Investment in operating leases, net, acquired principally under the GMAC
SmartLease program, totaled $25.2 billion at December 31, 2001, a decrease of
$4.1 billion from December 31, 2000. The decrease was primarily attributable to
a decrease in volume caused by a shift from lease incentive programs to special
rate retail finance programs sponsored by GM.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
CONSOLIDATED ASSETS (concluded)
Notes receivable from GM amounted to $4.2 billion and $5.4 billion at December
31, 2001 and 2000, respectively. The decline was attributable to a $0.7 billion
decrease in a $2.0 billion revolving line of credit that GM has available with
GMAC. Additionally, there was a decline in the outstanding loans from GMAC of
Canada, Limited, a wholly-owned subsidiary, to GM of Canada ("GMCL"), a
wholly-owned subsidiary of GM. The loans are used to fund GMCL's vehicle leasing
program.
Factored receivables totaled $1.4 billion and $2.3 billion at December 31, 2001
and 2000, respectively. This decrease relates to both a decline in sales from
existing clients and in the factoring client base during the course of 2001.
Net unrealized losses on derivatives at December 31, 2001, totaled $170.7
million (including a $52.6 million transition adjustment) due to the adoption of
SFAS No. 133 by the Company on January 1, 2001. This amount represents the
effective portion of changes in the fair value of the Company's derivatives that
are designated as cash flow hedges as well as unrealized losses on terminated
cash flow hedges.
LIQUIDITY
The Company's liquidity, as well as its ability to profit from ongoing
acquisition activity, is in large part dependent upon its timely access to
capital and the costs associated with raising funds in different segments of the
capital markets. In this regard, GMAC regularly accesses the short-term,
medium-term and long-term debt and asset backed securitization markets,
principally through commercial paper, notes and underwritten transactions.
Debt and Credit Facilities
As of December 31, 2001, GMAC's total borrowings were $152.0 billion compared
with $133.4 billion at December 31, 2000. Approximately 84% of this debt
represented funding for operations in the United States, and the remaining 16%
represented borrowings for operations in Canada (7%), United Kingdom (3%),
Germany (2%) and other countries (4%). The 2001 year-end ratio of consolidated
debt to total stockholder's equity was 9.4:1 compared to 9.5:1 for year-end
2000. The higher year-to-year debt balances were principally used to fund
increased asset levels. Total short-term debt outstanding at December 31, 2001,
amounted to $36.2 billion compared with $56.9 billion at year-end 2000.
Intermediate and long-term funding is provided through the issuance of
underwritten debt and medium-term notes, which are offered by prospectus,
offering circular or private placement worldwide on a continuous basis. GMAC
sells medium-term notes worldwide through dealer agents in book-entry form for
any maturity ranging from nine months to thirty years. Issuance of medium-term
notes for U.S. operations totaled $25.6 billion in 2001 compared to $10.2
billion in 2000. Outstanding medium-term notes for U.S. operations totaled $48.3
billion at December 31, 2001, an increase of $16.7 billion from the prior-year
period. During 2001, underwritten debt issues totaling $25.8 billion were
completed for use in the U.S., compared with $7.3 billion in 2000. Underwritten
debt issues outstanding in the U.S. at December 31, 2001, totaled $49.8 billion,
an increase of $19.2 billion from year-end 2000. As of December 31, 2001, the
Company had unissued debt securities available under effective shelf
registrations with the U.S. Securities and Exchange Commission totaling $50.1
billion.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY (continued)
Debt and Credit Facilities (concluded)
The Company and its subsidiaries maintain substantial bank lines of credit,
which totaled $48.8 billion at December 31, 2001, compared to $48.1 billion at
year-end 2000. The unused portion of these credit lines increased by $0.5
billion from December 31, 2000 to $38.9 billion at December 31, 2001. Included
in the unused credit lines at December 31, 2001, is a $14.7 billion syndicated
multi-currency global credit facility available for use in the U.S. by GMAC and
in Europe by GMAC International Finance B.V. and GMAC (UK) plc. The entire $14.7
billion is available to GMAC in the U.S., $1.0 billion is available to GMAC (UK)
plc and $0.9 billion is available to GMAC International Finance B.V. The
syndicated credit facility serves primarily as back-up for the Company's
unsecured commercial paper programs. Also included in the unused credit lines is
a $12.3 billion U.S. asset-backed commercial paper liquidity and receivables
facility for New Center Asset Trust ("NCAT"), a non-consolidated limited purpose
business trust established to issue asset-backed commercial paper. (Refer to
Off-balance Sheet Activities section of the Management's Discussion and Analysis
of Financial Condition and Results of Operations.)
In June 2001, GMAC renewed the syndicated multi-currency global facility, which
includes terms of five years on one-half of the facility (due to expire in June
2006) and a 364-day term with a one year term-out option. It was modified to
permit the Company, at its discretion, to transfer up to approximately $6
billion of the banks' commitments to the liquidity and receivables facility for
NCAT. Such transfer provisions have not been utilized. Additionally, there is a
leverage covenant restricting the ratio of consolidated debt to total
stockholder's equity to no greater than 11.0:1 under certain conditions. This
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 as
the Company has senior unsecured long-term debt outstanding, without third-party
enhancement, which is rated BBB+ or less by Standard & Poor's Ratings Services,
a division of McGraw-Hill Companies, Inc. ("S&P") or Baa1 or less by Moody's
Investors Service, Inc. ("Moody's"). As a result of the Company's rating
downgrade by S&P in October 2001, those conditions became effective and the
Company is in compliance with the covenant. Those conditions were not in effect
on December 31, 2000.
Outside of the United States, funding needs are met primarily by a combination
of short-term and medium-term loans from banks and other financial institutions.
Where it is cost-effective, the Company also issues commercial paper as well as
medium-term and long-term debt in both the euro and local markets to fund
certain non-U.S. operations.
Credit facilities supporting operations of the Company's international
subsidiaries totaled $16.5 billion at December 31, 2001, of which $9.6 billion
were unused. As of December 31, 2001, the committed and uncommitted portion of
such credit facilities totaled $3.8 billion and $12.7 billion, respectively.
Inclusive of the $1.9 billion of the syndicated multi-currency global credit
facility, credit facilities supporting operations of the Company's international
subsidiaries totaled $18.4 billion at December 31, 2001, of which $11.5 billion
were unused. As of December 31, 2001, the committed and uncommitted portion of
such credit facilities totaled $5.7 billion and $12.7 billion, respectively.
Off-balance Sheet Activities
Automotive
The Company securitizes and transfers financial assets, using financial asset
securitization procedures, as an alternative funding source to borrowing.
Securitization of assets allows the Company to diversify funding sources in an
attempt to lower its overall cost of funds. Termination of the activities of the
entities described below would reduce the number of funding resources currently
available to the Company for funding its automotive finance activities. Any such
reduction of funding sources would create a risk of increasing the Company's
cost of funds and reducing its profit margins.
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY (continued)
Off-balance Sheet Activities (continued)
Automotive (continued)
The Company's finance receivables asset securitization program is further
described in Note 3 of the Notes to Consolidated Financial Statements. In the
program, automotive retail and wholesale finance receivables are sold to limited
purpose bankruptcy-remote subsidiaries of the Company. In turn, these
subsidiaries establish separate trusts to which they transfer the receivables in
exchange for the proceeds from asset-backed securities issued by the trust. The
trusts' activities are limited to acquiring the receivables, issuing
asset-backed securities and making payments on the securities. The Company does
not sell non-performing automotive receivables as part of its asset
securitization program.
Due to the nature of the assets held by the trusts and the limited nature of
each trust's activities, they are each classified as a qualifying special
purpose entity ("QSPE") under SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. In accordance
with SFAS No. 140, assets and liabilities of the QSPEs are not consolidated in
the Company's Consolidated Financial Statements.
The Company agrees to service the receivables transferred to the QSPEs for a fee
and earns other related ongoing income customary with the programs and in
accordance with accounting principles generally accepted in the U.S. The Company
also may retain all or a portion of senior and subordinated interests in the
QSPEs; these interests are reported as assets in the Company's Consolidated
Financial Statements. The amount of the fees earned and the levels of retained
interests that the Company maintains are quantified and described in Note 3 of
the Notes to Consolidated Financial Statements. The Company may also enter into
derivative transactions in order to facilitate its securitization activities.
Those transactions are described in Note 17 of the Notes to Consolidated
Financial Statements.
No recourse provisions exist that allow holders of the QSPEs' asset-backed
securities to put those securities back to the Company. Moreover, the Company
does not guarantee any securities issued by the QSPEs. The Company's exposure
related to these QSPEs is limited to cash deposits held for the benefit of the
QSPEs' investors and retained interests in the QSPEs, all of which are reported
in the Company's Consolidated Financial Statements. The QSPEs have a limited
life and generally terminate upon final distribution of amounts owed to
investors or upon exercise by GMAC, as servicer, when the servicing of the sold
contracts becomes burdensome. In addition, the QSPEs do not own stock of GMAC or
any of its affiliates.
The Company has also sponsored two special purpose entities ("SPEs") that are
used as sources of additional liquidity. Currently the activities of these SPEs
are not sufficiently limited to meet the QSPE criteria of SFAS No. 140. However,
because each SPE maintains substantive independent third-party equity, these
entities are not consolidated with the Company's Consolidated Financial
Statements. As with the QSPEs described above, all interests in these SPEs that
are retained by the Company and its consolidated subsidiaries are included in
its Consolidated Financial Statements. In addition, the SPEs do not own stock of
GMAC or any of its affiliates.
NCAT is a limited purpose trust that was established for the purpose of
purchasing and holding privately issued asset-backed securities created in
GMAC's asset securitization program as described above. NCAT funds that activity
through the issuance of asset-backed commercial paper and equity certificates.
NCAT acquires the asset-backed securities from the QSPEs established by the
Company's limited purpose bankruptcy-remote subsidiaries. As of December 31,
2001, NCAT had $9.7 billion in asset-backed securities which were supported by
$9.3 billion in commercial paper and $0.4 billion in equity owned by investors
not affiliated with the Company. The Company acts as administrator of NCAT to
provide for the administration of the trust. In this capacity, the Company
earned pre-tax income of $6.4 million, $14.2 million and $14.5 million in
administration fees for the years ended 2001, 2000 and 1999, respectively.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY (continued)
Off-balance Sheet Activities (continued)
Automotive (concluded)
The Company does not guarantee debt issued by NCAT nor are there any recourse
provisions that would permit holders to put NCAT's debt obligations back to the
Company. NCAT maintains a separate revolving credit agreement characterized as a
liquidity and receivables purchase facility to support its issuance of
commercial paper. However, at the Company's discretion, approximately $6.0
billion of the Company's $14.7 billion syndicated multi-currency global credit
facility is available for transfer to the liquidity and receivables purchase
facility for NCAT. In the event of termination of NCAT's liquidity facility, its
commercial paper would be paid with loans from participating banks and proceeds
from its assets would be used to repay the banks. Termination of NCAT, however,
would preclude the Company from continuing its indirect access to NCAT as a
source of funding.
Central Originating Lease Trust ("COLT") is a limited purpose trust that
acquires vehicles and related consumer leases on consumer vehicles from GM
franchised dealers. COLT funds these acquisitions through the issuance of
secured notes, which it sells to the Company, and through the issuance of equity
certificates to unaffiliated investors. The equity certificates are subordinate
to and have substantially different rights than the secured notes. The equity
certificates are perpetual, subject to redemption in accordance with their
terms, and in the legal form of equity. COLT had $8.1 billion in finance lease
assets outstanding as of December 31, 2001, and $282.9 million of equity.
Each secured note issued to the Company by COLT is non-recourse to COLT and is
secured by, among other items, a security interest in the related lease and
leased vehicle. As of December 31, 2001 and 2000, the Company owned $7.1 billion
and $7.5 billion, respectively, of secured notes issued by COLT that were
recorded in its Consolidated Financial Statements as finance receivables. These
secured notes may be retained by the Company or sold under its asset
securitization program. Pre-tax income on these secured notes totaled $449.7
million, $382.7 million and $183.8 million for the years 2001, 2000 and 1999,
respectively. The Company also acts as an originating agent and servicer for
COLT leases. In connection with these services, the Company earned pre-tax
income of $200.9 million, $204.9 million and $144.9 million during 2001, 2000
and 1999, respectively. The Company also enters into swap agreements with COLT
for which the accounting is described in Note 17 of the Notes to Consolidated
Financial Statements.
Losses with respect to the lease-related assets of COLT are covered by a
termination value insurance agreement. The insurance is underwritten by a
third-party insurer and provides 100 percent loss coverage (subject to a cap) if
there is a deficiency in the expected proceeds from the lease asset at lease
termination. Separately, the Company has entered into an agreement with the
third-party insurer whereby the Company receives a fee for reimbursing the
insurer for a portion of losses paid to COLT, subject to a cap. The Company has
established a reserve (recorded in its Consolidated Financial Statements as
other liabilities) related to its exposure under this reimbursement agreement.
At December 31, 2001 and 2000, the Company had reserved $478.8 million and
$349.5 million, respectively, to cover potential claims from the insurer under
the reimbursement agreement.
If it should be terminated, COLT would no longer be available as a source
through which GM franchised dealers would be able to fund sales of retail
automotive leases. COLT would wind down its activities using proceeds of lease
assets and the termination value insurance agreement to repay its secured notes
and to ultimately redeem its equity.
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY (continued)
Off-balance Sheet Activities (continued)
Mortgage
In the normal course of business, GMACMG originates and purchases mortgage
loans, including residential and commercial mortgage loans and related products,
with the intent to earn interest income, origination fees and servicing income.
The majority of mortgage loans originated and purchased are considered held for
sale, and are usually sold to third party investors directly or through a
variety of SPEs (including QSPEs), and other structured facilities in order to
achieve more efficient execution and provide funds for the continued origination
and purchase of loans. Conforming residential mortgages are generally sold
through sponsored mortgage backed securities programs of investors such as the
Federal National Mortgage Association (Fannie Mae), the Federal Home Loan
Mortgage Corporation (Freddie Mac) or the Government National Mortgage
Association (Ginnie Mae). Nonconforming residential, commercial mortgage, home
equity loans and other asset classes are generally sold through whole loan
transactions to third parties or through securitization vehicles such as SPEs
where beneficial interests in underlying pools of loans are sold to third party
investors. These SPEs are also known as off-balance sheet facilities. GMACMG
does not provide any loans or guarantees to the SPEs.
Rated Term Securitizations
- --------------------------
GMACMG's mortgage loan securitization program is further described in Note 13 of
the Notes to Consolidated Financial Statements. Under GMACMG's term
securitization program, mortgage loans are sold to limited purpose
bankruptcy-remote subsidiaries of GMACMG. In turn, these subsidiaries establish
separate trusts to which they transfer the mortgage loans in exchange for the
proceeds from the sale of mortgage and/or asset-backed securities issued by the
trust. The trusts' activities are generally limited to acquiring the mortgage
loans, issuing mortgage and/or asset-backed securities and making payments on
the securities. Due to the nature of the assets held by the trusts and the
limited nature of each trust's activities, they are each classified as QSPEs
under SFAS No. 140. In accordance with SFAS No. 140, assets and liabilities of
the QSPEs are not consolidated in the Company's Consolidated Financial
Statements. Mortgage loans totaling $89.6 billion were outstanding in these
facilities at December 31, 2001.
GMACMG agrees to service the mortgage loans transferred to the QSPEs for a fee
and may earn other related ongoing income. GMACMG also may retain all or a
portion of senior and subordinated interests in the QSPEs, and these interests
are reported as assets in the Company's Consolidated Financial Statements. The
amount of the fees earned and the levels of retained interests that the Company
maintains are quantified and described in Note 13 of the Notes to Consolidated
Financial Statements. GMACMG may also enter into derivative transactions in
order to facilitate its securitization activities. Those transactions are also
described in Note 13 of the Notes to Consolidated Financial Statements.
GMACMG's securitization program also includes the securitization of mortgage
securities, unsecured notes receivable, and mortgage loans using SPEs that issue
collateralized debt obligations ("CDOs"). In these transactions, GMACMG and
other unaffiliated parties each contributed a portion of the total collateral
underlying the CDO investments. GMACMG holds subordinated interests, including
partial first loss positions in CDO investments, and also acts as collateral
manager for the SPEs. These interests are reflected in Note 5 of the Notes to
Consolidated Financial Statements but the assets and liabilities of these SPEs
are not consolidated in the Company's Consolidated Financial Statements. The
face amount of collateral outstanding in these deals was $1.2 billion at
December 31, 2001.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY (continued)
Off-balance Sheet Activities (continued)
Mortgage (continued)
Off-balance Sheet Warehouse Funding
- -----------------------------------
GMACMG uses several off-balance sheet warehouse funding vehicles to accumulate
and aggregate both residential and commercial mortgage loans or senior
beneficial interests in mortgage loans pending permanent sale or securitization.
Net assets in these facilities totaled $9.2 billion at December 31, 2001.
Funding for the assets is provided through the issuance of commercial paper by a
GMACMG (see below) or bank-sponsored SPE, by a QSPE or by third-party financing.
A number of the facilities ($6.1 billion outstanding at December 31, 2001)
provide committed funding for the term of the facility agreement. Under the
remaining facilities ($3.1 billion outstanding at December 31, 2001), funding is
at the discretion of the sponsoring bank or third party. In connection with
certain of these funding facilities ($4.7 billion outstanding at December 31,
2001), GMACMG enters into derivative contracts to retain or hedge interest rate
and/or credit risk associated with certain assets in the facilities. These
derivatives are marked to market in the Company's Consolidated Financial
Statements, with unrealized holding gains and losses recorded in the
Consolidated Statement of Income. Failure of the committed facility providers to
renew their commitments, or of the uncommitted facility providers to continue
accepting loans, would require GMACMG to find alternative financing sources for
these assets.
One of the committed warehouse funding facilities is a GMACMG sponsored SPE
whose activities are not sufficiently limited to meet the QSPE criteria of SFAS
No.140. The SPE funds the purchase of mortgage loans from GMACMG through the
issuance of asset-backed commercial paper and through substantive independent
third-party equity and with no supporting loans or guarantees from GMACMG. As a
result, the SPE is not included in the Company's Consolidated Financial
Statements. As of December 31, 2001, mortgage loans totaling $1.9 billion were
held by this entity.
Other Off-balance Sheet Funding
- -------------------------------
GMACMG also uses off-balance sheet QSPEs and third-party facilities to finance
mortgage-related products, primarily defaulted government insured or guaranteed
mortgage loans and warehouse and construction lending receivables. Net assets in
these facilities totaled $5.9 billion at December 31, 2001. Funding for the
assets is provided by either a bank-sponsored commercial paper conduit or by
third party financing. Nearly all of these facilities ($5.8 billion outstanding
at December 31, 2001) are committed for the term of the agreement, with the
balance at the discretion of the third party. Failure of the committed facility
providers to renew their commitments, or of the uncommitted facility providers
to continue accepting loans, would require GMACMG to find alternative financing
sources for these assets. The assets and liabilities of these facilities are not
consolidated in the Company's Consolidated Financial Statements.
Liquidity and Related Risks
- ---------------------------
Liquidity support for the bank-sponsored asset-backed commercial paper conduits
is provided by the banks. GMACMG does not guarantee debt issued by the conduits,
nor guarantee the liquidity support, nor are there any recourse provisions that
would permit holders to put the conduit's debt obligations back to GMACMG. In
the event that liquidity banks fail to renew their commitment and GMACMG is
unable to find replacement liquidity support or alternative financing, the
outstanding commercial paper would be paid with loans from participating banks,
and proceeds from the underlying assets would be used to repay the banks.
Included in the derivative contracts previously discussed are put options held
by third party banks covering $1.1 billion in loans at December 31, 2001. In the
event of a concurrent exercise of these puts by the holders, GMACMG would need
to obtain additional financing from its parent or elsewhere to satisfy its
obligations.
Certain of the facilities contain provisions which permit or require GMACMG to
purchase assets from the SPEs upon the occurrence of specific events caused by
third parties. When these events occur, GMACMG is required to record the assets
subject to these provisions in its Consolidated Financial Statements.
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY (continued)
Off-balance Sheet Activities (concluded)
Mortgage (concluded)
Retained Interests
- -------------------
GMACMG often retains residual or subordinated interests (including investment
securities, mortgage servicing rights, cash deposit and spread accounts and
subordinate loan participations) in connection with the off-balance sheet
activities. Subordinate interests typically provide support to the more highly
rated senior certificates in a securitization transaction, and may be subject to
all or partial first loss position related to the collateral sold. All interests
in the QSPEs and the off-balance sheet SPEs described above that are retained by
GMACMG are included in the Company's Consolidated Financial Statements.
Debt Ratings
GMAC's ability to access the capital markets for unsecured debt is linked to
both its term debt and commercial paper ratings. This is particularly true with
respect to the Company's commercial paper ratings. These ratings are intended to
provide guidance to investors in determining the credit risk associated with
particular securities based on current information obtained by the rating
organizations from the Company or other sources that such organizations consider
to be reliable. Lower ratings generally result in higher borrowing costs as well
as reduced access to capital markets. A security rating is not a recommendation
to buy, sell or hold securities and is subject to revision or withdrawal at any
time by the assigning rating organization. Each rating should be evaluated
independently of any other rating.
Substantially all of the Company's short-term, medium-term and long-term debt
has been rated by three nationally recognized statistical rating organizations.
As of March 11, 2002, all of the ratings assigned were within the investment
grade category.
Senior Commercial
Rating Agency Debt Paper
- ------------- ---------- -------------
Fitch, Inc. A- F-2
Moody's Investors Service, Inc. A2 Prime-1
Standard & Poor's Ratings Services BBB+ A-2
Fitch, Inc. ("Fitch") has assigned ratings of A- and F-2 to the Company's senior
debt and commercial paper, respectively. The A- rating is assigned by Fitch to
bonds considered to be very good credit quality with the obligor's ability to
pay interest and repay principal considered to be very good. The F-2 rating is
assigned to short-term issues which possess a good credit quality based
primarily on the existence of liquidity necessary to meet the obligations in a
timely manner. In October 2001, Fitch downgraded the senior debt rating from A
to A- and downgraded the commercial paper rating to F-2. The rating watch
negative was removed and the rating outlook was revised to negative.
Moody's has assigned a rating of A2 to the Company's senior debt, indicating
favorable investment attributes and strong ability to repay principal plus
interest. The Company's commercial paper has received a rating of Prime-1 from
Moody's, reflecting superior ability for repayment of senior short-term debt
obligations and assured ability to access alternative sources of liquidity.
Additional repayment characteristics of commercial paper issues receiving this
premium rating include leading market position in a well-established industry,
high rates of return on funds employed and broad margins in earnings coverage of
fixed financial charges. In October 2001, Moody's, while affirming its ratings
on GMAC, revised its outlook on the rating from stable to negative.
S&P has assigned a rating of BBB+ to the Company's senior debt. The BBB+ rating
is assigned to bonds considered to have adequate capacity to pay interest and
repay principal. The Company's commercial paper has received a rating of A-2,
indicating an adequate capacity for timely payment. In October 2001, S&P
downgraded the senior debt and commercial paper ratings from A and A-1,
respectively. All ratings were removed from credit watch and the rating outlook
is now stable.
As of March 11, 2002, GMAC is not under review by any of the above rating
agencies.
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY (concluded)
Derivative Financial Instruments
In managing the interest rate and foreign exchange exposures of a multinational
finance entity, the Company and its subsidiaries utilize a variety of interest
rate and currency derivative financial instruments. As an end-user of such
instruments, GMAC is in a better position to expand its investor base and to
minimize its funding costs, enhancing its ability to offer attractive,
competitive financing rates to its customers. The portfolio consists primarily
of interest rate swaps, futures and options; currency swaps and forwards which
are matched to offset a companion asset or funding obligation; and hedges
related to mortgage operations.
These instruments involve, to varying degrees, elements of credit risk in the
event a counterparty should default, and market risk, as the instruments are
subject to rate and price fluctuations. Credit risk is managed through the
periodic monitoring and approval of financially sound counterparties and
limiting the potential exposure to individual counterparties to predetermined
notional and exposure limits. Market risk is inherently limited by the fact that
the Company holds offsetting asset or liability positions. Market risk is also
managed on an ongoing basis by determining and monitoring the fair value of each
transaction in the portfolio. GMAC employs a variety of internal swap and option
models, using mid-market rates, to calculate mark-to-market values of its
derivative positions and also obtains valuations from its counterparties for
reporting purposes.
CASH FLOWS
Cash provided by operating activities during 2001 totaled $4.7 billion, a
decrease from the $10.1 billion during the comparable 2000 period and a decrease
from the $10.2 billion provided during the comparable 1999 period. The decrease
in operating cash flow from 2000 was primarily the result of an increase in
originations/purchases of mortgage loans held for sale that was partially offset
by an increase in proceeds on sale of mortgage loans. The slight decrease in
2000 over 1999 was primarily the result of a decrease in net proceeds on sale of
mortgage loans, mainly offset by an increase in other liabilities and
depreciation and amortization.
Cash used for investing activities during 2001 totaled $14.9 billion, compared
with $24.5 billion and $21.4 billion during the same periods in 2000 and 1999,
respectively. The decrease in 2001 from 2000 was primarily the result of a
decrease in net acquisitions of operating lease assets which was offset by an
increase in proceeds from sales of wholesale and retail receivables. These were
partially offset by increases in net acquisitions of finance receivables. The
increase in 2000 from 1999 was primarily the result of net increases in
acquisitions of finance receivables, along with an increase in other investing
activities, which was primarily driven by an increase in mortgage lending
receivables. These increases were mainly offset by increased proceeds from sales
of wholesale receivables.
Cash provided by financing activities during 2001 totaled $19.2 billion,
compared with $14.9 billion and $11.3 billion during 2000 and 1999,
respectively. The increase in 2001 from 2000 was primarily the result of
increases in net proceeds from debt issuances. The increase in 2000 from 1999
was primarily the result of an increase in short-term debt and capital
contributions from GM, mainly offset by a net decrease in long-term debt and
dividends paid to GM.
EURO CONVERSION
On January 1, 1999, eleven of fifteen member countries of the European Monetary
Union established fixed conversion rates between their existing currencies and
adopted the euro as their new common currency. Additionally, on December 31,
2000, Greece also established a fixed conversion rate between the drachma and
the euro. The euro trades on currency exchanges and the legacy currencies
remained legal tender in the participating countries for a transition period
that ended January 1, 2002. Beginning on January 1, 2002, euro denominated bills
and coins were issued and legacy currencies are being withdrawn from
circulation.
The Company established and implemented plans to assess and address the
potential impact to GMAC that may result from the euro conversion. The Company's
euro conversion did not have a material adverse impact on its financial
condition or results of operations.
Certain aspects of the operations impacted by the conversion have already been
converted to the euro.
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, Business Combinations, which requires that the purchase method of
accounting be used for all business combinations completed after June 30, 2001.
SFAS No. 141 specifies that certain acquired intangible assets in a business
combination be recognized as assets separately from goodwill. Additionally, it
requires the Company to evaluate its existing intangible assets and goodwill and
to make any necessary reclassifications in order to conform with the new
separation requirements at the date of adoption. Goodwill and intangible assets
determined to have indefinite useful lives that were acquired in a business
combination completed after June 30, 2001, were not amortized.
Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001, were amortized until December 31, 2001. The Company adopted
the provisions of SFAS No. 141 on January 1, 2002, with the exception of the
requirement to use the purchase method of accounting for business combinations
completed after June 30, 2001, which was adopted on July 1, 2001. The adoption
of SFAS No. 141 did not have a material impact on the Company's financial
condition or results of operations.
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 requires that goodwill no longer be amortized but instead
be tested for impairment at least annually, and that intangible assets other
than goodwill should be amortized over their useful lives. In connection with
the transitional impairment evaluation, SFAS No. 142 requires the Company to
perform an assessment of whether there is an indication that goodwill is
impaired as of January 1, 2002. SFAS No. 142 provides for a six-month period
from the date of adoption for the Company to complete its assessment of goodwill
impairment. Management estimates that goodwill amortization required under
previous accounting standards of approximately $95.0 million after-tax will not
be charged to the income statement in 2002.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statements supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. The statement retains the previously existing accounting
requirements related to the recognition and measurement of the impairment of
long-lived assets to be held and used while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. It also expands on the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has been disposed of or is classified as held for sale. The Company
is required to implement SFAS No. 144 on January 1, 2002. Management does not
expect this statement to have a material impact on the Company's financial
position or results of operations.
The FASB is currently deliberating the issuance of an interpretation of SFAS No.
94, Consolidation of All Majority-Owned Subsidiaries, to provide additional
guidance to assist companies in identifying and accounting for special purpose
entities, including when SPEs should be consolidated by the investor. The
interpretation would introduce a concept that consolidation would be required by
the primary beneficiary of the activities of a special purpose entity unless the
SPE can meet certain substantive independent economic substance criteria. It is
not possible to determine at this time what conclusions will be included in the
final interpretation; however, the result could impact the accounting treatment
of these entities.
The FASB is currently deliberating the issuance of a proposed statement that
would amend SFAS No. 133, subject to decisions to be made at the March 13, 2002,
FASB meeting. The proposed statement will address and resolve certain pending
Derivatives Implementation Group ("DIG") issues. The outcome of the pending DIG
issues and other provisions of the statement could impact the Company's
accounting for beneficial interests, loan commitments and other transactions
deemed to be derivatives under the new statement. The Company's accounting for
such transactions is currently based on management's best interpretation of the
accounting literature as of March 11, 2002.
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (concluded)
FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations contains various forward-looking statements within the
meaning of applicable federal securities laws and are based upon GMAC's 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GMAC is exposed to market risk from changes in interest rates, foreign currency
exchange rates and certain equity security prices. In order to manage the risk
arising from these exposures, GMAC enters into a variety of foreign currency and
interest rate contracts and options.
A discussion of GMAC's accounting policies for derivative instruments is
included in Note 1 in the Notes to Consolidated Financial Statements and further
disclosure is provided in Notes 8, 13, 14 and 17 in the Notes to Consolidated
Financial Statements.
GMAC maintains risk management control systems to monitor interest rate, foreign
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. The following
analyses are based on sensitivity analysis tests that assume instantaneous,
parallel shifts in exchange rates, interest rate yield curves and equity prices.
For options and instruments with non-linear returns, models appropriate to the
instrument are utilized to determine the impact of sensitivity shifts.
Interest Rate Risk
- ------------------
GMAC is subject to market risk from exposure to changes in interest rates based
on its financing, investing and cash management activities. GMAC enters into
various financial instrument transactions to maintain the desired level of
exposure to the risk of interest rate fluctuations and to minimize interest
expense. More specifically, GMAC and its affiliates have entered into contracts
to provide automotive financing, to retain mortgage servicing rights and to
retain various assets related to mortgage securitization. Automotive financing
activities are primarily funded by debt obligations. These debt obligations are
frequently hedged to manage exposure to fluctuations in interest rate risk.
Certain exchange traded future and option contracts and interest rate caps and
floors, along with various other investments, have been entered into to manage
the interest rate risk related to mortgage activities and manage potential
prepayment activity associated with mortgage servicing rights.
GMACMG manages prepayment risk associated with its capitalized mortgage
servicing rights with interest rate caps and floors, futures, options on futures
contracts, interest rate swaps, swaptions and forwards. Since the derivative
instruments do not have identical characteristics to the underlying mortgage
servicing rights, GMAC is exposed to basis risk. GMACMG mitigates this risk
through a historical review of value changes in various interest rate scenarios
when establishing and maintaining its hedge program. GMACMG manages the interest
rate risk associated with its mortgage loans held for sale with U.S. Treasury
derivatives, commitments to sell mortgage loans and mortgage-backed securities.
Additionally, GMACMG uses U.S. Treasury derivatives as well as interest rate
swap agreements to manage the interest rate risk associated with its
mortgage-related securities. To hedge the interest rate risk associated with its
mortgage inventory pipeline, GMACMG uses U.S. Treasury and LIBOR-based
derivatives.
The net fair value liability of all financial instruments held for purposes
other than trading with exposure to interest rate risk was approximately $8.3
billion and $14.7 billion at December 31, 2001 and 2000, respectively. The
potential change in fair value resulting from a hypothetical 10 percent increase
in interest rates would have been a gain of approximately $228.1 million for
2001 and a loss of $655.1 million for 2000. The net fair value asset of all
financial instruments held for trading purposes with exposure to interest rate
risk was approximately $3.6 billion and $3.2 billion at December 31, 2001 and
2000, respectively. The potential loss in fair value resulting from a
hypothetical 10 percent decrease in interest rates would have been approximately
$181.8 million and $216.5 million for 2001 and 2000, respectively.
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)
Interest Rate Risk (concluded)
- ------------------------------
There are certain shortcomings inherent to the sensitivity analyses presented.
The model assumes interest rate changes are instantaneous, parallel shifts in
the yield curve. In reality, changes are rarely instantaneous or parallel.
Although certain assets and liabilities may have similar maturities or periods
to repricing, they may not react correspondingly to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate with changes in market interest rates, while interest rates on other
types of assets may lag behind changes in market rates. Finance receivables are
less susceptible to prepayments when interest rates change, while prepayments on
many mortgage-related instruments are directly affected by a change in interest
rates. As such, GMAC's model does not address prepayment risk for automotive
related finance receivables, but does consider prepayment risk for
mortgage-related instruments that are highly sensitive to prepayment risk.
However, in the event of a change in interest rates, actual loan prepayments may
deviate significantly from assumptions used in the model. Further, certain
assets, such as adjustable rate loans, have features, such as annual and
lifetime caps, that restrict changing the interest rates both on a short-term
basis and over the life of the asset. Finally, the ability of certain borrowers
to make scheduled payments on their adjustable rate loans may decrease in the
event of an interest rate increase.
Foreign Currency Exchange Rate Risk
- -----------------------------------
GMAC is exposed to foreign currency risk arising from the possibility that
fluctuations in foreign exchange rates will impact future earnings or assets and
liability values from normal operations in foreign countries and various
financial instruments that are denominated in foreign currencies. GMAC's most
significant foreign currency exposures relate to the Canadian dollar, euro,
United Kingdom pound sterling and Australian dollar. As of December 31, 2001 and
2000, the net fair value liability of financial instruments held for purposes
other than trading with exposure to foreign currency risk was approximately $2.1
billion and $1.1 billion, respectively. The potential loss in fair value for
such financial instruments from a hypothetical 10 percent increase in quoted
foreign currency exchange rates would have been approximately $210.3 million and
$114.5 million at December 31, 2001 and 2000, respectively. As of December 31,
2001 and 2000, the net fair value asset of all financial instruments held for
trading purposes with exposure to currency risk was approximately $98.7 million
and $79.9 million, respectively. The potential loss in fair value resulting from
a hypothetical 10 percent increase in quoted foreign currency exchange rates
would have been approximately $9.9 million and $8.0 million for 2001 and 2000,
respectively.
The model assumes an instantaneous, parallel shift in the foreign currency
exchange rates. Exchange rates rarely move in the same direction. The assumption
that exchange rates change in an instantaneous or parallel fashion may overstate
the impact of changing exchange rates on assets and liabilities denominated in a
foreign currency.
Equity Price Risk
- -----------------
GMAC holds investments in various available for sale equity securities that are
subject to price risk. The fair value of such investments was approximately $1.3
billion and $1.0 billion at December 31, 2001 and 2000, respectively. The
potential loss in the fair value of these investments, assuming a 10 percent
decrease in underlying equity prices, would have been approximately $129.9
million and $103.5 million at December 31, 2001 and 2000, respectively.
Overall Limitations and Forward-Looking Statements
- --------------------------------------------------
Operating leases are not required to be included in the sensitivity analysis and
as a result, have not been presented as part of this analysis. This limitation
is significant to the analysis presented. While the sensitivity analysis will
show a fair market value change for the debt which funds GMAC's operating lease
portfolio, a corresponding change for GMAC's operating lease portfolio, which
has a book value of $25.2 billion and $29.3 billion at December 31, 2001 and
2000, respectively, was not considered by the model. As a result, the overall
impact to the fair market value of financial instruments from hypothetical
changes in interest and foreign currency exchange rates may be overstated.
30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (concluded)
Overall Limitations and Forward-Looking Statements (concluded)
- --------------------------------------------------------------
The Company has developed the fair value estimates by utilization of available
market information or other appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop
estimates of fair value, so the estimates are not necessarily indicative of the
amounts that could be realized or would be paid in a current market exchange.
The effect of using different market assumptions and/or estimation methodologies
may be material to the estimated fair market value amounts. In addition, the
above discussion and the estimated amounts generated from the sensitivity
analyses referred to above include forward-looking statements of market risk
which assume for analytical purposes that certain adverse market considerations
may occur. Actual future market conditions may differ materially from such
assumptions because the amounts noted previously are the result of analyses used
for the purpose of assessing possible risks and the mitigation thereof.
Accordingly, the forward-looking statements should not be considered projections
by GMAC of future events or losses.
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of General Motors Acceptance
Corporation and subsidiaries were prepared by management, which is responsible
for their integrity and objectivity. The statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America and, as such, include amounts based on judgments of management.
Management is further responsible for maintaining internal control designed to
provide reasonable assurance that the books and records reflect the transactions
of the companies and that established policies and procedures are carefully
followed. Perhaps the most important feature of internal control is that it is
continually reviewed for effectiveness and is augmented by written policies and
guidelines, the careful selection and training of qualified personnel and a
strong program of internal audit.
Deloitte & Touche LLP, an independent auditing firm, is engaged to audit the
consolidated financial statements of General Motors Acceptance Corporation and
subsidiaries and issue reports thereon. The audits are conducted in accordance
with auditing standards generally accepted in the United States of America that
comprehend the consideration of internal control and tests of transactions to
the extent necessary to form an independent opinion on the financial statements
prepared by management. The Independent Auditors' Report appears on the next
page.
The Board of Directors, through the Audit Committee (the "Committee"), is
responsible for ensuring that management fulfills its responsibilities in the
preparation of the consolidated financial statements. The Committee selects the
independent auditors annually. In addition, the Committee reviews the scope of
the audits and the accounting principles being applied in financial reporting.
The independent auditors, representatives of management and the internal
auditors meet regularly (separately and jointly) with the Committee to review
the activities of each, to ensure that each is properly discharging its
responsibilities, and to assess the effectiveness of internal control. It is
management's conclusion that internal control at December 31, 2001, provides
reasonable assurance that the books and records reflect the transactions of the
companies and that established policies and procedures are complied with. To
reinforce complete independence, Deloitte & Touche LLP has full and free access
to meet with the Committee, without management representatives present, to
discuss the results of the audits, the adequacy of internal control and the
quality of the financial reporting.
s\ JOHN D. FINNEGAN s\ WILLIAM F. MUIR
- ------------------------------------- ------------------------------------
John D. Finnegan William F. Muir
President and Chief Executive Officer Executive Vice President and
Principal Financial Officer
32
INDEPENDENT AUDITORS' REPORT
General Motors Acceptance Corporation:
We have audited the accompanying Consolidated Balance Sheet of General Motors
Acceptance Corporation and subsidiaries as of December 31, 2001 and 2000, and
the related Consolidated Statements of Income, Changes in Stockholder's Equity
and Cash Flows for each of the three years in the period ended December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of General Motors
Acceptance Corporation and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
s\ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 16, 2002
33
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEET
December 31,
----------------------------
2001 2000
------------- -------------
(in millions of dollars)
Assets
Cash and cash equivalents $ 10,100.7 $ 1,147.8
Investments in securities (Note 5) 10,587.1 9,485.0
Finance receivables, net (Notes 2 and 3) 100,327.8 93,024.8
Investment in operating leases, net (Note 4) 25,227.6 29,311.1
Notes receivable from General Motors (Note 11) 4,165.1 5,434.0
Real estate mortgages - held for sale 10,186.7 5,758.5
- held for investment 3,383.8 1,895.1
- lending receivables 4,520.7 2,960.0
Factored receivables 1,418.8 2,291.1
Due and deferred from finance receivable sales, net (Note 3) 2,259.8 1,159.3
Mortgage servicing rights, net (Note 13) 4,839.8 3,984.5
Other (Notes 6 and 11) 15,703.0 12,021.0
------------- -------------
Total Assets $192,720.9 $168,472.2
============= =============
Liabilities and Stockholder's Equity
Liabilities
Interest $ 2,380.5 $ 1,765.9
Insurance losses and loss reserves (Note 12) 1,797.2 1,718.7
Unearned insurance premiums 2,577.7 2,151.1
Deferred income taxes (Note 9) 3,882.7 3,574.3
United States and foreign income and other taxes payable (Note 9) 805.4 805.5
Other postretirement benefits (Note 10) 750.1 744.3
Other (Note 11) 12,360.2 10,300.1
Debt (Note 8) 152,033.2 133,372.2
------------- -------------
Total liabilities 176,587.0 154,432.1
------------- -------------
Commitments and contingencies (Notes 4, 14 and 16)
Stockholder's Equity
Common stock, $.10 par value (authorized 10,000 shares, outstanding
10 shares) and paid-in capital 5,641.5 5,127.9
Retained earnings 10,814.4 9,028.5
Accumulated other comprehensive income/(loss):
Net unrealized loss on derivatives (170.7) --
Net unrealized gains on securities (Notes 3 and 5) 226.3 231.7
Unrealized accumulated foreign currency translation adjustment (377.6) (348.0)
------------- -------------
Accumulated other comprehensive income/(loss) (322.0) (116.3)
------------- -------------
Total stockholder's equity 16,133.9 14,040.1
------------- -------------
Total Liabilities and Stockholder's Equity $192,720.9 $168,472.2
============= =============
Certain amounts for 2000 have been reclassified to conform with 2001 classifications.
Reference should be made to the Notes to Consolidated Financial Statements.
34
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
For The Years Ended December 31,
---------------------------------------
2001 2000 1999
----------- ----------- -----------
(in millions of dollars)
Financing Revenue
Retail and lease financing (Note 2) $ 5,343.0 $ 4,773.8 $ 4,303.0
Operating leases (Note 4) 7,369.4 7,906.7 7,429.2
Wholesale, commercial, and other loans (Note 2) 2,371.1 2,812.9 2,045.7
----------- ----------- -----------
Total financing revenue 15,083.5 15,493.4 13,777.9
Interest and discount (Note 8) (7,599.3) (8,294.7) (6,526.2)
Depreciation on operating leases (Note 4) (4,884.6) (5,166.2) (4,891.7)
----------- ----------- -----------
Net financing revenue 2,599.6 2,032.5 2,360.0
Insurance premiums earned (Note 12) 2,044.6 1,883.8 1,793.9
Mortgage revenue (Note 13) 5,333.6 3,907.2 2,982.3
Other income (Notes 3 and 11) 3,014.1 2,376.7 1,663.9
----------- ----------- -----------
Net financing revenue and other 12,991.9 10,200.2 8,800.1
----------- ----------- -----------
Expenses
Salaries and benefits 1,973.4 1,865.9 1,591.9
Amortization of intangibles 1,185.9 660.7 516.9
Other operating expenses 3,976.3 3,072.5 2,410.1
Insurance losses and loss adjustment expenses (Note 12) 1,711.2 1,493.1 1,389.9
Provision for credit losses (Note 2) 1,346.4 551.6 403.8
----------- ----------- -----------
Total expenses 10,193.2 7,643.8 6,312.6
----------- ----------- -----------
Income before income taxes 2,798.7 2,556.4 2,487.5
United States, foreign and other income taxes (Note 9) 1,047.1 954.3 960.2
----------- ----------- -----------
Income before cumulative effect of accounting change 1,751.6 1,602.1 1,527.3
Cumulative effect of accounting change (Notes 1 and 17) 34.3 -- --
----------- ----------- -----------
Net Income $ 1,785.9 $ 1,602.1 $ 1,527.3
=========== =========== ===========
Certain amounts for 1999 and 2000 have been reclassified to conform with 2001 classifications.
Reference should be made to the Notes to Consolidated Financial Statements.
35
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
For the Year Ended December 31, 2001
---------------------------------------------------------------------------
Accumulated Common
Total Other Stock and
Stockholder's Comprehensive Retained Comprehensive Paid-in
(in millions of dollars) Equity Income Earnings Income/(Loss) Capital
----------------------------------------------------------------------------
Beginning balance $ 14,040.1 $ 9,028.5 $ (116.3) $ 5,127.9
Comprehensive income
Net income 1,785.9 $ 1,785.9 1,785.9
Other comprehensive income, net of tax:
Foreign currency translation
adjustments (net of tax of $16.3) (29.6) (29.6)
Net unrealized loss on derivatives (see disclosure) (170.7) (170.7)
Unrealized losses on securities, net of
Reclassification adjustment (see disclosure) (5.4) (5.4)
-----------
Other comprehensive income /(loss) (205.7) (205.7)
-----------
Comprehensive income $ 1,580.2
===========
Common stock and paid-in capital 513.6 513.6
Dividends paid -- --
----------- -------------------------------------------
Ending balance $ 16,133.9 $ 10,814.4 $ (322.0) $ 5,641.5
=========== ===========================================
Disclosure of reclassification amount on derivatives
Unrealized losses on derivatives arising during
period (net of tax of $108.9) * $ (202.3)
Less: reclassification adjustment for losses
included in net income (net of tax of $17.0) 31.6
-----------
Net change in unrealized losses on derivatives $ (170.7)
===========
Disclosure of reclassification amount on securities
Unrealized holding gains arising during
Period (net of tax $26.6) $ 48.9
Less: reclassification adjustment for losses
Included in net income (net of tax of $29.2) (54.3)
-----------
Net change in unrealized losses on securities $ (5.4)
===========
* Includes an after-tax loss of $52.6 million due to
cumulative effect of accounting change. Refer to
Notes 1 and 17.
<page>
For the Year Ended December 31, 2000
---------------------------------------------------------------------------
Accumulated Common
Total Other Stock and
Stockholder's Comprehensive Retained Comprehensive Paid-in
(in millions of dollars) Equity Income Earnings Income/(Loss) Capital
---------------------------------------------------------------------------
Beginning balance $ 11,122.4 $ 8,803.9 $ 118.5 $ 2,200.0
Comprehensive income
Net income 1,602.1 $ 1,602.1 1,602.1
Other comprehensive income, net of tax:
Foreign currency translation
adjustments (net of tax of $57.6) (109.7) (109.7)
Unrealized losses on securities, net of
Reclassification adjustment (see disclosure) (125.1) (125.1)
-----------
Other comprehensive income /(loss) (234.8) (234.8)
-----------
Comprehensive income $ 1,367.3
===========
Common stock and paid-in-capital 2,927.9 2,927.9
Dividends paid (1,377.5) (1,377.5)
----------- -------------------------------------------
Ending balance $ 14,040.1 $ 9,028.5 $ (116.3) $ 5,127.9
=========== ===========================================
Disclosure of reclassification amount
Unrealized holding losses arising during
Period (net of tax of $9.7) $ (18.5)
Less: reclassification adjustment for losses
Included in net income (net of tax of $57.4) (106.6)
-----------
Net change in unrealized losses on securities $ ( 125.1)
===========
36
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (concluded)
For the Year Ended December 31, 1999
-------------------------------------------------------------------------
Accumulated Common
Total Other Stock and
Stockholder's Comprehensive Retained Comprehensive Paid-in
(in millions of dollars) Equity Income Earnings Income/(Loss) Capital
-------------------------------------------------------------------------
Beginning balance $ 9,791.6 $ 7,351.6 $ 240.0 $ 2,200.0
Comprehensive income
Net income 1,527.3 $ 1,527.3 1,527.3
Other comprehensive income, net of tax:
Foreign currency translation
adjustments (net of tax of $36.2) (96.8) (96.8)
Unrealized losses on securities, net of
Reclassification adjustment (see disclosure) (24.7) (24.7)
------------
Other comprehensive income /(loss) (121.5) (121.5)
------------
Comprehensive income $ 1,405.8
============
Dividends paid (75.0) (75.0)
------------ -----------------------------------------
Ending balance $ 11,122.4 $ 8,803.9 $ 118.5 $ 2,200.0
============ =========================================
Disclosure of reclassification amount
Unrealized holding gains arising during
period (net of tax of $46.6) $ 82.7
Less: reclassification adjustment for gains
included in net income (net of tax of $58.2) (107.4)
-------------
Net change in unrealized losses on securities $ ( 24.7)
=============
Certain amounts for 1999 and 2000 have been reclassified to conform with 2001 classifications.
Reference should be made to the Notes to Consolidated Financial Statements.
37
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31,
---------------------------------------------
2001 2000 1999
-------------- ----------- -------------
(in millions of dollars)
Cash Flows From Operating Activities
Net income $ 1,785.9 $ 1,602.1 $ 1,527.3
Cumulative effect of accounting change, net of tax (34.3) -- --
Depreciation and amortization 6,309.4 6,011.1 5,025.4
Provision for credit losses 1,346.4 551.6 403.8
Gains on sales of finance receivables (210.4) (13.0) (64.2)
Gains on sales of available-for-sale investment securities (83.4) (167.6) (165.6)
Mortgage loans held for sale - originations/purchases (103,820.5) (51,202.0) (53,006.3)
- proceeds on sale 99,572.2 51,443.5 55,776.8
Mortgage-related securities held for trading
- acquisitions (1,635.6) (1,570.7) (1,309.2)
- liquidations 858.7 994.1 1,544.5
Changes in the following items:
Due to General Motors and affiliated companies (356.7) 62.6 (687.2)
Taxes payable and deferred income taxes 348.3 531.2 574.0
Interest payable 630.0 227.8 282.7
Other assets (1,898.8) (741.5) 225.3
Other liabilities 1,565.7 2,357.9 (293.3)
Other 334.1 15.9 371.0
-------------- ----------- -------------
Net cash provided by operating activities 4,711.0 10,103.0 10,205.0
-------------- ----------- -------------
Cash Flows From Investing Activities
Finance receivables - acquisitions (236,723.4) (214,665.7) (185,794.7)
- liquidations 131,446.6 143,242.3 129,720.0
Notes receivable from General Motors 1,100.3 (1,495.0) (1,669.6)
Operating leases - acquisitions (12,826.7) (15,174.6) (16,750.1)
- liquidations 12,103.0 10,589.8 10,065.3
Investments in available for sale securities:
- acquisitions (30,372.1) (22,677.9) (20,707.6)
- maturities 24,787.3 19,280.6 17,564.9
- proceeds from sales 5,129.7 3,541.4 2,927.0
Investments in held to maturity securities - acquisitions (153.2) (42.0) (166.7)
- maturities 1.3 -- --
Mortgage servicing rights - acquisitions (2,226.1) (1,095.9) (1,424.3)
- proceeds from sales 20.4 11.7 35.1
Proceeds from sales of receivables - wholesale 88,675.4 54,652.4 43,658.1
- retail 7,353.6 3,716.7 4,520.2
Net change in short-term factored receivables 833.7 81.2 (32.0)
Due and deferred from receivable sales (919.7) (398.8) (312.3)
Acquisitions of subsidiaries, net of cash acquired (541.5) (2,076.6) (2,402.0)
Other (2,625.1) (2,021.1) (624.5)
-------------- ----------- -------------
Net cash used in investing activities (14,936.5) (24,531.5) (21,393.2)
-------------- ----------- -------------
Cash Flows From Financing Activities
Proceeds from issuance of long-term debt 58,497.7 22,414.4 26,471.1
Principal payments on long-term debt (18,881.5) (16,196.3) (13,078.2)
Change in short-term debt, net (20,916.0) 7,588.5 (2,043.7)
Capital contributions from General Motors 500.0 2,448.8 --
Dividends paid -- (1,377.4) (75.0)
-------------- ----------- -------------
Net cash provided by financing activities 19,200.2 14,878.0 11,274.2
-------------- ----------- -------------
Effect of exchange rate changes on cash and cash equivalents (21.8) (6.0) 0.2
-------------- ----------- -------------
Net increase in cash and cash equivalents 8,952.9 443.5 86.2
Cash and cash equivalents at the beginning of the year 1,147.8 704.3 618.1
-------------- ----------- -------------
Cash and cash equivalents at the end of the year $ 10,100.7 $ 1,147.8 $ 704.3
============== =========== =============
Non-Cash Financing Activity
Capital contribution from General Motors (Note 11) $ 13.6 $ 479.1 $ --
Supplementary Cash Flows Information
Interest paid $ 6,783.3 $ 7,960.5 $ 6,122.1
Income taxes paid 693.3 469.5 207.3
38
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (concluded)
Supplementary Cash Flows Information (concluded)
During 2001, 2000 and 1999, assets acquired, liabilities assumed and
consideration paid for the acquisitions of businesses were as follows:
2001 2000 1999
--------- ------------ ------------
Fair value of assets acquired $ 903.4 $ 3,318.3 $ 6,981.4
Cash acquired (16.2) (8.2) (44.8)
Liabilities assumed (345.7) (1,233.5) (4,534.6)
--------- ------------ ------------
Net cash paid for acquisitions $ 541.5 $ 2,076.6 $ 2,402.0
========= ============ ============
Certain amounts for 1999 and 2000 have been reclassified to conform with 2001 classifications.
Reference should be made to the Notes to Consolidated Financial Statements.
39
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
- --------------------
General Motors Acceptance Corporation (the "Company" or "GMAC"), a wholly-owned
subsidiary of General Motors Corporation ("General Motors" or "GM"), was
incorporated in 1997 under Delaware General Corporation Law. On January 1, 1998,
the Company merged with its predecessor, which was originally incorporated in
New York in 1919.
The Company is a financial services organization that principally provides
consumer and dealer vehicle financing. GMAC also provides commercial financing
to the apparel, textile, automotive supplier and numerous other industries. The
principal markets for the Company's automotive financial products and services
are North America, Europe, Latin America and Asia-Pacific. The principal markets
for the commercial financing products are North America and Europe. The Company
conducts insurance operations primarily in the United States, Canada and Europe.
In addition, the Company's mortgage banking subsidiaries operate principally in
North America, Latin America, Japan and Europe.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its domestic and foreign subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation.
Segment Reporting
- -----------------
GMAC's reportable operating segments include GMAC North American Financing
Operations ("GMAC-NAO"), GMAC International Financing Operations ("GMAC-IO"),
Insurance Operations ("GMACI") and Mortgage Operations ("GMACMG"). GMAC-NAO
consists of automotive financing in the United States and Canada as well as the
commercial financing operations and GMAC-IO consists of automotive financing in
all other countries and Puerto Rico. GMAC-NAO and GMAC-IO offer a wide variety
of automotive financial services to and through franchised General Motors
dealers in many countries throughout the world. Additionally, GMAC-NAO and
GMAC-IO offer financial services to other automobile dealerships and to the
customers of those dealerships. GMAC-NAO also offers commercial financing and
factoring services to companies in various industries. The Company operates its
international automotive financing services in a similar manner as in the U.S.,
subject to local laws or other circumstances that may cause it to modify its
procedures accordingly.
The accounting policies of the operating segments are the same as those
described in this summary of significant accounting policies, and also include
those listed in Note 12 (Insurance Operations) and Note 13 (Mortgage Banking).
Revenues are attributed to geographic areas based on the location of the assets
producing the revenues.
Cash Equivalents
- ----------------
Cash equivalents are defined as short-term, highly liquid investments with
original maturities of 90 days or less.
Investments in Securities
- -------------------------
The Company's portfolio of securities includes bonds, equity securities,
mortgage-backed securities, notes, interests in trusts and other investments.
Investments in securities are classified as held to maturity, trading or
available for sale. Held to maturity investments are debt securities that the
Company has the positive intent and ability to hold to maturity. These
investments are carried at amortized cost unless a decline in value is deemed
other than temporary, in which case the carrying value is reduced. The Company
determines cost on the specific identification basis.
40
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments in Securities (concluded)
- -------------------------------------
Securities that are bought and held principally for the purpose of selling them
in the near term are classified as trading securities. Mortgage-backed
securities held for sale in conjunction with mortgage banking activities are
classified as trading securities and are carried at fair value. For
mortgage-related trading securities, unrealized gains and losses are included in
income. The fair value of the mortgage-related trading securities are based on
estimated market value.
Investments in securities not categorized as trading or held to maturity are
classified as available for sale securities and are carried at fair value. For
available for sale investments, the aggregate excess of market value over cost,
net of related income taxes, is included within a separate component of
stockholder's equity. The Company determines cost on the specific identification
basis. The fair value of the investments, except for the interests in trusts,
are based on quoted market prices. The fair value of the interests in trusts are
based on estimated market value.
Revenue Recognition
- -------------------
Financing revenue is recorded over the terms of the receivables using the
interest method. Certain loan origination costs are deferred and amortized to
financing revenue over the life of the related loans using the interest method.
Recognition of non-retail finance revenue is generally suspended when a loan
becomes contractually delinquent for 90 days. Recognition of retail finance
revenue is generally suspended when a loan becomes contractually delinquent for
120 days. Finance revenue recognition is resumed when the loan becomes
contractually current, at which time all past due finance revenue is recognized.
Income from operating lease assets is recognized on a straight-line basis over
the scheduled lease term. Certain operating lease origination costs are deferred
and amortized to financing revenue over the life of the related operating leases
using the straight-line method.
Investments in Operating Leases, Net
- ------------------------------------
The Company has significant investments in the residual values of its leasing
portfolios. The residual values represent an estimate of the values of the
assets at the end of the lease contracts and are initially recorded based on
appraisals and estimates. Realization of the residual values is dependent on the
Company's future ability to market the vehicles under then prevailing market
conditions. Management reviews residual values periodically to determine that
recorded amounts are appropriate and the operating lease assets have not been
impaired.
Allowance for Credit Losses
- ---------------------------
An allowance for credit losses is generally established during the period in
which receivables are acquired and is maintained at a level deemed appropriate
by management based on historical and other factors that affect collectibility.
Such factors include the historical trends of repossession, charge-offs,
recoveries and credit losses; the careful monitoring of portfolio credit
quality, including the impact of acquisitions; and current and projected
economic and market conditions. The evaluation of these factors involves
complex, subjective judgments. Losses arising from the sale of repossessed
collateral are charged to the allowance for credit losses. Where repossession
has not taken place, receivables are charged off as soon as it is determined
that the collateral cannot be repossessed, generally not more than 150 days
after default.
41
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Repossessed Property and Impaired Loans
- ---------------------------------------
Losses arising from the repossession of collateral supporting impaired accounts
and property supporting defaulted operating leases are recognized upon
repossession. Repossessed assets are recorded at the lower of historical cost or
fair value and are reclassified from finance receivables or operating leases to
other assets with the related adjustments to the valuation allowance included in
other operating expenses.
Non-retail finance receivables are reduced to the lower of historical cost or
the estimated fair value of collateral when determined to be impaired. A loan is
considered impaired when it is determined that the Company will be unable to
collect all amounts due according to the original terms of the loan agreement.
The Company's policy is to recognize interest income related to impaired loans
on a cash basis.
Sales of Auto and Mortgage Receivables
- --------------------------------------
The Company sells retail and wholesale receivables through consolidated special
purpose subsidiaries which absorb all losses related to sold receivables to the
extent of their subordinated investments and certain segregated restricted cash
reserves. Appropriate limited recourse loss allowances associated with sold
receivables are transferred from the allowance for credit losses and are
included in other liabilities. The Company continues to service these
receivables for a fee, which is considered to be adequate compensation, and
earns other related ongoing income which is recorded in other income. Normal
servicing fees on sold receivables are recognized over the estimated remaining
life of the sold receivables.
On April 1, 2001, the Company adopted the accounting provisions of Statement of
Financial Accounting Standards ("SFAS") No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, related to
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. The effect of adopting the accounting provisions
of this new statement was not material to the Company's financial statements.
Consistent with the provisions of the statement, prior year financial statements
have not been restated.
Pre-tax gains on sold receivables are recorded in other income. In determining
the gain or loss for each qualifying sale of retail receivables, the investment
in the sold receivable pool is allocated between the portion sold and the
portion retained based on their relative fair values on the date of sale. The
receivables sold are removed from finance receivables and the subordinated
securities retained by the Company are included in investments in securities and
are classified as available for sale.
Interest-only strip receivables resulting from receivables sales are recorded at
estimated fair value. The difference between market value and cost for
interest-only strip receivables is recorded within comprehensive income, net of
related income taxes.
GMACMG generally sells mortgage loans through sponsored mortgage backed
securities programs of investors such as the Federal National Mortgage
Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie
Mac) or the Government National Mortgage Association (Ginnie Mae), or through
whole loan transactions to third parties or through securitization vehicles such
as special purpose entities, with servicing retained. Gains or losses on such
sales are generally recognized at the time of sale based upon the difference
between the sales proceeds and the allocated basis of loans sold, adjusted for
net deferred origination fees and costs, mortgage servicing rights, retained
interests, hedge activities and the cost of issuing securities. Refer to Note 13
(Mortgage Banking) for additional mortgage securitization accounting policies.
Depreciation
- ------------
The Company and its subsidiaries provide for depreciation of vehicles and other
equipment on operating leases or in company use generally on a straight-line
basis over a period of time consistent with the term of the underlying operating
lease agreement or the estimated useful life for property in company use. The
provision for depreciation is adjusted for the difference between the net book
value and the proceeds of sale or salvage on disposal of the assets. The Company
evaluates its depreciation policy for leased vehicles on a regular basis.
42
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Mortgages Held for Sale
- -----------------------
Mortgage loans held for sale are carried at the lower of cost or estimated fair
value as determined on an aggregate basis. Fair value is based on contractually
established commitments from investors or by current investor yield
requirements. GMACMG accrues interest on residential and commercial mortgage
loans held for sale not more than 90 and 60 days delinquent, respectively. The
Company separately evaluates the estimated fair value of its commitments to
lend, including consideration of all designated open delivery commitment
positions. Commitments to lend are included in Other Assets and carried at fair
value with unrealized gains or losses recorded in the Consolidated Statement of
Income.
Mortgages Held for Investment
- -----------------------------
Mortgage loans held for investment include certain loans that the Company
originates and purchases with the intent to hold for investment, as well as
loans held as collateral for securitization transactions accounted for as
collateralized borrowing arrangements.
Periodically, the Company acquires or originates certain mortgage loans for
investment purposes including commercial and multi-family construction loans.
The Company carries these loans at amortized cost net of deferred costs and
fees. In addition, the Company originates or repurchases loans that are unable
to be sold through normal investor channels. These loans are classified as held
for investment and carried at amortized cost, which represents either the lower
of cost or market at the time the loans are transferred, or the repurchases
price. The Company has the intent and ability to hold these loans for the
foreseeable future. The Company accrues interest on mortgage loans held for
investment not more than 60 days delinquent.
Mortgages Lending Receivables
- -----------------------------
Mortgage lending receivables are primarily comprised of receivables from
warehouse, construction, commercial real estate lending activities and
distressed unsecured consumer receivables. All lending receivables are carried
at amortized cost, less an allowance for credit losses. Amortized cost basis
includes deferred origination fees and costs.
Warehouse lending involves the extension of collateralized lines of credit to
mortgage originators to finance loans until a permanent investor purchases the
loans. Advances under the lines of credit are generally fully collateralized by
the underlying mortgages and bear interest at variable rates based upon
short-term indices. Warehouse lending also involves certain longer term lending
to mortgage companies primarily collateralized by pledged servicing portfolios
and interest-only and residual securities. Term loans are generally for periods
of less than five years and bear interest at variable rates tied to short-term
indices. Construction lending involves the extension of collateralized lines of
credit to construction lending project managers and national and regional
residential home builders.
Warehouse and construction lending receivables are placed on non-accrual status
when scheduled principal or interest payments are greater than 60 days past due.
When a loan is placed on non-accrual status, the accrued and unpaid interest
receivable is reversed and accounted for on the cash or cost recovery method.
Generally, a loan is returned to accrual status when all delinquent interest and
principal becomes current in accordance with the terms of the loan agreement.
The Company services and manages mortgage loans and warehouse and construction
lending receivables for third parties under commercial paper programs. Revenues
from these activities are recognized on an accrual basis.
Mortgage Servicing Rights
- -------------------------
The Company capitalizes mortgage servicing rights associated with loans sold
with servicing retained and servicing rights acquired through bulk and flow
purchase transactions. The Company capitalizes the cost of originated mortgage
servicing rights based upon the relative fair market value of the underlying
mortgage loans and mortgage servicing rights at the time of sale of the
underlying mortgage loan. The Company capitalizes purchased mortgage servicing
rights at cost, an amount not exceeding the estimated fair market value of those
purchased mortgage servicing rights. See Note 13 (Mortgage Banking).
43
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible Assets
- -----------------
Intangible assets, principally the excess of cost over the fair value of
identifiable net assets of purchased businesses, were amortized using the
straight-line method over periods ranging from 5 to 40 years through December
31, 2001. However, amounts related to acquisitions completed after June 30,
2001, were not amortized in accordance with SFAS No. 141, Business Combinations.
Goodwill in excess of associated expected operating cash flows is considered to
be impaired and is written down to fair value. The existence of impairment is
evaluated based on undiscounted future cash flows.
Software Costs
- --------------
Other assets include certain software costs capitalized in accordance with AICPA
Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The capitalized software is
generally amortized on a straight-line basis over its useful life for a period
not to exceed three years. Capitalized software that is not expected to provide
substantive service potential or for which the costs of developing the software
significantly exceed the amount originally expected is considered impaired and
is written down to fair value.
Foreign Currency Translation
- ----------------------------
All assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at year-end exchange rates. Income and expense items are translated at
average exchange rates prevailing during the year. The resulting translation
adjustments are recorded as a component of stockholder's equity.
Income Taxes
- ------------
The Company and its domestic subsidiaries join with General Motors in filing a
consolidated United States federal income tax return. The portion of the
consolidated tax recorded by the Company and its subsidiaries included in the
consolidated tax return generally is equivalent to the liability that would have
been incurred on a separate return basis and are settled as GM's tax payments
are due.
Derivative Financial Instruments
- --------------------------------
The Company is a party to derivative financial instruments that it uses in the
normal course of business to reduce its exposure to fluctuations in interest and
foreign currency rates. Effective January 1, 2001, GMAC adopted the provisions
of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended by SFAS No. 138. Under these standards, GMAC records derivatives on
the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives are accounted
for depending on the use of the derivative and whether it qualifies for hedge
accounting. The after-tax cumulative effect of this accounting change as of
January 1, 2001, was $34.3 million favorable to income and $52.6 million
unfavorable to equity. Consistent with the provisions of the statement, prior
year financial statements have not been restated. The amount of the transition
adjustment reclassified into earnings from other comprehensive income during
2001 was immaterial.
Prior to the change referred to in the preceding paragraph, the Company
accounted for derivatives as follows:
Interest Rate Instruments
- -------------------------
The company utilizes various contracts to manage interest rate risk including:
interest rate swaps that are contractual agreements between the Company and
another party to exchange the net difference between a fixed and floating
interest rate, or different floating interest rates, periodically over the life
of the contract without the exchange of the underlying principal amount. The
Company also uses written and purchased options (including interest rate caps
and cancellation features). Interest rate cap agreements provide the holder
protection against interest rate movements above the rate established in the
contract. In exchange for assuming this risk, the writer receives a premium at
the outset of the agreement.
44
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (continued)
Interest Rate Instruments (concluded)
The Company uses swaps to alter its fixed and floating interest rate exposures.
As such, the majority of swaps are executed as an integral element of a specific
financing transaction. In a limited number of cases, swaps, matched to specific
portfolios of wholesale assets or debt, are executed to achieve specific
interest rate management objectives. Any amounts due or payable, and amounts
paid or received, are offset against the related interest income or expense. The
Company accounts for interest rate swap agreements using settlement accounting
as they alter the characteristics of assets or liabilities to which they are
matched. The cash flows from interest rate swaps are accounted for as
adjustments to interest income or expense depending on the underlying exposure.
Gains and losses from terminated swaps are deferred and amortized over the
remaining period of the original swap or the remaining term of the underlying
exposure, whichever is shorter, as either a reduction or increase of interest
expense. Open swap positions are reviewed regularly to ensure that they remain
effective in managing interest rate risk.
Written options (including related premiums) and interest rate basis swaps are
marked-to-market on a current basis with the related gains or losses included in
other income.
Foreign Currency Instruments
Currency swaps and forwards are used to hedge foreign exchange exposure on
foreign currency denominated debt by converting the funding currency to the
currency of the assets being financed. Foreign currency swaps and forwards are
legal agreements between two parties to purchase and sell a foreign currency for
a price specified at the contract date, with delivery and settlement at both the
effective date and maturity date of the contract. Foreign currency swap
agreements are accounted for using settlement accounting as it relates to
periodic interest payments. The foreign currency gains and losses associated
with both the currency swaps and forwards offset the correlating foreign
currency gains and losses related to the designated liabilities.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect amounts reported therein. Due to the
inherent uncertainty involved in making estimates, actual results reported in
future periods may be based upon amounts which differ from those estimates.
Reclassifications
- -----------------
Certain amounts for 1999 and 2000 have been reclassified to conform with 2001
classifications.
Accounting Standards
- --------------------
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, Business Combinations, which requires that the purchase method of
accounting be used for all business combinations completed after June 30, 2001.
SFAS No. 141 specifies that certain acquired intangible assets in a business
combination be recognized as assets separately from goodwill. Additionally, it
requires the Company to evaluate its existing intangible assets and goodwill and
to make any necessary reclassifications in order to conform with the new
separation requirements at the date of adoption. Goodwill and intangible assets
determined to have indefinite useful lives that were acquired in a business
combination completed after June 30, 2001, were not amortized.
Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 were amortized until December 31, 2001. The Company adopted
the provisions of SFAS No. 141 on January 1, 2002, with the exception of the
requirement to use the purchase method of accounting for business combinations
completed after June 30, 2001, which was adopted on July 1, 2001. The adoption
of SFAS No. 141 did not have a material impact on the Company's financial
condition or results of operations.
45
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (concluded)
Accounting Standards (concluded)
- --------------------------------
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 requires that goodwill no longer be amortized but instead
be tested for impairment at least annually, and that intangible assets other
than goodwill should be amortized over their useful lives. In connection with
the transitional impairment evaluation, SFAS No. 142 requires the Company to
perform an assessment of whether there is an indication that goodwill is
impaired as of January 1, 2002. SFAS No.142 provides for a six-month period from
the date of adoption for the Company to complete its assessment of goodwill
impairment. Management estimates that goodwill amortization required under
previous accounting standards of approximately $95.0 million after-tax will not
be charged to the income statement in 2002.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statements supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. The statement retains the previously existing accounting
requirements related to the recognition and measurement of the impairment of
long-lived assets to be held and used while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. It also expands on the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has been disposed of or is classified as held for sale. The Company
is required to implement SFAS No. 144 on January 1, 2002. Management does not
expect this statement to have a material impact on the Company's financial
position or results of operations.
The FASB is currently deliberating the issuance of an interpretation of SFAS No.
94, Consolidation of All Majority-Owned Subsidiaries, to provide additional
guidance to assist companies in identifying and accounting for special purpose
entities, including when SPEs should be consolidated by the investor. The
interpretation would introduce a concept that consolidation would be required by
the primary beneficiary of the activities of a special purpose entity unless the
SPE can meet certain substantive independent economic substance criteria. It is
not possible to determine at this time what conclusions will be included in the
final interpretation; however, the result could impact the accounting treatment
of these entities.
The FASB is currently deliberating the issuance of a proposed statement that
would amend SFAS No. 133, subject to decisions to be made at the March 13, 2002,
FASB meeting. The proposed statement will address and resolve certain pending
Derivatives Implementation Group ("DIG") issues. The outcome of the pending DIG
issues and other provisions of the statement could impact the Company's
accounting for beneficial interests, loan commitments and other transactions
deemed to be derivatives under the new statement. The Company's accounting for
such transactions is currently based on management's best interpretation of the
accounting literature as of March 11, 2002.
46
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. FINANCE RECEIVABLES
The composition of finance receivables outstanding is summarized as follows:
December 31,
----------------------------
2001 2000
------------ ------------
(in millions of dollars)
United States
Retail $ 60,244.1 $ 40,474.9
Wholesale 10,044.9 20,454.9
Commercial 4,291.6 3,970.8
Leasing and lease financing 628.1 632.9
Other (1) 11,821.7 11,712.8
------------ ------------
Total United States 87,030.4 77,246.3
------------ ------------
Europe
Retail 5,482.3 5,500.2
Wholesale 3,431.8 3,552.2
Commercial 1,094.0 1,267.4
Leasing and lease financing 359.7 431.7
Other 516.6 469.2
------------ ------------
Total Europe 10,884.4 11,220.7
------------ ------------
Canada
Retail 3,320.5 2,970.2
Wholesale 1,424.6 2,438.1
Commercial 357.1 307.1
Leasing and lease financing 589.2 660.2
Other 229.1 218.5
------------ ------------
Total Canada 5,920.5 6,594.1
------------ ------------
Other Countries
Retail 2,798.5 2,393.6
Wholesale 1,087.3 1,092.2
Leasing and lease financing 285.4 452.9
Other 147.0 228.9
------------ ------------
Total Other Countries 4,318.2 4,167.6
------------ ------------
Total finance receivables 108,153.5 99,228.7
Deductions
Unearned income 5,765.8 4,872.1
Allowance for credit losses 2,059.9 1,331.8
------------ ------------
Total deductions 7,825.7 6,203.9
------------ ------------
Finance receivables, net $ 100,327.8 $ 93,024.8
============ ============
(1) Includes secured notes to a non-consolidated affiliated entity that leases
vehicles totaling $7,125.0 million and $7,504.4 million at December 31, 2001 and
2000, respectively.
The aggregate amount of total finance receivables maturing in each of the five
years following December 31, 2001, is as follows: 2002 - $48,134.9 million; 2003
- - $23,675.5 million; 2004 - $18,106.2 million; 2005 - $10,520.5 million; 2006 -
$5,584.8 million; 2007 and thereafter - $2,131.6 million.
47
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. FINANCE RECEIVABLES (concluded)
The following table presents an analysis of the allowance for credit losses on
finance receivables:
For the years ended December 31,
------------------------------------------
2001 2000 1999
---------- ---------- ----------
(in millions of dollars)
Balance at beginning of the year $ 1,331.8 $ 1,114.4 $ 1,020.6
Provisions charged to income 1,346.4 551.6 403.8
Charge-offs
United States (686.1) (404.6) (318.9)
Other countries (91.2) (98.4) (100.4)
---------- ---------- ----------
Total charge-offs (777.3) (503.0) (419.3)
Recoveries and other
United States 215.6 178.8 152.8
Other countries 12.1 37.7 3.8
---------- ---------- ----------
Total recoveries and other 227.7 216.5 156.6
Transfers to sold receivables allowance (68.7) (47.7) (47.3)
---------- ---------- ----------
Balance at end of the year $ 2,059.9 $ 1,331.8 $ 1,114.4
========== ========== ==========
The following table presents a summary of the allowance for credit losses on
non-retail automotive impaired loans:
For the years ended December 31,
----------------------------------------
2001 2000 1999
---------- ---------- -----------
(in millions of dollars)
Balance at beginning of the year $ 57.5 $ 59.3 $ 70.7
Provisions charged to income 33.1 21.9 0.3
Net charge-offs (5.2) (23.7) (11.7)
---------- ---------- ------------
Balance at end of the year $ 85.4 $ 57.5 $ 59.3
========== ========== ============
The total investments in these impaired loans were $354.8 million and $202.2
million at December 31, 2001 and 2000, respectively. The average recorded
investments during 2001 and 2000 were $291.8 million and $179.9 million,
respectively.
NOTE 3. SALE OF FINANCE RECEIVABLES
The Company participates in various sales of receivables programs and has sold
retail finance receivables through special purpose subsidiaries with principal
aggregating $8.4 billion in 2001, $5.2 billion in 2000 and $5.1 billion in 1999.
These subsidiaries generally retain a subordinated investment of no greater than
5.25 percent of the total receivables pool and sell the remaining portion. Net
pre-tax gains relating to such sales amounted to $210.4 million in 2001, $13.7
million in 2000 and $64.2 million in 1999. The Company's sold retail finance
receivables servicing portfolio amounted to $12.0 billion and $7.0 billion at
December 31, 2001 and 2000, respectively. The Company's total serviced retail
finance receivables, including sold receivables, totaled $83.8 billion and $58.3
billion at December 31, 2001 and 2000, respectively.
At December 31, 2001 and 2000, the principal amount of sold retail receivables
60 days or more past due was $40.4 million and $31.2 million, respectively.
During the years 2001 and 2000, the total losses on sold retail receivables
amounted to $39.3 million and $34.2 million, respectively.
48
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SALE OF FINANCE RECEIVABLES (continued)
The Company has sold wholesale receivables on a revolving basis resulting in
decreases in wholesale outstandings of $16.2 billion and $10.0 billion at
December 31, 2001 and 2000, respectively. The Company is committed to sell
eligible wholesale receivables arising in certain dealer accounts. During the
years 2001, 2000 and 1999, there were no gains recorded on the sales of
wholesale receivables. In addition, the fair value of retained interests in
wholesale securitizations is assumed to approximate cost due to the short term
nature of wholesale receivables. The Company's total wholesale finance
receivables serviced, including sold receivables, amounted to $32.2 billion and
$37.5 billion at December 31, 2001 and 2000, respectively.
When the Company sells receivables in securitizations of retail and wholesale
receivables, it retains interest-only strips, all or a portion of senior and
subordinated tranches, servicing rights and cash reserve accounts, all of which
are retained interests in the securitized receivables. Gain or loss on sale of
the receivables depends in part on the previous carrying amount of the financial
assets involved in the transfer. The carrying amount is allocated between the
assets sold and the retained interests, based on their relative fair values on
the date of sale.
The Company generally estimates fair value based on the present value of future
expected cash flows. The key assumptions used in present value calculations are
prepayment speeds and current market interest rates. These assumptions use
management's best estimates commensurate with the risks involved. Any excess of
the carrying amount of the retained interest over its fair value results in an
adjustment to the asset with a corresponding offset to shareholders' equity. If
management determines that the difference between the carrying value and fair
value of the retained interest is unrecoverable, the asset is written down
through earnings.
In the aforementioned securitizations, the Company retains servicing
responsibilities and subordinated interests. The Company receives annual
servicing fees approximating 2.0 percent (for retail receivables) and 1.0
percent (for wholesale receivables) of the outstanding balance. Additionally,
the Company receives the rights to future cash flows arising after the investors
in the securitization trust have received their contracted return. The investors
and the securitization trusts have no recourse to the Company's other assets for
failure of debtors to pay when due. The Company's retained interests are
subordinate to investor's interests. Their value is subject to credit and
prepayment risks on the transferred assets.
The Company's interest-only strip receivables, cash deposits and other related
amounts are generally restricted assets and subject to limited recourse
provisions. The following is a summary of amounts included in due and deferred
from receivable sales, net.
December 31,
--------------------------
2001 2000
----------- -----------
(in millions of dollars)
Interest-only strip receivables (1) $ 481.7 $ 224.9
Other restricted amounts:
Cash deposits held for trusts 1,281.5 856.4
Other restricted amounts 496.6 78.0
----------- -----------
Total due and deferred from receivable sales $ 2,259.8 $ 1,159.3
=========== ===========
(1) Included in interest-only strip receivables at December 31, 2001 and 2000,
is an unrealized gain of $182.2 million and an unrealized loss of $1.7 million,
respectively.
Included in other liabilities are amounts payable to trustees of $485.4 million
and $513.2 million at December 31, 2001 and 2000, respectively.
The following table presents a summary of the allowance for estimated credit
losses on sold receivables that are included in other liabilities:
<page>
For the years ended December 31,
---------------------------------
2001 2000 1999
--------- -------- ---------
(in millions of dollars)
Balance at beginning of the year $ 62.1 $ 48.6 $ 34.2
Transfers from allowance for credit losses 68.7 47.7 47.3
Charge-offs (39.2) (34.2) (32.9)
--------- -------- ---------
Balance at end of the year $ 91.6 $ 62.1 $ 48.6
========= ======== =========
49
<page>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SALE OF FINANCE RECEIVABLES (continued)
The following table below summarizes certain cash flows received from and paid
to securitization trusts:
For the years ended December 31,
--------------------------------
2001 2000
---------- -----------------
(in millions of dollars)
Servicing fees received
Retail $168.0 $105.4
Wholesale 123.8 84.9
Other cash flows received on retained interests (1)
Retail 1,159.8 1,550.0
Wholesale 399.9 631.4
Purchases of delinquent or foreclosed assets (2) (239.8) (181.5)
Cash flows on pool buybacks (2) (270.3) (348.2)
Servicing advances (2) (87.5) (74.9)
Repayments of servicing advances (2) 66.0 66.0
(1) This amount represents total cash flows received from retained interests
by the transferor other than servicing fees.
(2) Only applicable to retail finance receivables.
Key economic assumptions used in measuring the retained interests at the date of
the securitization, for securitizations of retail finance receivables completed
during the year, were as follows:
For the years ended December 31,
--------------------------------------------------------------------
2001 2000
--------------------------- --------------------------------
Prepayment speed 0.8- 1.3% 1.2- 1.7%
Weighted-average life (in years) (1) 1.5- 1.8 1.4- 1.7
Residual cash flows discounted at 9.5- 12.0% 9.5- 12.0%
Variable returns to transferees One month LIBOR plus One month LIBOR plus
contractual spread ranging contractual spread ranging
from 4 to 35 points from 7 to 9 basis
basis points
(1) Weighted-average rates for securitizations entered into during the period
for securitizations of loans with similar characteristics.
The following depicts the sensitivity of the current fair value of retained
interests in securitizations of retail finance receivables to adverse changes in
the key economic assumptions used to measure fair value.
For the years ended December 31,
----------------------------------
2001 2000
------------- ----------------
(in millions of dollars)
Carrying amount/fair value of retained interests $1,677.9 $1,196.2
Prepayment speed assumption (annual rate) 0.6-1.8% 1.2-1.7%
Impact on fair value of 10% adverse change (1) $ (2.0) $(2.6)
Impact on fair value of 20% adverse change (1) $ (4.0) $(5.5)
Residual cash flows discount rate (annual rate) 7.7-12.0% 9.3-12.0%
Impact on fair value of 10% adverse change $ (7.4) $(4.2)
Impact on fair value of 20% adverse change $(14.8) $(8.6)
Market rate assumption (annual rate) 2.3-5.8% 5.5-6.4%
Impact on fair value of 10% adverse change $(30.4) $(3.6)
Impact on fair value of 20% adverse change $(60.8) $(7.2)
<page>
(1) An adverse change in the fair value of retained interests may result from
either an increase or decrease in prepayment speeds, depending upon the
characteristics of each securitization and the related residual cash flows. Due
to the composition of GMAC's sold retail finance receivables, this amount
represents the net adverse impact of a decrease in prepayment speeds.
50
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SALE OF FINANCE RECEIVABLES (concluded)
Considerable judgment is required in interpreting market data to develop
estimates of fair value, so the above estimates are not necessarily indicative
of the amounts that could be realized or would be paid in a current market
exchange. In addition, the above estimated amounts generated from the
sensitivity analyses include forward-looking statements of market risk, which
assume for analytical purposes that certain adverse market considerations may
occur. Actual future market conditions may differ materially and accordingly,
the forward-looking statements should not be considered projections by GMAC of
future events or losses.
The Company has sponsored two special purpose entities ("SPEs") that are used as
sources of additional liquidity, New Center Asset Trust ("NCAT") and Central
Originating Lease Trust ("COLT"). The Company acts as administrator of NCAT to
provide for the administration of the trust and earned $6.4 million, $14.2
million and $14.5 million in administration fees for the years 2001, 2000 and
1999, respectively. The Company also acts as an originating agent and servicer
for COLT leases and earned $200.9 million, $204.9 million and $144.9 million
during 2001, 2000 and 1999, respectively. The Company may enter into swap
agreements with NCAT and COLT for which the accounting is described in Note 17.
The Company has entered into an agreement with a third-party insurer whereby the
Company receives a fee for reimbursing the insurer for a portion of losses paid
to COLT, subject to a cap. The Company's reserve for such exposure was recorded
as a liability on the balance sheet at December 31, 2001 and 2000, totaling
$478.8 million and $349.5 million, respectively.
NOTE 4. INVESTMENT IN OPERATING LEASES
Investments in operating leases were as follows:
December 31,
---------------------------
2001 2000
------------ ------------
(in millions of dollars)
Vehicles and other equipment, at cost $ 32,888.4 $37,374.3
Less: accumulated depreciation 7,660.8 8,063.2
------------ ------------
Investment in operating leases, net $ 25,227.6 $29,311.1
============ ============
The lease payments applicable to equipment on operating leases maturing in each
of the five years following December 31, 2001, are as follows: 2002 - $5,922.0
million; 2003 - $3,338.1 million; 2004 - $1,427.4 million; 2005 - $202.4
million; and 2006 - $7.5 million.
NOTE 5. INVESTMENTS IN SECURITIES
The Company's portfolio of securities includes bonds, equity securities,
mortgage-related securities, notes, retained interests in securitizations and
other investments. The book and fair values of mortgage-related securities held
to maturity at December 31, 2001, were $371.2 million and $367.6 million,
respectively, compared with $218.1 million and $225.1 million at December 31,
2000. Held to maturity securities, which are carried at historical cost, had
unrealized (losses)/gains at December 31, 2001 and 2000, of $(3.7) million and
$7.0 million, respectively. The fair value of mortgage-related trading
securities at December 31, 2001 and 2000, was $3,721.7 million and $3,298.6
million, respectively. The unrealized losses on trading securities included in
income were $583.7 million, $145.8 million and $83.2 million for the years ended
December 31, 2001, 2000 and 1999, respectively. GMACMG has pledged
mortgage-related trading securities of $976.9 million and $523.5 million at
December 31, 2001 and 2000, respectively.
51
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INVESTMENTS IN SECURITIES (continued)
The cost, fair value and unrealized gains and losses on available for sale
securities were as follows:
December 31, 2001
-----------------------------------------------------
Unrealized Unrealized Fair
Type of Security Cost Gains Losses Value
- ---------------- ---------- ------------- ----------- ------------
Bonds, notes and other securities: (in millions of dollars)
United States government and
Governmental agencies and authorities $ 615.1 $ 13.7 $ (3.0) $ 625.8
States, municipalities and political
Subdivisions 930.8 42.9 (4.2) 969.5
Mortgage-related securities 923.9 16.8 (27.6) 913.1
Interests in trusts 1,069.7 3.6 -- 1,073.3
Corporate debt securities 1,317.8 38.7 (23.8) 1,332.7
Other 255.9 6.7 (2.2) 260.4
---------- ------------- ----------- -----------
Total debt securities available for sale 5,113.2 122.4 (60.8) 5,174.8
Equity securities available for sale 1,214.8 246.9 (142.3) 1,319.4
---------- ------------- ----------- -----------
Total available for sale securities $ 6,328.0 $ 369.3 $ (203.1) $ 6,494.2
========== ============= =========== ===========
December 31, 2000
-------------------------------------------------
Unrealized Unrealized Fair
Type of Security Cost Gains Losses Value
- ---------------- ---------- ---------- ---------- ---------
Bonds, notes and other securities: (in millions of dollars)
United States government and
Governmental agencies and authorities $ 555.8 $ 10.4 $ (0.9) $ 565.3
States, municipalities and political
Subdivisions 1,491.6 80.8 (5.4) 1,567.0
Mortgage-related securities 386.7 14.2 (17.2) 383.7
Interests in trusts 956.9 10.6 (13.5) 954.0
Corporate debt securities 1,279.7 27.8 (32.4) 1,275.1
Other 173.3 8.0 (14.8) 166.5
---------- ---------- ----------- --------
Total debt securities available for sale 4,844.0 151.8 (84.2) 4,911.6
Equity securities available for sale 766.4 394.7 (104.4) 1,056.7
---------- ---------- ----------- --------
Total available for sale securities $ 5,610.4 $ 546.5 $ (188.6) $5,968.3
========== ========== =========== ==========
The distribution of maturities of available for sale debt securities outstanding
is summarized as follows:
December 31, 2001
----------------------------
Fair
Cost Value
------------- -----------
Maturity (in millions of dollars)
- --------
Due in one year or less $ 803.5 $ 813.2
Due after one year through five years 2,219.8 2,260.8
Due after five years through ten years 695.2 715.6
Due after ten years 470.8 472.0
Mortgage-related securities 923.9 913.1
------------- -----------
Total available for sale debt securities $ 5,113.2 $ 5,174.7
============= ===========
52
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INVESTMENTS IN SECURITIES (concluded)
The following table summarizes proceeds, gains and losses realized from the sale
of available for sale securities:
For the years ended December 31,
-----------------------------------------
2001 2000 1999
--------- ------------ -------------
Debt Securities (in millions of dollars)
- ---------------
Sale proceeds $ 4,453.2 $ 3,010.8 $ 2,359.3
Gross realized gains 104.1 71.5 78.6
Gross realized losses 50.6 78.2 83.0
Equity Securities
Sale proceeds $ 676.6 $ 530.6 $ 567.7
Gross realized gains 124.3 243.8 212.9
Gross realized losses 94.4 69.5 42.9
NOTE 6. OTHER ASSETS
Other assets consisted of:
December 31,
-------------------------
2001 2000
---------- -----------
(in millions of dollars)
Property and equipment at cost $ 2,138.2 $ 1,690.0
Accumulated depreciation (615.0) (436.9)
---------- -----------
Net property and equipment 1,523.2 1,253.1
Non-performing assets (net of valuation reserves) 815.3 828.5
Ceded loss and loss adjustment expense reserve /
Reinsurance receivable 887.7 680.4
Insurance premiums recoverable 348.7 339.3
Investment in used vehicles held for sale 444.7 615.4
Deferred policy acquisition cost 475.9 380.5
Intangible assets, net of accumulated amortization 3,205.9 3,188.4
Rental car buyback 235.3 825.7
Unamortized debt costs 424.7 211.2
Accrued interest receivable on derivatives 591.8 218.5
Derivatives - asset position (1) 1,672.8 --
Equity investments in real estate ventures 797.5 790.8
Other mortgage-related assets 3,280.5 1,864.4
Other assets 999.0 824.8
---------- -----------
Total other assets $15,703.0 $12,021.0
========== ===========
(1) Effective January 1, 2001, the Company was required to record the fair
market value of its derivatives on the balance sheet due to the implementation
of SFAS No. 133. Such instruments were either included as a component of the
underlying hedged asset or liability or were not reflected on the balance sheet
at December 31, 2000. Refer to Note 17 for additional information.
NOTE 7. LINES OF CREDIT WITH BANKS
The Company and its subsidiaries maintain substantial bank lines of credit which
totaled $48.8 billion at December 31, 2001, compared to $48.1 billion at
year-end 2000. The unused portion of these credit lines increased by $500.0
million from December 31, 2000, to $38.9 billion at December 31, 2001. Included
in the unused credit lines at December 31, 2001, is a $14.7 billion syndicated
multi-currency global credit facility available for use in the U.S. by GMAC and
in Europe by GMAC International Finance B.V. and GMAC (UK) plc. The entire $14.7
billion is available to GMAC in the U.S., $1.0 billion is available to GMAC (UK)
plc and $0.9 billion is available to GMAC International Finance B.V. The
syndicated credit facility serves primarily as back-up for the Company's
unsecured commercial paper programs. Also included in the unused credit lines is
a $12.3 billion U.S. asset-backed commercial paper liquidity and receivables
facility for NCAT, a non-consolidated limited purpose business trust established
to issue asset-backed commercial paper.
53
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. LINES OF CREDIT WITH BANKS (concluded)
In June 2001, GMAC renewed the syndicated multi-currency global facility, which
includes terms of five years on one-half of the facility (due to expire in June
2006) and a 364-day term with a one year term-out option. It was modified to
permit the Company, at its discretion, to transfer up to approximately $6
billion of the banks' commitments to the liquidity and receivables facility for
NCAT. Such transfer provisions have not been utilized. Additionally, there is a
leverage covenant restricting the ratio of consolidated debt to total
stockholder's equity to no greater than 11.0:1 under certain conditions. This
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 as
the Company has senior unsecured long-term debt outstanding, without third-party
enhancement, which is rated BBB+ or less by Standard & Poor's Ratings Services
("S&P") or Baa1 or less by Moody's Investors Service, Inc. As a result of the
Company's rating downgrade by S&P in October 2001, those conditions became
effective and the Company is in compliance with the covenant. Those conditions
were not in effect on December 31, 2000.
GMAC Mortgage Group had $5.4 billion of bank lines of credit at December 31,
2001, compared with $4.6 billion at December 31, 2000, which are utilized in the
normal course of business. Of these lines, $2.3 billion and $1.3 billion were
unused at December 31, 2001 and 2000, respectively.
Inclusive of the $1.9 billion of the syndicated multi-currency global credit
facility, operations in Canada, Europe, Latin America and Asia-Pacific were
supported by credit facilities totaling $18.4 billion at December 31, 2001 and
$18.1 billion at December 31, 2000, of which $11.5 billion and $11.7 billion
were unused at December 31, 2001 and 2000, respectively. As of December 31,
2001, the committed and uncommitted portion of such credit facilities totaled
$5.7 billion and $12.7 billion, respectively. As of December 31, 2000, the
committed and uncommitted portion of such credit facilities totaled $5.6 billion
and $12.5 billion, respectively.
<page>
NOTE 8. DEBT
Weighted Average
----------------------------------
Interest Rate (1) December 31,
----------------------------------
As of December 31, 2001 2001 2000
----------------------------- --------------- ------------
(in millions of dollars)
Short-Term Debt
Commercial paper (2) $ 16,619.9 $ 43,633.5
Demand notes 5,363.8 4,663.9
Master notes and other 6,205.8 2,223.6
Bank loans and overdrafts (3) 8,062.7 6,613.3
--------------- ------------
Total principal amount 36,252.2 57,134.3
Unamortized discount (38.0) (220.7)
--------------- ------------
Total short-term debt (4) 3.0% 36,214.2 56,913.6
--------------- ------------
Long-Term Debt
Current portion of long-term debt 4.3% 22,014.1 18,603.1
United States
2002 -- 15,451.2
2003 4.0% 18,889.3 11,351.6
2004 4.5% 14,251.6 5,840.5
2005 5.3% 5,344.2 4,502.3
2006 6.0% 14,794.1 985.1
2007 to 2050 6.8% 28,293.1 10,493.0
--------------- ------------
Total United States 81,572.3 48,623.7
Other countries
2002 - 2009 5.4% 12,038.7 9,815.4
--------------- ------------
Total United States and other countries 115,625.1 77,042.2
Unamortized discount (694.3) (583.6)
--------------- ------------
Total long-term debt 114,930.8 76,458.6
--------------- ------------
Mark to market adjustment (5) 888.2 --
--------------- ------------
Total debt $152,033.2 $133,372.2
=============== ============
54
<page>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. DEBT (concluded)
(1) The 2001 weighted average interest rates include the effects of interest
rate swap agreements.
(2) The weighted average maturities of commercial paper were 40 days at
December 31, 2001, and 35 days at December 31, 2000.
(3) Bank loans and overdrafts include $4,273.9 million and $2,778.2 million in
the United States and $3,788.8 million and $3,835.1 million in other
countries at December 31, 2001 and 2000, respectively.
(4) The 2000 weighted average interest rate for short-term debt was 6.1%.
(5) Effective January 1, 2001, the Company was required to record hedged debt
at fair value on the balance sheet due to the implementation of SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. Refer to
Note 17 for additional information.
After consideration of foreign currency swaps, the above maturities denominated
in currencies other than the U.S. dollar primarily consist of the Canadian
dollar ($9,997.3 million), euro ($5,653.3 million), United Kingdom pound
sterling ($4,602.3 million) and Australian dollar ($1,226.8 million). The
Company and its subsidiaries have entered into foreign currency swap agreements
to hedge exposures related to debt payable in currencies other than the local
currency of the issuing entity.
Debt issues totaling $9,389.5 million are redeemable, at par or slightly above,
at the Company's option. The debt issues are redeemable anytime prior to their
maturity dates with the latest maturity date in November 2049.
The Company has issued warrants to subscribe for up to $300 million aggregate
principal amount of 6.5% notes due October 15, 2009. The warrants entitle the
holder to purchase from GMAC the aggregate principal amount at par plus any
accrued interest. The warrants are exercisable up to and including October 15,
2007.
The Company's debt includes $525 million in notes with fixed rates and $75
million in notes with variable rates which provide investors with the option to
cause GMAC to repurchase them at specific dates prior to their maturity.
Generally, the probability of exercising such option would increase in the event
that one or more of the Company's security ratings is reduced or an increase in
market interest rates occurs and the notes are subject to fixed interest rates.
For purposes of the above maturities, it is assumed that no repurchase will
occur.
In addition, the Company's debt includes $12,975.6 million in notes with fixed
rates that contain a survivor's option, which provides the survivor with the
option to cause GMAC to repurchase them at par prior to maturity. The latest
maturity date of these notes is September 2021.
As of December 31, 2001, GMACMG had $2,096.8 million of short-term debt
outstanding secured by real estate mortgages held for investment of $1,249.8
million and real estate mortgages held for sale of $979.8 million. These
mortgage assets are restricted in that they are used to pay back the secured
debt.
To achieve its desired balance between fixed and variable rate debt, the Company
has entered into interest rate swap and interest rate cap agreements. The
breakdown between the fixed and variable interest rate amounts (excluding
discount) based on contractual terms (predominately based on London Interbank
Offering Rate ("LIBOR")) and after the effect of interest rate derivatives is as
follows:
December 31,
-------------------------
2001 2000
------------ ----------
Debt balances based on contractual ter (in millions of dollars)
- ----------------------------------------
Fixed amount $101,142.6 $97,189.6
Variable amount 50,734.7 36,986.9
Debt balances after effect of derivatives
Fixed amount $ 64,640.7 $85,254.6
Variable amount 87,236.6 48,921.8
55
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. UNITED STATES, FOREIGN AND OTHER INCOME TAXES
Income from continuing operations before income taxes included the following:
For the Years Ended December 31,
------------------------------------------
2001 2000 1999
------------- ----------- ------------
(in millions of dollars)
U.S. income $ 2,140.7 $ 1,957.2 $ 1,907.0
Foreign income 658.0 599.2 580.5
------------- ----------- ------------
Total $ 2,798.7 $ 2,556.4 $ 2,487.5
============= =========== ============
Provisions are made for estimated United States and foreign income taxes, less
available tax credits and deductions, which may be incurred on remittance of the
Company's share of its subsidiaries' undistributed earnings not deemed to be
indefinitely reinvested. Taxes have not been provided on foreign subsidiaries'
earnings, which are deemed indefinitely reinvested of approximately $1,212.4
million at December 31, 2001 and $1,124.5 million at December 31, 2000.
Quantification of the deferred tax liability, if any, associated with
permanently reinvested earnings is not practicable.
The temporary differences, which comprise the Company's deferred tax assets and
liabilities, were as follows:
December 31, 2001 December 31, 2000
---------------------------- ----------------------------
Asset Liability Asset Liability
-------------- ------------- ------------ --------------
(in millions of dollars)
Lease transactions $ -- $ 3,985.2 $ -- $ 3,656.1
Provisions for credit losses 940.0 -- 571.6 --
Debt transactions -- 345.2 -- 354.0
Unrealized gains on securities -- 118.2 -- 138.5
State and local taxes -- 320.7 -- 268.1
Amortization - mortgage servicing rights -- 335.2 -- 330.1
Sales of mortgage home equity loans -- 300.5 -- 38.9
Foreign tax credits 167.7 -- 116.4 --
Insurance loss reserve discount 119.4 -- 124.9 --
Unearned insurance premiums 201.5 -- 156.2 --
Other postretirement benefits 258.9 -- 257.8 --
Accumulated translation adjustment 201.8 -- 184.6 --
Receivables mark to market -- 173.3 -- --
Other 170.9 364.6 179.3 379.4
-------------- ------------- ------------ --------------
Total deferred income taxes $ 2,060.2 $ 5,942.9 $ 1,590.8 $ 5,165.1
============== ============= ============ ==============
<page>
The significant components of income tax expense were as follows:
For the Years Ended December 31,
---------------------------------------
2001 2000 1999
----------- ---------- ----------
Income taxes estimated to be currently (in millions of dollars)
payable:
United States federal $ 375.3 $ 459.9 $ 103.4
Foreign 263.7 223.0 131.2
United States state and local 85.3 69.1 24.0
----------- ---------- ----------
Total income taxes currently payable 724.3 752.0 258.6
----------- ---------- ----------
Deferred income taxes:
United States federal 351.2 174.7 522.7
Foreign (57.8) (26.2) 106.5
United States state and local 29.4 53.8 72.4
----------- ---------- ----------
Total deferred income taxes 322.8 202.3 701.6
----------- ---------- ----------
Income tax expense $1,047.1* $ 954.3 $ 960.2
=========== ========== ==========
*Excludes cumulative effect of accounting change.
56
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. UNITED STATES, FOREIGN AND OTHER INCOME TAXES (concluded)
Income tax provisions recorded by the Company differ from the computed amounts
developed by applying the statutory United States federal income tax rate to
income before income taxes. The following schedule reconciles the U.S. statutory
income tax rate to the actual income tax rate recorded by the Company:
For the Years Ended December 31,
--------------------------------
2001 2000 1999
-------- ------- -------
United States federal statutory income tax rate 35.0% 35.0% 35.0%
Effect of:
State and local income taxes 2.8 3.4 2.6
Tax exempt interest and dividends received
Which are not fully taxable (0.9) (1.1) (1.1)
Adjustment to U.S. taxes on foreign income (0.4) (0.5) (0.7)
Foreign income tax rate differential 0.3 (0.4) 1.6
Other 0.6 0.9 1.2
-------- ------- -------
Effective tax rate 37.4%* 37.3% 38.6%
======== ======= =======
*Excludes cumulative effect of accounting change
NOTE 10. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company and certain of its subsidiaries participate in various pension plans
of General Motors and its domestic and foreign subsidiaries, which cover
substantially all of their employees. Benefits under the plans are generally
related to an employee's length of service, salary and where applicable,
contributions. GMAC Mortgage Group, Inc., GMAC Commercial Credit LLC and certain
subsidiaries of GMAC Insurance Holdings, Inc. have separate retirement plans
which provide for pension payments to their eligible employees upon retirement.
The Company and certain of its subsidiaries participate in various
postretirement medical, dental, vision and life insurance plans of General
Motors. These benefits are funded as incurred from the general assets of the
Company. The Company accrues postretirement benefit costs over the active
service period of employees to the date of full eligibility for such benefits.
The Company has provided for certain amounts associated with estimated future
postretirement benefits other than pensions and characterized such amounts as
other postretirement benefits. Notwithstanding the recording of such amounts and
the use of these terms, the Company does not admit or otherwise acknowledge that
such amounts or existing postretirement benefit plans of the Company (other than
pensions) represent legally enforceable liabilities of the Company.
The total pension and other postretirement benefits expense of the Company
amounted to $96.1 million, $80.4 million and $96.5 million in 2001, 2000 and
1999, respectively.
NOTE 11. TRANSACTIONS WITH AFFILIATES
The Company is wholly-owned by GM and as such, receives support from GM to
maintain competitive leverage levels and its fixed charges coverage ratio. GMAC
received capital contributions from GM totaling $513.6 million and $2,927.9
million in 2001 and 2000, respectively. Contributions in 2001 consisted of cash
payments totaling $500.0 million and contributions related to GMAC's acquisition
of Saab Finance totaling $13.6 million. Contributions in 2000 consisted of cash
payments totaling $2,448.8 million and a transfer of properties located in
Michigan totaling $479.1 million. As part of the property transfer in 2000, the
Company and GM entered into a sixteen-year lease arrangement, under which the
Company agreed to fund and capitalize improvements to GM leased properties
totaling $1.2 billion over four years, starting in 2000, of this total, $278.0
million and $190.4 million were advanced by GMAC in 2001 and 2000, respectively.
Revenues received on this arrangement in 2001 and 2000 were included in other
income and totaled $49.1 million and $42.0 million, respectively.
Included in other liabilities are amounts (receivable from) or due to GM and its
affiliates of $(218.7) million and $199.4 million at December 31, 2001 and 2000,
respectively.
57
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. TRANSACTIONS WITH AFFILIATES (concluded)
Retail installment and lease contracts acquired by GMAC-NAO that included
interest rate subvention from GM, payable directly or indirectly to GM dealers,
were 84.0%, 86.0% and 81.6% of total new retail installment and lease contracts
acquired during 2001, 2000 and 1999, respectively. GMAC-IO rate subvented
programs represented 49.8%, 56.6% and 56.6% of total new retail installment and
lease contracts acquired during 2001, 2000 and 1999, respectively.
Agreements with GM provide for payment to the Company for residual value support
on certain retail leasing transactions. Amounts included in income for these
transactions totaled $1,002.9 million, $739.4 million and $450.3 million in
2001, 2000 and 1999, respectively. Included in the above is GM's portion of a
residual risk sharing agreement. Payment to the Company for GM's portion of this
risk sharing totaled $334.2 million, $207.3 million and $68.5 million in 2001,
2000 and 1999, respectively.
On occasion, the Company may also extend loans to GM, its subsidiaries and
affiliates. Outstanding loans to GM and affiliates totaled $4,165.1 million and
$5,434.0 million at December 31, 2001 and 2000, respectively. Included in the
2001 year-end outstandings were draws on $4 billion in revolving line of credit
facilities to GM and affiliates. Total interest income from all GM affiliated
loans is included in other income and amounted to $324.9 million, $332.1 million
and $225.8 million in 2001, 2000 and 1999, respectively.
GMAC of Canada, Limited administers operating lease receivables on behalf of GM
of Canada Limited ("GMCL") and receives a servicing fee. Included in income were
service fees from GMCL totaling $72.0 million, $61.9 million and $39.3 million
in 2001, 2000 and 1999, respectively.
The Company purchases certain vehicles which GM acquired from its fleet and
rental customers. The cost of these vehicles held for resale, which is included
in other assets, was $235.3 million at December 31, 2001, compared with $825.7
million at December 31, 2000. Included in other income were service fees
received from GM on these vehicles amounting to $35.1 million, $45.1 million and
$35.4 million in 2001, 2000 and 1999, respectively.
An agreement with GM provides for the reimbursement of certain selling expenses
incurred by GMAC on off-lease vehicles sold by GM at auction. Included as a
reduction of other operating expenses were reimbursements totaling $51.5
million, $53.1 million and $50.6 million in 2001, 2000 and 1999, respectively.
The net amounts due GM and its affiliated companies at the balance sheet dates
relate principally to current wholesale financing of sales of GM products. 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 to the expiration of transit, interest is received from GM. Interest
received on this arrangement is included in other income and totaled $148.6
million, $154.3 million and $105.2 million in 2001, 2000 and 1999, respectively.
The Company receives technical and administrative advice and services from GM
and also occupies office space furnished by GM. Costs of such services, which
are included in other operating expenses, amounted to $66.9 million, $47.3
million and $40.0 million in 2001, 2000 and 1999, respectively.
Insurance premiums earned by GMACI on certain coverages provided to GM and its
subsidiaries totaled $515.9 million, $485.1 million and $455.1 million in 2001,
2000 and 1999, respectively.
In December 2000, GM announced the phase-out of the Oldsmobile Marketing
Division. As part of this phase-out GM has agreed to indemnify GMAC for
incremental losses, if any, sustained by GMAC for the decrease in residual
values as a result of discontinuance of the Oldsmobile line for which GMAC has
assets with residual risk.
58
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. INSURANCE OPERATIONS
GMAC Insurance Holdings, Inc. and its subsidiaries (collectively "GMACI")
perform a wide array of insurance underwriting including personal, mechanical
and commercial coverages. GMACI conducts insurance and reinsurance operations
primarily in the United States, Canada and Europe. GMACI insures selected
personal, commercial and extended service contract coverages for individuals,
auto dealerships, GMAC and GM. In the U.S., property and casualty risks are
assumed from other insurers. Outside the U.S., property, casualty and mechanical
risks are assumed from local insurance companies. GMACI cedes a portion of its
insurance business and retrocedes a portion of its reinsurance business to
outside reinsurers to protect the Company against certain types of loss
activity. GMACI remains liable with respect to any reinsurance ceded if the
assuming companies were unable to meet their obligations under these reinsurance
agreements. Premiums are earned on a basis related to coverage provided over the
terms of the policies or reinsurance assumed contracts. Commissions, premium
taxes and other costs that vary with, and are directly related to acquiring new
business, are deferred and amortized over the terms of the related policies on
the same basis as premiums are earned or over the average life of related
policies, including renewals. The liability for losses and loss expenses
includes amounts relating to reinsurance agreements and represents the
accumulation of estimates for reported losses and a provision for losses
incurred but not reported. Estimates for salvage and subrogation recoverable are
recognized at the time losses are incurred. Insurance liabilities are
necessarily based on estimates and the ultimate liability may vary from such
estimates. The estimates are regularly reviewed and adjustments are included in
income.
Unpaid Insurance Losses and Loss Adjustment Expenses
Activity in the reserves for losses and loss adjustment expenses ("LAE") is
summarized as follows:
For the Years Ended December 31,
---------------------------------------
2001 2000 1999
---------- ---------- -------------
(in millions of dollars)
Balance at beginning of the year $ 1,718.7 $ 1,861.9 $ 2,062.7
Less: reinsurance recoverables 466.1 552.7 582.5
---------- ---------- -------------
Net balance at beginning of the year 1,252.6 1,309.2 1,480.2
Incurred related to:
Current year 1,716.2 1,549.0 1,442.1
Prior years (5.0) (55.9) (52.2)
---------- ---------- -------------
Total incurred 1,711.2 1,493.1 1,389.9
Paid related to:
Current year (1,187.5) (1,036.4) (961.0)
Prior years (581.6) (513.3) (599.9)
---------- ---------- -------------
Total paid (1,769.1) (1,549.7) (1,560.9)
Net balance at end of the year 1,194.6 1,252.6 1,309.2
Add: reinsurance recoverables 602.6 466.1 552.7
---------- ---------- -------------
Balance at end of the year $1,797.2 $ 1,718.7 $ 1,861.9
========== ========== =============
The decreases in incurred losses and loss adjustment expenses related to prior
years is primarily attributable to changes in estimates for loss adjustment
expenses for personal lines business, partially offset by development in assumed
reinsurance in 2001 and certain discontinued operations in 2000 and 1999.
GMACI is subject to certain minimum aggregated capital requirements, restricted
net assets and restricted dividend distributions under applicable state
insurance law, the National Association of Securities Dealers, Barbados
Insurance law, the Financial Services Authority in England and the Office of the
Superintendent of Financial Institution of Canada. To date, compliance with
these various regulations has not had a materially adverse effect on the
Company's financial position or results of operations.
Under the various state insurance regulations, dividend distributions may be
made only from statutory unassigned surplus, and the state regulatory
authorities must approve such distributions if they exceed certain statutory
limitations. Based on the December 31, 2001, statutory policyholders' surplus,
the maximum dividend which could be paid by the insurance subsidiaries over the
next twelve months without prior statutory approval would be approximately
$120.1 million.
59
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. MORTGAGE BANKING
GMAC Mortgage Group, Inc. and its subsidiaries (collectively "GMACMG") conduct
mortgage banking operations in North America, South America, Asia and Europe.
GMACMG originates and markets single-family and commercial mortgage loans, and
securities backed by such loans, to investors and services these loans on behalf
of investors. In addition to offering other consumer products including home
equity loans, insurance services and trustee services, GMACMG packages
securities backed by home equity loans and sub-prime mortgages. In addition to
retaining servicing rights on originated mortgages, GMACMG also actively
acquires mortgage servicing rights from other mortgage bankers and financial
institutions. Operations of GMACMG's various mortgage banking subsidiaries are
conducted through its three primary businesses: GMAC Residential Holding Corp.
("GMACR"); GMAC Commercial Holding Corp. ("GMACCH"); and Residential Funding
Corporation ("RFC").
Loan Originations and Servicing Acquisitions
- --------------------------------------------
The following summarizes GMACMG's originations and purchases of mortgage loans
and the principal balances of acquisitions of mortgage servicing rights:
For the Years Ended December 31,
--------------------------------
2001 2000 1999
--------- --------- ---------
(in millions of dollars)
Loans originated/brokered:
Residential $64,515.9 $22,183.9 $21,532.6
Commercial 19,334.6 15,456.8 9,443.5
Loan purchases $26,484.0 $17,492.4 $22,763.4
Servicing acquisitions:
Residential $29,124.2 $24,277.2 $22,220.1
Commercial 21,342.8 6,553.2 15,673.0
Sales of Loans
- --------------
GMACMG sells its originated, brokered and purchased residential mortgage loans
into various governmental agency (FHLMC, FNMA and GNMA) mortgage-backed
securities and private mortgage-backed securities for sale to investment bankers
and private mortgage investors while maintaining the right to service such
mortgage loans. GMACMG securitizes a majority of its originated commercial
mortgage loans into commercial mortgage backed securities while generally
retaining a subordinate tranche and the right to service the commercial
mortgages sold.
As part of its conduit mortgage banking activities, GMACMG retains subordinated
and stripped mortgage-backed securities which are generally classified as
trading securities or available for sale and held at estimated fair value.
Allowance for Losses
- --------------------
On certain transactions, GMACMG will retain full or limited recourse for credit
or other losses incurred by the purchaser of the loans sold, under provisions
which comply with SFAS No. 140. GMACMG establishes allowances for estimated
losses related to the outstanding recourse obligations, which management
considers adequate. In addition, GMACMG provides appropriate loss allowances on
mortgage lending receivables and other mortgage loans held as investments, based
upon management's evaluation of the pertinent factors underlying the quality of
the loan portfolio, including actual credit loss experience, current economic
conditions, detailed evaluation of specifically identified mortgage loans for
which full collectibility may not be assured and the existence and realizability
of the collateral and guarantees securing such loans.
60
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. MORTGAGE BANKING (continued)
Servicing Portfolio
- -------------------
The following is a summary of GMACMG's servicing portfolios:
December 31,
--------------------------------
2001 2000
--------------- --------------
Servicing portfolio (in millions of dollars)
Residential $193,066.7 $174,390.6
Commercial (1) 134,639.8 90,469.9
Master servicing 82,765.3 77,182.1
GMACMG intracompany servicing (1,603.8) (2,156.0)
--------------- --------------
Total $408,868.0 $339,886.6
=============== ==============
Number of serviced loans 2,803,554 2,796,429
=============== ==============
(1) Includes $3,813.5 million and $3,661.0 million of term loans serviced on
behalf of GMAC at December 31, 2001 and 2000, respectively.
Allowance for Loan Losses and Valuation Reserves
- ------------------------------------------------
The table below presents an analysis of the allowance for mortgage loan losses
and valuation reserves. Also included in the table is GMACMG's accrual for
losses on loans sold with recourse totaling $46.5 million, $28.2 million and
$29.7 million as of December 31, 2001, 2000 and 1999, respectively, which are
included in Other liabilities.
For the years ended December 31,
--------------------------------
2001 2000 1999
-------- --------- ----------
(in millions of dollars)
Balance at beginning of year $165.8 $178.1 $138.5
Provisions charged to income 219.5 61.3 85.4
Net charge-offs and reductions (70.2) (73.6) (45.8)
-------- --------- ----------
Balance at end of the year $315.1 $165.8 $178.1
======== ========= ==========
Loans Sold with Recourse
- ------------------------
Information regarding GMACMG's loans sold with recourse which are serviced by
GMACMG is as follows:
December 31,
--------------------------
2001 2000
----------- ------------
(in millions of dollars)
Loans sold with recourse $ 12,418.0 $ 14,009.2
=========== ============
Maximum exposure on loans sold:
Full recourse $ 127.3 $ 155.6
Limited recourse 846.9 817.6
----------- ------------
Total $ 974.2 $ 973.2
=========== ============
The maximum recourse exposure shown above is net of amounts reinsured with third
parties which totaled $57.2 million and $80.4 million at December 31, 2001 and
2000, respectively.
Mortgage Derivative Financial Instruments
- -----------------------------------------
GMACMG uses various financial instruments in the normal course of business to
manage inherent risk. The derivative financial instruments are generally held
for hedging purposes and consist primarily of interest rate floors and caps,
written and purchased option contracts, futures contracts, and individually
tailored swap products.
61
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. MORTGAGE BANKING (continued)
Mortgage Derivative Financial Instruments (concluded)
- -----------------------------------------------------
GMACMG uses U.S. Treasury related derivatives to hedge interest rate risk
associated with its mortgage inventory pipeline. At December 31, 2001 and 2000,
the notional amount of such instruments totaled $3,018.5 million and $37.7
million, respectively. These instruments are carried at estimated fair value.
Realized and unrealized gains and losses on these instruments are recognized in
the current period on a mark-to-market basis.
GMACMG utilizes U.S. Treasury related derivatives and mortgage-backed securities
to hedge interest rate and price risk associated with its mortgage loans held
for sale. At December 31, 2001 and 2000, the notional amount of such instruments
totaled $2,083.7 million and $1,095.7 million, respectively. These instruments
are carried at estimated fair value. Realized and unrealized gains and losses on
these instruments are recognized in the current period on a mark-to-market
basis.
GMACMG uses U.S. Treasury related derivatives and interest rate swap agreements
to hedge price and interest rate risk associated with its mortgage-related
securities. At December 31, 2001 and 2000, the notional amount of such
instruments totaled $11,830.7 million and $9,353.9 million, respectively. These
instruments are carried at estimated fair value. Realized and unrealized gains
and losses on these instruments are recognized in the current period on a
mark-to-market basis.
GMACMG enters into interest rate swap contracts in an effort to stabilize
short-term borrowing costs. At December 31, 2001 and 2000, the notional amount
of these instruments totaled $985.0 million and $1,230.9 million, respectively.
The contracts involve the delivery of fixed payments to a counterparty in return
for variable payments based upon a published index. The contracts have
maturities ranging from one to five years. Amounts paid or received under such
contracts are recorded as an adjustment to interest expense. These instruments
are carried at estimated fair value. Realized gains and losses on these
instruments are recognized in the current period. Unrealized gains and losses on
these instruments are recognized in the current period as a component of Other
Comprehensive Income.
GMACMG uses interest rate caps and floors, futures, options on futures
contracts, swaps, swaptions, forwards and mortgage-backed security related
derivatives to manage the risk of impairment loss due to a change in the fair
value of capitalized mortgage servicing rights. At December 31, 2001 and 2000,
the notional amount of such instruments totaled $56,752.5 million and $31,074.3
million, respectively. The maturities of these instruments range between one
month and fifteen years. These instruments are carried at estimated fair value.
Realized and unrealized gains and losses on these instruments are recognized in
the current period on a mark-to-market basis.
Interest rate lock commitments ("IRLC's") and commitments to purchase or
originate residential mortgage loans held for sale are derivative financial
instruments. Gains and losses on IRLC's and commitments to purchase or originate
residential mortgage loans held for sale are initially deferred as a component
of Other Assets or Other Liabilities on the Consolidated Balance Sheet; gains
and losses subsequent to the initial recording of such instruments are
recognized in the current period as incurred. Deferred gains or losses are
recognized as a component of Mortgage Revenues when the related mortgage loans
are sold.
In connection with certain special purpose entities, GMACMG enters into
derivative contracts to retain or hedge interest rate and/or credit risk
associated with certain assets in the entities. These derivatives are marked to
market in the Company's Consolidated Financial Statements, with unrealized
holding gains and losses recorded in the Consolidated Statement of Income.
Assets outstanding in these facilities at December 31, 2001, were $4.7 billion.
<page>
Mortgage Commitments
- --------------------
GMACMG enters into various commitments to purchase or originate mortgage loans
in the normal course of business. Commitments to purchase or originate mortgage
loans totaled $14,727.8 million and $5,048.2 million at December 31, 2001 and
2000, respectively. Of these loan commitment obligations, $4,921.6 million
qualified as derivatives under SFAS No. 133 and therefore were carried at
estimated fair value. The remaining commitments of $9,806.2 million did not meet
the criteria for derivatives and were considered in conjunction with the lower
of cost or market valuation of mortgage inventory held for sale.
62
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. MORTGAGE BANKING (continued)
Mortgage Commitments (concluded)
- --------------------------------
Commitments to sell mortgage loans totaled $426.0 million and $1,644.5 million
at December 31, 2001 and 2000, respectively. Of these commitments, $400.0
million qualified as derivatives under SFAS No. 133 and were carried at
estimated fair value. The remaining balance of $26.0 million did not meet the
criteria for a derivative and were considered in conjunction with the lower of
cost or market valuation of mortgage inventory held for sale.
Commitments to sell securities totaled $8,799.8 million and $507.6 million at
December 31, 2001 and 2000, respectively. Of these commitments, $7,106.2 million
qualified as derivatives under SFAS No. 133 and were carried at estimated fair
value. The remaining balance of $1,693.7 million did not meet the criteria for a
derivative and were considered in conjunction with the lower of cost or market
valuation of mortgage inventory held for sale.
Commitments to purchase securities totaled $133.1 million at December 31, 2001.
These commitments qualified as derivatives under SFAS No. 133 and were marked to
market on the balance sheet with the corresponding unrealized gains and losses
recorded in the income statement. There were no such commitments at December 31,
2000.
Warehouse lending involves the extension of short-term secured lines of credit
to mortgage originators to finance mortgage loans until such loans are purchased
by a permanent investor. Advances under the lines of credit are fully secured by
the underlying mortgages and bear interest at a rate that is tied to a
short-term index. At December 31, 2001 and 2000, unused warehouse lending
commitments totaled $5,029.4 million and $3,383.6 million, respectively. GMACMG
enters into foreign currency contracts to hedge foreign exchange risks
associated with overseas lending. At December 31, 2001 and 2000, the notional
amounts of such instruments totaled $117.8 million and $134.6 million,
respectively. Construction lending involves the extension of long-term secured
lines of credit to construction project managers. At December 31, 2001 and 2000,
unused construction lending commitments totaled $2,750.7 million and $3,538.1
million, respectively. Healthcare lending involves the extension of long-term
secured lines of credit to healthcare related institutions. At December 31,
2001, unused healthcare commitments totaled $46.9 million. There were no unused
healthcare commitments at December 31, 2000. In addition, GMACMG also has
outstanding commitments to lend on available credit lines, primarily home equity
lines of credit. At December 31, 2001 and 2000, unused lending commitments on
these lines totaled $1,025.7 million and $722.7 million, respectively.
Mortgage Securitization
- -----------------------
GMACMG sells mortgage loans through public and private securitizations as well
as through whole loan sales. Gains or losses on such sales are recognized at
transfer of title and when control over the loans has been surrendered. The
resulting gain or loss on sale is determined by allocating the carrying amount
of the loans between the mortgage securities sold and the interests retained
based on their relative fair value at the date of sale. Fair values are based on
quoted market prices if available. Otherwise, the fair value of the retained
interests is estimated based on the present value of expected future cash flows.
Expected future cash flows are derived from management's best estimate of
assumptions regarding prepayment speeds, credit losses, discount rates
commensurate with the risks involved and, if applicable, interest rates on
variable and adjustable contracts.
Prepayment speed estimates are determined utilizing data obtained from market
participants, where available, or based on historical prepayment rates on
similar assets. Credit loss assumptions are based upon historical experience and
the characteristics of individual loans underlying the securities. Discount rate
assumptions are determined using data obtained from market participants, where
available, or based on current relevant treasury rates plus a risk adjusted
spread based on analysis of historical spreads on similar types of securities.
Estimates of interest rates on variable and adjustable contracts are based on
spreads over the applicable benchmark interest rate.
63
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. MORTGAGE BANKING (continued)
Mortgage Securitization (continued)
- -----------------------------------
During 2001, GMACMG sold residential mortgage loans, including home equity
loans, high loan-to-value loans, residential first and second mortgage loans and
other loans, and commercial mortgage loans in securitization transactions. In
the majority of those securitizations, GMACMG retained servicing
responsibilities and, in some cases, subordinated interests. As of December 31,
2001, the weighted average servicing fee for GMACMG for primary servicing
activities was between 32.2 and 40.0 basis points on residential mortgages and
8.4 basis points on commercial mortgages of the outstanding principal balance
serviced. Master servicing fees were between 1.5 and 8.0 basis points of the
unpaid principal balance serviced at December 31, 2001. The investors and the
securitization trusts have no recourse to GMACMG's other assets for failure of
debtors to pay when due. GMACMG's retained interests are subordinate to the
investors' interest. Their fair value is subject to credit, prepayment and
interest rate risks on the transferred financial assets.
In 2001, 2000 and 1999, GMACMG recognized pre-tax gains of $965.8 million,
$682.4 million and $526.7 million, respectively, on the securitization of
residential mortgages and $28.8 million, $40.4 million and $76.1 million,
respectively, on the securitization of commercial mortgages.
Key economic assumptions used in measuring the retained interests at the date of
securitization resulting from securitizations completed during 2001 and 2000
were as follows:
December 31, 2001 December 31, 2000
--------------------------------- ---------------------------------
Residential ** Commercial Residential ** Commercial
----------------- ------------- ---------------- ---------------
(in millions of dollars) (in millions of dollars)
Prepayment speeds (CPR)* 9.8 to 38.0% 0.0 to 50.0% 10.5 to 38.0% 0.0 to 68.0%
Weighted average life (years) 1.7 to 8.2 1.2 to 13.3 1.7 to 6.3 2.6 to 10.4
Expected credit losses 0.0 to 22.9% 0.0 to 1.9% 0.0 to 21.7% 0.0 to 2.0%
Discount rate 6.5 to 13.5% 6.9 to 54.7% 6.5 to 14.0% 12.7 to 34.0%
* Constant prepayment rate
** Included within Residential mortgage loans are home equity loans, high loan
to value loans and residential first and second mortgage loans. The range of
assumptions used in measuring the retained interests for these specific loan
types are consistent with the overall ranges noted above for the Residential
category.
The following summarizes certain cash flows received from (paid to)
securitization trusts:
December 31, 2001 December 31, 2000
------------------------------ --------------------------------
Residential Commercial Residential Commercial
---------------- ------------- ------------- -----------------
(in millions of dollars) (in millions of dollars)
Proceeds from new securitizations $ 34,803.3 $ 3,261.7 $ 24,958.8 $ 2,476.3
Servicing fees received 255.4 15.9 212.0 13.0
Other cash flows received 763.1 63.9 482.5 46.4
Purchases of delinquent / foreclosed assets (320.2) -- (282.4) --
Servicing advances (615.7) (94.5) (616.5) (81.5)
Repayments of servicing advances 612.7 71.0 585.7 74.0
64
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. MORTGAGE BANKING (continued)
Mortgage Securitization (continued)
- -----------------------------------
Key economic assumptions and the sensitivity of the current fair value of
residual cash flows to immediate 10% and 20% adverse changes in those
assumptions are as follows ($ in millions):
December 31, 2001 December 31, 2000
------------------- -------------------
Residential Residential
------------------- -------------------
(in millions of dollars)
Carrying amount / fair value of retained
Interest securities $ 2,675.1 $ 2,367.6
Prepayment speeds (CPR) * 9.9 to 47.0% 12.7 to 38.9%
Impact on fair value of 10% adverse change $ (198.5) $ (160.1)
Impact on fair value of 20% adverse change (387.4) (313.2)
Weighted average life (years) 1.7 to 7.6 1.7 to 6.2
Expected credit losses 0.0 to 22.9% 0.0 to 21.7%
Impact on fair value of 10% adverse change $ (135.5) $ (96.5)
Impact on fair value of 20% adverse change (271.3) (190.9)
Discount rate 6.5 to 13.5% 6.5 to 13.9%
Impact on fair value of 10% adverse change $ (77.6) $ (88.6)
Impact on fair value of 20% adverse change (152.0) (167.9)
Interest rates on variable and adjustable contracts ** **
Impact on fair value of 10% adverse change $ (17.1) $ (27.3)
Impact on fair value of 20% adverse change (30.5) (54.6)
* Constant prepayment rate
** Forward benchmark interest rate yield curve plus contractual spread
Key economic assumptions and the sensitivity of the current fair value of
residual cash flows to immediate 10% and 20% adverse changes in those
assumptions are as follows ($ in millions):
December 31, 2001 December 31, 2000
-------------------- --------------------
Commercial Commercial
-------------------- --------------------
(in millions of dollars)
Carrying amount / fair value of retained
Interest securities $ 782.2 $ 291.9
Prepayment speeds (CPR) * 0.0 to 50.0% 0.0 to 68.0%
Impact on fair value of 10% adverse change $ (1.6) $ (1.1)
Impact on fair value of 20% adverse change (2.0) (1.4)
Weighted average life (years) 0.1 to 19.7 1.5 to 20.9
Expected credit losses 0.0 to 2.3% 0.0 to 3.0%
Impact on fair value of 10% adverse change $ (8.1) $ (1.9)
Impact on fair value of 20% adverse change (10.9) (3.5)
Discount rate 6.9 to 58.4% 9.9 to 34.0%
Impact on fair value of 10% adverse change $ (39.7) $ (22.7)
Impact on fair value of 20% adverse change (74.6) (37.0)
Interest rates on variable and adjustable contracts ** **
Impact on fair value of 10% adverse change $ -- $ --
Impact on fair value of 20% adverse change -- --
* Constant prepayment rate
** Forward benchmark interest rate yield curve plus contractual spread
65
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. MORTGAGE BANKING (continued)
Mortgage Securitization (concluded)
- -----------------------------------
The following table presents quantitative information about delinquencies, net
credit losses and components of securitized financial assets and other assets
managed together:
December 31, 2001
-----------------
Total Year Ended
Principal Loans 60 Days December 31,
Amount of or more Past 2001 Net Credit
Type of Loan Loans Due Losses
- ------------ ----------- ---------------- -----------------
(in millions of dollars)
Commercial $ 16,674.7 $ 249.5 $ 1.1
Residential 86,766.3 2,878.0 310.3
----------- ---------------- -----------------
Total loans owned or securitized (1) 103,441.0 $3,127.5 $ 311.4
================ =================
Less:
Loans securitized 89,574.2
Loans held for sale / securitization 10,422.5
-----------
Loans held in portfolio $ 3,444.3
===========
(1) Owned and securitized loans represent loans on the balance sheet or that
have been securitized, excluding securitized loans that GMACMG continues to
service but has no other continuing involvement.
December 31, 2000
-----------------
Total Year Ended
Principal Loans 60 Days December 31,
Amount of or more Past 2001 Net Credit
Type of Loan Loans Due Losses
- ------------ ------------- ------------- -----------------
(in millions of dollars)
Commercial $14,000.4 $ 166.2 $ --
Residential 72,845.1 2,811.2 142.9
---------- ---------- ----------------
Total loans owned or securitized (2) 86,845.5 $ 2,977.4 $ 142.9
========== ================
Less:
Loans securitized 79,142.7
Loans held for sale / securitization 5,766.4
----------
Loans held in portfolio $ 1,936.4
==========
(2) Owned and securitized loans represent loans on the balance sheet or that
have been securitized, excluding securitized loans that GMACMG continues to
service but has no other continuing involvement.
66
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. MORTGAGE BANKING (continued)
Mortgage Servicing Rights
- -------------------------
The right to service loans is contracted under primary or master servicing
agreements. Under primary servicing agreements, GMACMG collects monthly
principal, interest and escrow payments from individual mortgagors and performs
certain accounting and reporting functions on behalf of the mortgage investors.
As master servicer, GMACMG collects monthly payments from various sub-servicers
and performs certain accounting and reporting functions on behalf of the
mortgage investors. With the exception of serviced mortgages owned GMACMG, the
servicing portfolio principal amount is not reflected in the Company's financial
statements. Capitalized mortgage servicing rights, net of valuation allowances,
totaled $4,839.8 million and $3,984.5 million at December 31, 2001 and 2000,
respectively. The fair value of the mortgage servicing rights at December 31,
2001 and 2000, was $5,384.9 million and $4,082.8 million, respectively.
The Company estimates the fair value of its mortgage servicing rights based upon
assumptions that market participants would use. Typically, those assumptions are
derived from similar transactions, which occur in the marketplace. Continued
industry consolidation and other factors have led to a substantial decline in
relevant market transactions for certain residential mortgage products,
particularly since April 2001. In order to improve the Company's estimation
process for assessing the fair value of certain of its mortgage servicing
rights, during the second quarter, the Company increased its reliance on its own
mortgage servicing rights cash flow history for certain assumptions and
continues to use market driven earning rates, discounting factors and prepayment
models.
GMACMG has stratified its mortgage servicing rights by predominant risk
characteristics, primarily loan type and interest rate interval, for purposes of
measuring impairment. Amortization expense is recorded for each stratum in
proportion to and over the period of the projected net servicing income.
Impairment is evaluated for each stratum by comparing fair value as estimated
using projected discounted cash flows with current market assumptions to the net
book value of the related stratum. Impairment is recorded through a valuation
allowance and charged to amortization expense in the period it is determined. At
December 31, 2001 and 2000, the valuation allowance totaled $491.1 million and
$93.7 million, respectively.
The following table presents a summary of the mortgage servicing rights
valuation allowance that is recorded in mortgage servicing rights, net.
For the years ended December 31,
--------------------------------
2001 2000 1999
-------- ------- --------
(in millions of dollars)
Balance at beginning of the year $93.7 $69.4 $52.7
Impairment additions to valuation allowance 506.2 28.0 20.0
Reductions to valuation allowance (108.8) (3.7) (3.3)
-------- ------- --------
Balance at end of the year $491.1 $93.7 $69.4
======== ======= ========
Key economic assumptions and the sensitivity of the current fair value of
mortgage servicing rights to immediate 10 and 20 percent adverse changes in
those assumptions are as follows ($ in millions):
December 31,
---------------------------
2001 2000
---------- ----------
Carrying amount of mortgage servicing rights $4,839.8 $3,984.5
Prepayment speeds (constant prepayment rate) 12.4% 13.6%
Impact on fair value of 10% adverse change $(162.4) $(135.4)
Impact on fair value of 20% adverse change (310.0) (261.6)
Discount Rate 9.1% 10.6%
Impact on fair value of 10% adverse change $(162.2) $(113.0)
Impact on fair value of 20% adverse change (313.9) (218.2)
67
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. MORTGAGE BANKING (concluded)
The sensitivities in this note are hypothetical and should be used with caution.
As the figures indicate, changes in fair value based on a 10 percent variation
in assumptions generally cannot be extrapolated because the relationship of the
change in assumption to the change in fair value may not be linear. Also, in
this table, the effect of a variation in a particular assumption on the fair
value of the retained interest is calculated without changing any other
assumption. In reality, changes in one factor may result in changes in another
(for example, increases in market interest rates may result in lower prepayments
and increased credit losses), which might magnify or counteract the
sensitivities. Further, these sensitivities show only the change in the asset
balances and do not show any expected changes in the fair value instruments used
to manage the interest rate and prepayment risks associated with these assets,
as discussed under Mortgage Derivative Financial Instruments above.
In addition, the above estimated amounts generated from the sensitivity analyses
include forward-looking statements of market risk, which assume for analytical
purposes that certain adverse market considerations may occur. Actual future
market conditions may differ materially and accordingly, the forward-looking
statements should not be considered projections by GMAC of future events or
losses.
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has developed the following fair value estimates by utilization of
available market information or other appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value, so the estimates are not necessarily indicative
of the amounts that could be realized or would be paid in a current market
exchange. The effect of using different market assumptions and/or estimation
methodologies may be material to the estimated fair value amounts.
Fair value information presented herein is based on information available at
December 31, 2001 and 2000. Although management is not aware of any factors that
would significantly affect the estimated fair value amounts, such amounts have
not been updated since those dates and, therefore, the current estimates of fair
value at dates subsequent to December 31, 2001 and 2000 may differ significantly
from these amounts.
The estimated fair value of financial instruments held by the Company, for which
it is practicable to estimate that value, were as follows:
Balance sheet financial instruments:
December 31, 2001 December 31, 2000
-------------------------------------- ----------------------------------
Book Estimated Book Estimated
Value Fair Value Value Fair Value
----------------- ---------------- -------------- ----------------
Assets (in millions of dollars)
- ------
Cash and cash equivalents $ 10,100.7 $ 10,100.7 $ 1,147.8 $ 1,147.8
Investments in securities 10,587.1 10,583.5 9,485.0 9,492.1
Finance receivables, net 100,327.8 101,882.5 93,024.8 92,952.7
Factored receivables 1,418.8 1,418.8 2,291.1 2,291.1
Notes receivable from GM 4,165.1 4,137.0 5,434.0 5,414.7
Real estate mortgages
-held for sale 10,186.7 10,277.0 5,758.5 5,811.8
-held for investment 3,383.8 3,494.5 1,895.1 1,893.6
-lending receivables 4,520.7 4,520.7 2,960.0 2,960.0
Due and deferred from receivable
Sales, net 2,259.8 2,259.8 1,159.3 1,159.3
Derivatives - asset position (1)
-Interest rate instruments 1,543.0 1,543.0 -- --
-Foreign currency instruments 129.8 129.8 -- --
Liabilities
Debt $ 152,033.2 $ 152,527.1 $133,372.2 $132,979.9
Derivatives - liability position (1)
-Interest rate instruments 635.2 635.2 -- --
-Foreign currency instruments 2,307.1 2,307.1 -- --
68
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Off-balance sheet financial instruments:
December 31, 2001 December 31, 2000
---------------------------------- -----------------------------------
Contract/ Contract/ (6)
Notional Gain Loss Notional Gain Loss
Amount(3) Position Position Amount(4) Position Position
---------- -------- -------- --------- -------- --------
(in millions of dollars)
Commitments to originate/purchase
Mortgages/securities (2) $ 14,860.9 $ 199.0 $ (17.3) $ 5,048.2 $ 45.5 $ --
Commitments to sell
Mortgages/securities (3) 8,817.8 67.0 (12.6) 2,152.1 12.6 (13.6)
Unused mortgage lending
Commitments 8,838.9 -- -- 7,644.4 -- --
Commitments to provide capital to
Equity method investees 181.1 -- -- -- -- --
Unused revolving credit lines 4,425.4 -- -- 2,986.8 -- --
Interest rate instruments (1) (4) -- -- -- 87,441.7 991.3 (701.1)
Foreign currency instruments (1) (5) -- -- -- 15,322.8 383.9 (1,250.5)
(1) Effective January 1, 2001 the Company was required to record the fair market
value of its derivatives on the balance sheet due to the implementation of SFAS
No. 133. Refer to Note 17 for additional information.
(2) The 2001 notional balance includes $5,054.6 million in financial instruments
that are recorded at fair value on the balance sheet. The net fair value
recorded on the balance sheet for these financial instruments totaled $28.1
million at December 31, 2001.
(3) The 2001 notional balance includes $7,506.2 million in financial instruments
that are recorded at fair value on the balance sheet. The net fair value
recorded on the balance sheet for these financial instruments totaled $63.7
million at December 31, 2001.
(4) The 2000 notional balance includes $51,617.9 million in financial
instruments that are recorded at fair value on the balance sheet. The net fair
value recorded on the balance sheet for these financial instruments totaled
$310.5 million at December 31, 2000. The loss position includes deferred losses
of $5.1 million for December 31, 2000. The gain/loss positions presented exclude
accrued interest.
(5) Includes $4,719.5 million in combined interest rate and currency swaps with
unrealized losses of $612.9 million at December 31, 2000. The unrealized gain or
loss in the fair value of the foreign currency instruments in 2000 was offset by
the unrealized loss or gain in the fair value of the related underlying debt
instruments. The gain/loss positions presented exclude accrued interest.
(6) Contract/notional amounts of off-balance sheet financial instruments do not
represent credit risk exposures. Credit risk is limited to the current cost of
replacing instruments in a gain position.
Cash and cash equivalents
- -------------------------
The book value approximates fair value because of the short maturity of these
instruments.
Investments in securities
- -------------------------
Bonds, equity securities, notes and other available for sale investments in
securities are carried at fair value, which is based on quoted market prices.
The fair value of mortgage-related trading securities is based on market quotes,
discounted using market prepayment assumptions and discount rates. The held to
maturity investments in securities are carried at historical cost. The fair
value of the held to maturity investments in securities is based on quoted
market prices. The retained interests in securitizations are carried at fair
value based on discounted expected cash flows using current market rates.
<page>
Finance receivables, net
- ------------------------
The fair value is estimated by discounting the future cash flows using
applicable spreads to approximate current rates applicable to each category of
finance receivables. The carrying value of wholesale receivables and other
receivables whose interest rates adjust on a short-term basis with applicable
market indices (generally the prime rate) are assumed to approximate fair value
either due to their short maturities or due to the interest rate adjustment
feature.
69
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Factored receivables
- --------------------
The book value approximates the fair value because of the short duration of such
receivables.
Notes receivable from GM
- ------------------------
The fair value is estimated by discounting the future cash flows using
applicable spreads to approximate current rates applicable to certain categories
of other financing assets.
Real estate mortgages
- ---------------------
The fair value of mortgage loans held for sale is based upon actual prices
received on recent sales of mortgage loans and securities to investors and
projected prices obtained through investor indications considering interest
rates, mortgage loan type and credit quality. The fair values of loans held for
investment is determined through a review of published market information
associated with similar instruments. Due to the short-term floating rates on
lending receivables, book values are assumed to approximate fair values.
Due and deferred from receivable sales, net
- -------------------------------------------
The fair value of interest-only strip receivables is derived by discounting
expected cash flows using current market rates.
Derivatives asset position / Derivatives liability position
- -----------------------------------------------------------
Effective January 1, 2001, the Company was required by SFAS No. 133 to reflect
the fair market value of its derivatives on the balance sheet.
Interest rate instruments
- -------------------------
The fair value of the existing interest rate swaps is estimated by discounting
expected cash flows using quoted market interest rates. The fair value of
written and purchased options is estimated using broker/dealer quoted market
prices. The fair value of mortgage-related interest rate swaps, caps and written
and purchased options is based upon broker/dealer quoted market prices.
Foreign currency instruments
- ----------------------------
The estimated fair value of the foreign currency swaps is derived by discounting
expected cash flows using market exchange rates over the remaining term of the
agreement.
Debt
- ----
The fair value of debt is determined by using quoted market prices for the same
or similar issues, if available, or based on the current rates offered to the
Company for debt with similar remaining maturities. Commercial paper, master
notes and demand notes have an original term of less than 270 days and,
therefore, the carrying amount of these liabilities is considered to approximate
fair value.
Commitments to originate/purchase mortgages/securities
- ------------------------------------------------------
The fair value of commitments is estimated using published market information
associated with commitments to sell similar instruments.
Commitments to sell mortgages/securities
- ----------------------------------------
The fair value of commitments is estimated using published market information
associated with similar instruments.
Unused mortgage lending commitments
- -----------------------------------
The fair value of these commitments is considered in the overall valuation of
the underlying assets with which they are associated.
<page>
Commitments to provide capital to equity method investees
- ---------------------------------------------------------
GMAC Mortgage Group is committed to lend equity capital to its real estate
partnerships. The fair value of these commitments is considered in the overall
valuation of the underlying assets with which they are associated.
70
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS (concluded)
Unused revolving credit lines
- -----------------------------
The unused portion of revolving lines of credit will approximate market value
since they reprice at prevailing market rates.
Credit Risk
- -----------
These aforementioned instruments contain an element of risk in the event the
counterparties are unable to meet the terms of the agreements. However, the
Company minimizes the risk exposure by limiting the counterparties to those
major banks and financial institutions who meet established credit guidelines.
Management also reduces its credit risk for unused lines of credit it extends by
applying the same credit policies in making commitments as it does for extending
loans. Management does not expect any counterparty to default on its obligations
and, therefore, does not expect to incur any loss due to counterparty default.
The Company does not require or place collateral for these financial
instruments, except for the lines of credit it extends.
Concentrations of Credit Risk
- -----------------------------
The Company's primary business is to provide vehicle financing for GM products
to GM dealers and their customers. Wholesale and dealer loan financing relates
primarily to GM dealers, with collateral primarily GM vehicles (for wholesale)
and GM dealership property (for loans). For wholesale financing, GMAC is also
provided further protection by GM factory repurchase programs. Retail contracts
and operating lease assets relate primarily to the secured sale and lease,
respectively, of vehicles (primarily GM).
In terms of geographic concentrations as of December 31, 2001, 81.3% of GMAC's
consolidated automotive servicing assets were U.S. based; 8.2% were in Europe
(of which 30.6% reside in Germany and 27.0% reside in the United Kingdom); 8.0%
were in Canada; 1.0% were in Asia-Pacific (of which Australia represents 80.0%);
and 1.5% were in Latin America. The majority of the Company's finance
receivables are geographically diversified throughout the United States.
71
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision makers in deciding how to allocate resources and in
assessing performance.
Financial results for GMAC's operating segments are summarized below:
Operating Segments:
- -------------------
(in millions of dollars)
Eliminations/
GMAC-NAO GMAC-IO GMACI GMACMG Reclassifications Total
-------------- -------------- --------- --------- ------------------- ------------
2001
- ----
Total assets $157,524.2 $17,793.4 $7,406.4 $34,063.4 $(24,066.5) $192,720.9
Net financing revenue 1,712.8 976.2 -- -- (89.4) 2,599.6
Other revenue 3,038.8 353.7 2,610.6 4,338.4 50.8 10,392.3
Tax expense 569.5 108.3 69.9 299.4 -- 1,047.1
Net income before cumulative
Effect of accounting change 1,012.8 198.4 208.4 332.0 -- 1,751.6
Net income 1,061.6 193.3 200.2 330.8 -- 1,785.9
2000
- ----
Total assets $141,515.9 $18,013.1 $7,183.7 $22,557.1 $(20,797.6) $168,472.2
Net financing revenue 1,041.9 977.3 -- -- 13.3 2,032.5
Other revenue 2,545.2 242.4 2,470.8 2,948.8 (39.5) 8,167.7
Tax expense 539.6 114.5 92.2 208.0 -- 954.3
Net income 850.6 204.1 220.0 327.4 -- 1,602.1
1999
- ----
Total assets $123,393.9 $18,114.6 $7,107.4 $18,398.2 $(18,176.3) $148,837.8
Net financing revenue 1,413.6 905.4 -- -- 41.0 2,360.0
Other revenue 1,792.2 93.0 2,324.0 2,290.6 (59.7) 6,440.1
Tax expense 566.8 136.3 79.5 177.6 -- 960.2
Net income 861.4 195.5 209.9 260.5 -- 1,527.3
72
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. SEGMENT INFORMATION (concluded)
Information concerning principal geographic areas was as follows:
Geographic Information:
(in millions of dollars)
All Other
United States Countries Total
---------------- ------------ -----------
2001
- ----
Net financing revenue and other revenue $ 10,539.1 $ 2,452.8 $ 12,991.9
Long-lived assets (1) 23,907.3 6,049.4 29,956.7
2000
- ----
Net financing revenue and other revenue $ 8,289.9 $ 1,910.3 $ 10,200.2
Long-lived assets (1) 27,213.3 6,539.3 33,752.6
1999
- ----
Net financing revenue and other revenue $ 7,210.9 $ 1,589.2 $ 8,800.1
Long-lived assets (1) 26,529.0 7,111.8 33,640.8
(1) Primarily consists of net operating leases, goodwill and net property and equipment.
73
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. COMMITMENTS AND CONTINGENT LIABILITIES
Minimum future commitments under operating leases having noncancellable lease
terms in excess of one year, primarily for real property, aggregating $523.7
million, are payable $135.8 million in 2002; $106.9 million in 2003; $79.7
million in 2004; $56.2 million in 2005; $33.1 million in 2006; and $112.0
million in 2007 and thereafter. Certain of the leases contain escalation clauses
and renewal or purchase options. Rental expenses under operating leases were
$241.9 million, $237.5 million and $232.5 million in 2001, 2000 and 1999,
respectively.
The Company and certain subsidiaries of GMACI and GMACMG have entered into
multiple agreements under which Electronic Data Systems Corporation, a former
subsidiary of GM, will continue to be the principal provider of information
technology services through 2003.
Various international subsidiaries of the Company are subject to regulatory and
other requirements of the jurisdictions in which they operate. These regulatory
restrictions primarily dictate that these subsidiaries meet certain minimum
capital requirements, restrict dividend distributions and require that some
assets be restricted. To date, compliance with these various regulations has not
had a materially adverse effect on the Company's financial position or results
of operations.
GMAC Bank is a Federal Deposit Insurance Corporation depository institution and
is subject to certain minimum aggregate capital requirements under applicable
federal banking laws. As of the date of this filing, GMAC Bank has met all
regulatory requirements.
GMAC is subject to potential liability under government regulations and various
claims and legal actions which are pending or may be asserted against them. Some
of the pending actions purport to be class actions. The aggregate ultimate
liability of GMAC under these government regulations and under these claims and
actions, was not determinable at December 31, 2001. After discussion with
counsel, it is the opinion of management that such liability is not expected to
have a material adverse effect on the Company's consolidated financial
condition, results of operations or cash flows.
74
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. DERIVATIVE FINANCIAL INSTRUMENTS
GMAC's primary objective for utilizing derivative instruments is to minimize
market risk volatility associated with interest rate and foreign currency risks
related to the assets and liabilities of the automotive and mortgage operations.
Minimizing this volatility enables the Company to price its finance and mortgage
offerings at competitive rates and to minimize the impact of market risk on
earnings of the Company. The Company utilizes comprehensive asset/liability
management strategies administered by the respective automotive or mortgage
operations management to achieve this objective. One of the key goals of the
Company's strategy is to match the interest rate characteristics of the interest
bearing liabilities with those of the interest earning assets, including the
assets and liabilities associated with securitization transactions that may be
recorded in off-balance sheet special purpose entities. In addition, the Company
utilizes derivatives to neutralize the foreign currency exposure due to foreign
currency denominated debt.
GMAC Automotive Operations
Interest Rate Instruments
GMAC is subject to market risk from exposure to changes in interest rates based
on its financing, investing and cash management activities. GMAC enters into
various financial instrument transactions to maintain the desired level of
exposure to the risk of interest rate fluctuations and to minimize interest
expense. The Company utilizes various contracts to manage interest rate risk
including: interest rate swaps that are contractual agreements between the
Company and another party to exchange the net difference between a fixed and
floating interest rate, or different floating interest rates, periodically over
the life of the contract without the exchange of the underlying principal
amount. The Company uses swaps to alter its fixed and floating interest rate
exposures. As such, the majority of swaps are executed as an integral element of
a specific financing transaction. In a limited number of cases, swaps, matched
to specific portfolios of assets or debt, are executed to achieve specific
interest rate management objectives.
GMAC has elected to designate particular interest rate swap arrangements as
hedging the exposure to changes in the fair value of fixed rate debt
instruments. Any measured hedge ineffectiveness related to fair value hedges is
recognized as a net gain or loss in other operating expenses. For the period
ended December 31, 2001, a net gain of $26.1 million, including the transition
adjustment, was recognized representing the ineffectiveness of fair value
hedges.
The Company has also elected to designate other interest rate arrangements as
hedging the exposure to variability in expected future cash flows attributable
to variable rate debt. Any ineffectiveness related to cash flow hedges is
recognized as a net gain or loss in other operating expenses. For the period
ended December 31, 2001, there was no measured ineffectiveness in the Company's
cash flow hedges. The amounts related to GMAC's cash flow hedges that are
reported in other comprehensive income will be reclassified into earnings as
payments become due and the swaps approach maturity. During 2001, $(31.6)
million loss was reclassified out of other comprehensive income and into
earnings. Over the next twelve months $(29.5) million loss is expected to be
reclassified out of other comprehensive income and into earnings.
GMAC has certain interest rate swap arrangements that are not designated as
hedges under SFAS No. 133. These instruments relate primarily to swaps that are
used to facilitate securitization transactions. During 2001, a net gain of
$161.2 million, including the transition adjustment, was recognized into income
related to these instruments.
75
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
GMAC Automotive Operations (continued)
Foreign Currency Instruments
GMAC is exposed to foreign currency risk arising from the possibility that
fluctuations in foreign exchange rates will impact future earnings or assets and
liability values from normal operations in foreign countries and various
financial instruments that are denominated in foreign currencies. Currency swaps
and forwards are used to hedge foreign exchange exposure on foreign currency
denominated debt by converting the funding currency to the currency of the
assets being financed. Foreign currency swaps and forwards are legal agreements
between two parties to purchase and sell a foreign currency, for a price
specified at the contract date, with delivery and settlement at both the
effective date and maturity date of the contract.
The Company has elected to designate certain foreign currency arrangements as
hedging the exposure to variability in expected future cash flows attributable
to debt denominated in a foreign currency. Any ineffectiveness related to these
cash flow hedges is recognized as a net gain or loss in other operating
expenses. For the period ended December 31, 2001, there was no measured
ineffectiveness in the Company's foreign currency cash flow hedges. The amounts
related to GMAC's foreign currency cash flow hedges that are reported in other
comprehensive income will be reclassified into earnings as payments become due
and the swaps approach maturity. The Company expects that any amounts that will
be reclassified into earnings from other comprehensive income over the next
twelve months will be immaterial.
GMAC has elected not to designate foreign currency derivatives as fair value
hedges of foreign dominated debt under SFAS No. 133 because the changes in fair
value, recorded in other operating expenses, is substantially offset by the
foreign currency revaluation gains and losses of the related liabilities.
Mortgage Derivatives
GMACMG maintains an overall risk management strategy that incorporates the use
of various derivative financial instruments in the normal course of business to
manage inherent risks.
Fair-Value Hedges
Mortgage loans held for sale
GMACMG originates and purchases residential conforming and non-conforming and
commercial mortgage loans for sale into the secondary market. From the loan's
closing until its sale (warehoused loans), GMACMG is exposed to risk due to
changes in the fair value of the loans in its warehouse.
In order to accomplish the intended risk management objectives, GMACMG enters
into a combination of derivative instruments that are designated as hedges of
specific pools of similar mortgage loans held for sale. GMACMG uses the
following derivatives in managing the hedged risk associated with its mortgage
loans held for sale: (1) forward commitments; (2) over the counter options on
MBS; (3) options on treasury securities/futures; (4) constant maturity
treasuries/swaps ("CMT/CMS") caps and floors; and (5) other instruments
considered derivatives under SFAS No. 133.
76
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. DERIVATIVE FINANCIAL INSTRUMENTS (concluded)
Mortgage Derivatives (concluded)
Mortgage Servicing Rights
In connection with capitalized mortgage servicing rights ("MSRs") related to
residential conforming loans, GMACMG generally hedges the risk of changes in the
MSRs fair value attributable to changes in the designated benchmark interest
rate risk. In connection with capitalized mortgage servicing rights related to
certain residential non-conforming loans, GMACMG hedges the total change in fair
value of the MSR asset.
In order to accomplish the intended risk management objectives, GMACMG enters
into a combination of derivative instruments that are designated as hedges of
specific assets or specific pools of similar MSRs. GMACMG uses the following
derivatives in managing the hedged risk associated with its residential MSR
assets: (1) call and put options on Treasuries and Swaps; (2) MBS, treasury and
LIBOR future contracts; (3) CMT/CMS caps and floors; (4) swaptions; and (5)
swaps.
For the period ended December 31, 2001, GMACMG recognized a net loss of
approximately $(243.9) million reported as a component of Mortgage Revenue in
the Consolidated Statement of Income, pre-tax which represented the ineffective
portion of all fair-value hedges. All components of each derivative's gain or
loss were generally included in the assessment of hedge effectiveness.
Cash Flow Hedges
GMACMG issues floating rate commercial paper and short-term debt to finance
long-term assets. Thus, GMACMG is exposed to interest rate risk due to changes
in short-term interest rates. To mitigate this risk, GMACMG enters into a
portfolio of interest rate swaps to convert a portion of its floating rate
commercial paper and short-term debt to fixed rate instruments thereby
minimizing its exposure to volatility in short-term interest rates.
Included in Mortgage revenue, GMACMG recognized an immaterial amount of hedge
ineffectiveness on all cash flow hedges for the year ended December 31, 2001.
Additionally, GMACMG expects that any amounts which will be reclassified to
earnings from other comprehensive income will be immaterial.
Trading and Non-Hedge Derivatives
GMACMG also enters into various derivative contracts for trading and
economically hedging certain trading assets and financial instruments carried at
fair value. Trading activities (which include derivative transactions that are
entered into for risk-management purposes and do not otherwise qualify for hedge
accounting) primarily involve the use of options and futures contracts on U.S.
Treasury instruments and Euros, and interest rate swap, cap and floor agreements
to hedge price and interest rate risk associated with its mortgage-related
securities. GMACMG also enters into other derivative financial instruments to
hedge its exposure to foreign exchange fluctuations on certain obligations
denominated in foreign currencies. Finally, the interest rate lock commitments
and loan purchase commitments for 1-4 family residential mortgage loans held for
sale are classified as derivatives and are carried at their fair value on the
balance sheet.
77
SUPPLEMENTARY FINANCIAL DATA
SUMMARY OF CONSOLIDATED QUARTERLY EARNINGS (UNAUDITED)
2001 Quarters
---------------------------------------------------
First Second Third Fourth
------------- ---------- ---------- ------------
(in millions of dollars)
Total financing revenue $ 3,901.4 $3,758.4 $3,658.4 $3,765.3
Interest and discount expense 2,120.1 1,945.3 1,719.8 1,814.1
Net financing revenue and other income 2,980.6 3,275.3 3,184.3 3,551.7
Provision for credit losses 260.4 275.3 280.0 530.7
Net income before cumulative effect of
Accounting change 430.7 449.4 437.0 434.5
Net income 465.0 449.4 437.0 434.5
2000 Quarters
-------------------------------------------------------
First Second Third Fourth
------------- ---------- ---------- ----------
(in millions of dollars)
Total financing revenue $3,779.4 $3,827.9 $3,906.7 $3,979.4
Interest and discount expense 1,909.6 2,027.3 2,158.5 2,199.3
Net financing revenue and other income 2,380.9 2,445.8 2,645.5 2,728.0
Provision for credit losses 107.4 130.3 135.3 178.6
Net income 397.3 395.1 401.0 408.7
78
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS.
Included in Part II, Item 8 of Form 10-K.
(a)(2) FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted because they are inapplicable or
because the information called for is shown in the financial
statements or notes thereto.
(a)(3) EXHIBITS (Included in Part IV of this report). Page
----
12 Statement of Ratio of Earnings to Fixed Charges for the 83
years 2001, 2000, 1999, 1998 and 1997.
23.1 Consent of Independent Auditors. 84
(b) REPORTS ON FORM 8-K.
The Company filed Forms 8-K on October 13, 2001, October
16, 2001, October 18, 2001, October 22, 2001, October 24,
2001 and January 16, 2002 reporting matters under Item 5,
Other Events. In addition, the Company also filed a Form
8-K on October 24, 2001 reporting matters under Item 5,
Other Events and Item 7, Financial Statements, Pro Forma
Financial Information and Exhibits.
Items 4, 9, 10, 11, 12 and 13 are inapplicable and have been omitted.
79
SIGNATURES
Pursuant to the requirements of Section 13 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.
General Motors Acceptance Corporation
-------------------------------------
(Registrant)
By s/ JOHN D. FINNEGAN
-----------------------------------------------
Date: March 11, 2002 (John D. Finnegan, Chairman of the Board and
- -------------------- President)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on the 11th day of March, 2002, by the following persons
on behalf of the Registrant and in the capacities indicated.
Signature Title
s\ JOHN D. FINNEGAN
- ------------------------------
(John D. Finnegan) Chairman of the Board of Directors and President
s\ WILLIAM F. MUIR
- ------------------------------
(William F. Muir) Executive Vice President and Chief Financial Officer and Director
(Signing as Principal Financial Officer)
s\ GERALD E. GROSS
- ------------------------------
(Gerald E. Gross) Controller
(Signing as Principal Accounting Officer)
s\ RICHARD J. S. CLOUT
- ------------------------------
(Richard J. S. Clout) Executive Vice President and Director
s\ JOHN E. GIBSON
- ------------------------------
(John E. Gibson) Executive Vice President and Director
s\ GARY L. COWGER
- ------------------------------
(Gary L. Cowger) Director
s\ JOHN M. DEVINE
- ------------------------------
(John M. Devine) Director
s\ ERIC A. FELDSTEIN
- ------------------------------
(Eric A. Feldstein) Director
80
SIGNATURES (concluded)
Signature Title
s\ W. ALLEN REED
- ------------------------------
(W. Allen Reed) Director
s\ JOHN F. SMITH, JR.
- ------------------------------
(John F. Smith, Jr.) Director
s\ G. RICHARD WAGONER, JR.
- ------------------------------
(G. Richard Wagoner, Jr.) Director
81
EXHIBIT INDEX
Exhibit Number
Exhibit Name
--------------- -------------------------------------------------------
12 Ratio of Earnings to Fixed Charges
23.1 Consent of Independent Auditors, Deloitte & Touche LLP
82
EXHIBIT 12
GENERAL MOTORS ACCEPTANCE CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
2001 2000 1999 1998 1997
------ ---- ------- ------- -------
Consolidated net income $ 1,785.9 $ 1,602.1 $ 1,527.3 $ 1,325.3 $ 1,301.1
Provision for income taxes 1,074.6* 954.3 960.2 611.7 912.9
--------------- ------------ ---------- ---------- ---------
Consolidated income before income taxes 2,860.5 2,556.4 2,487.5 1,937.0 2,214.0
--------------- ------------ ---------- ---------- ---------
Fixed charges
Interest, debt, discount and expense 7,550.1 8,294.7 6,526.2 5,786.9 5,255.5
Portion of rentals representative of the
Interest factor 107.9 105.2 97.7 79.1 69.8
--------------- ------------ ---------- ---------- ---------
Total fixed charges 7,658.0 8,399.9 6,623.9 5,866.0 5,325.3
--------------- ------------ ---------- ---------- ---------
Earnings available for fixed charges $ 10,518.5 $ 10,956.3 $ 9,111.4 $ 7,803.0 $ 7,539.3
=============== ============ ========== ========== =========
Ratio of earnings to fixed charges 1.37 1.30 1.38 1.33 1.42
=============== ============ ========== ========== =========
* Includes cumulative effect of accounting change of $27.5 million.
83
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated January 16,
2002, appearing in this Annual Report on Form 10-K of General Motors Acceptance
Corporation for the year ended December 31, 2001, in the following registration
statements:
Registration
Form Statement No Description
- --------- ---------------- ---------------------------------------------
S-3 333-33652 $8,000,000,000 General Motors Acceptance
Corporation Demand Notes
S-3 333-55440 $25,000,000,000 General Motors Acceptance
Corporation Medium Term Notes
S-3/A 333-75250 $10,000,000,000 General Motors Acceptance
Corporation SmartNotes
S-3 333-58446 $30,000,000,000 General Motors Acceptance
Corporation Debt Securities and Warrants
to Purchase Debt Securities
s\ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Detroit, Michigan
March 11, 2002
84