e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X]
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2006, or
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[ ]
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from
to
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Commission file number:
1-3754
GMAC LLC
(Exact name of registrant as specified in its charter)
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Delaware
(State or other
jurisdiction of
incorporation or organization)
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38-0572512
(I.R.S. Employer
Identification No.)
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200 Renaissance Center
P.O. Box 200 Detroit, Michigan
48265-2000
(Address of principal executive offices)
(Zip Code)
(313) 556-5000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
(all on the New York Stock Exchange):
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Title of each
class
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61/8% Notes
due January 22, 2008
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7.30% Public Income NotES (PINES)
due March 9, 2031
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87/8% Notes
due June 1, 2010
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7.35% Notes due August 8,
2032
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6.00% Debentures due
April 1, 2011
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7.25% Notes due
February 7, 2033
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10.00% Deferred Interest Debentures
due December 1, 2012
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7.375% Notes due
December 16, 2044
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10.30% Deferred Interest Debentures
due June 15, 2015
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer (as defined in
Rule 12b-2
of the Act).
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Large accelerated
filer [ ]
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Accelerated
filer [ ]
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Non-accelerated
filer [X]
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act). Yes [ ] No [X]
Aggregate market value of voting and non-voting common equity
held by non-affiliates: Not applicable, as GMAC LLC has no
publicly traded equity securities.
Documents incorporated by reference. None.
INDEX
GMAC
LLC Form 10-K
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Page
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Business
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2
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Risk
Factors
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4
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Unresolved Staff
Comments
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11
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Properties
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11
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Legal
Proceedings
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11
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Submission of
Matters to a Vote of Security Holders
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13
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Market for
Registrants Common Equity, Related Matters and Issuer
Purchases of Equity Securities
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14
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Selected Financial
Data
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15
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Managements
Discussion and Analysis of Financial Condition and Results of
Operations
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16
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Quantitative and
Qualitative Disclosures about Market Risk
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63
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Financial Statements
and Supplementary Data
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65
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Statement of
Responsibility for Preparation of Financial Statements
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65
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Managements
Report on Internal Control over Financial Reporting
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66
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Reports of
Independent Registered Public Accounting Firm
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67
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Consolidated
Statement of Income
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69
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Consolidated Balance
Sheet
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70
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Consolidated
Statement of Changes in Equity
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71
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Consolidated
Statement of Cash Flows
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72
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Notes to
Consolidated Financial Statements
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73
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Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
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125
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Controls and
Procedures
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125
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Other
Information
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125
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Directors, Executive
Officers and Corporate Governance
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126
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Executive
Compensation
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129
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Security Ownership
of Certain Beneficial Owners and Management and Related
Matters
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150
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Certain
Relationships and Related Transactions, and Director
Independence
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150
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Principal Accountant
Fees and Services
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158
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Exhibits, Financial
Statement Schedules
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159
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Index of Exhibits
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159
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162
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Employment Agreement, dated November 30, 2006 - Eric Feldstein |
Employment Agreement, dated November 30, 2006 - William Muir |
Employment Agreement, dated November 30, 2006 - Sanjiv Khattri |
Long-Term Incentive Plan LLC Long-Term Phantom Interest Plan, effective December 18, 2006 |
Form of Award Agreement related to the GMAC Long-Term Incentive Plan LLC Long Term Phantom Interest Plan |
Form of Award Agreement related to the GMAC Long-Term Incentive Plan LLC Long Term Phantom Interest Plan |
Management LLC Class C Membership Interest Plan, effective December 18, 2006 |
Form of Award Agreement related to GMAC Management LLC Class C Membership Interest Plan |
Form of Award Agreement related to GMAC Management LLC Class C Membership Interest Plan |
Retention Bonus Plan, effective November 30, 2006 |
Plan and Summary Description |
Computation of Ratio of Earnings to Fixed Charges |
Subsidiaries of the Registrant as of December 31, 2006 |
Consent of Independent Registered Public Accounting Firm |
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) |
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) |
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 |
Explanatory Note
GMAC
LLC Form 10-K
GMAC LLC (referred to herein as GMAC, we, our or us) is
restating our historical consolidated financial statements for
the years ended December 31, 2005 and 2004, the
Consolidated Statements of Income, Changes in Equity and Cash
Flows for the year ended December 31, 2004, and other
selected financial data as presented in Item 6 as of
December 31, 2004 and for the years ended December 31,
2003 and 2002 and certain quarterly financial information
included in Item 8. As discussed in our Form 8-K filed
on February 16, 2007, this restatement relates to the
accounting treatment for certain hedging transactions under
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended and interpreted (SFAS 133). We
are also correcting certain other
out-of-period
errors, which were deemed immaterial, individually and in the
aggregate, in the periods in which they were originally recorded
and identified. Because of this SFAS 133 restatement, we
are correcting these amounts to record them in the proper
period.
The following table sets forth a reconciliation of previously
reported and restated net income for the periods shown. The
restatement resulted in a $10 million decrease to retained
earnings at January 1, 2002 from $10,815 million to
$10,805 million.
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Net
income for the year ended December 31,
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($ in
millions)
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2005
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2004
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2003
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2002
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Previously reported net income
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$2,394
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$2,913
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$2,793
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$1,870
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Elimination of hedge accounting
related to certain debt instruments
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(256
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(143
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(361
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553
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Other, net
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136
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52
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(153
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(82
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Total pre-tax
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(120
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(91
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(514
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471
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Related income tax effects
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8
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72
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227
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(138
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Restated net income
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$2,282
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$2,894
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$2,506
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$2,203
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% change
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(4.7
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(0.7
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(10.3
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17.8
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For additional information relating to the effect of the
restatement, refer to the following items:
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Part II
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Item 6 Selected
Financial Data
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Item 7
Managements Discussion and Analysis of Results of
Operations and Financial Condition
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Item 7A
Quantitative and Qualitative Disclosure about Market Risk
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Item 8 Financial
Statements and Supplementary Data
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Item 9A Controls and Procedures
Part IV
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Item 15 Exhibits
and Financial Statements Schedule
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In light of the restatement, readers should not rely on our
previously filed financial statements and other financial
information for the periods after the January 1, 2001
adoption of SFAS 133.
1
Part I
Item 1. Business
General
GMAC was founded in 1919 as a wholly owned subsidiary of General
Motors Corporation (General Motors or GM). On November 30,
2006, GM sold a 51% interest in us for approximately
$7.4 billion (the Sale Transactions) to FIM Holdings LLC
(FIM Holdings). FIM Holdings is an investment consortium
led by Cerberus FIM Investors, LLC (the sole managing member),
and including Citigroup Inc., Aozora Bank Ltd., and a subsidiary
of The PNC Financial Services Group, Inc.
Our
Business
We are a leading independent global diversified financial
services Company with approximately $287 billion of assets
and operations in approximately 40 countries. We currently
operate in the following lines of business
Automotive Finance, Mortgage (Residential Capital LLC or ResCap)
and Insurance. The following table reflects the primary products
and services offered by each of our lines of businesses.
Global Automotive
Finance
We are one of the worlds largest automotive financing
companies with operations in approximately 40 countries. Our
automotive finance business extends automotive financing
services primarily to franchised GM dealers and their customers
through two reporting segments North American
Automotive Finance Operations and our International Automotive
Finance Operations.
Through our Automotive Financing operations, we:
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Provide consumer automotive financing products and services,
including purchasing or originating, selling and securitizing
automotive retail contracts and leases with retail customers
primarily from GM and GM-affiliated dealers and performing
service activities, such as collection and processing activities
related to those contracts;
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Provide automotive dealer financing products and services,
including financing the purchases of new and used vehicles by
dealers, making loans or extending revolving lending facilities
for other purposes to dealers, selling and securitizing
automotive dealer receivables and loans, and servicing and
monitoring such financing;
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Provide fleet financing to automotive dealers and others for the
purchase of vehicles they lease or rent to others;
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Provide full service individual leasing and fleet leasing
products, including maintenance, fleet and accident management
services, as well as fuel programs, short-term vehicle rental
and title and licensing services; and
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Hold a portfolio of automotive retail contracts, leases and
automotive dealer finance receivables for investment, together
with interests retained from our securitization activities.
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2
ResCap
We are a leading real estate finance company focused primarily
on the residential real estate market. Our business activities
include the origination, purchase, servicing, sale and
securitization of residential mortgage loans.
Through our ResCap operations, we:
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Originate, purchase, sell and securitize residential mortgage
loans primarily in the United States, as well as internationally;
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Provide primary and master servicing to investors in our
residential mortgage loans and securitizations;
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Provide collateralized lines of credit, which we refer to as
warehouse lending facilities, to other originators of
residential mortgage loans both in the United States and Mexico;
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Hold a portfolio of residential mortgage loans for investment
together with interests retained from our securitization
activities;
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Provide bundled real estate services, including real estate
brokerage services, full service relocation services, mortgage
closing services and settlement services; and
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Provide specialty financing and equity capital to residential
land developers and homebuilders, resort and time share
developers and health care providers.
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Insurance
We offer automobile service contracts, personal automobile
insurance coverages (ranging from preferred to non-standard
risk), selected commercial insurance coverages and other
consumer products as well as provide certain reinsurance
coverages.
Through our Insurance operations, we:
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Provide automotive extended service and maintenance contracts
through automobile dealerships, primarily GM dealers in the
United States and Canada, and similar products outside the
United States;
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Provide automobile physical damage insurance and other insurance
products to dealers in the U.S. and internationally;
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Offer property and casualty reinsurance programs primarily to
regional direct insurance companies in the U.S. and
internationally;
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Offer vehicle and home insurance in the U.S. and internationally
through a number of distribution channels, including independent
agents, affinity groups and the internet; and
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Invest proceeds from premiums and other revenue sources in an
investment portfolio from which payments are made as claims are
settled.
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Certain
Regulatory Matters
We are subject to various regulatory, financial and other
requirements of the jurisdictions in which our businesses
operate. Following is a description of some of the primary
regulations that affect our business.
International
Banks and Finance
Companies
Certain of our foreign subsidiaries operate in local markets as
either banks or regulated finance companies and are subject to
regulatory restrictions, including Financial Services Authority
(FSA) requirements. These regulatory restrictions, among other
things, require that our subsidiaries meet certain minimum
capital requirements and may restrict dividend distributions and
ownership of certain assets. As of December 31, 2006,
compliance with these various regulations has not had a material
adverse effect on our consolidated financial position, results
of operations or cash flows. Total assets in regulated
international banks and finance companies approximated
$15.5 billion and $12.9 billion as of
December 31, 2006 and 2005, respectively.
Depository
Institutions
GMAC Bank, which provides services to both the Automotive
Finance and ResCap operations, is licensed as an industrial bank
pursuant to the laws of Utah and its deposits are insured by the
Federal Deposit Insurance Corporation (FDIC). GMAC is required
to file periodic reports with the FDIC concerning its financial
condition. Assets in GMAC Bank approximated $20.2 billion
at December 31, 2006. As of December 31, 2005,
certain depository institution assets were held at a Federal
savings bank that was wholly-owned by ResCap. Effective
November 22, 2006, substantially all of these federal
savings bank assets and liabilities were transferred at book
value to GMAC Bank. Total assets of these institutions at
December 31, 2005, approximated $16.9 billion.
Furthermore, our Automotive Finance and ResCap operations have
subsidiaries that are required to maintain regulatory capital
requirements under agreements with Freddie Mac, Fannie Mae,
Ginnie Mae, the Department of Housing and Urban Development, the
Utah State Department of Financial Institutions and the Federal
Deposit Insurance Corporation.
Insurance
Companies
Our Insurance operations are subject to certain minimum
aggregate capital requirements, restricted net asset and
dividend restrictions under applicable state insurance laws and
the rules and regulations promulgated by the Financial Services
Authority in England, the Office of the Superintendent of
Financial Institutions of Canada, the National Insurance and
Bonding Commission of Mexico and the National Association of
Securities Dealers. Under the various state insurance
regulations, dividend distributions may be made only from
statutory unassigned surplus, with approvals required from the
state regulatory authorities for dividends in excess of certain
statutory limitations.
As previously disclosed on a
Form 8-K
filed October 27, 2005, Securities and Exchange Commission
(SEC) and federal grand jury subpoenas have been served on our
entities in connection with industry-wide investigations into
practices in the insurance industry relating to loss mitigation
insurance products such as finite risk insurance. We are
cooperating with the investigations.
3
Other
Regulations
Some of the other more significant regulations that GMAC is
subject to include:
Privacy
The Gramm-Leach-Bliley Act imposes additional obligations on us
to safeguard the information we maintain on our customers and
permits customers to opt-out of information sharing
with third parties. Regulations have been enacted by several
agencies that may increase our obligations to safeguard
information. In addition, several federal agencies are
considering regulations that require more stringent
opt-out notices or even require opt-out
notices. Also, several states have enacted even more stringent
privacy legislation. For example, California has passed
legislation known as the California Financial Information
Privacy Act and the California On-Line Privacy Protection Act.
Both pieces of legislation became effective July 2004 and impose
additional notification obligations on us that are not preempted
by existing federal law. If a variety of inconsistent state
privacy rules or requirements are enacted, our compliance costs
could increase substantially.
Fair Credit
Reporting Act
The Fair Credit Reporting Act provides a national legal standard
for lenders to share information with affiliates and certain
third parties and to provide firm offers of credit to consumers.
In late 2003 the Fair and Accurate Credit Transactions Act was
enacted, making this preemption of conflicting state and local
laws permanent. The Fair Credit Reporting Act was also amended
to place further restrictions on the use of information sharing
between affiliates, to provide new disclosures to consumers when
risk based pricing is used in the credit decision and to help
protect consumers from identity theft. All of these new
provisions impose additional regulatory and compliance costs on
us and reduce the effectiveness of our marketing programs.
Employees
We had 31,400 and 33,900 employees worldwide as of
December 31, 2006 and 2005, respectively.
Additional
Information
A description of our lines of business, along with the results
of operations for each segment, industry and competition, and
the products and services offered are contained in the
individual business operations sections of Managements
Discussion and Analysis of Financial Condition and Results of
Operations, which begins on page 16. Financial information
related to reportable segments and geographic areas is provided
in Note 22.
Our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K
(and amendments to such reports) are available on our internet
website, free of charge, as soon as reasonably practicable after
the reports are electronically filed with or furnished with the
SEC. These reports are available at www.gmacfs.com, under United
States, Investor Relations, SEC Filings and Annual Review. These
reports can also be found on the SEC website located at
www.sec.gov.
Because of the following factors, as well as other factors
affecting our operating results and financial condition, past
financial performance should not be considered a reliable
indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future
periods.
Risks Related to
Our Business
Rating agencies
may downgrade their ratings for GMAC or ResCap in the future,
which would adversely affect our ability to raise capital in the
debt markets at attractive rates and increase the interest that
we pay on our outstanding publicly traded notes, which could
have a material adverse effect on our results of operations and
financial condition.
Substantially all of our unsecured debt has been rated by four
nationally recognized statistical rating organizations.
Commencing late in 2001, concerns over the competitive and
financial strength of GM, including whether it would experience
a labor interruption and how it would fund its health care
liabilities, resulted in a series of credit rating actions on
our unsecured debt concurrent with a series of credit actions
that downgraded the credit rating on GMs debt. As a
result, our unsecured borrowing spreads widened significantly
over the past several years substantially reducing our access to
the unsecured debt markets and impacting our overall cost of
borrowing.
Future downgrades of our credit ratings would increase borrowing
costs and further constrain our access to unsecured debt
markets, including capital markets for retail debt, and as a
result, would negatively affect our business. In addition,
future downgrades of our credit ratings could increase the
possibility of additional terms and conditions being added to
any new or replacement financing arrangements, as well as impact
elements of certain existing secured borrowing arrangements.
Our business
requires substantial capital, and if we are unable to maintain
adequate financing sources, our profitability and financial
condition will suffer and jeopardize our ability to continue
operations.
Our liquidity and ongoing profitability are, in large part,
dependent upon our timely access to capital and the costs
associated with raising funds in different segments of the
capital markets. Currently, our primary sources of financing
include public and private securitizations and whole loan sales.
To a lesser extent, we also use institutional unsecured term
debt, commercial paper and retail debt offerings. Reliance on
any one source can change going forward.
We depend and will continue to depend on our ability to access
diversified funding alternatives to meet future cash flow
requirements and to continue to fund our operations. Negative
credit events specific to us or our 49% owner, GM, or other
events affecting the overall debt markets have adversely
impacted our funding sources, and continued or additional
negative events could further adversely impact our funding
sources, especially over the long term. As an example, an
insolvency event for GM would curtail our ability to utilize
certain of our automotive wholesale loan
4
securitization structures as a source of funding in the future.
Furthermore, ResCaps access to capital can be impacted by
changes in the market value of its mortgage products and the
willingness of market participants to provide liquidity for such
products. If we are unable to maintain adequate financing or if
other sources of capital are not available, we could be forced
to suspend, curtail or reduce certain aspects of our operations,
which could harm our revenues, profitability, financial
condition and business prospects.
Furthermore, we utilize asset and mortgage securitizations and
sales as a critical component of our diversified funding
strategy. Several factors could affect our ability to complete
securitizations and sales, including conditions in the
securities markets generally, conditions in the asset-backed or
mortgage-backed securities markets, the credit quality and
performance of our contracts and loans, our ability to service
our contracts and loans and a decline in the ratings given to
securities previously issued in our securitizations. Any of
these factors could negatively affect the pricing of our
securitizations and sales, resulting in lower proceeds from
these activities.
Within this
Form 10-K,
we have restated prior period financial information to eliminate
hedge accounting treatment that had been applied to certain
callable debt hedged with derivatives. As a result, it is
possible that some of our lenders under certain of our liquidity
facilities could claim that they are not obligated to honor
their lending commitments. We believe that any such claim would
not be sustainable. Renewal and revision of these facilities is
imminent, which likely will eliminate the issue. There can be no
assurance that we are correct in our assessments. If we are not,
available funding under certain of our liquidity facilities
could be adversely impacted.
Our indebtedness
and other obligations are significant and could materially
adversely affect our business.
We have a significant amount of indebtedness. As of
December 31, 2006, we had approximately
$237 billion in principal amount of indebtedness
outstanding. Interest expense on our indebtedness constitutes
approximately 67% of our total financing revenues. In addition,
under the terms of our current indebtedness, we have the ability
to create additional unsecured indebtedness. If our debt
payments increase, whether due to the increased cost of existing
indebtedness or the incurrence of additional indebtedness, we
may be required to dedicate a significant portion of our cash
flow from operations to the payment of principal of, and
interest on, our indebtedness, which would reduce the funds
available for other purposes. Our indebtedness also could limit
our ability to withstand competitive pressures and reduce our
flexibility in responding to changing business and economic
conditions.
The profitability
and financial condition of our operations are dependent upon the
operations of General Motors Corporation.
A significant portion of our customers are those of GM, GM
dealers and GM related employees. As a result, various aspects
of GMs business, including changes in the production or
sale of GM vehicles, the quality or resale value of GM vehicles,
the use of GM marketing incentives and other factors impacting
GM or its employees could significantly affect our profitability
and financial condition.
We provide vehicle financing through purchases of retail
automotive and lease contracts with retail customers of
primarily GM dealers. We also finance the purchase of new and
used vehicles by GM dealers through wholesale financing, extend
other financing to GM dealers, provide fleet financing for GM
dealers to buy vehicles they rent or lease to others, provide
wholesale vehicle inventory insurance to GM dealers, provide
automotive extended service contracts through GM dealers and
offer other services to GM dealers. In 2006 our shares of GM
retail sales and sales to dealers were 38% and 80%,
respectively, in markets where GM operates. As a result,
GMs level of automobile production and sales directly
impacts our financing and leasing volume, the premium revenue
for wholesale vehicle inventory insurance, the volume of
automotive extended service contracts and the profitability and
financial condition of the GM dealers to whom we provide
wholesale financing, term loans and fleet financing. In
addition, the quality of GM vehicles affects our obligations
under automotive extended service contracts relating to such
vehicles. Further, the resale value of GM vehicles, which may be
impacted by various factors relating to GMs business such
as brand image or the number of new GM vehicles produced,
affects the remarketing proceeds we receive upon the sale of
repossessed vehicles and off-lease vehicles at lease termination.
GM utilizes various rate, residual value and other financing
incentives from time to time. The nature, timing and extent of
GMs use of incentives has a significant impact on our
consumer automotive financing volume and our share of GMs
retail sales, which we refer to as our penetration level. For
example, GM held a 72 hour promotion during July 2006 in
which we offered retail contracts at 0% financing for
72 months. Primarily as a result of this promotion, we
experienced a significant increase in our consumer automotive
financing penetration levels during this period. GM has provided
financial assistance and incentives to its franchised dealers
through guarantees, agreements to repurchase inventory, equity
investments and subsidies that assist dealers in making interest
payments to financing sources. These financial assistance and
incentive programs are provided at the option of GM, and they
may be terminated in whole or in part at any time. While the
financial assistance and incentives do not relieve the dealers
from their obligations to us or their other financing sources,
if GM were to reduce or terminate any of their financial
assistance and incentive programs, the timing and amount of
payments from GM franchised dealers to us may be adversely
affected.
We have
substantial credit exposure to General Motors
Corporation.
We have entered into various operating and financing
arrangements with GM. As a result of these arrangements, we have
substantial credit exposure to GM. However, as part of the Sale
Transactions, this credit exposure has been reduced due to the
termination of various inter-company credit facilities. In
addition, certain unsecured exposure to GM entities in the
U.S. has been contractually capped at $1.5 billion
(actual exposure of $749 million at December 31, 2006).
5
As a marketing incentive GM may sponsor residual support
programs as a way to lower customers monthly payments.
Under residual support programs the contractual residual value
is adjusted above GMACs standard residual rates. At lease
origination, GM pays us the present value of the estimated
amount of residual support it expects to owe at lease
termination. When the lease terminates, GM makes a
true-up payment to us if its estimated residual
support payment was too low, and it still owes us money.
Similarly, we make a true-up payment to GM if
GMs estimated residual payment was too high, and it
overpaid GMAC. Additionally, under what we refer to as lease
pull ahead programs, customers are encouraged to terminate
leases early in conjunction with the acquisition of a new GM
vehicle. As part of these programs, we waive the customers
remaining payment obligation under the current lease, and under
most programs, GM compensates us for the foregone revenue from
the waived payments. Since these programs generally accelerate
our remarketing of the vehicle, the
re-sale
proceeds are typically higher than otherwise would have been
realized had the vehicle been remarketed at lease contract
maturity. The reimbursement from GM for the foregone payments
is, therefore, reduced by the amount of this benefit. GM makes
estimated payments to us at the end of each month in which
customers have pulled their leases ahead. As with residual
support payments, these estimates are trued up once
all the vehicles that could have been pulled ahead have
terminated and been remarketed. To the extent that the original
estimates were incorrect, GM or GMAC may be obligated to pay
each other the difference, as appropriate under the lease
pull-ahead programs. GM is also responsible for risk sharing on
returned lease vehicles in the U.S. whose resale proceeds are
below standard residual values (limited to a floor).
Historically GM has made all payments related to such programs
and arrangements on a timely basis. However, if GM is unable to
pay, fails to pay or is delayed in paying these amounts, our
profitability, financial condition and cash flow could be
adversely affected.
On October 8, 2005, Delphi Corporation, GMs largest
supplier, filed a petition for Chapter 11 proceedings under
the United States Bankruptcy Code. In connection with the
split-off of Delphi from GM in 1999, GM entered into contracts
with certain unions to provide contingent benefit guarantees for
limited pension and post retirement health care and life
insurance benefits to certain former GM employees who
transferred to Delphi in connection with the split-off. GM is
contractually responsible for such payments to the extent Delphi
fails to pay these benefits at required levels. Furthermore,
there can be no assurance GM will be able to recover the full
amount of any benefit guarantee payments as required by an
indemnification arrangement between GM and Delphi, and any
payment by Delphi may be significantly limited. Also, Delphi has
significant financial obligations to GM. As a result of
Delphis restructuring, Delphis obligation may be
substantially compromised, which could have an adverse impact on
GM.
Our earnings may
decrease because of increases or decreases in interest
rates.
Our profitability is directly affected by changes in interest
rates. The following are some of the risks we face relating to
an increase in interest rates:
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Rising interest rates will increase our cost of funds.
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Rising interest rates may reduce our consumer automotive
financing volume by influencing consumers to pay cash for, as
opposed to financing, vehicle purchases.
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Rising interest rates generally reduce our residential mortgage
loan production as borrowers become less likely to refinance and
the costs associated with acquiring a new home becomes more
expensive.
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Rising interest rates will generally reduce the value of
mortgage and automotive financing loans and contracts and
retained interests and fixed income securities held in our
investment portfolio.
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We are also subject to risks from decreasing interest rates. For
example, a significant decrease in interest rates could increase
the rate at which mortgages are prepaid, which could require us
to write down the value of our retained interests. Moreover, if
prepayments are greater than expected, the cash we receive over
the life of our mortgage loans held for investment and our
retained interests would be reduced.
Higher-than-expected
prepayments could also reduce the value of our mortgage
servicing rights and, to the extent the borrower does not
refinance with us, the size of our servicing portfolio.
Therefore, any such changes in interest rates could harm our
revenues, profitability and financial condition.
Our hedging
strategies may not be successful in mitigating our risks
associated with changes in interest rates and could affect our
profitability and financial condition, as could our failure to
comply with hedge accounting principles and
interpretations.
We employ various economic hedging strategies to mitigate the
interest rate and prepayment risk inherent in many of our assets
and liabilities. Our hedging strategies rely on assumptions and
projections regarding our assets, liabilities and general market
factors. If these assumptions and projections prove to be
incorrect or our hedges do not adequately mitigate the impact of
changes in interest rates or prepayment speeds, we may
experience volatility in our earnings that could adversely
affect our profitability and financial condition.
In addition, hedge accounting in accordance with SFAS 133
requires the application of significant subjective judgments to
a body of accounting concepts that is complex and for which the
interpretations have continued to evolve within the accounting
profession and amongst the standard-setting bodies. Within this
Form 10-K,
we have restated prior period financial information to eliminate
hedge accounting treatment that had been applied to certain
callable debt hedged with derivatives. As a result of this
6
matter, we have also communicated in this
Form 10-K
that we have a material weakness in internal control over
financial reporting with regard to the documentation and
effectiveness assessment of derivatives used in such callable
debt hedge strategies. As further described in Item 1B on
page 11, we are in receipt of two comments from the
SECs Division of Corporation Finance on our 2005
10-K and
subsequent filings pertaining to specific aspects of our
compliance with SFAS 133. We believe the ultimate
resolution of these comments will not have a material affect on
our consolidated financial statements presented herein. If,
however, upon resolution of these comments the accounting
treatment for these matters is determined to be different, it
could have a significant impact to our financial condition and
results of operations.
Our residential
mortgage subsidiarys ability to pay dividends to us is
restricted by contractual arrangements.
On June 24, 2005, we entered into an operating agreement
with GM and ResCap, the holding company for our residential
mortgage business, to create separation between GM and
ourselves, on the one hand, and ResCap, on the other. The
operating agreement restricts ResCaps ability to declare
dividends or prepay subordinated indebtedness to us. As a result
of these arrangements, ResCap has obtained investment grade
credit ratings for its unsecured indebtedness that are separate
from our ratings. This operating agreement was amended on
November 27, 2006, and again on November 30, 2006, in
conjunction with the Sale Transactions. Among other things,
these amendments removed GM as a party to the agreement.
The restrictions contained in the ResCap operating agreement
include the requirements that ResCaps members equity
be at least $6.5 billion for dividends to be paid. If
ResCap is permitted to pay dividends pursuant to the previous
sentence, the cumulative amount of such dividends may not exceed
50% of our cumulative net income (excluding payments for income
taxes from our election for federal income tax purposes to be
treated as a limited liability company), measured from
July 1, 2005, at the time such dividend is paid. These
restrictions will cease to be effective if ResCaps
members equity has been at least $12 billion as of
the end of each of two consecutive fiscal quarters or if we
cease to be the majority owner. In connection with the Sale
Transactions, GM was released as a party to this operating
agreement, but it remains in effect between ResCap and us. At
December 31, 2006, ResCap had consolidated equity of
approximately $7.7 billion.
A failure of or
interruption in the communications and information systems on
which we rely to conduct our business could adversely affect our
revenues and profitability.
We rely heavily upon communications and information systems to
conduct our business. Any failure or interruption of our
information systems or the third-party information systems on
which we rely could cause underwriting or other delays and could
result in fewer applications being received, slower processing
of applications and reduced efficiency in servicing. The
occurrence of any of these events could have a material adverse
effect on our business.
We use estimates
and assumptions in determining the fair value of certain of our
assets, in determining our allowance for credit losses, in
determining lease residual values and in determining our
reserves for insurance losses and loss adjustment expenses. If
our estimates or assumptions prove to be incorrect, our cash
flow, profitability, financial condition and business prospects
could be materially adversely affected.
We use estimates and various assumptions in determining the fair
value of many of our assets, including retained interests and
securitizations of loans and contracts, mortgage servicing
rights and other investments, which do not have an established
market value or are not publicly traded. We also use estimates
and assumptions in determining our allowance for credit losses
on our loan and contract portfolios, in determining the residual
values of leased vehicles and in determining our reserves for
insurance losses and loss adjustment expenses. It is difficult
to determine the accuracy of our estimates and assumptions, and
our actual experience may differ materially from these estimates
and assumptions. As an example, the continued decline of the
domestic housing market, especially with regard to the nonprime
sector, has resulted in increases of the allowance for loan
losses at ResCap for 2006. A material difference between our
estimates and assumptions and our actual experience may
adversely affect our cash flow, profitability, financial
condition and business prospects.
Our business
outside the United States exposes us to additional risks that
may cause our revenues and profitability to decline.
We conduct a significant portion of our business outside the
United States. We intend to continue to pursue growth
opportunities for our businesses outside the United States,
which could expose us to greater risks. The risks associated
with our operations outside the United States include:
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multiple foreign regulatory requirements that are subject to
change;
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differing local product preferences and product requirements;
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fluctuations in foreign currency exchange rates and interest
rates;
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difficulty in establishing, staffing and managing foreign
operations;
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differing labor regulations;
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consequences from changes in tax laws; and
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political and economic instability, natural calamities, war and
terrorism.
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The effects of these risks may, individually or in the
aggregate, adversely affect our revenues and profitability.
7
Our business
could be adversely affected by changes in currency exchange
rates.
We are exposed to risks related to the effects of changes in
foreign currency exchange rates. Changes in currency exchange
rates can have a significant impact on our earnings from
international operations. While we carefully watch and attempt
to manage our exposure to fluctuation in currency exchange
rates, these types of changes can have material adverse effects
on our business and results of operations and financial
condition.
We are exposed to
credit risk which could affect our profitability and financial
condition.
We are subject to credit risk resulting from defaults in payment
or performance by customers for our contracts and loans, as well
as contracts and loans that are securitized and in which we
retain a residual interest. For example, the continued decline
in the domestic housing market has resulted in an increase in
delinquency rates related to mortgage loans that ResCap either
holds or retains an interest in. There can be no assurances that
our monitoring of our credit risk as it impacts the value of
these assets and our efforts to mitigate credit risk through our
risk-based pricing, appropriate underwriting policies and loss
mitigation strategies are or will be sufficient to prevent an
adverse effect on our profitability and financial condition. As
part of the underwriting process, we rely heavily upon
information supplied by third parties. If any of this
information is intentionally or negligently misrepresented and
the misrepresentation is not detected prior to completing the
transaction, the credit risk associated with the transaction may
be increased.
Recent
developments in the residential mortgage market, especially in
the nonprime sector, may adversely affect our revenues,
profitability and financial condition
Recently, the residential mortgage market in the United States,
and especially the nonprime sector, has experienced a variety of
difficulties and changed economic conditions that adversely
affected our earnings and financial condition in the fourth
quarter of 2006. Delinquencies and losses with respect to
ResCaps nonprime mortgage loans increased significantly
and may continue to increase. Housing prices in many states have
also declined or stopped appreciating, after extended periods of
significant appreciation. In addition, the liquidity provided to
the nonprime sector has recently been significantly reduced,
which will likely cause ResCaps nonprime mortgage
production to decline. These trends have resulted in significant
writedowns to ResCaps mortgage loans held for sale
portfolio and additions to allowance for loan losses for its
mortgage loans held for investment and warehouse lending
receivables portfolios. The lack of liquidity may also have the
effect of reducing the margin available to ResCap in its sales
and securitizations of nonprime mortgage loans.
Another factor that may result in higher delinquency rates on
mortgage loans is the scheduled increase in monthly payments on
adjustable rate mortgage loans. This increase in borrowers
monthly payments, together with any increase in prevailing
market interest rates, may result in significantly increased
monthly payments for borrowers with adjustable rate mortgage
loans. Borrowers seeking to avoid these increased monthly
payments by refinancing their mortgage loans may no longer be
able to fund available replacement loans at comparably low
interest rates. A decline in housing prices may also leave
borrowers with insufficient equity in their homes to permit them
to refinance their loans or sell their homes. In addition, these
mortgage loans may have prepayment premiums that inhibit
refinancing.
Certain government regulators have observed these issues
involving nonprime mortgages and have indicated an intention to
review the mortgage loan programs. To the extent that regulators
restrict the volume, terms and/or type of nonprime mortgage
loan, the liquidity of our nonprime mortgage loan production and
our profitability from nonprime mortgage loans could be
negatively impacted. Such activity could also negatively impact
our Warehouse Lending volumes and profitability.
The events surrounding the nonprime segment have forced certain
originators to exit the market. Such activities may limit the
volume of nonprime mortgage loans available for us to acquire
and/or our Warehouse Lending volumes, which could negatively
impact our profitability.
These events, alone or in combination, may contribute to higher
delinquency rates, reduce origination volumes or reduce
Warehouse Lending volumes at ResCap. These events could
adversely affect our revenues, profitability and financial
condition.
General business
and economic conditions of the industries and geographic areas
in which we operate affect our revenues, profitability and
financial condition.
Our revenues, profitability and financial condition are
sensitive to general business and economic conditions in the
United States and in the markets in which we operate outside the
United States. A downturn in economic conditions resulting in
increased unemployment rates, increased consumer and commercial
bankruptcy filings or other factors that negatively impact
household incomes could decrease demand for our financing and
mortgage products and increase delinquency and loss. In
addition, because our credit exposures are generally
collateralized, the severity of losses is particularly sensitive
to a decline in used vehicle and residential home prices.
Some further examples of these risks include the following:
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A significant and sustained increase in gasoline prices could
decrease new and used vehicle purchases, thereby reducing the
demand for automotive retail financing and automotive wholesale
financing.
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A general decline in residential home prices in the United
States could negatively affect the value of our mortgage loans
held for investment and our retained interests in securitized
mortgage loans. Such a decrease could also restrict our ability
to originate, sell or securitize mortgage loans and impact the
repayment of advances under our warehouse loans.
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An increase in automotive labor rates or parts prices could
negatively affect the value of our automotive extended service
contracts.
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Our profitability
and financial condition may be materially adversely affected by
decreases in the residual value of off-lease vehicles.
Our expectation of the residual value of a vehicle subject to an
automotive lease contract is a critical element used to
determine the amount of the lease payments under the contract at
the time the customer enters into it. As a result, to the extent
the actual residual value of the vehicle, as reflected in the
sales proceeds received upon remarketing, is less than the
expected residual value for the vehicle at lease inception, we
incur a loss on the lease transaction. General economic
conditions, the supply of off-lease vehicles and new vehicle
market prices heavily influence used vehicle prices and thus the
actual residual value of off-lease vehicles. GMs brand
image, consumer preference for GM products and GMs
marketing programs that influence the new and used vehicle
market for GM vehicles also influence lease residual values. In
addition, our ability to efficiently process and effectively
market off-lease vehicles impacts the disposal costs and
proceeds realized from the vehicle sales. While GM provides
support for lease residual values including through residual
support programs, this support by GM does not in all cases
entitle us to full reimbursement for the difference between the
remarketing sales proceeds for off-lease vehicles and the
residual value specified in the lease contract. Differences
between the actual residual values realized on leased vehicles
and our expectations of such values at contract inception could
have a negative impact on our profitability and financial
condition.
Fluctuations in
valuation of investment securities or significant fluctuations
in investment market prices could negatively affect
revenues.
Investment market prices in general are subject to fluctuation.
Consequently, the amount realized in the subsequent sale of an
investment may significantly differ from the reported market
value that could negatively affect our revenues. Fluctuation in
the market price of a security may result from perceived changes
in the underlying economic characteristics of the investee, the
relative price of alternative investments, national and
international events and general market conditions.
Changes in
existing U.S. government-sponsored mortgage programs, or
disruptions in the secondary markets in the United States or in
other countries in which our mortgage subsidiaries operate,
could adversely affect the profitability and financial condition
of our mortgage business.
The ability of ResCap to generate revenue through mortgage loan
sales to institutional investors in the United States depends to
a significant degree on programs administered by
government-sponsored enterprises such as Fannie Mae, Freddie
Mac, Ginnie Mae and others that facilitate the issuance of
mortgage-backed securities in the secondary market. These
government-sponsored enterprises play a powerful role in the
residential mortgage industry and our mortgage subsidiaries have
significant business relationships with them. Proposals are
being considered in Congress and by various regulatory
authorities that would affect the manner in which these
government-sponsored enterprises conduct their business,
including proposals to establish a new independent agency to
regulate the government-sponsored enterprises, to require them
to register their stock with the SEC, to reduce or limit certain
business benefits they receive from the U.S. government and
to limit the size of the mortgage loan portfolios they may hold.
Any discontinuation of, or significant reduction in, the
operation of these government-sponsored enterprises could
adversely affect our revenues and profitability. Also, any
significant adverse change in the level of activity in the
secondary market, including declines in the institutional
investors desire to invest in our mortgage products, could
adversely affect our business.
We may be
required to repurchase contracts and provide indemnification if
we breach representations and warranties from our securitization
and whole loan transactions, which could harm our profitability
and financial condition.
When we sell retail contracts or leases through whole loan sales
or securitize retail contracts, leases or wholesale loans to
dealers, we are required to make customary representations and
warranties about the contracts, leases or loans to the purchaser
or securitization trust. Our whole loan sale agreements
generally require us to repurchase retail contracts or provide
indemnification if we breach a representation or warranty given
to the purchaser. Likewise, we are required to repurchase retail
contracts, leases or loans and may be required to provide
indemnification if we breach a representation or warranty in
connection with our securitizations.
Similarly, sales by our mortgage subsidiaries of mortgage loans
through whole loan sales or securitizations require us to make
customary representations and warranties about the mortgage
loans to the purchaser or securitization trust. Our whole loan
sale agreements generally require us to repurchase or substitute
loans if we breach a representation or warranty given to the
purchaser. In addition, our mortgage subsidiaries may be
required to repurchase mortgage loans as a result of borrower
fraud or if a payment default occurs on a mortgage loan shortly
after its origination. Likewise, we are required to repurchase
or substitute mortgage loans if we breach a representation or
warranty in connection with our securitizations. The remedies
available to a purchaser of mortgage loans may be broader than
those available to our mortgage subsidiaries against the
original seller of the mortgage loan. If a mortgage loan
purchaser enforces its remedies against our mortgage
subsidiaries, we may not be able to enforce the remedies we have
against the seller of the loan or the borrower.
9
Significant
indemnification payments or contract, lease or loan repurchase
activity of retail contracts or leases or mortgage loans could
harm our profitability and financial condition.
We and our mortgage subsidiaries have repurchase obligations in
our respective capacities as servicers in securitizations and
whole loan sales. If a servicer breaches a representation,
warranty or servicing covenant with respect to an automotive
receivable or mortgage loan, then the servicer may be required
by the servicing provisions to repurchase that asset from the
purchaser. If the frequency at which repurchases of assets
occurs increases substantially from its present rate, the result
could be a material adverse effect on our financial condition,
liquidity and results of operations or those of our mortgage
subsidiaries.
A loss of
contractual servicing rights could have a material adverse
effect on our financial condition, liquidity and results of
operations.
We are the servicer for all of the receivables we have
originated and transferred to other parties in securitizations
and whole loan sales of automotive receivables. Our mortgage
subsidiaries service the mortgage loans we have securitized, and
we service the majority of the mortgage loans we have sold in
whole loan sales. In each case, we are paid a fee for our
services, which fees in the aggregate constitute a substantial
revenue stream for us. In each case, we are subject to the risk
of termination under the circumstances specified in the
applicable servicing provisions.
In most securitizations and whole loan sales, the owner of the
receivables or mortgage loans will be entitled to declare a
servicer default and terminate the servicer upon the occurrence
of specified events. These events typically include a bankruptcy
of the servicer, a material failure by the servicer to perform
its obligations, and a failure by the servicer to turn over
funds on the required basis. The termination of these servicing
rights, were it to occur, could have a material adverse effect
on our financial condition, liquidity and results of operations
and those of our mortgage subsidiaries. For the year ended
December 31, 2006, our consolidated mortgage servicing fee
income was approximately $1.6 billion.
The regulatory
environment in which we operate could have a material adverse
effect on our business and earnings.
Our domestic operations may be subject to various laws and
judicial and administrative decisions imposing various
requirements and restrictions relating to supervision and
regulation by state and federal authorities. Such regulation and
supervision are primarily for the benefit and protection of our
customers, not for the benefit of investors in our securities,
and could limit our discretion in operating our business.
Noncompliance with applicable statutes or regulations could
result in the suspension or revocation of any license or
registration at issue, as well as the imposition of civil fines
and criminal penalties. In addition, changes in the accounting
rules or their interpretation could have an adverse effect on
our business and earnings.
Our operations are also heavily regulated in many jurisdictions
outside the United States. For example, certain of our foreign
subsidiaries operate either as a bank or a regulated finance
company, and our insurance operations are subject to various
requirements in the foreign markets in which we operate. The
varying requirements of these jurisdictions may be inconsistent
with U.S. rules and may materially adversely affect our
business or limit necessary regulatory approvals, or if
approvals are obtained, we may not be able to continue to comply
with the terms of the approvals or applicable regulations. In
addition, in many countries the regulations applicable to the
financial services industry are uncertain and evolving, and it
may be difficult for us to determine the exact regulatory
requirements.
Our inability to remain in compliance with regulatory
requirements in a particular jurisdiction could have a material
adverse effect on our operations in that market with regard to
the affected product and on our reputation generally. No
assurance can be given that applicable laws or regulations will
not be amended or construed differently, that new laws and
regulations will not be adopted or that we will not be
prohibited by local laws from raising interest rates above
certain desired levels, any of which could materially adversely
affect our business, financial condition or results of
operations.
The worldwide
financial services industry is highly competitive. If we are
unable to compete successfully or if there is increased
competition in the automotive financing, mortgage
and/or
insurance markets or generally in the markets for
securitizations or asset sales, our margins could be materially
adversely affected.
The markets for automotive and mortgage financing, insurance and
reinsurance are highly competitive. The market for automotive
financing has grown more competitive as more consumers are
financing their vehicle purchases, primarily in North America
and Europe. Our mortgage business faces significant competition
from commercial banks, savings institutions, mortgage companies
and other financial institutions. Our insurance business faces
significant competition from insurance carriers, reinsurers,
third-party administrators, brokers and other insurance-related
companies. Many of our competitors have substantial positions
nationally or in the markets in which they operate. Some of our
competitors have lower cost structures, lower cost of capital
and are less reliant on securitization and sale activities. We
face significant competition in various areas, including product
offerings, rates, pricing and fees, and customer service. If we
are unable to compete effectively in the markets in which we
operate, our profitability and financial condition could be
negatively affected.
The markets for asset and mortgage securitizations and whole
loan sales are competitive, and other issuers and originators
could increase the amount of their issuances and sales. In
addition, lenders and other investors within those markets often
establish limits on their credit exposure to particular issuers,
originators and asset classes, or they may require higher
returns to increase the amount of their exposure. Increased
issuance by other participants in the market, or decisions by
investors to limit their credit exposure to or to
require
10
a higher yield for us or to automotive or mortgage
securitizations or whole loans, could negatively affect our
ability and that of our subsidiaries to price our
securitizations and whole loan sales at attractive rates. The
result would be lower proceeds from these activities and lower
profits for our subsidiaries and us.
On February 16, 2007, we filed a
Form 8-K,
with respect to Item 4.02(a) Non-Reliance on
Previously Issued Financial Statements or a Related Audit Report
or Completed Interim Review, announcing our intention
to make adjustments related to our accounting for certain
hedging activities under SFAS 133. As a result of these
adjustments, the GMAC Audit Committee determined that our
previously issued consolidated financial statements for periods
after the January 1, 2001 adoption of SFAS 133 should
no longer be relied upon. Following this announcement, we
received a letter from the SECs Division of Corporation
Finance on our 2005
10-K and
subsequent filings. The letter, dated February 23, 2007,
includes two comments pertaining to our hedging relationship
testing methodologies and consideration of credit ratings in
assessing hedge effectiveness for purposes of SFAS 133. We
submitted our response to these comments to the SEC on
March 12, 2007 and will continue to work to resolve these
comments with the SEC staff. We believe the ultimate resolution
of these comments will not have a material affect on our
consolidated financial statements as presented herein. If,
however, upon resolution of these comments the accounting
treatment for these matters is determined to be different, it
could have a significant impact to our financial condition and
results of operations.
Our primary executive and administrative offices are located in
Detroit, Michigan, and comprise approximately
220,000 square feet pursuant to a lease agreement expiring
in November 2016. In addition, we have corporate offices in New
York, New York, comprising 18,000 square feet of office
space under a lease that expires in July 2011.
The primary offices for our North American Automotive Finance
operations are located in Detroit, Michigan, and are included in
the totals referenced above. Our International Automotive
Finance operations include leased space in over 30 countries
totaling approximately 740,000 square feet. The largest
countries include the United Kingdom and Germany with
approximately 147,000 square feet and 120,000 square
feet of office space under lease, respectively.
The primary offices for our U.S. Insurance operations are
located in Southfield, Michigan; Maryland Heights, Missouri; and
Winston-Salem, North Carolina. In Southfield, we lease
approximately 76,000 square feet of office space under
leases expiring in September 2008. Our Maryland Heights and
Winston-Salem offices are approximately 136,000 square feet
and 444,000 square feet, respectively, under leases
expiring in September 2014. ABA Seguros, one of our
insurance subsidiaries, leases approximately 435,000 square
feet for offices throughout Mexico.
The primary offices for our ResCap operations are located in
Horsham, Pennsylvania and Minneapolis, Minnesota. In Horsham, we
lease approximately 427,000 square feet of office space
expiring between April 2007 and April 2009. In April 2007
ResCap plans on moving from the Horsham facilities to a facility
in Ft. Washington, Pennsylvania. In Ft. Washington, ResCap will
be leasing 450,000 square feet of office space pursuant to a
lease that expires in November 2019. The Horsham leases will be
canceled by the landlord when the operations move into the Ft.
Washington facility. In Minneapolis, we lease approximately
525,000 square feet of office space expiring between
March 2013 and December 2013. ResCap also has
significant leased offices in Costa Mesa, California
(151,000 square feet) expiring in December 2013,
Dallas, Texas (205,000 square feet) expiring in March 2015
and San Diego, California (90,000 square feet)
expiring in March 2008. ResCap also owns a 155,000 square
foot facility in Waterloo, Iowa.
In addition to the properties described above, we lease
additional space throughout the United States and in the
approximately 40 countries in which we operate, including
additional facilities in Canada, Germany, the United Kingdom and
the Netherlands. We believe that our facilities are adequate for
us to conduct our present business activities.
We are subject to potential liability under various governmental
proceedings, claims and legal actions that are pending or
otherwise have been asserted against us.
We are named as defendants in a number of legal actions, and we
are occasionally involved in governmental proceedings arising in
connection with our respective businesses. Some of the pending
actions purport to be class actions. We establish reserves for
legal claims when payments associated with the claims become
probable and the costs can be reasonably estimated. The actual
costs of resolving legal claims may be higher or lower than any
amounts reserved for such claims. Based on information currently
available, advice of counsel, available insurance coverage and
established reserves, it is the opinion of management that the
eventual outcome of the actions against us, including those
described below, will not have a material adverse effect on our
consolidated financial condition, results of operations or cash
flows. However, in the event of unexpected future developments,
it is possible that the ultimate resolution of legal matters, if
unfavorable, may be material to our consolidated financial
condition, results of operations or cash flows. Furthermore, any
claim or legal action against GM that results in GM incurring
significant liability could also have an adverse effect on our
consolidated financial condition, results of operations or cash
flows. For a discussion of pending cases against GM, refer to
Item 3 in GMs 2006 Annual Report on
Form 10-K,
filed separately with the SEC, which report is not deemed
incorporated into any of our filings under the Securities Act of
1933, as amended (Securities Act) or the Securities Exchange Act
of 1934, as amended (Exchange Act).
Pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which GMAC became, or
was, a party
11
during the year ended December 31, 2006, or subsequent
thereto, but before the filing of this report are summarized as
follows:
Shareholder
Class Actions
On September 19, 2005, a purported class action complaint,
Folksam Asset Management v. General Motors,
et al., was filed in the U.S. District Court for
the Southern District of New York, naming as defendants GM,
GMAC, and GM Chairman and Chief Executive Officer G. Richard
Wagoner, Jr.; Vice Chairman John Devine; Treasurer Walter
G. Borst; and Chief Accounting Officer Peter Bible. Plaintiffs
purported to bring the claim on behalf of purchasers of GM debt
and/or
equity securities during the period February 25, 2002,
through March 16, 2005. The complaint alleges that
defendants violated Section 10(b) and, with respect to the
individual defendants, Section 20(a) of the Exchange Act.
The complaint also alleges violations of Sections 11 and
12(a), and, with respect to the individual defendants,
Section 15 of the Securities Act, in connection with
certain registered debt offerings during the class period. In
particular, the complaint alleges that GMs cash flows
during the class period were overstated based on the
reclassification of certain cash items described in
GMs 2004
Form 10-K.
The reclassification involves cash flows relating to the
financing of GMAC wholesale receivables from dealers that
resulted in no net cash receipts and GMs decision to
revise Consolidated Statements of Net Cash for the years ended
2002 and 2003. The complaint also alleges misrepresentations
relating to forward-looking statements of GMs 2005
earnings forecast that were later revised significantly
downward. In October 2005 a similar suit, asserting claims under
the Exchange Act based on substantially the same factual
allegations, was filed and subsequently consolidated with the
Folksam case, Galliani, et al. v. General
Motors, et al. The consolidated suit was recaptioned as
In re General Motors Securities Litigation. Under the terms
of the Sale Transactions, GM is indemnifying GMAC in connection
with these cases.
On November 18, 2005, plaintiffs in the Folksam case
filed an amended complaint, which adds several additional
investors as plaintiffs, extends the end of the class period to
November 9, 2005, and names as additional defendants three
current and one former member of GMs audit committee, as
well as independent accountants, Deloitte & Touche LLP.
In addition to the claims asserted in the original complaint,
the amended complaint adds a claim against defendants Wagoner
and Devine for rescission of their bonuses and incentive
compensation during the class period. It also includes further
allegations regarding GMs accounting for pension
obligations, restatement of income for 2001, and financial
results for the first and second quarters of 2005. Neither the
original complaint nor the amended complaint specify the amount
of damages sought and the defendants have no means to estimate
damages the plaintiffs will seek based upon the limited
information available in the complaint. On January 17,
2006, the court made provisional designations of lead plaintiff
and lead counsel, which designations were made final on
February 6, 2006. Plaintiffs subsequently filed a second
amended complaint, which added various underwriters as
defendants.
Plaintiffs filed a third amended securities complaint in In
re General Motors Securities and Derivative Litigation on
August 15, 2006 (certain shareholder derivative cases
brought against GM were consolidated with In re General
Motors Securities Litigation for coordinated or consolidated
pretrial proceedings and the caption was modified). The amended
complaint did not include claims against the underwriters
previously named as defendants, alleged a proposed class period
of April 13, 2000, through March 20, 2006, did not
include the previously asserted claim for the rescission of
incentive compensation against Mr. Wagoner and
Mr. Devine, and contained additional factual allegations
regarding GMs restatements of financial information filed
with its reports to the SEC. On October 13, 2006, the
defendants filed a motion to dismiss the amended complaint in
the shareholder class action litigation. This motion remains
pending before the Court. On December 14, 2006, plaintiffs
filed a motion for leave to file a fourth amended complaint in
the event the Court grants the defendants motion to
dismiss. The defendants will oppose this motion.
Motion for
Consolidation and Transfer to the Eastern District of
Michigan
On December 13, 2005, defendants in In re General Motors
Securities Litigation (previously Folksam Asset
Management v. General Motors, et al. and
Galliani v. General Motors, et al.) and in
certain other litigation against GM filed a Motion with the
Judicial Panel on Multidistrict Litigation to transfer and
consolidate those cases for pretrial proceedings in the United
States District Court for the Eastern District of Michigan.
On January 5, 2006, the defendants submitted to the
Judicial Panel on Multidistrict Litigation an Amended Motion
seeking to add to their original Motion several other lawsuits
pending against GM for consolidated pretrial proceedings in the
United States District Court for the Eastern District of
Michigan. On April 17, 2006, the Judicial Panel on
Multidistrict Litigation entered an order transferring In re
General Motors Securities Litigation to the
U.S. District Court for the Eastern District of Michigan
for coordinated or consolidated pretrial proceedings with
several other lawsuits pending against GM. The case is now
captioned In re General Motors Securities and Derivative
Litigation.
Bondholder
Class Actions
On November 29, 2005, Stanley Zielezienski filed a
purported class action, Zielezienski, et al. v.
General Motors, et al. The action was filed in the
Circuit Court for Palm Beach County, Florida, against GM; GMAC;
GM Chairman and Chief Executive Officer
G. Richard Wagoner, Jr.; GMAC Chairman Eric A.
Feldstein; and certain GM and GMAC officers, namely, William F.
Muir, Linda K. Zukauckas, Richard J.S. Clout, John E.
Gibson, W. Allen Reed, Walter G. Borst, John M. Devine and Gary
L. Cowger. The action also names certain underwriters of GMAC
debt securities as defendants. The complaint alleges that
defendants violated Section 11 of the Securities Act, and
with respect to all defendants except GM, Section 12(a)(2)
of the Securities Act. The complaint also alleges that GM
violated Section 15 of the Securities Act. In particular,
the complaint alleges material misrepresentations in
12
certain GMAC financial statements incorporated by reference with
GMACs 2003
Form S-3
Registration Statement and Prospectus. More specifically, the
complaint alleges material misrepresentations in connection with
the offering for sale of GMAC SmartNotes in certain GMAC
financial statements contained in GMACs
Forms 10-Q
for the quarterly periods ended in March 31, 2004, and
June 30, 2004, and the
Form 8-K
which disclosed financial results for the quarterly period ended
in September 30, 2004, were materially false and misleading
as evidenced by GMACs 2005 restatement of these quarterly
results. In December 2005 the plaintiff filed an amended
complaint making substantially the same allegations as were in
the previous filing with respect to additional debt securities
issued by GMAC during the period April 23, 2004
March 14, 2005, and adding approximately 60 additional
underwriters as defendants. The complaint does not specify the
amount of damages sought and the defendants have no means to
estimate damages the plaintiffs will seek based upon the limited
information available in the complaint. On January 6, 2006,
defendants named in the original complaint removed this case to
the U.S. District Court for the Southern District of
Florida, and on April 3, 2006, that court transferred the
case to the U.S. District Court for the Eastern District of
Michigan.
On December 28, 2005, J&R Marketing, SEP, filed a
purported class action, J&R Marketing,
et al. v. General Motors Corporation, et al.
The action was filed in the Circuit Court for Wayne County,
Michigan, against GM; GMAC; GM Chairman and Chief Executive
Officer G. Richard Wagoner, Jr.; GMAC Chairman Eric A.
Feldstein; William F. Muir; Linda K. Zukauckas;
Richard J.S. Clout; John E. Gibson; W. Allen Reed;
Walter G. Borst; John M. Devine; Gary L. Cowger; and several
underwriters of GMAC debt securities. Similar to the original
complaint filed in the Zielezienski case described above, the
complaint alleges claims under Sections 11, 12(a), and 15
of the Securities Act based on alleged material
misrepresentations or omissions in the Registration Statements
for GMAC SmartNotes purchased between September 30, 2003,
and March 16, 2005, inclusive. The complaint alleges
inadequate disclosure of GMs financial condition and
performance as well as issues arising from GMACs 2005
restatement of quarterly results for the three quarters ended
September 30, 2005. The complaint does not specify the
amount of damages sought and the defendants have no means to
estimate damages the plaintiffs will seek based upon the limited
information available in the complaint. On
January 13, 2006, defendants removed this case to the
U.S. District Court for the Eastern District of Michigan.
On February 17, 2006, Alex Mager filed a purported class
action, Mager v. General Motors Corporation,
et al. The action was filed in the U.S. District
Court for the Eastern District of Michigan and is substantively
identical to the J&R Marketing case described above.
On February 24, 2006, J&R Marketing filed a motion to
consolidate the Mager case with its case (discussed
above) and for appointment as lead plaintiff and the appointment
of lead counsel. On March 8, 2006, the court entered an
order consolidating the two cases and subsequently consolidated
those cases with the Zielezienski case described above. Lead
plaintiffs counsel has been appointed, and on
July 28, 2006, plaintiffs filed a Consolidated Amended
Complaint, differing mainly from the initial complaints by
asserting claims for GMAC debt securities purchased during a
different time period, of July 28, 2003, through
November 9, 2005, and added additional underwriter
defendants. On August 28, 2006, the underwriter defendants
were dismissed without prejudice.
On September 25, 2006, the GM and GMAC defendants
filed a motion to dismiss the Consolidated Amended Complaint in
these cases filed by J&R Marketing, Zielezienski and Mager.
On February 27, 2007, the U.S. District Court for the
Eastern District of Michigan issued an opinion granting
Defendants motion to dismiss and dismissing
Plaintiffs complaint in these consolidated cases. Under
the terms of the Sale Transactions, GM is indemnifying GMAC in
connection with these cases.
None.
13
Part II
Item 5. Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Prior to the Sale Transactions, GMAC was a wholly owned
subsidiary of GM and, accordingly, there was no market for our
common stock. We paid cash dividends to GM of $4.8 billion
in 2006, $2.5 billion in 2005, and $1.5 billion in
2004.
Subsequent to the Sale Transactions, there continues to be no
established trading market for our ownership interests as we are
a privately held company. We have authorized and have
outstanding common membership interests consisting of 51,000
Class A Membership Interests (Class A Interests) and
49,000 Class B Membership Interests (Class B
Interests) (Class A Interests and Class B Interests
are collectively referred to as our Common Equity Interests),
which have equal rights and preferences in our assets. FIM
Holdings owns all 51,000 Class A Interests (a 51% ownership
interest in us) and GM, through a wholly-owned subsidiary of GM,
owns all 49,000 Class B Interests (a 49% ownership interest
in us). We have further authorized 2,110,000 Preferred
Membership Interests (Preferred Interests). In connection with
the Sale Transactions, FIM Holdings purchased 555,000 Preferred
Interests for a cash purchase price of $500 million and GM
and GM Preferred Finance Co. Holdings, Inc., a wholly-owned
subsidiary of GM, purchased 1,555,000 Preferred Interests for a
cash purchase price of $1.4 billion.
We have further authorized 5,820 Class C Membership
Interests, which are deemed profits interests in
GMAC. Class C Membership Interests may be issued from time
to time pursuant to the GMAC Management LLC Class C
Membership Interest Plan. No Class C Membership Interests
have been granted to management as of December 31, 2006.
We are required to make quarterly distributions to holders of
the Preferred Interests. Distributions will be made in cash on a
pro rata basis no later than the tenth business day following
the delivery of the quarterly financial statements by GMAC.
Distributions are issued in units of $1,000 and will accrue
yield during each fiscal quarter at a rate of 10% per
annum. Our Board of Managers (Board) may reduce any distribution
to the extent required to avoid a reduction of the equity
capital of GMAC below a minimum amount of equity capital equal
to the net book value of GMAC as of November 30, 2006
(determined in accordance with GAAP). In addition, our Board may
suspend the payment of distributions with respect to any one or
more fiscal quarters with majority members consent. If
distributions are not made with respect to any fiscal quarter,
the distributions will be non-cumulative and will be reduced to
zero. If the accrued yield of GMACs Preferred Interests
for any fiscal quarter is fully paid to the preferred holders,
then the excess of the net financial book income of GMAC in any
fiscal quarter over the amount of yield distributed to the
holders of our preferred equity interests in such fiscal
quarter, will be distributed to the holders of our common equity
interests (Class A and Class B Membership Interests)
as follows: at least 40% of the excess will be paid for fiscal
quarters ending prior to December 31, 2008, and at least
70% of the excess will be paid for fiscal quarters ending after
December 31, 2008. In this event, distribution priorities
are to common equity interest holders first, up to the agreed
upon amounts, and then ratably to Class A, Class B and
Class C Membership Interest holders based on the total
interest of each such holder.
14
Item 6. Selected
Financial Data
The selected financial data set forth in this Item 6 have
been restated to reflect corrections of errors in our
consolidated financial statements and other financial
information. The nature of the restatement and the effect on the
financial statement line items are more fully described in
Notes 1 and 24 of the Notes to the Consolidated Financial
Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of or for the year ended December 31,
|
|
|
|
|
Restated
|
|
($ in
millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
Total financing revenue and other
income (a)
|
|
|
$35,723
|
|
|
|
$33,267
|
|
|
|
$30,193
|
|
|
|
$27,592
|
|
|
|
$24,460
|
|
Interest expense
|
|
|
(15,560
|
)
|
|
|
(13,106
|
)
|
|
|
(9,659
|
)
|
|
|
(7,948
|
)
|
|
|
(6,299
|
)
|
Provision for credit losses
|
|
|
(2,000
|
)
|
|
|
(1,074
|
)
|
|
|
(1,953
|
)
|
|
|
(1,721
|
)
|
|
|
(2,153
|
)
|
|
|
Total net financing revenue and
other income
|
|
|
18,163
|
|
|
|
19,087
|
|
|
|
18,581
|
|
|
|
17,923
|
|
|
|
16,008
|
|
Goodwill and other intangible
assets impairment (b)
|
|
|
(840
|
)
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense
|
|
|
(15,095
|
)
|
|
|
(14,896
|
)
|
|
|
(14,325
|
)
|
|
|
(14,053
|
)
|
|
|
(12,596
|
)
|
|
|
Income before income tax expense
|
|
|
2,228
|
|
|
|
3,479
|
|
|
|
4,256
|
|
|
|
3,870
|
|
|
|
3,412
|
|
Income tax expense (c)
|
|
|
(103
|
)
|
|
|
(1,197
|
)
|
|
|
(1,362
|
)
|
|
|
(1,364
|
)
|
|
|
(1,209
|
)
|
|
|
Net income
|
|
|
$2,125
|
|
|
|
$2,282
|
|
|
|
$2,894
|
|
|
|
$2,506
|
|
|
|
$2,203
|
|
Dividends paid to
GM (d)
|
|
|
$9,739
|
|
|
|
$2,500
|
|
|
|
$1,500
|
|
|
|
$1,000
|
|
|
|
$400
|
|
Total assets
|
|
|
$287,439
|
|
|
|
$320,557
|
|
|
|
$324,042
|
|
|
|
$288,019
|
|
|
|
$227,724
|
|
Total debt
|
|
|
$236,985
|
|
|
|
$254,698
|
|
|
|
$268,997
|
|
|
|
$238,760
|
|
|
|
$182,777
|
|
Preferred
Interests (e)
|
|
|
$2,195
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Equity
|
|
|
$14,369
|
|
|
|
$21,685
|
|
|
|
$22,436
|
|
|
|
$20,273
|
|
|
|
$18,152
|
|
|
|
|
|
(a)
|
Amount includes realized capital gains of $1.1 billion and
$327 for the periods ended December 31, 2006 and 2005,
respectively. The 2006 increase is primarily related to the
rebalancing of our investment portfolio at our Insurance
operations, which occurred during the fourth quarter.
|
(b)
|
Relates to goodwill and other intangible asset impairments taken
at our Commercial Finance Group operating segment (in 2006 and
2005) and our former commercial mortgage operations (in
2005).
|
(c)
|
Effective November 28, 2006, GMAC, along with certain
U.S. subsidiaries, converted to a limited liability
corporation (LLC) and became a pass-through entity for
U.S. federal income tax purposes. Due to our change in tax
status, a net deferred tax liability of $791 was eliminated
through income tax expense upon conversion to an LLC.
|
(d)
|
Amount includes cash dividends of $4.8 billion and non-cash
dividends of $4.9 billion in 2006. During the fourth
quarter of 2006 in connection with the Sale Transactions, GMAC
made $7.8 billion of dividends to GM which was comprised of
the following (i) a cash dividend of $2.7 billion
representing a one-time distribution to GM primarily to reflect
the increase in GMACs equity resulting from the
elimination of a portion of our net deferred tax liabilities
arising from the conversion of GMAC and certain of our
subsidiaries to a limited liability company, (ii) certain
assets with respect to automotive leases owned by GMAC and its
affiliates having a net book value of approximately
$4.0 billion and related deferred tax liabilities of
$1.8 billion, (iii) certain Michigan properties with a
carrying value of approximately $1.2 billion to GM,
(iv) intercompany receivables from GM related to tax
attributes of $1.1 billion, (v) net contingent tax
assets of $491 and (vi) other miscellaneous transactions.
|
(e)
|
Represents the redemption value of the preferred interests
issued in November 2006 and held by GM and a wholly owned
subsidiary of GM of $1,555 and FIM Holdings of $555, related
accrued dividends of $21 and redemption premium in excess of
face value of $64.
|
15
Managements
Discussion and Analysis
GMAC
LLC Form 10-K
Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations (MD&A) contain
forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from the results
discussed in the forward-looking statements. The following
section is qualified in its entirety by the more detailed
information, including our financial statements and the notes
thereto, which appear elsewhere in this Annual Report.
Restatement of
Previously Issued Consolidated Financial Statements
As discussed in Notes 1 and 24 to the Consolidated
Financial Statements, we are restating our historical
Consolidated Balance Sheet as of December 31, 2005 and
Consolidated Statements of Income, Changes in Equity and Cash
Flows for the two years then ended. This restatement relates to
the accounting treatment for certain hedging transactions under
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended and interpreted (SFAS 133). We
are also correcting certain other
out-of-period
errors, which were deemed immaterial, individually and in the
aggregate, in the years in which they were originally recorded
and identified. These items relate to transactions involving
certain transfers of financial assets, valuations of certain
financial instruments, amortization of unearned income of
certain products, income taxes and other inconsequential items.
Because of this derivative restatement, we are correcting these
amounts to record them in the proper period.
The following table sets forth a reconciliation of previously
reported and restated net income for the annual periods shown.
The restatement increased January 1, 2004 retained earnings
to $14,114 million from $14,078 million. The increase
of $36 million was comprised of a $55 million increase
related to the elimination of a hedge accounting related to
certain debt instruments and a decrease of $16 related to
other immaterial items.
|
|
|
|
|
|
|
|
|
|
|
Net income for the
year ended December 31,
|
|
|
|
($
in millions)
|
|
2005
|
|
2004
|
|
|
Previously reported net income
|
|
|
$2,394
|
|
|
|
$2,913
|
|
Elimination of hedge accounting
related to certain debt instruments
|
|
|
(256
|
)
|
|
|
(143
|
)
|
Other, net
|
|
|
136
|
|
|
|
52
|
|
|
|
Total pre-tax
|
|
|
(120
|
)
|
|
|
(91
|
)
|
Related income tax effects
|
|
|
8
|
|
|
|
72
|
|
|
|
Restated net income
|
|
|
$2,282
|
|
|
|
$2,894
|
|
|
|
% change
|
|
|
(4.7
|
)
|
|
|
(0.7
|
)
|
|
|
As a result of a recent review of our hedge documentation for
certain fair value hedges, management concluded that such
documentation and hedge effectiveness assessment methodologies
related to particular hedges of callable fixed rate debt
instruments funding our North American Automotive Finance
operations did not satisfy the requirements of SFAS 133.
One of the requirements of SFAS 133 is that hedge
accounting is appropriate only for those hedging relationships
for which a company has a sufficiently documented expectation
that such relationships will be highly effective in achieving
offsetting changes in fair values or cash flows attributable to
the risk being hedged at the inception of the hedging
relationship. To determine whether transactions continue to
satisfy this requirement, companies must periodically assess and
document the effectiveness of hedging relationships both
prospectively and retrospectively.
Management determined that hedge accounting treatment should not
have been applied to these hedging relationships. As a result,
we should not have recorded any adjustments on the debt
instruments included in the hedging relationships related to
changes in fair value due to movements in the designated
benchmark interest rate. Accordingly, we have restated our
Consolidated Financial Statements for the years ended
December 31, 2005 and 2004 from the amounts previously
reported to remove such recorded adjustments on these debt
instruments from our reported interest expense during the
affected years. The elimination of hedge accounting treatment
introduces increased funding cost volatility in our restated
results. The changes in the fair value of fixed rate debt
previously recorded were affected by changes in the designated
benchmark interest rate (LIBOR). Prior to the restatement,
adjustments to record increases in the value of this debt
occurred in periods when interest rates declined, and
adjustments to record decreases in value were made in periods
when interest rates rose. As a result, changes in the benchmark
interest rates caused volatility in the debts fair value
adjustments that were recognized in our historical earnings,
which were mitigated by the changes in the
16
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
value of the interest rate swaps in the hedge relationships. The
interest rate swaps which economically hedge these debt
instruments continue to be recorded at fair value with changes
in fair value recorded in earnings.
The accompanying MD&A considers the effects of this
restatement described above and described in Notes 1 and 24
to our Consolidated Financial Statements.
Background
GMAC is a leading global financial services firm with
approximately $287 billion of assets and operations in
approximately 40 countries. Founded in 1919 as a wholly owned
subsidiary of General Motors Corporation, GMAC was originally
established to provide GM dealers with the automotive financing
necessary for the dealers to acquire and maintain vehicle
inventories and to provide retail customers the means by which
to finance vehicle purchases through GM dealers.
On November 30, 2006, GM sold a 51% interest in us for
approximately $7.4 billion (the Sale Transactions) to FIM
Holdings LLC (FIM Holdings). FIM Holdings is an investment
consortium led by Cerberus FIM Investors, LLC, the sole managing
member and also including, Citigroup Inc., Aozora Bank Ltd., and
a subsidiary of The PNC Financial Services Group, Inc. During
the first quarter of 2007, under the terms of the purchase and
sale agreement between FIM Holdings and GM, a final purchase
price settlement is required to the extent that GMACs
equity upon the November 30, 2006 closing of the sale
transaction differed from a specified level. As a result, we
expect to receive a common equity injection from GM of
approximately $1 billion, based on these final settlement
provisions.
Our products and services have expanded beyond automotive
financing as we currently operate in the following lines of
business Automotive Finance, ResCap and Insurance.
The following table summarizes the operations of each line of
business for the periods ended December 31, 2006, 2005
and 2004. Operating results for each of the lines of business
are more fully described in the MD&A sections that follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
2006-2005
|
|
2005-2004
|
Year ended
December 31, ($ in millions)
|
|
2006
|
|
(Restated)
|
|
(Restated)
|
|
%
change
|
|
% change
|
|
|
|
Net financing revenue and other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Finance
|
|
$
|
9,133
|
|
|
$
|
8,888
|
|
|
$
|
9,321
|
|
|
|
3
|
|
|
|
(5
|
)
|
ResCap
|
|
|
2,984
|
|
|
|
4,234
|
|
|
|
3,878
|
|
|
|
(30
|
)
|
|
|
9
|
|
Insurance
|
|
|
5,616
|
|
|
|
4,259
|
|
|
|
3,983
|
|
|
|
32
|
|
|
|
7
|
|
Other
|
|
|
430
|
|
|
|
1,706
|
|
|
|
1,399
|
|
|
|
(75
|
)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Finance
|
|
$
|
1,174
|
|
|
|
$880
|
|
|
$
|
1,341
|
|
|
|
33
|
|
|
|
(34
|
)
|
ResCap
|
|
|
705
|
|
|
|
1,021
|
|
|
|
904
|
|
|
|
(31
|
)
|
|
|
13
|
|
Insurance
|
|
|
1,127
|
|
|
|
417
|
|
|
|
329
|
|
|
|
170
|
|
|
|
27
|
|
Other
|
|
|
(881
|
)
|
|
|
(36
|
)
|
|
|
320
|
|
|
|
n/m
|
|
|
|
(111
|
)
|
|
|
|
|
|
Our Automotive Finance operations offer a wide range of
financial services and products (directly and indirectly) to
retail automotive consumers, automotive dealerships and other
commercial businesses. Our Automotive Finance operations are
comprised of two separate reporting segments North
American Automotive Finance Operations and International
Automotive Finance Operations. The products and services offered
by our Automotive Finance operations include the purchase of
retail installment sales contracts and leases, offering of term
loans, dealer floor plan financing and other lines of credit to
dealers, fleet leasing and vehicle remarketing services. While
most of our operations focus on prime automotive financing to
and through GM or GM affiliated dealers, our Nuvell operation,
which is part of our North American Automotive Finance
Operations, focuses on nonprime automotive financing to
GM-affiliated and non-GM dealers. Our Nuvell operation also
provides private-label automotive financing. In addition, our
Automotive Financing operations utilize asset securitization and
whole loan sales as a critical component of our diversified
funding strategy. The Funding and Liquidity and the Off-Balance
Sheet Arrangements sections of this MD&A provide additional
information about the securitization and whole loan sale
activities of our Automotive Finance operations.
|
|
|
Our ResCap operations involve the origination, purchase,
servicing, sale and securitization of consumer (i.e.,
residential) and mortgage loans and mortgage-related products
(e.g., real estate services). Typically, mortgage loans are
originated and sold to investors in the secondary market,
including securitization transactions in which the assets are
legally sold but are accounted for as secured financings. In
March 2005 we transferred ownership of GMAC Residential and
GMAC-RFC to
a newly formed wholly owned subsidiary holding company, ResCap.
For additional information, please refer to ResCaps Annual
Report on
Form 10-K
for the period ended December 31, 2006, filed separately
with the SEC, which report is
|
17
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
|
|
|
not deemed incorporated into any of our filings under the
Securities Act or the Exchange Act.
|
As part of this transfer of ownership, certain agreements were
put in place between ResCap and us that restrict ResCaps
ability to declare dividends or prepay subordinated indebtedness
owed to us. While we believe the restructuring of these
operations and the agreements between ResCap and us allow ResCap
to access more attractive sources of capital, the agreements
inhibit our ability to return funds for dividends and debt
payments.
|
|
|
Our Insurance operations offer automobile service contracts and
underwrite personal automobile insurance coverage (ranging from
preferred to non-standard risks) and selected commercial
insurance and reinsurance coverage. We are a leading provider of
automotive extended service contracts with mechanical breakdown
and maintenance coverages. Our automotive extended service
contracts offer vehicle owners and lessees mechanical repair
protection and roadside assistance for new and used vehicles
beyond the manufacturers new vehicle warranty. We
underwrite and market non-standard, standard and preferred risk
physical damage and liability insurance coverages for passenger
automobiles, motorcycles, recreational vehicles and commercial
automobiles through independent agency, direct response and
internet channels. Additionally, we market private-label
insurance through a long-term agency relationship with Homesite
Insurance, a national provider of home insurance products. We
provide commercial insurance, primarily covering dealers
wholesale vehicle inventory, and reinsurance products.
Internationally, ABA Seguros provides certain commercial
business insurance exclusively in Mexico.
|
|
|
Other operations consists of our Commercial Finance Group, an
equity investment in Capmark (our former commercial mortgage
operations), certain corporate activities, and reclassifications
and elimination between the reporting segments.
|
Consolidated
Results of Operations
The following table summarizes our consolidated operating
results for the periods indicated. Refer to the operating
segment sections for a more complete discussion of operating
results by line of business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
2006-2005
|
|
2005-2004
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
(Restated)
|
|
(Restated)
|
|
%
change
|
|
% change
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing revenue
|
|
|
$23,103
|
|
|
|
$21,312
|
|
|
|
$20,325
|
|
|
|
8
|
|
|
|
5
|
|
Interest expense
|
|
|
(15,560
|
)
|
|
|
(13,106
|
)
|
|
|
(9,659
|
)
|
|
|
19
|
|
|
|
36
|
|
Provision for credit losses
|
|
|
(2,000
|
)
|
|
|
(1,074
|
)
|
|
|
(1,953
|
)
|
|
|
86
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing revenue
|
|
|
5,543
|
|
|
|
7,132
|
|
|
|
8,713
|
|
|
|
(22
|
)
|
|
|
(18
|
)
|
Net loan servicing income
|
|
|
770
|
|
|
|
922
|
|
|
|
678
|
|
|
|
(16
|
)
|
|
|
36
|
|
Insurance premiums and service
revenue
|
|
|
4,183
|
|
|
|
3,762
|
|
|
|
3,528
|
|
|
|
11
|
|
|
|
7
|
|
Investment income
|
|
|
2,143
|
|
|
|
1,216
|
|
|
|
845
|
|
|
|
76
|
|
|
|
44
|
|
Gains on sale of equity method
investment
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
|
n/m
|
|
|
|
|
|
Other income
|
|
|
5,113
|
|
|
|
6,055
|
|
|
|
4,817
|
|
|
|
(16
|
)
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net financing revenue and
other income
|
|
|
18,163
|
|
|
|
19,087
|
|
|
|
18,581
|
|
|
|
(5
|
)
|
|
|
3
|
|
Depreciation expense on operating
leases
|
|
|
(5,341
|
)
|
|
|
(5,244
|
)
|
|
|
(4,828
|
)
|
|
|
2
|
|
|
|
9
|
|
Insurance losses and loss
adjustment expenses
|
|
|
(2,420
|
)
|
|
|
(2,355
|
)
|
|
|
(2,371
|
)
|
|
|
3
|
|
|
|
(1
|
)
|
Impairment of goodwill and other
intangible assets
|
|
|
(840
|
)
|
|
|
(712
|
)
|
|
|
|
|
|
|
18
|
|
|
|
|
|
Other expense
|
|
|
(7,334
|
)
|
|
|
(7,297
|
)
|
|
|
(7,126
|
)
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
2,228
|
|
|
|
3,479
|
|
|
|
4,256
|
|
|
|
(36
|
)
|
|
|
(18
|
)
|
Income tax expense
|
|
|
(103
|
)
|
|
|
(1,197
|
)
|
|
|
(1,362
|
)
|
|
|
(91
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$2,125
|
|
|
|
$2,282
|
|
|
|
$2,894
|
|
|
|
(7
|
)
|
|
|
(21
|
)
|
|
|
n/m=not meaningful
2006 Compared to
2005
We earned $2.1 billion in 2006, down 7% from earnings of
$2.3 billion in 2005. This reflects record earnings in the
insurance business and continued growth in Automotive Finance
that provided earnings support for our ResCap business, which
was adversely affected by a decline in the residential housing
market and deterioration in the nonprime securitization market
in the U.S. Net income includes a
one-time tax
benefit of $791 million in the fourth quarter of 2006 from
our conversion of GMAC and several of our domestic subsidiaries
to an LLC in connection with the November sale of a controlling
investment in GMAC and
non-cash
after-tax
goodwill and intangible asset impairment charges of
$695 million in the third quarter of 2006 related to our
Commercial Finance business.
18
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
Total financing revenue increased by 8% in 2006 compared to
2005. Consumer revenue increased 5% due to growth in the
consumer mortgage loan portfolio as well as increases in the
mortgage loan yields, driven by an increase in mortgage rates
during 2006. Commercial revenue increased 16% primarily due to
higher market interest rates as the majority of the commercial
lending and mortgage lending portfolio is of a floating rate
nature. Operating lease revenue rose 10% due to an increase in
the average size of our operating lease portfolio, despite the
transfer of operating lease assets to GM during November 2006.
Interest expense increased by 19%, consistent with the overall
increase in market interest rates during the year, but also
reflective of the widening of our corporate credit spreads,
based on our credit rating. The provision for credit losses
increased 86% as compared to 2005. The increase was primarily
the result of higher loss severity trends at ResCap, which is
attributable to general economic conditions including slower
home price appreciation, and deterioration in nonprime credit
performance (including increases in nonprime delinquencies).
Insurance premiums and service revenue earned increased by 11%
compared to 2005. This increase was driven by the extended
service contract line primarily due to premiums and revenue from
a higher volume of contracts written in prior years. Growth in
domestic consumer products was primarily related to the
acquisition of MEEMIC Insurance Services Corporation (MEEMIC), a
consumer products business that offers automobile and homeowners
insurance in the Midwest, which was partially offset by a
decline in its existing business due to a competitive
environment.
Investment income increased 76% compared to 2005. The increase
was primarily attributable to higher realized capital gains of
approximately $900 million, as well as increased interest
and dividend income due to higher average portfolio balances
throughout the majority of the year from our Insurance business.
The increased capital gains result primarily from the
rebalancing of the investment portfolio in the fourth quarter,
reducing the level of equity holdings from about 30 percent
of the portfolio to less than 10 percent, reducing the
level of investment leverage and freeing up capital for growth
and dividends.
Gains on sale of equity method investment primarily represented
the sale of ResCaps equity investment during the second
quarter of 2006 in a regional homebuilder which resulted in a
gain of $415 million ($259 million after-tax). Other income
decreased 16% compared to 2005 as a result of a decrease in our
net loan servicing income, primarily as a result of servicing
asset valuation adjustments related to our ResCap operations as
well as decreases in net income as a result of our sale of
approximately 79% of the former commercial mortgage business
during the first quarter.
Insurance losses and loss adjustment expenses increased 3%
compared to 2005. The increase was primarily driven by the
acquisition of MEEMIC and growth in the domestic assumed
reinsurance and international consumer products businesses. This
increase was partially offset by favorable loss trends
experienced in the domestic and international extended service
contract product lines.
Impairment of goodwill and other intangible assets increased 18%
compared to 2005, as a result of higher impairment charges
recorded by our Commercial Finance Group. During the
2006 year, we were able to contain our other expenses,
which remained relatively flat, as compared to 2005.
Income tax expense was $103 million for 2006, compared to
$1.2 billion in 2005. The change was primarily a result of
our conversion to an LLC during 2006, which resulted in an
income tax benefit of $791 million.
2005 Compared to
2004
We earned $2.3 billion in 2005, down $0.6 billion from
record earnings of $2.9 billion in 2004. Earnings included
non-cash goodwill impairment charges of $439 million
(after-tax), which were recognized in the fourth quarter of
2005. The charges related predominately to our Commercial
Finance Group and primarily to the goodwill recognized in
connection with the 1999 acquisition of the majority of the
business. Excluding these impairment charges, we earned
$2.7 billion in 2005. Earnings were driven by record
results in our mortgage and insurance operations. Strong
earnings were achieved despite a difficult environment that
included higher market interest rates, a series of credit rating
actions and the significant impact of Hurricane Katrina.
Total financing revenue increased by 5% primarily due to
increases in commercial interest income, operating lease income
and revenue from mortgages held for sale. The increase in
commercial revenue was primarily the result of higher market
interest rates as the majority of the portfolio is floating
rate. Operating lease revenue increased due to growth in the
size of the leasing portfolio of approximately 20% compared to
2004. Revenues associated with loans held for sale also
increased due to an increase in mortgage production.
Interest expense increased by 36%, consistent with the overall
increase in market interest rates during the year, but also
reflective of the widening of our corporate credit spreads, as a
result of credit rating actions taking during and before 2005.
The provision for credit losses decreased by 45% as compared to
2004, despite the impact of loss reserves recorded in the third
quarter of 2005 related to accounts impacted by Hurricane
Katrina. The decrease in provision for credit losses was
attributable to both our Automotive Finance and ResCap
operations. The decrease in provision at our Automotive Finance
operations was due to a combination of lower consumer asset
levels due to an increase in whole loan sales, improved loss
performance on retail contracts and improved performance on the
non-automotive commercial portfolio. Lower provision for credit
losses at ResCap was primarily due to favorable loss severity
and frequency of loss, as compared to previous estimates,
primarily as a result of the effects of home price appreciation.
Insurance premiums and service revenue earned increased by 7% as
a result of contract growth across the major product lines
(domestic and international).
19
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
Investment and other income increased by 44% and 26%,
respectively, as compared to 2004. The increase was primarily
due to interest income from cash and investments in
U.S. Treasury securities, the favorable impact on the
valuation of retained securitization interests at ResCap, higher
investment income at our former commercial mortgage business and
higher capital gains at our Insurance operations.
Depreciation on operating lease assets increased 9% as a result
of higher average operating lease asset levels as compared to
2004. In addition, other expense was slightly higher mainly due
to increased compensation and benefits expense primarily at our
ResCap operations, consistent with the increase in loan
production and higher supplemental compensation resulting from
increased profitability. Insurance losses and loss adjustment
expenses and other operating expenses were relatively stable as
compared to 2004.
Net income was also negatively impacted by non-cash goodwill
impairment charges of $712 million, which were recognized
in the fourth quarter of 2005. The charges related predominately
to our Commercial Finance Group and primarily to the goodwill
recognized in connection with the 1999 acquisition of the
majority of this business.
Our effective tax rate was 34.4%, consistent with the 32.0% rate
experienced in 2004.
Outlook
The closing of the Sale Transactions has resulted in a new
strategic direction, transforming us from primarily a captive
operation into an independent, globally-diversified financial
services company. We now have formalized long-term operating
agreements with GM, but also have a greater opportunity to
leverage existing dealer relationships to expand our presence in
non-GM dealer networks. This is expected to provide us with
opportunities for an increasingly diversified revenue stream.
The sale also created a strengthened capital position with
required capital infusions by GM and FIM Holdings, which are
expected to provide additional resources for further growth. We
have new and expanded funding facilities based on our improved
credit profile. Our overall outlook for 2007 is positive with
the global automotive finance and insurance business expected to
continue to post profits. We further expect the real estate
finance business to continue to weaken with declining home sales
and mortgage originations, while we seek to increase
U.S. market share and pursue growth opportunities
worldwide. The following summarizes the key business issues for
our operations in 2007:
|
|
|
Automotive Finance In 2007 we expect higher interest
rates, higher energy prices, and a weakening housing market
could exert pressure on our consumer automotive finance
customers resulting in continuing further deterioration in
credit performance compared to 2006. We also expect credit
performance in our commercial portfolios could worsen in 2007 as
more dealers experience financial distress as a result of
declining profitability, which is directly correlated with
deterioration in GMs U.S. market share. Such pressure
on GM sales also adversely impacts our volumes.
|
We actively manage our credit risk and believe that as of
December 31, 2006, we are adequately reserved for potential
losses incurred in the portfolios. However, a negative change in
economic factors (particularly in the U.S. economy) could
adversely impact our future earnings. As many of our credit
exposures are collateralized by vehicles, the severity of losses
is particularly sensitive to a decline in used vehicle prices,
which can also adversely effect residual values in our lease
portfolio. In addition, the overall frequency of losses would be
negatively influenced by deterioration in macro-economic
factors, which, in addition to those noted above, include higher
unemployment rates and bankruptcy filings (both consumer and
commercial).
|
|
|
ResCap In 2007 if the domestic market economics
conditions persist, the unfavorable impacts on our residential
mortgage operations may continue. These domestic economic
conditions include declining home appreciation and, in some
areas, a decline in home prices, a significant deterioration in
the nonprime securitization market, and a significant increase
in nonprime delinquencies. The economic conditions will result
in our residential mortgage operations having lower net interest
margin, higher provision for loan losses, lower gain on sale
margins and loan production, real estate investment impairments
and reduced gains on dispositions of real estate acquired
through foreclosure.
|
We are exposed to valuation and credit risk on the portfolio of
residential mortgage loans held for sale and held for
investment, as well as on the interests retained from our
securitization activities of these asset classes. In addition,
we are exposed to credit risk in our asset-based lending
business. Credit losses in our consumer portfolio are influenced
by general business and economic conditions of the industries
and countries in which we operate. We actively manage our credit
risk and believe that as of December 31, 2006, we are
adequately reserved for potential losses incurred in the
portfolios. However, a negative change in economic factors
(particularly in the U.S. economy) could adversely impact
our 2007 earnings. As many of our credit exposures are
collateralized by homes, the severity of losses is particularly
sensitive to a decline in residential home prices. In addition,
the overall frequency of losses would be negatively influenced
by an increase in macro-economic factors, such as unemployment
rates and bankruptcy filings.
|
|
|
Insurance In 2007 we expect to have positive
underwriting results and a stable investment portfolio. We will
continue to aggressively pursue growth in both the domestic and
international markets in all product lines through examining
viable organic growth initiatives and strategic acquisitions.
|
Our extended service product line will face pressures from
GMs recent announcement that it was extending its
powertrain warranty in the United States and Canada across its
entire new and used car and light-duty truck lineup. Although
challenging, we expect to mitigate the impact through the
offerings of alternative products to the retail customer. We are
also
20
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
dependent on new vehicle market sales and vehicle quality. Our
domestic consumer products continue to expect a competitive
pricing environment in 2007 with higher loss costs expected in
the industry due to medical and repair cost inflation.
Extraordinary weather conditions can have a large impact on
underwriting results in our consumer and automobile dealership
physical damage products. We mitigate our potential loss
exposure through active management of claim settlement
activities and believe we are adequately reserved for unpaid
losses and loss adjustment expenses at December 31, 2006.
We expect to have a more stable earnings stream from our
investment portfolio due to a higher allocation in fixed income
securities. Through the recent review of our portfolio, we sold
a significant portion of our equity securities to monetize the
high level of unrealized capital gains, which had grown
considerably in recent years due to strong market performance,
and to reduce our exposure to the inherently volatile equity
markets from just over 30% to under 10%. The performance of our
portfolio is dependent on the investment market prices and
underlying factors.
|
|
|
Funding and liquidity Our ability to fund our
Automotive Finance and ResCap operations is a key component of
our profitability. Over the past several years, prior to the
Sale Transactions in November 2006, we have experienced a series
of negative credit rating actions, resulting in the downgrade of
our credit ratings to below investment grade. The negative
actions were primarily due to concerns regarding the financial
outlook of GM related to its overall market position in the
automotive industry. As a result, our unsecured borrowing
spreads have widened significantly, impacting our overall cost
of borrowings, as well as reducing our net financing margins.
Since the Sale Transactions our spreads have narrowed, although
challenges in the U.S. residential mortgage market have widened
ResCap spreads recently. Despite these challenges, we have
continued to meet funding demands and maintain a strong
liquidity profile by shifting to more secured sources of funding
and whole loan sales. In 2007 management expects to continue to
focus efforts on utilizing secured sources and whole loan sales
to fund our automotive operations, issuing unsecured debt on an
opportunistic basis to complement our secured funding sources.
Refer to the Funding and Liquidity section in this MD&A for
further discussion.
|
|
|
|
Automotive
Finance Operations
|
Results of
Operations
The following table summarizes the operating results of our
Automotive Finance operations for the periods indicated. The
amounts presented are before the elimination of balances and
transactions with our other operating segments and include
eliminations of balances and transactions among our North
American Operations and International operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2006-2005
|
|
|
2005-2004
|
|
Year ended
December 31, ($ in millions)
|
|
2006
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
%
change
|
|
|
% change
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
$5,681
|
|
|
|
$6,549
|
|
|
|
$6,796
|
|
|
|
(13
|
)
|
|
|
(4
|
)
|
Commercial
|
|
|
1,602
|
|
|
|
1,431
|
|
|
|
1,362
|
|
|
|
12
|
|
|
|
5
|
|
Operating leases
|
|
|
7,734
|
|
|
|
7,022
|
|
|
|
6,567
|
|
|
|
10
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total automotive financing revenue
|
|
|
15,017
|
|
|
|
15,002
|
|
|
|
14,725
|
|
|
|
|
|
|
|
2
|
|
Interest expense
|
|
|
(9,002
|
)
|
|
|
(9,223
|
)
|
|
|
(7,285
|
)
|
|
|
(2
|
)
|
|
|
27
|
|
Provision for credit losses
|
|
|
(511
|
)
|
|
|
(415
|
)
|
|
|
(959
|
)
|
|
|
23
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
Net automotive financing revenue
|
|
|
5,504
|
|
|
|
5,364
|
|
|
|
6,481
|
|
|
|
3
|
|
|
|
(17
|
)
|
Net loan servicing income
|
|
|
270
|
|
|
|
122
|
|
|
|
58
|
|
|
|
121
|
|
|
|
110
|
|
Net gains on sales
|
|
|
537
|
|
|
|
455
|
|
|
|
530
|
|
|
|
18
|
|
|
|
(14
|
)
|
Investment income
|
|
|
481
|
|
|
|
237
|
|
|
|
194
|
|
|
|
103
|
|
|
|
22
|
|
Other income
|
|
|
2,341
|
|
|
|
2,710
|
|
|
|
2,058
|
|
|
|
(14
|
)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
Total net automotive financing
revenue and other income
|
|
|
9,133
|
|
|
|
8,888
|
|
|
|
9,321
|
|
|
|
3
|
|
|
|
(5
|
)
|
Depreciation expense on operating
leases
|
|
|
(5,328
|
)
|
|
|
(5,235
|
)
|
|
|
(4,822
|
)
|
|
|
2
|
|
|
|
9
|
|
Other noninterest expense
|
|
|
(2,748
|
)
|
|
|
(2,356
|
)
|
|
|
(2,641
|
)
|
|
|
17
|
|
|
|
(11
|
)
|
Income tax benefit (expense)
|
|
|
117
|
|
|
|
(417
|
)
|
|
|
(517
|
)
|
|
|
(128
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$1,174
|
|
|
|
$880
|
|
|
|
$1,341
|
|
|
|
33
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$153,410
|
|
|
|
$192,424
|
|
|
|
$223,541
|
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
21
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
2006 Compared to
2005
Automotive Finance operations net income increased 33% during
the 2006 year. Net income was positively impacted by
$383 million related to the write-off of certain net
deferred tax liabilities as part of our conversion to an LLC
during November 2006. Results for 2006 include the earnings
impact of $1 billion debt tender offer to repurchase
certain deferred interest debentures, which resulted in an
after-tax unfavorable impact of $135 million during the
third quarter. Absent the impact of the tender offer and the
write-off of certain deferred taxes, Automotive Finance net
income in 2006 was $46 million higher than in 2005.
Total automotive financing revenue was relatively flat in 2006,
compared to the prior year, as lower consumer revenue was offset
by higher commercial and operating lease revenues in the North
American operations. The decrease in consumer revenue was
consistent with the reduction in consumer asset levels as a
result of continued whole loan sale activity. Consumer
automotive finance receivables declined by approximately
$10.4 billion, or 15%, since December 31, 2005. The
size of our commercial finance receivable portfolio was
relatively consistent with 2005. Commercial revenue increased
approximately 12% year over year as a result of higher earning
rates on the portfolio from an increase in market interest rates
in 2006. Operating lease revenue and related depreciation
expense increased 10% and 2%, respectively, year over year
consistent with the higher average size of the operating lease
portfolio. The increase in the average portfolio is reflective
of continued strong lease volumes in North American operations
and higher average customer balances.
Interest expense decreased 2% compared to 2005. When excluding
the unfavorable pretax impact of the debt tender offer of
approximately $225 million, interest expense decreased
approximately 5%. This decline in interest was mainly due to the
decrease in our debt balance, which was partially offset by
higher market interest rates.
The provision for credit losses increased in comparison to the
prior year, which is largely a result of a deterioration in the
credit performance of the consumer portfolio in North America,
as a result of increased loss frequency and severity. Refer to
the Credit Risk discussion within this Automotive Finance
Operations section of the MD&A for further discussion.
Our servicing fee income increased 121% compared to 2005. This
increase was primarily related to the increase in our average
serviced asset base. Investment income increased in 2006, as
compared to 2005. The increase is largely a result of higher
short-term interest rates and asset balances in 2006 versus
2005. In addition, noninterest expenses increased in comparison
with 2005 levels due to an overall decline in operating lease
remarketing results because of a softening in used vehicle
prices and an overall decrease in lease termination volume.
Total income tax expense declined by $534 million in 2006,
as compared to 2005, primarily due to our conversion to an LLC.
A decline in pre-tax income for the year, lower Canadian
corporate and provincial tax rates and the elimination of the
Large Corporation Tax in Canada during the second quarter also
contributed to the decline.
Prior to the Sale Transactions, we distributed to GM certain
assets with respect to automotive leases owned by us and our
affiliates having a net book value of $4.0 billion and
related deferred tax liabilities of $1.8 billion. The
distribution consisted of $12.6 billion of
U.S. operating lease assets, $1.5 billion of
restricted cash and miscellaneous assets and a
$10.1 billion note payable.
2005 Compared to
2004
Automotive Finance operations net income was $880 million,
a decrease of 34% in comparison to 2004. Income decreased
primarily due to lower net interest margins as a result of
higher borrowing costs. The decline in net interest margins was
partially offset by lower consumer credit provisions, primarily
as a result of lower asset levels and improved credit
performance. Net income from International operations remained
strong at $408 million in 2005, as compared to
$415 million earned in 2004, despite a decrease in net
interest margins.
Total automotive financing revenue increased 2% as compared to
2004. The commercial portfolio benefited from an increase in
market interest rates as the majority of the portfolio is of a
floating rate nature. Operating lease revenue increased year
over year as the size of the operating lease portfolio increased
by approximately 20% since December 2004. The increase in the
portfolio is reflective of GMs shift of some marketing
incentives to consumer leases from retail contracts late in 2004.
Our provision for losses decreased 57% as compared to the
2004 year. This decrease resulted from a combination of
lower consumer asset levels primarily due to an increase in
whole loan sales, improved loss performance on retail contracts.
The increase in interest expense of $1.9 billion is
consistent with the overall increase in market interest rates
during the year, but also reflective of the widening of our
corporate credit spreads as we experienced a series of credit
rating actions over the past few years. The impact of the
increased spreads will continue to affect results, as our lower
cost debt matures, leaving debt borrowed at higher spreads on
the books. Refer to the Funding and Liquidity section of this
MD&A for further discussion.
Our servicing fee income increased 110% compared to 2004, due to
an increase in whole loan sales activity.
Industry and
Competition
The consumer automotive finance market is one of the largest
consumer finance segments in the United States. The industry is
generally segmented according to the type of vehicle sold (new
versus used) and the buyers credit characteristics (prime,
nonprime or
sub-prime).
In 2006 and 2005 we purchased or originated
22
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
$60.7 billion and $58.4 billion, respectively, of
consumer automotive retail or lease contracts.
The consumer automotive finance business is largely dependent on
new vehicle sales volumes, manufacturers promotions and
the overall macroeconomic environment. Competition tends to
intensify when vehicle production decreases. Because of our
relationship with GM, our penetration of GM volumes generally
increases when GM uses subvented financing rates as a part of
its promotion program. In conjunction with the Sale Transaction
GM has agreed to continue to provide vehicle financing and
leasing incentives exclusively through us for a 10 year
period.
The consumer automotive finance business is highly competitive.
We face intense competition from large suppliers of consumer
automotive finance, which include captive automotive finance
companies, large national banks and consumer finance companies.
In addition, we face competition from smaller suppliers,
including regional banks, savings and loans associations and
specialized providers, such as local credit unions. Some of our
larger competitors have access to significant capital and
resources. Smaller suppliers often have a dominant position in a
specific region or niche segment, such as used vehicle finance
or nonprime customers.
Commercial financing competitors are primarily comprised of
other manufacturers affiliated finance companies,
independent commercial finance companies and national and
regional banks. Refer to Risk Factors in Item 1A for
further discussion.
Consumer
Automotive Financing
We provide two basic types of financing for new and used
vehicles: retail automotive contracts and automotive lease
contracts. In most cases, we purchase retail contracts and
leases for new and used vehicles from GM-affiliated dealers when
the vehicles are purchased by consumers. In a number of markets
outside the United States, we are a direct lender to the
consumer. Our consumer automotive financing operations generate
revenue through finance charges or lease payments and fees paid
by customers on the retail contracts and leases. In connection
with lease contracts, we also recognize a gain or loss on the
remarketing of the vehicle. For purposes of discussion in this
section of the MD&A, the loans related to our automotive
lending activities are referred to as retail contracts. The
following discussion centers on our operations in the United
States, which are generally reflective of our global business
practices; however, certain countries have unique statutory or
regulatory requirements that impact business practices. The
effects of such requirements are not significant to our
consolidated financial condition, results of operations or cash
flows.
The amount we pay a dealer for a retail contract is based on the
negotiated purchase price of the vehicle and any other products,
such as extended service contracts, less any vehicle trade-in
value and any down payment from the consumer. Under the retail
contract, the consumer is obligated to make payments in an
amount equal to the purchase price of the vehicle (less any
trade-in or down payment) plus finance charges at a rate
negotiated between the consumer and the dealer. In addition, the
consumer is also responsible for charges related to past due
payments. When we purchase the contract, it is normal business
practice for the dealer to retain some portion of the finance
charge as income for the dealership, such that some of the
finance charges the consumer pays to us and the remainder is
paid to the dealer. Our agreements with dealers place a limit on
the amount of the finance charges they are entitled to retain.
While we do not own the vehicles we finance through retail
contracts, we hold a perfected security interest in those
vehicles.
With respect to consumer leasing, we purchase leases (and the
associated vehicles) from dealerships. The purchase prices of
the consumer leases are based on the negotiated price for the
vehicle, less any vehicle trade-in and down payment from the
consumer. Under the lease, the consumer is obligated to make
payments in amounts equal to the amount by which the negotiated
purchase price of the vehicle (less any trade-in value and any
down payment) exceeds the projected residual value (including
rate support) of the vehicle at lease termination, plus lease
charges. The consumer is also responsible for charges for past
due payments, excess mileage and excessive wear and tear. When
the lease contract is entered into, we estimate the residual
value of the leased vehicle at lease termination. We base our
determination of the projected residual values on a guide
published by an independent publisher of vehicle residual
values, which is stated as a percentage of the
manufacturers suggested retail price. These projected
values may be upwardly adjusted as a marketing incentive, if GM
or GMAC considers an above-market residual appropriate to
encourage consumers to lease vehicles or for a low mileage lease
program. Our standard leasing plan, SmartLease, requires a
monthly payment by the consumer. We also offer an alternative
leasing plan, SmartLease Plus, which requires one up-front
payment of all lease amounts at the time the consumer takes
possession of the vehicle.
In addition to the SmartLease plans, we offer the SmartBuy plan
through dealerships to consumers. SmartBuy combines certain
features of a lease contract with those of a traditional retail
contract. Under the SmartBuy plan, the customer pays regular
monthly payments that are generally lower than would otherwise
be owed under a traditional retail contract. At the end of the
contract, the customer has several options, including keeping
the vehicle by making a final balloon payment or returning the
vehicle to us and paying a disposal fee plus any applicable
excess wear and excess mileage charges. Unlike a lease contract,
during the course of the SmartBuy contract the customer owns the
vehicle, and we hold a perfected security interest in the
vehicle.
23
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
With respect to all financed vehicles, whether subject to a
retail contract or a lease contract, we require that property
damage insurance be maintained by the consumer. In addition, on
lease contracts we require that bodily injury and comprehensive
and collision insurance be maintained by the consumer.
Consumer automotive finance retail revenue accounted for
$5.7 billion, $6.5 billion and $6.8 billion of
our revenue in 2006, 2005 and 2004, respectively.
The following table summarizes our new vehicle consumer
financing volume and our share of GM retail sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMAC
volume
|
|
|
Share of GM
retail sales
|
Year
ended December 31, (units in thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
|
2006
|
|
2005
|
|
2004
|
GM vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail contracts
|
|
|
973
|
|
|
|
984
|
|
|
|
1,396
|
|
|
|
|
29%
|
|
|
|
27%
|
|
|
|
36%
|
|
Leases
|
|
|
624
|
|
|
|
574
|
|
|
|
489
|
|
|
|
|
19%
|
|
|
|
15%
|
|
|
|
13%
|
|
Total North America
|
|
|
1,597
|
|
|
|
1,558
|
|
|
|
1,885
|
|
|
|
|
48%
|
|
|
|
42%
|
|
|
|
49%
|
|
International (retail contracts and
leases)
|
|
|
533
|
|
|
|
527
|
|
|
|
534
|
|
|
|
|
24%
|
|
|
|
26%
|
|
|
|
30%
|
|
Total GM units financed
|
|
|
2,130
|
|
|
|
2,085
|
|
|
|
2,419
|
|
|
|
|
38%
|
|
|
|
36%
|
|
|
|
43%
|
|
Non-GM units financed
|
|
|
68
|
|
|
|
72
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer automotive financing
volume
|
|
|
2,198
|
|
|
|
2,157
|
|
|
|
2,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our consumer automotive financing volume and penetration levels
are significantly impacted by the nature, timing and extent of
GMs use of rate, residual and other financing incentives
for marketing purposes on consumer retail automotive contracts
and leases. Our penetration levels were higher in 2006 than what
was experienced in 2005, primarily as a result of a GM marketing
program run in July, the
72-hour
sale, which offered consumers special rate financing on retail
contracts for up to 72 months. Conversely, GMs
Employee Discount for Everyone marketing program, which
was introduced in June 2005 and ran through September 2005, had
a negative impact on our penetration levels in 2005. Although GM
benefited from an increase in sales, our penetration levels
decreased, as the program did not provide consumers with
additional incentives to finance with us. Our International
operations consumer penetration levels declined, primarily
as a result of a reduction in GM incentives on new vehicles, as
well as the inclusion of GM vehicle sales in China in the
penetration calculation, where we commenced operations in late
2004.
GM Marketing
Incentives
GM may elect to sponsor incentive programs (on both retail
contracts and leases) by supporting financing rates below the
standard market rates at which we purchase retail contracts.
Such marketing incentives are also referred to as rate support
or subvention. When GM utilizes these marketing incentives, it
pays us at contract inception the present value of the
difference between the customer rate and our standard rates,
which we defer and recognize as a yield adjustment over the life
of the contract.
GM may also provide incentives, referred to as residual support,
on leases. As previously mentioned, we bear a portion of the
risk of loss to the extent the value of a leased vehicle upon
remarketing is below the projected residual value of the vehicle
at the time the lease contract is signed. However, these
projected values may be upwardly adjusted as a marketing
incentive, if GM considers an above-market residual appropriate
to encourage consumers to lease vehicles. Such residual support
by GM results in a lower monthly lease payment by the consumer.
GM reimburses us to the extent remarketing sales proceeds are
less than the residual value set forth in the lease contract. In
addition to GM residual support, in some cases, GMAC may provide
residual support on leases to further encourage consumers to
lease certain vehicles.
In addition to the residual support arrangement, GM shares in
residual risk on all off-lease vehicles sold at auction.
Specifically, we and GM share a portion of the loss when resale
proceeds fall below the standard residual values on vehicles
sold at auction. GM reimburses us for a portion of the
difference between proceeds and the standard residual value (up
to a specified limit).
Under what we refer to as pull ahead programs, consumers are
encouraged to terminate leases early in conjunction with the
acquisition of a new GM vehicle. As part of these programs, we
waive the customers remaining payment obligation, and
under most programs, GM compensates us for the foregone revenue
from the waived payments. Additionally, since these programs
generally accelerate our remarketing of the vehicle, the sale
proceeds are typically higher than otherwise would have been
realized had the vehicle been remarketed at lease contract
maturity. The reimbursement from GM for the foregone payments
is, therefore, reduced by the amount of this benefit.
In connection with the sale, we amended our risk sharing
agreement with GM. The new agreement will apply to new lease
contracts entered into after November 30, 2006. GM is
responsible for risk sharing on returned lease vehicles in the
U.S. and Canada whose resale proceeds are below standard
residual values (limited to a floor). GM will also pay us a
quarterly leasing payment in
24
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
connection with the agreement beginning in the first quarter of
2009 and ending in the fourth quarter of 2014.
Additionally, we entered into an exclusivity agreement with GM
where U.S. vehicle financing and leasing incentives will be
offered only through us for a period of 10 years. In
connection with our right to use the GMAC name and
for the exclusivity related to special financing and leasing
incentives, we will pay GM an annual fee of $75 million. We
will have the right to prepay these exclusivity fees to GM at
any time.
The following table summarizes the percentage of our annual
retail contracts and lease volume that includes GM-sponsored
rate and residual incentives.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
2006
|
|
2005
|
|
2004
|
|
North America
|
|
|
90%
|
|
|
|
78%
|
|
|
|
63%
|
|
International
|
|
|
49%
|
|
|
|
53%
|
|
|
|
58%
|
|
|
|
Consumer Credit
Approval
Before purchasing a retail contract or lease from the dealer, we
perform a credit review based on information provided by the
dealer. As part of this process we evaluate, among other things,
the following factors:
|
|
|
the consumers credit history, including any prior
experience with us;
|
|
|
the asset value of the vehicle and the amount of equity (down
payment) in the vehicle; and
|
|
|
the term of the retail contract or lease.
|
We use a proprietary credit scoring system to support this
credit approval process and to manage the credit quality of the
portfolio. We use credit scoring to differentiate expected
default rates of credit applicants, enabling us to better
evaluate credit applications for approval and to tailor the
pricing and financing structure based on this assessment of
credit risk. We periodically review our credit scoring models
and update them based on historical information and current
trends. However, these actions by management do not eliminate
credit risk. Improper evaluations of contracts for purchase and
changes in the applicants financial condition subsequent
to approval could negatively affect the quality of our
receivables portfolio, resulting in credit losses.
Upon successful completion of our credit underwriting process,
we purchase the retail automotive financing contract or lease
from the dealer.
Consumer Credit
Risk Management
Credit losses in our consumer automotive retail contract and
lease portfolio are influenced by general business and economic
conditions, such as unemployment rates, bankruptcy filings and
used vehicle prices. We analyze credit losses according to
frequency (i.e., the number of contracts that default) and
severity (i.e., the dollar magnitude of loss per occurrence of
default). We manage credit risk through our contract purchase
policy, credit approval process (including our proprietary
credit scoring system) and servicing capabilities.
In general, the credit quality of the off-balance sheet
portfolio is representative of our overall managed consumer
automotive retail contract portfolio. However, the process of
creating a pool of retail automotive finance receivables for
securitization or sale typically involves excluding retail
contracts that are greater than 30 days delinquent at such
time. In addition, the process involves selecting from a pool of
receivables that are currently outstanding and therefore,
represent seasoned contracts. A seasoned portfolio
that excludes delinquent contracts historically results in
better credit performance in the managed portfolio than in the
on-balance sheet portfolio of retail automotive finance
receivables. In addition, the current off-balance sheet
transactions are comprised mainly of subvented rate retail
automotive finance receivables, which generally attract higher
quality customers (who would otherwise be cash purchasers) than
customers typically associated with non-subvented receivables.
The managed portfolio includes retail receivables held
on-balance sheet for investment and receivables securitized and
sold that we continue to service and in which we have a
continuing involvement (i.e., in which we retain an interest or
risk of loss in the underlying receivables); it excludes
securitized and sold automotive finance receivables that we
continue to service but in which we have no other continuing
involvement (serviced-only portfolio). We believe the disclosure
of the managed portfolio credit experience presents a more
complete presentation of our credit exposure because the managed
basis reflects not only on-balance sheet receivables but also
securitized assets in which we retain a risk of loss in the
underlying assets (typically in the form of a subordinated
retained interest).
25
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
The following tables summarize pertinent loss experience in the
managed and on-balance sheet consumer automotive retail contract
portfolio. Consistent with the presentation in our Consolidated
Balance Sheet, retail contracts presented in the table represent
the principal balance of the automotive finance receivable less
unearned income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average retail
|
|
Annual
charge-offs,
|
|
|
|
|
|
|
|
assets
|
|
net of
recoveries (a)
|
|
|
Net charge-off
rate
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
2006
|
|
2005
|
|
2004
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
$55,715
|
|
|
|
$569
|
|
|
|
$735
|
|
|
|
$912
|
|
|
|
|
1.02
|
%
|
|
|
0.99
|
%
|
|
|
1.10
|
%
|
|
|
International
|
|
|
15,252
|
|
|
|
112
|
|
|
|
132
|
|
|
|
130
|
|
|
|
|
0.73
|
%
|
|
|
0.89
|
%
|
|
|
0.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total managed
|
|
|
$70,967
|
|
|
|
$681
|
|
|
|
$867
|
|
|
|
$1,042
|
|
|
|
|
0.96
|
%
|
|
|
0.98
|
%
|
|
|
1.08
|
%
|
|
|
|
|
On-balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
$50,305
|
|
|
|
$559
|
|
|
|
$719
|
|
|
|
$890
|
|
|
|
|
1.11
|
%
|
|
|
1.05
|
%
|
|
|
1.18
|
%
|
|
|
International
|
|
|
15,251
|
|
|
|
112
|
|
|
|
132
|
|
|
|
130
|
|
|
|
|
0.73
|
%
|
|
|
0.89
|
%
|
|
|
0.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total on-balance sheet
|
|
|
$65,556
|
|
|
|
$671
|
|
|
|
$851
|
|
|
|
$1,020
|
|
|
|
|
1.02
|
%
|
|
|
1.02
|
%
|
|
|
1.14
|
%
|
|
|
|
|
|
|
(a) |
Net charge-offs exclude amounts related to residual losses on
balloon automotive SmartBuy finance contracts. These amounts
totaled $26, $1 and $31 for the years ended December 31,
2006, 2005 and 2004 respectively.
|
The following table summarizes pertinent delinquency experience
in the consumer automotive retail contract portfolio.
|
|
|
|
|
|
|
|
|
|
|
Percent of retail
contracts 30 days
|
|
|
or more past
due (a)
|
|
|
Managed
|
|
On-balance
sheet
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
North America
|
|
2.49%
|
|
2.21%
|
|
2.73%
|
|
2.37%
|
International
|
|
2.63%
|
|
2.68%
|
|
2.63%
|
|
2.68%
|
|
|
Total
|
|
2.54%
|
|
2.33%
|
|
2.70%
|
|
2.46%
|
|
|
|
|
(a) |
Past due contracts are calculated on the basis of the average
number of contracts delinquent during a month and exclude
accounts in bankruptcy.
|
In addition to the preceding loss and delinquency data, the
following table summarizes bankruptcies and repossession
information for the United States consumer automotive retail
contract portfolio (which represents approximately 53% and 65%
of our on-balance sheet consumer automotive retail contract
portfolio for the 2006 and 2005 year, respectively):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
On-balance
sheet
|
Year ended
December 31,
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
Average retail contracts in
bankruptcy
(in units) (a)
|
|
|
88,658
|
|
|
|
102,858
|
|
|
|
87,731
|
|
|
|
98,744
|
|
Bankruptcies as a percent of
average number of contracts outstanding
|
|
|
2.62%
|
|
|
|
2.27%
|
|
|
|
2.78%
|
|
|
|
2.35%
|
|
Retail contract repossessions
(in units)
|
|
|
89,345
|
|
|
|
101,546
|
|
|
|
87,900
|
|
|
|
98,838
|
|
Repossessions as a percent of
average number of contracts outstanding
|
|
|
2.64%
|
|
|
|
2.24%
|
|
|
|
2.78%
|
|
|
|
2.35%
|
|
|
|
|
|
(a) |
Average retail contracts in bankruptcy are calculated using the
yearly average of the month end bankruptcies.
|
Servicing
Servicing activities consist largely of collecting and
processing customer payments, responding to customer inquiries
such as requests for payoff quotes, processing customer requests
for account revisions such as payment extensions and
refinancings, maintaining a perfected security interest in the
financed vehicle, monitoring vehicle insurance coverage, and
disposing of off-lease vehicles.
Our customers have the option to remit payments based on monthly
billing statements, coupon books or electronic funds transfers.
Customer payments are processed by regional third-party
26
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
processing centers that electronically transfer payment data to
customers accounts.
Servicing activities also include initiating contact with
customers who fail to comply with the terms of the retail
contract or lease. Such contacts typically begin with a reminder
notice when the account is seven to 15 days past due.
Telephone contact typically begins when the account is 10 to
20 days past due. Accounts that become 45 to 48 days
past due are transferred to special collection centers that
track accounts more closely. The nature and timing of these
activities depend on the repayment risk that the account poses.
During the collection process, we may offer a payment extension
to a customer experiencing temporary financial difficulty. A
payment extension enables the customer to delay monthly payments
for 30, 60 or 90 days, thereby deferring the maturity
date of the contract by such period of delay. Extensions granted
to a customer typically do not exceed 90 days in the
aggregate over any
12-month
period or 180 days in aggregate over the life of the
contract. If the customers financial difficulty is not
temporary, and management believes the customer could continue
to make payments at a lower payment amount, we may offer to
rewrite the remaining obligation, extending the term and
lowering the monthly payment obligation. Extensions and rewrites
are techniques that help mitigate financial loss in those cases
where management believes the customer will recover from
financial difficulty and resume regularly scheduled payments, or
can fulfill the obligation with lower payments over a longer
time period. Before offering an extension or rewrite, collection
personnel evaluate and take into account the capacity of the
customer to meet the revised payment terms. While the granting
of an extension could delay the eventual charge-off of an
account, typically we are able to repossess and sell the related
collateral, thereby mitigating the loss. As an indication of the
effectiveness of our consumer credit practices, of the total
amount outstanding in the United States traditional retail
portfolio as of December 31, 2003, only 6.3% of the
extended or rewritten accounts were subsequently charged off,
through December 31, 2006. A three-year period was utilized
for this analysis as this approximates the weighted average
remaining term of the portfolio. As of December 31, 2006,
5.5% of the total amount outstanding in the portfolio had been
granted an extension or rewritten.
Subject to legal considerations, we will normally begin
repossession activity once an account becomes 60 days past
due. Repossession may occur earlier if management determines the
customer is unwilling to pay, the vehicle is in danger of being
damaged or hidden, or the customer voluntarily surrenders the
vehicle. Approved third-party repossession firms handle
repossessions. Normally, the customer is given a period of time
to redeem the vehicle by paying off the account or bringing the
account current. If the vehicle is not redeemed, it is sold at
auction. If the proceeds do not cover the unpaid balance,
including unpaid finance charges and allowable expenses, the
resulting deficiency is charged off. Asset recovery centers
pursue collections on accounts that have been charged off,
including those accounts where the vehicle was repossessed and
skip accounts where the vehicle cannot be located.
We have historically serviced retail contracts and leases in our
managed portfolio. We will continue selling retail contracts (on
a whole loan basis) that we purchase. With respect
to retail and lease contracts we sell, we retain the right to
service such retail contracts and leases and earn a servicing
fee for such servicing functions. Semperian LLC, a subsidiary,
performs most servicing activities for U.S. retail
contracts and consumer automotive leases on our behalf.
Semperians servicing activities are performed in
accordance with our policies and procedures.
As of December 31, 2006 and 2005, our total consumer
automotive serviced portfolio was $123.0 billion and
$124.1 billion, respectively, while our consumer
automotive managed portfolio was $91.9 billion and
$108.4 billion in 2006 and 2005, respectively.
Allowance for
Credit Losses
Our allowance for credit losses is intended to cover
managements estimate of incurred losses in the portfolio.
Refer to the Critical Accounting Estimates section of this
MD&A and Note 1 to our Consolidated Financial
Statements for further discussion.
The following table summarizes activity related to the consumer
allowance for credit losses for our automotive finance
operations.
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
|
|
|
|
|
($ in
millions)
|
|
2006
|
|
2005
|
|
|
|
Allowance at beginning of year
|
|
|
$1,618
|
|
|
|
$2,035
|
|
|
|
Provision for credit losses
|
|
|
520
|
|
|
|
443
|
|
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
(724
|
)
|
|
|
(839
|
)
|
|
|
Foreign
|
|
|
(171
|
)
|
|
|
(192
|
)
|
|
|
|
|
Total charge-offs
|
|
|
(895
|
)
|
|
|
(1,031
|
)
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
151
|
|
|
|
131
|
|
|
|
Foreign
|
|
|
47
|
|
|
|
48
|
|
|
|
|
|
Total recoveries
|
|
|
198
|
|
|
|
179
|
|
|
|
|
|
Net charge-offs
|
|
|
(697
|
)
|
|
|
(852
|
)
|
|
|
Impacts of foreign currency
translation
|
|
|
16
|
|
|
|
(12
|
)
|
|
|
Securitization activity
|
|
|
3
|
|
|
|
4
|
|
|
|
|
|
Allowance at end of year
|
|
|
$1,460
|
|
|
|
$1,618
|
|
|
|
Allowance coverage (a)
|
|
|
2.39
|
%
|
|
|
2.26
|
%
|
|
|
|
|
|
|
(a) |
Represents the related allowance for credit losses as a
percentage of total on-balance sheet consumer automotive retail
contracts.
|
The overall credit performance of the consumer portfolio
deteriorated from the prior year consistent with the decline in
the level of overall managed and on-balance sheet receivables as
we continued to execute more whole loan sales. Similar to
securitizations, the process of creating a pool of retail
automotive finance receivables for whole loan sales typically
involves excluding retail contracts that are greater than
30 days delinquent at such
27
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
time and selecting from a pool of receivables currently
outstanding, which therefore, represent seasoned contracts. A
seasoned portfolio that excludes delinquent contracts
historically results in better credit performance, and as a
result, the increase in whole loan activity over the past year
has impacted the charge-offs as a percentage of the managed and
on-balance sheet portfolio, when compared to the comparable
period in the prior year. In addition to the impact of whole
loan activity, delinquencies in the North American operations
managed and on-balance sheet portfolio were negatively impacted
by an aging of the overall portfolio as consumer serviced assets
continued to decrease, as compared to prior year levels.
International consumer credit portfolio performance remained
strong as both delinquencies and charge-offs declined as
compared to prior year levels.
Credit fundamentals in our consumer automotive portfolio
deteriorated in 2006 relative to 2005 experience. Delinquencies,
repossessions and loss severity all increased as compared to
2005. The increase in loss severity is illustrated by an
increase in the average loss incurred per new vehicle
repossessed in the United States traditional portfolio, which
increased from $7,825 in 2005 to $8,129 in 2006. The increase in
loss severity is attributable to a weakening in the used vehicle
market resulting from a lower demand for used vehicles, as a
result of new vehicle incentive programs, and higher fuel costs.
The increase in delinquency trends in the North American
portfolio is the result of lower on-balance sheet prime retail
asset levels, primarily as a result of an increase in whole loan
sales, the shrinking and aging of the portfolio and a weaker
U.S. economy as compared to recent years. Conversely,
delinquency trends in the International portfolio showed an
improvement in 2006, as a result of a change in the mix of new
and used retail contracts in the portfolio, as well as a
significant improvement in the credit performance in certain
international countries.
Despite the increase in delinquencies and loss severity,
consumer credit loss rates in North America remained relatively
stable in 2006 as compared to 2005. The decrease in the number
of bankruptcies in the U.S. portfolio in 2006 was due to
the change in bankruptcy law, effective October 17, 2005,
which subsequently made it more difficult for some
U.S. consumers to qualify for certain protections
previously afforded to bankruptcy debtors. New bankruptcy
filings in our U.S. portfolio increased dramatically in
October 2005, prior to the change in law and decreased in 2006.
The allowance for credit losses as a percentage of the total
on-balance sheet consumer portfolio remained stable in
comparison to December 2005 as the consumer allowance year over
year decreased along with automotive retail asset levels.
Our consumer automotive leases are operating leases and,
therefore, exhibit different loss performance as compared to
consumer automotive retail contracts. Credit losses on the
operating lease portfolio are not as significant as losses on
retail contracts because lease losses are limited to past due
payments, late charges, and fees for excess mileage and
excessive wear and tear. Since some of these fees are not
assessed until the vehicle is returned, credit losses on the
lease portfolio are correlated with lease termination volume. As
further described in the Critical Accounting Estimates section
of this MD&A, credit risk is considered within the overall
depreciation rate and the resulting net carrying value of the
operating lease asset. North American operating lease accounts
past due over 30 days represented 1.51% and 1.33% of the
total portfolio at December 31, 2006 and 2005, respectively.
Remarketing and
Sales of Leased Vehicles
When we acquire a consumer lease, we assume ownership of the
vehicle from the dealer. Neither the consumer nor the dealer is
responsible for the value of the vehicle at the time of lease
termination. Typically, the vehicle is returned to us for
remarketing through an auction. We generally bear the risk of
loss to the extent the value of a leased vehicle upon
remarketing is below the projected residual value determined at
the time the lease contract is signed. However, GM shares this
risk with us in certain circumstances, as described previously
at GM Marketing Incentives.
When vehicles are not purchased by customers or the receiving
dealer at lease termination, we regain possession of the leased
vehicles from the customers and sell the vehicles, primarily
through physical and internet auctions. The following table
summarizes our methods of vehicle sales in the United States at
lease termination, stated as a percentage of total lease vehicle
disposals.
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
Auction
|
|
|
|
|
|
|
|
|
Physical
|
|
44%
|
|
42%
|
|
43%
|
|
|
Internet
|
|
38%
|
|
39%
|
|
39%
|
|
|
Sale to dealer
|
|
12%
|
|
12%
|
|
12%
|
|
|
Other (including option exercised
by lessee)
|
|
6%
|
|
7%
|
|
6%
|
|
|
|
|
We primarily sell our off-lease vehicles through:
|
|
|
Physical auctions We dispose of approximately
half of our off-lease vehicles not purchased at termination by
the lease consumer or dealer through traditional official
GM-sponsored auctions. We are responsible for handling decisions
at the auction, including arranging for inspections, authorizing
repairs and reconditioning, and determining whether bids
received at auction should be accepted.
|
|
|
Internet auctions We offer off-lease vehicles
to GM dealers and affiliates through a proprietary internet site
(SmartAuction). This internet sales program was established in
2000 to increase the net sales proceeds from off-lease vehicles
by reducing the time between vehicle return and ultimate
disposition, which in turn would reduce holding costs and
broaden the number of prospective buyers, thereby maximizing
proceeds. We maintain the internet auction site, set the pricing
floors on vehicles and
|
28
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
|
|
|
administer the auction process. We earn a service fee for every
sale. Remarketing fee revenue, primarily generated through
SmartAuction, was $76.0 million, $63.5 million and
$57.6 million for 2006, 2005 and 2004, respectively.
|
Lease Residual
Risk Management
We are exposed to residual risk on vehicles in the consumer
lease portfolio. This lease residual risk represents the
possibility that the actual proceeds realized upon the sale of
returned vehicles will be lower than the projection of these
values used in establishing the pricing at lease inception. The
following factors most significantly influence lease residual
risk:
|
|
|
Used vehicle market We are at risk due to
changes in used vehicle prices. General economic conditions,
off-lease vehicle supply and new vehicle market prices (of both
GM and other manufacturers) most heavily influence used vehicle
prices.
|
|
|
Residual value projections As previously discussed,
we establish residual values at lease inception by consulting
independently published guides and periodically review these
residual values during the lease term. These values are
projections of expected values in the future (typically between
two and four years) based on current assumptions for the
respective make and model. Actual realized values often differ.
|
|
|
Remarketing abilities Our ability to
efficiently process and effectively market off-lease vehicles
impacts the disposal costs and the proceeds realized from
vehicle sales.
|
|
|
GM vehicle and marketing programs GM
influences lease residual results in the following ways:
|
|
|
|
|
|
GM provides support to us for certain residual deficiencies.
|
|
|
|
The brand image and consumer preference of GM products impact
residual risk, as our lease portfolio consists primarily of GM
vehicles.
|
|
|
|
GM marketing programs may influence the used vehicle market for
GM vehicles, through programs such as incentives on new
vehicles, programs designed to encourage lessees to terminate
their leases early in conjunction with the acquisition of a new
GM vehicle (referred to as pull ahead programs) and special rate
used vehicle programs.
|
The following table summarizes the volume of lease terminations
and the average sales proceeds on 24, 36 and
48-month
scheduled lease terminations in the United States serviced lease
portfolio for the years indicated. The 36 month
terminations represented approximately 51%, 69%, and 73% of our
total terminations in 2006, 2005 and 2004, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
2006
|
|
2005
|
|
2004
|
|
|
Off-lease vehicles remarketed
(in units)
|
|
|
272,094
|
|
|
|
283,480
|
|
|
|
413,621
|
|
Sales proceeds on scheduled lease
terminations ($ per unit)
|
|
|
|
|
|
|
|
|
|
|
|
|
24-month
|
|
|
$16,236
|
|
|
|
$16,755
|
|
|
|
$16,345
|
|
36-month
|
|
|
13,848
|
|
|
|
13,949
|
|
|
|
13,277
|
|
48-month
|
|
|
12,284
|
|
|
|
12,209
|
|
|
|
11,354
|
|
|
|
Our off-lease vehicle remarketing results remained relatively
stable in 2006, as compared to the past few years, despite a
weaker used vehicle market, primarily as a result of a decline
in the volume of vehicles coming off-lease and the fact that the
underlying contractual residual values (on the current
portfolio) were lower than the residuals established on prior
years volume. Additionally, we have continued aggressive
use of the internet in disposing of off-lease vehicles. This
initiative has improved efficiency, reduced costs and ultimately
increased the net proceeds on the sale of off-lease vehicles. In
2007 continued improvement in remarketing results is expected as
the favorable effect of lower contractual residual values
continues.
In recent years, the percentage of lease contracts terminated
prior to the scheduled maturity date has increased primarily due
to
GM-sponsored
pull ahead programs. Under these marketing programs, consumers
are encouraged to terminate leases early in conjunction with the
acquisition of a new GM vehicle. The sales proceeds per vehicle
on scheduled lease terminations in the preceding table do not
include the effect of payments related to the pull ahead
programs.
Commercial
Automotive Financing
Automotive
Wholesale Dealer Financing
One of the most important aspects of our automotive financing
operations is supporting the sale of GM vehicles through
wholesale or floor plan financing, primarily through automotive
finance purchases by dealers of new and used vehicles
manufactured or distributed by GM and, less often, other vehicle
manufacturers, prior to sale or lease to the retail customer.
Wholesale automotive financing represents the largest portion of
our commercial financing business and is the primary source of
funding for GM dealers purchases of new and used vehicles.
In 2006 we financed six million new GM vehicles (representing an
80% share of GM sales to dealers). In addition, we financed
approximately 140,000 new non-GM vehicles. The following
discussion centers on our operations in the United States, which
are generally reflective of our global business practices;
however, certain countries have unique statutory or regulatory
requirements that impact business practices. The effects of such
requirements are not significant to our consolidated financial
condition, results of operations or cash flows.
29
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
Wholesale credit is arranged through lines of credit extended to
individual dealers. In general, each wholesale credit line is
secured by all the vehicles financed by us and, in some
instances, by other assets owned by the dealer or the
operators/owners personal guarantee. The amount we
advance to dealers is equal to 100% of the wholesale invoice
price of new vehicles, which includes destination and other
miscellaneous charges, and with respect to vehicles manufactured
by GM and other motor vehicle manufacturers, a price rebate,
known as a holdback, from the manufacturer to the dealer in
varying amounts stated as a percentage of the invoice price.
Interest on wholesale automotive financing is generally payable
monthly. Most wholesale automotive financing is structured to
yield interest at a floating rate indexed to the Prime Rate. The
rate for a particular dealer is based on, among other things,
competitive factors, the amount and status of the dealers
creditworthiness and various incentive programs.
Under the terms of the credit agreement with the dealer, we may
demand payment of interest and principal on wholesale credit
lines at any time. However, unless we terminate the credit line
or the dealer defaults, we generally require payment of the
principal amount financed for a vehicle upon its sale or lease
by the dealer to the customer. Ordinarily, a dealer has between
one and five days, based on risk and exposure of the account, to
satisfy the obligation.
Wholesale automotive financing accounted for $1.3 billion,
$1.1 billion and $1.1 billion of our revenues in 2006,
2005 and 2004, respectively.
The following table summarizes our wholesale financing of new
vehicles and share of GM sales to dealers in markets where we
operate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMAC
volume
|
|
|
Share of GM
retail sales
|
Year
ended December 31, (units in thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
|
2006
|
|
2005
|
|
2004
|
GM vehicles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
3,464
|
|
|
|
3,798
|
|
|
|
4,153
|
|
|
|
|
76%
|
|
|
|
80%
|
|
|
|
81%
|
|
International
|
|
|
2,658
|
|
|
|
2,462
|
|
|
|
2,207
|
|
|
|
|
86%
|
|
|
|
84%
|
|
|
|
86%
|
|
Total GM vehicles
|
|
|
6,122
|
|
|
|
6,260
|
|
|
|
6,360
|
|
|
|
|
80%
|
|
|
|
82%
|
|
|
|
83%
|
|
Non-GM vehicles
|
|
|
140
|
|
|
|
180
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total wholesale volume
|
|
|
6,262
|
|
|
|
6,440
|
|
|
|
6,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our wholesale automotive financing continues to be the primary
funding source for GM dealer inventories. Penetration levels in
North America in 2006 continued to reflect traditionally strong
levels but declined from 2005 levels. International levels
increased in 2006 mainly due to growth in China and improvement
in their penetration levels.
Credit
Approval
Prior to establishing a wholesale line of credit, we perform a
credit analysis of the dealer. During this analysis, we:
|
|
|
review credit reports, financial statements and may obtain bank
references;
|
|
|
evaluate the dealers marketing capabilities;
|
|
|
evaluate the dealers financial condition; and
|
|
|
assess the dealers operations and management.
|
Based on this analysis, we may approve the issuance of a credit
line and determine the appropriate size. The credit lines
represent guidelines, not limits. Therefore, the dealers may
exceed them on occasion, an example being a dealer exceeding
sales targets contemplated in the credit approval process.
Generally, the size of the credit line is intended to be an
amount sufficient to finance approximately a 90 day supply
of new vehicles and a
30-60 day
supply of used vehicles. Our credit guidelines ordinarily
require that advances to finance used vehicles be approved on a
unit by unit basis.
Commercial
Credit
Our credit risk on the commercial portfolio is markedly
different than that of our consumer portfolio. Whereas the
consumer portfolio represents a homogeneous pool of retail
contracts and leases that exhibit fairly predictable and stable
loss patterns, the commercial portfolio exposures are less
predictable. In general, the credit risk of the commercial
portfolio is tied to overall economic conditions in the
countries in which we operate. Further, our credit exposure is
concentrated in automotive dealerships (primarily GM
dealerships). Occasionally, GM provides payment guarantees on
certain commercial loans and receivables we have outstanding. As
of December 31, 2006 and 2005, approximately
$169 million and $934 million, respectively, in
commercial loans and receivables were covered by a GM guarantee.
Credit risk is managed and guided by policies and procedures
established and controlled by Corporate, that are designed to
ensure that risks are accurately and consistently assessed,
properly approved and continuously monitored. Our wholly owned
subsidiaries approve significant transactions and are
responsible for credit risk assessments (including the
evaluation of the adequacy of the collateral). Our wholly owned
subsidiaries also monitor the credit risk profile of individual
borrowers and the aggregate portfolio of borrowers
either within a designated geographic region or a particular
product or industry segment. Corporate approval is required for
transactions exceeding business unit approval limits. Credit
risk monitoring is supplemented at the corporate portfolio level
through a periodic review performed by our Chief Credit Officer.
30
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
To date, the commercial receivables that have been securitized
and accounted for as off-balance sheet transactions primarily
represent wholesale lines of credit extended to automotive
dealerships, which historically have experienced low losses and
some dealer term loans. Historically, only wholesale accounts
were securitized, resulting in our managed portfolio being
substantially the same as our on-balance sheet portfolio. As a
result, only the on-balance sheet commercial portfolio credit
experience is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Impaired
|
|
|
Average
|
|
Annual
charge-offs,
|
|
|
|
|
loans
|
|
loans
(a)
|
|
|
loans
|
|
net of
recoveries
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
2006
|
|
2005
|
|
|
2006
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
Wholesale
|
|
|
$20,577
|
|
|
|
$338
|
|
|
|
$299
|
|
|
|
|
$21,473
|
|
|
|
$6
|
|
|
|
$4
|
|
|
|
$2
|
|
|
|
|
|
|
|
|
|
|
1.64
|
%
|
|
|
1.45
|
%
|
|
|
|
|
|
|
|
0.03
|
%
|
|
|
0.02
|
%
|
|
|
0.01
|
%
|
|
|
Other commercial automotive
financing
|
|
|
3,842
|
|
|
|
52
|
|
|
|
142
|
|
|
|
|
4,138
|
|
|
|
4
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
1.35
|
%
|
|
|
1.36
|
%
|
|
|
|
|
|
|
|
0.10
|
%
|
|
|
0.02
|
%
|
|
|
0.03
|
%
|
|
|
|
|
Total on-balance sheet
|
|
|
$24,419
|
|
|
|
$390
|
|
|
|
$441
|
|
|
|
|
$25,611
|
|
|
|
$10
|
|
|
|
$5
|
|
|
|
$6
|
|
|
|
|
|
|
|
|
|
|
1.60
|
%
|
|
|
1.42
|
%
|
|
|
|
|
|
|
|
0.04
|
%
|
|
|
0.02
|
%
|
|
|
0.02
|
%
|
|
|
|
|
|
|
(a) |
Includes loans where it is probable that we will be unable to
collect all amounts due according to the terms of the loan.
|
Annual charge-offs on the wholesale portfolio remained at
traditionally low levels in 2006, while charge-offs declined for
the other commercial automotive financing portfolio. Impaired
loans in the wholesale commercial loan portfolio increased in
comparison to December 2005 levels, as a result of an increase
in the amounts outstanding in the wholesale lines of credit for
certain dealer accounts. In addition, impaired loans declined in
the other commercial automotive financing portfolio since
December 2005.
Servicing and
Monitoring
We service all of the wholesale credit lines in our portfolio as
well as the wholesale automotive finance receivables that we
have securitized. A statement setting forth billing and account
information is prepared by us and distributed on a monthly basis
to each dealer. Interest and other non-principal charges are
billed in arrears and are required to be paid immediately upon
receipt of the monthly billing statement. Generally, dealers
remit payments to GMAC through wire transfer transactions
initiated by the dealer through a secure web application.
Dealers are assigned a credit category based on various factors,
including capital sufficiency, operating performance, financial
outlook, and credit and payment history. The credit category
impacts the amount of the line of credit, the determination of
further advances and the management of the account. We monitor
the level of borrowing under each dealers account daily.
When a dealers balance exceeds the credit line, we may
temporarily suspend the granting of additional credit or
increase the dealers credit line or take other actions,
following evaluation and analysis of the dealers financial
condition and the cause of the excess.
We periodically inspect and verify the existence of dealer
vehicle inventories. The timing of the verifications varies and
no advance notice is given to the dealer. Among other things,
verifications are intended to determine dealer compliance with
the financing agreement and confirm the status of our collateral.
Other Commercial
Automotive Financing
We also provide other forms of commercial financing for the
automotive industry. The following describes our other
automotive financing markets and products:
|
|
|
Automotive dealer term loans We make loans to
dealers to finance other aspects of the dealership business.
These loans are typically secured by real estate, other
dealership assets and occasionally the personal guarantees of
the individual owner of the dealership. Automotive dealer loans
comprised 2% of our Automotive Financing operations assets
as of December 31, 2006, consistent with 2005.
|
|
|
Automotive fleet financing Dealers, their affiliates
and other companies may obtain financing to buy vehicles, which
they lease or rent to others. These transactions represent our
fleet financing activities. We generally have a security
interest in these vehicles and in the rental payments. However,
competitive factors may occasionally limit the security interest
in this collateral. Automotive fleet financing comprised less
than 1% of our Automotive Financing operations assets as
of December 31, 2006, consistent with 2005.
|
|
|
Full service leasing products We offer full service
individual and fleet leasing products in Europe, Mexico, and
Australia. In addition to financing the vehicles, we offer
maintenance, fleet and accident management services, as well as
fuel programs, short-term vehicle rental, and title and
licensing services. Full service leasing products comprised 2%
and 1% of our Automotive Finance operations assets as of
December 31, 2006 and 2005, respectively.
|
31
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
Results of
Operations
The following table summarizes the operating results for ResCap
for the periods indicated. The amounts presented are before the
elimination of balances and transactions with our other
operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006-2005
|
|
2005-2004
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
%
change
|
|
%
change
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing revenue
|
|
|
$7,405
|
|
|
|
$5,226
|
|
|
|
$4,834
|
|
|
|
42
|
|
|
|
8
|
|
Interest expense
|
|
|
(6,447
|
)
|
|
|
(3,874
|
)
|
|
|
(2,405
|
)
|
|
|
66
|
|
|
|
61
|
|
Provision for credit losses
|
|
|
(1,334
|
)
|
|
|
(626
|
)
|
|
|
(978
|
)
|
|
|
113
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing revenue (loss)
|
|
|
(376
|
)
|
|
|
726
|
|
|
|
1,451
|
|
|
|
(152
|
)
|
|
|
(50
|
)
|
Servicing fees
|
|
|
1,584
|
|
|
|
1,417
|
|
|
|
1,297
|
|
|
|
12
|
|
|
|
9
|
|
Amortization and impairment
|
|
|
|
|
|
|
(762
|
)
|
|
|
(1,015
|
)
|
|
|
(100
|
)
|
|
|
(25
|
)
|
Servicing asset valuation and hedge
activities, net
|
|
|
(1,100
|
)
|
|
|
61
|
|
|
|
243
|
|
|
|
n/m
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan servicing income
|
|
|
484
|
|
|
|
716
|
|
|
|
525
|
|
|
|
(32
|
)
|
|
|
36
|
|
Gains on sale of loans, net
|
|
|
890
|
|
|
|
1,037
|
|
|
|
690
|
|
|
|
(14
|
)
|
|
|
50
|
|
Other income
|
|
|
1,986
|
|
|
|
1,755
|
|
|
|
1,212
|
|
|
|
13
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net financing revenue and
other income
|
|
|
2,984
|
|
|
|
4,234
|
|
|
|
3,878
|
|
|
|
(30
|
)
|
|
|
9
|
|
Noninterest expense
|
|
|
(2,568
|
)
|
|
|
(2,607
|
)
|
|
|
(2,371
|
)
|
|
|
(2
|
)
|
|
|
10
|
|
Income tax benefit (expense)
|
|
|
289
|
|
|
|
(606
|
)
|
|
|
(603
|
)
|
|
|
(148
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$705
|
|
|
|
$1,021
|
|
|
|
$904
|
|
|
|
(31
|
)
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$130,569
|
|
|
|
$118,608
|
|
|
|
$93,941
|
|
|
|
10
|
|
|
|
26
|
|
|
|
n/m = not meaningful
2006 Compared to
2005
ResCap operations net income for 2006 declined 31% when
compared to 2005. The 2006 operating results were adversely
affected by domestic economic conditions especially during the
fourth quarter. These developments were offset by the conversion
to an LLC for income tax purposes, which resulted in the
elimination of a $523 million net deferred tax liability.
Excluding the LLC benefit, our net income was $182 million.
The adverse conditions affecting the business included the
following:
|
|
|
Interest rates have steadily increased since the middle of 2005.
Rising rates have the impact of decreasing mortgage
affordability. In addition, long-term rates have remained low
relative to short-term rates (i.e., a flattening of the yield
curve) and, in some instances, have been lower than short-term
rates (i.e., an inverted yield curve). This results in a
reduction in net interest margin and generally has a negative
effect on our hedging result.
|
|
|
The rising interest rate environment has contributed to lower
home sales and an increased inventory of unsold homes.
Accordingly, the level of home price appreciation declined to a
five-year low in the fourth quarter of 2006 and in a number of
areas in the country has resulted in a decline in the
appreciation of home prices and, in some areas, a decline in
home values, which has increased the severity of our loan losses.
|
|
|
The nonprime securitization market significantly deteriorated
during the fourth quarter of 2006. Nonprime loan prices declined
significantly due to the changing market conditions and our
ability to securitize delinquent subprime loans was severely
restricted. This had a significant negative impact on nonprime
sales margins and impacted the fair value of our delinquent
loans in our mortgage loans held for sale portfolio.
|
|
|
In the fourth quarter of 2006, nonprime delinquencies rose
significantly. The combination of lower home prices and sales
and loan defaults has put significant pressure on a number of
nonprime lenders, including our nonprime warehouse lending
customers. This resulted in a significant provision for loan
losses due to the decline in value of the collateral for our
loans.
|
|
|
The economic conditions resulted in lower net interest margins,
higher provisions for loan losses, lower gains on sale margins
and loan production, real estate investment impairments, and
reduced gains on dispositions of real estate acquired through
foreclosure. As these domestic market conditions persist, these
unfavorable impacts on our results of operations may continue.
|
The mortgage loan production in 2006 was $189.4 billion, an
increase of 8% from $175.6 billion in 2005. Domestic
mortgage loan production increased 2% and international loan
production increased 68% in 2006 compared to 2005. Domestic loan
production increased due to increases in production of prime
second-lien and
32
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
prime non-conforming products. U.K. operations provided the
majority of the international increase.
ResCap net financing revenue was ($376) million in 2006
compared to $726 million in 2005, a decrease of 152%. Total
financing revenue increased 42% compared to the prior year,
primarily as a result of the increase in our average
interest-earning assets, including mortgage loans held for sale,
mortgage loans held for investment and lending receivables.
Interest expense increased 66% during the 2006 year due to
increases in the average amount of interest-bearing liabilities
outstanding to fund asset growth as well as increases in funding
costs primarily due to the increase in market interest rates.
The provision for credit losses was approximately
$1.3 billion in 2006 compared to $626 million in 2005,
representing an increase of approximately 113%. The majority of
this increase occurred in the fourth quarter as the decline in
the domestic housing market accelerated and the market for
nonprime loans significantly deteriorated. These market
conditions resulted in our increasing loss estimates for the
number and estimated charge-offs, an increase in nonprime
delinquencies and significant stress on warehouse lending
customers. The increase in the provision for loan losses was
driven by an increase in delinquent loans. These developments
resulted in higher loss severity assumptions for new loan
production, as compared to the prior year period, when the
market observed home price appreciation. If home prices continue
to weaken, it may have a continued negative effect on the
provision for credit losses.
Net loan servicing income decreased 32% compared to 2005 due to
negative servicing asset valuations, which were partially offset
by an increase in the size of the mortgage servicing rights
portfolio. The negative servicing asset valuation was primarily
due to derivative hedging results, which were negatively
impacted by lower market volatility and the inverted yield
curve. The domestic servicing portfolio was approximately
$412.4 billion as of December 31, 2006, an increase of
approximately $57.5 billion or 16% from $354.9 billion
as of December 31, 2005. Gains on sales of loans decreased
14% due to our inability in the fourth quarter of 2006 to
include nonprime delinquent loans in our nonprime
securitizations.
Other income increased 13% during the 2006 year due to a
gain on the sale of an interest in a regional home builder in
the second quarter of 2006 resulting in a gain of
$415 million ($259 million after-tax). This was
partially offset by lower income from sales of real estate owned
and lower valuations of real estate owned due to lower home
prices as well as lower management fee income due to the
elimination of an off-balance sheet warehouse lending facility
during the fourth quarter of 2005.
Noninterest expense decreased in 2006 by 2% compared to 2005.
This decrease was primarily attributable to a $42.6 million
gain from the curtailment of a pension plan as well as lower
real estate commissions due to the softening of the real estate
market. These reductions were partially offset by higher
professional fees that were incurred in conjunction with the
integration of GMAC Residential and Residential Capital Group
into the U.S. Residential Finance Group.
Income tax benefit was $289 million, which included a
conversion benefit of $523 million related to ResCaps
election to be treated as an LLC for federal income tax
purposes. The benefit was the result of the elimination of net
deferred tax liabilities. Almost all significant domestic legal
entities of ResCap have been converted to LLCs with the
exception of GMAC Bank. Effective December 2006, federal income
tax expense is no longer incurred for the entities that made the
election.
2005 Compared to
2004
Net financing revenue was $726 million in 2005 compared to
approximately $1.5 billion in 2004, a decrease of
$725 million or 50%. Our total financing revenue increased
$392 million in 2005 compared to the prior year, primarily
as a result of an increase in interest earning assets including
mortgage loans held for sale, mortgage loans held for
investment, lending receivables and other interest-earning
assets. Interest expense increased approximately
$1.5 billion in 2005 compared to the prior year due to both
an increase in the volume of interest-bearing liabilities and an
increase in the cost of those funds. Funding costs increased in
2005 primarily due to the increase in short-term market interest
rates. Additionally, the cost of funds has increased as lower
cost affiliate borrowings were replaced with unsecured debt.
The provision for credit losses was $626 million in 2005
compared to $978 million in 2004, representing a decrease
of $352 million or 36%. The provision for credit losses was
lower in 2005 compared to the prior year primarily due to
favorable severity assumptions resulting from home price
appreciation along with a slower rate of increase in
delinquencies, including nonaccrual loans, during 2005 compared
to 2004 as the rate of seasoning of the portfolio slowed. These
positive effects were partially offset by provisions for
Hurricane Katrina.
Net loan servicing income increased from $525 million
during 2004 to $716 million during 2005, representing an
increase of $191 million or 36%. Net loan servicing income
increased as a result of increased mortgage servicing fees due
to growth in the residential servicing portfolio in 2005 as
compared to 2004. In addition, net servicing income benefited
from a reduction in amortization and impairment due to the
favorable impact of slower than expected prepayments consistent
with observed trends in the portfolio and rising interest rates.
Gains on sale of loans increased $347 million or 50%,
compared to 2004 due to higher overall loan production and the
increased volume of off-balance sheet securitizations versus
on-balance sheet secured financings. Other income increased 45%
or $543 million in 2005 primarily related to favorable net
impact on the valuation of retained interests from updating
estimates of future credit losses resulting from favorable
credit loss experience and favorable changes in market rates,
offset by the reduction in valuation of residual assets affected
by Hurricane Katrina. In addition, other
33
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
income includes an increase in other investment income related
to certain equity investments as well as interest earned on
investments in U.S. Treasury securities. Noninterest
expense increased $236 million or 10% compared to 2004,
primarily due to salary and commission increases in loan
production, number of employees and new location occupancy costs.
Industry and
Competition
The U.S. residential mortgage market had been a growth
market for the last several decades. This growth had been driven
by a variety of factors, including low interest rates,
increasing rates of homeownership, greater access to mortgage
financing, the development of an efficient secondary market,
home price appreciation and the tax advantage of mortgage debt
compared to other forms of consumer debt. Origination of
residential mortgage loans has increased during the
2006 year; however, the pace of growth has declined given
the softening real estate market, rising interest rates and
various concerns about the U.S. economy. The domestic
mortgage origination market was estimated to be approximately
$2.5 trillion in 2006 and $3.0 trillion in 2005.
Prime credit quality mortgage loans are the largest component of
the residential mortgage market in the U.S. with loans
conforming to the underwriting standards of Fannie Mae and
Freddie Mac, Veterans Administration-guaranteed loans and
loans insured by the Federal Housing Administration representing
a significant portion of all U.S. residential mortgage
production. Prime credit quality loans that do not conform to
the underwriting standards of the government-sponsored
enterprises, because their original principal amounts exceed
Fannie Mae or Freddie Mac limits or because they do not
otherwise meet the relevant documentation or property
requirements, represent a growing portion of the residential
mortgage market. Home equity mortgage loans, which are typically
mortgage loans secured by a second (or more junior) lien on the
underlying property, continue to grow in significance within the
U.S. residential real estate finance industry.
The development of an efficient secondary market for residential
mortgage loans, including the securitization market, has played
an important role in the growth of the residential real estate
finance industry. Mortgage-backed and mortgage-related
asset-backed securities are issued by private sector issuers as
well as by government-sponsored enterprises, primarily Fannie
Mae and Freddie Mac.
An important source of capital for the residential real estate
finance industry is warehouse lending. These facilities provide
funding to mortgage loan originators until the loans are sold to
investors in the secondary mortgage loan market.
The global mortgage markets, particularly in Europe, are less
mature than the U.S. mortgage market. The historic lack of
available sources of liquidity make these markets a potential
opportunity for growth. As a result, many of our competitors
have entered the global mortgage markets.
Our mortgage business operates in a highly competitive
environment and faces significant competition from commercial
banks, savings institutions, mortgage companies and other
financial institutions. In addition, ResCap earnings are subject
to volatility due to seasonality inherent in the mortgage
banking industry and volatility in interest rate markets.
U.S. Residential
Real Estate Finance
Through our activities at ResCap, we are one of the largest
residential mortgage producers and servicers in the U.S.,
producing approximately $162 billion in residential
mortgage loans in 2006 and servicing approximately
$412 billion in residential mortgage loans as of
December 31, 2006. We are also one of the largest
non-agency issuers of mortgage-backed and mortgage-related
asset-backed securities in the United States. The principal
activities of our U.S. residential real estate finance
business include originating, purchasing, selling and
securitizing residential mortgage loans; servicing residential
mortgage loans for ourselves and others; providing warehouse
financing to residential mortgage loan originators and
correspondent lenders to originate residential mortgage loans;
creating a portfolio of mortgage loans and retained interests
from our securitization activities; conducting limited banking
activities through GMAC Bank; and providing real estate closing
services.
Sources of Loan
Production
We have three primary sources for our residential mortgage loan
production: the origination of loans through our direct lending
network, the origination of loans through our mortgage brokerage
network and the purchase of loans in the secondary market
(primarily from correspondent lenders).
|
|
|
Direct Lending Network Our direct lending
network consists of retail branches, internet and
telephone-based operations. Our retail network targets customers
desiring
face-to-face
service. Typical referral sources are realtors, homebuilders,
credit unions, small banks and affinity groups. We originate
residential mortgage loans through our direct lending network
under two brands: GMAC Mortgage and ditech.com.
|
|
|
Mortgage Brokerage Network We also originate
residential mortgage loans through mortgage brokers. Loans
sourced by mortgage brokers are funded by us and generally
closed in our name. When originating loans through mortgage
brokers, the mortgage brokers role is to identify the
applicant, assist in completing the loan application, gather
necessary information and documents and serve as our liaison
with the borrower through the lending process. We review and
underwrite the application submitted by the mortgage broker,
approve or deny the application, set the interest rate and other
terms of the loan and, upon acceptance by the borrower and
satisfaction of all conditions required by us, fund the loan. We
qualify and approve all mortgage brokers who generate mortgage
loans for us, and we continually monitor their performance.
|
34
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
|
|
|
Correspondent Lender and other Secondary Market
Purchases Loans purchased from correspondent
lenders are originated or purchased by the correspondent lenders
and subsequently sold to us. As with our mortgage brokerage
network, we approve any correspondent lenders who participate in
our loan purchase programs.
|
We also purchase pools of residential mortgage loans from
entities other than correspondent lenders, which we refer to as
bulk purchases. These purchases are generally made from large
financial institutions. In connection with these purchases, we
typically conduct due diligence on all or a sampling of the
mortgage pool and use our underwriting technology to determine
if the loans meet the underwriting requirements of our loan
programs. Some of the residential mortgage loans we obtain in
bulk purchases are seasoned or
distressed. Seasoned mortgage loans are loans that
generally have been funded for more than 12 months, while
distressed mortgage loans are loans that are currently in
default or otherwise nonperforming.
The following summarizes our domestic mortgage loan production
by channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. mortgage
loan production by channel
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
Dollar
|
|
Year
ended December 31,
|
|
No.
of
|
|
|
amount
of
|
|
|
No.
of
|
|
|
amount
of
|
|
|
No.
of
|
|
|
amount
of
|
|
($ in
millions)
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
|
Retail branches
|
|
|
103,139
|
|
|
|
$15,036
|
|
|
|
126,527
|
|
|
|
$19,097
|
|
|
|
134,160
|
|
|
|
$18,012
|
|
Direct lending (other than retail
branches)
|
|
|
135,731
|
|
|
|
12,547
|
|
|
|
161,746
|
|
|
|
17,228
|
|
|
|
148,343
|
|
|
|
16,209
|
|
Mortgage brokers
|
|
|
169,200
|
|
|
|
29,025
|
|
|
|
134,263
|
|
|
|
22,961
|
|
|
|
111,571
|
|
|
|
16,302
|
|
Correspondent lender and secondary
market purchases
|
|
|
642,169
|
|
|
|
104,960
|
|
|
|
552,624
|
|
|
|
99,776
|
|
|
|
533,459
|
|
|
|
82,504
|
|
|
|
Total U.S. production
|
|
|
1,050,239
|
|
|
|
$161,568
|
|
|
|
975,160
|
|
|
|
$159,062
|
|
|
|
927,533
|
|
|
|
$133,027
|
|
|
|
Types of Mortgage
Loans
We originate and acquire mortgage loans that generally fall into
one of the following five categories:
|
|
|
Prime Conforming Mortgage Loans These are
prime credit quality first-lien mortgage loans secured by
single-family residences that meet or conform to the
underwriting standards established by Fannie Mae or Freddie Mac
for inclusion in their guaranteed mortgage securities programs.
|
|
|
Prime Non-Conforming Mortgage Loans These are
prime credit quality first-lien mortgage loans secured by
single-family residences that either (1) do not conform to
the underwriting standards established by Fannie Mae or Freddie
Mac, because they have original principal amounts exceeding
Fannie Mae and Freddie Mac limits ($417,000 in 2006 and 2007 and
$359,650 in 2005), which are commonly referred to as jumbo
mortgage loans or (2) have alternative documentation
requirements and property or credit-related features (e.g.,
higher
loan-to-value
or
debt-to-income
ratios) but are otherwise considered prime credit quality due to
other compensating factors.
|
|
|
Government Mortgage Loans These are
first-lien mortgage loans secured by single-family residences
that are insured by the Federal Housing Administration or
guaranteed by the Veterans Administration.
|
|
|
Nonprime Mortgage Loans These are first-lien
and certain junior lien mortgage loans secured by single-family
residences made to individuals with credit profiles that do not
qualify for a prime loan, have credit-related features that fall
outside the parameters of traditional prime mortgage products or
have performance characteristics that otherwise expose us to
comparatively higher risk of loss.
|
|
|
Prime Second-Lien Mortgage Loans These are
open- and closed-end mortgage loans secured by a second or more
junior lien on single-family residences, which include home
equity mortgage loans.
|
35
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
The following table summarizes our domestic mortgage loan
production by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. mortgage
loan production by type
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
Dollar
|
|
Year
ended December 31,
|
|
No.
of
|
|
|
amount
of
|
|
|
No.
of
|
|
|
amount
of
|
|
|
No.
of
|
|
|
amount
of
|
|
($ in
millions)
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
|
Prime conforming
|
|
|
233,058
|
|
|
|
$43,350
|
|
|
|
275,351
|
|
|
|
$50,047
|
|
|
|
276,129
|
|
|
|
$45,593
|
|
Prime non-conforming
|
|
|
193,736
|
|
|
|
60,294
|
|
|
|
192,914
|
|
|
|
55,811
|
|
|
|
163,260
|
|
|
|
43,473
|
|
Government
|
|
|
25,474
|
|
|
|
3,665
|
|
|
|
31,164
|
|
|
|
4,251
|
|
|
|
40,062
|
|
|
|
4,834
|
|
Nonprime
|
|
|
193,880
|
|
|
|
30,555
|
|
|
|
226,317
|
|
|
|
35,874
|
|
|
|
217,344
|
|
|
|
27,880
|
|
Prime second-lien
|
|
|
404,091
|
|
|
|
23,704
|
|
|
|
249,414
|
|
|
|
13,079
|
|
|
|
230,738
|
|
|
|
11,247
|
|
|
|
Total U.S. production
|
|
|
1,050,239
|
|
|
|
$161,568
|
|
|
|
975,160
|
|
|
|
$159,062
|
|
|
|
927,533
|
|
|
|
$133,027
|
|
|
|
Underwriting
Standards
All the mortgage loans we originate and most of the mortgage
loans purchased are subject to our underwriting guidelines and
loan origination standards. When originating mortgage loans
directly through our retail branches, or by internet or
telephone, or indirectly through mortgage brokers, we follow
established lending policies and procedures that require
consideration of a variety of factors, including:
|
|
|
the borrowers capacity to repay the loan;
|
|
|
the borrowers credit history;
|
|
|
the relative size and characteristics of the proposed
loan; and
|
|
|
the amount of equity in the borrowers property (as
measured by the borrowers
loan-to-value
ratio).
|
Our underwriting standards have been designed to produce loans
that meet the credit needs and profiles of our borrowers,
thereby creating more consistent performance characteristics for
investors in our loans. When purchasing mortgage loans from
correspondent lenders, we either re-underwrite the loan prior to
purchase or delegate underwriting responsibility to the
correspondent lender originating the mortgage loan.
To further ensure consistency and efficiency, much of our
underwriting analysis is conducted through the use of automated
underwriting technology. We also conduct a variety of quality
control procedures and periodic audits to ensure compliance with
our origination standards, including our responsible lending
standards and legal requirements. Although many of these
procedures involve manual reviews of loans, we seek to leverage
our technology in further developing our quality control
procedures. For example, we have programmed many of our
compliance standards into our loan origination systems and
continue to use and develop automated compliance technology to
mitigate regulatory risk.
Sale and
Securitization of Assets
We sell most of the mortgage loans we originate or purchase. In
2006 we sold $152.7 billion in mortgage loans. We typically sell
our Prime Conforming Mortgage Loans in sales that take the form
of securitizations guaranteed by Fannie Mae or Freddie Mac, and
we typically sell our Government Mortgage Loans in
securitizations guaranteed by the Government National Mortgage
Association or Ginnie Mae. In 2006 we sold $45.9 billion of
mortgage loans to government-sponsored enterprises, or 30% of
the total loans we sold, and $106.8 billion to other investors
through whole loan sales and securitizations, including both
on-balance sheet and off-balance sheet securitizations.
Our sale and securitization activities include developing asset
sale or retention strategies, conducting pricing and hedging
activities and coordinating the execution of whole loan sales
and securitizations.
In addition to cash we receive in exchange for the mortgage
loans we sell to the securitization trust, we often retain
interests in the securitization trust as partial payment for the
loans and generally hold these retained interests in our
investment portfolio. These retained interests may take the form
of mortgage-backed or mortgage-related asset-backed securities
(including senior and subordinated interests), interest-only,
principal-only, investment grade, non-investment grade or
unrated securities.
Servicing
Activities
Although we sell most of the residential mortgage loans that we
produce, we generally retain the rights to service these loans.
The mortgage servicing rights we retain consist of primary and
master servicing rights. Primary servicing rights represent our
right to service certain mortgage loans originated or purchased
and later sold on a servicing-retained basis through our
securitization activities and whole loan sales, as well as
primary servicing rights we purchase from other mortgage
industry participants. When we act as primary servicer, we
collect and remit mortgage loan payments, respond to borrower
inquiries, account for principal and interest, hold custodial
and escrow funds for payment of property taxes and insurance
premiums, counsel or otherwise work with delinquent borrowers,
supervise foreclosures and property dispositions and generally
administer the loans. Master servicing rights represent our
right to service mortgage-backed and mortgage-related
asset-backed securities and whole loan packages sold to
investors. When we act as master servicer, we collect
36
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
mortgage loan payments from primary servicers and distribute
those funds to investors in mortgage-backed and mortgage-related
asset-backed securities and whole loan packages. Key services in
this regard include loan accounting, claims administration,
oversight of primary servicers, loss mitigation, bond
administration, cash flow waterfall calculations, investor
reporting and tax reporting compliance. In return for performing
primary and master servicing functions, we receive servicing
fees equal to a specified percentage of the outstanding
principal balance of the loans being serviced and may also be
entitled to other forms of servicing compensation, such as late
payment fees or prepayment penalties. Our servicing compensation
also includes interest income or the float earned on collections
that are deposited in various custodial accounts between their
receipt and our distribution of the funds to investors.
The value of our mortgage servicing rights is sensitive to
changes in interest rates and other factors (see further
discussion in the Critical Accounting Estimates section of this
MD&A). We have developed and implemented an economic hedge
program to, among other things, mitigate the overall risk of
impairment loss due to a change in the fair value of our
mortgage servicing rights. In accordance with this economic
hedge program, we designate hedged risk as the change in the
total fair value of our capitalized mortgage servicing rights.
The success or failure of this economic hedging program may have
a material effect on our results of operations.
The following table summarizes the primary domestic mortgage
loan servicing portfolio for which we hold the corresponding
mortgage servicing rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. mortgage
loan servicing portfolio
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
Dollar
|
|
Year
ended December 31,
|
|
No.
of
|
|
|
amount
of
|
|
|
No.
of
|
|
|
amount
of
|
|
|
No.
of
|
|
|
amount
of
|
|
($ in
millions)
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
|
Prime conforming
|
|
|
1,456,344
|
|
|
|
$203,927
|
|
|
|
1,393,379
|
|
|
|
$186,405
|
|
|
|
1,323,918
|
|
|
|
$165,577
|
|
Prime non-conforming
|
|
|
319,255
|
|
|
|
101,138
|
|
|
|
257,550
|
|
|
|
76,980
|
|
|
|
203,822
|
|
|
|
55,585
|
|
Government
|
|
|
181,563
|
|
|
|
18,843
|
|
|
|
181,679
|
|
|
|
18,098
|
|
|
|
191,844
|
|
|
|
18,328
|
|
Nonprime
|
|
|
409,516
|
|
|
|
55,750
|
|
|
|
493,486
|
|
|
|
56,373
|
|
|
|
505,929
|
|
|
|
51,139
|
|
Prime second-lien
|
|
|
784,170
|
|
|
|
32,726
|
|
|
|
500,534
|
|
|
|
17,073
|
|
|
|
445,396
|
|
|
|
13,718
|
|
|
|
Total U.S. production (a)
|
|
|
3,150,848
|
|
|
|
$412,384
|
|
|
|
2,826,628
|
|
|
|
$354,929
|
|
|
|
2,670,909
|
|
|
|
$304,347
|
|
|
|
|
|
(a) |
Excludes loans for which we acted as a subservicer. Subserviced
loans totaled 290,992 with an unpaid principal balance of
$55.4 billion as of December 31, 2006; 271,489
with an unpaid principal balance of $38.9 billion as of
December 31, 2005; and 99,082 with an unpaid principal
balance of $13.9 billion as of December 31, 2004.
|
Warehouse
Lending
We are one of the largest providers of warehouse lending
facilities to correspondent lenders and other mortgage
originators in the United States. These facilities enable those
lenders and originators to finance residential mortgage loans
until they are sold in the secondary mortgage loan market. We
provide warehouse lending facilities for a full complement of
residential mortgage loans, including mortgage loans we acquire
through our correspondent lenders. Advances under our warehouse
lending facilities are generally fully collateralized by the
underlying mortgage loans and bear interest at variable rates.
As of December 31, 2006, we had total warehouse line of
credit commitments of approximately $13.2 billion, against
which we had advances outstanding of approximately
$8.8 billion. We purchased approximately 23% of the
mortgage loans financed by our warehouse lending facilities in
2006.
Other Real Estate
Finance and Related Activities
We provide bundled real estate services to consumers, including
real estate brokerage services, full service relocation
services, mortgage closing services and settlement services.
Through GMAC Bank, which commenced operations in North America
in August 2001, ResCap offers a variety of personal investment
products to its customers, including consumer deposits, consumer
loans and other investment services. GMAC Bank also provides
collateral pool certification and collateral document custodial
services to third-party customers. We provide real estate
brokerage and full-service relocation to consumers as well as
real estate closing services, such as obtaining flood and tax
certifications, appraisals, credit reports and title insurance.
Business
Capital
Business Capital conducts the following business activities:
residential construction finance, residential equity, model home
finance, resort finance and health capital. The residential
construction finance, residential equity and model home finance
businesses all provide capital to residential land developers
and homebuilders to finance residential real estate projects for
sale, using a variety of capital structures. The resort finance
business provides debt capital to resort and timeshare
developers and the health capital business provides debt capital
to health care providers, primarily in the health care services
sector. We have
37
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
historically retained and serviced most of the loans and
investments that we originate in the Business Capital Group.
In almost all cases, we source our transactions either through
our loan officers or referrals. Our residential construction
finance, residential equity and model home finance businesses
have relationships with many large homebuilders and residential
land developers across the United States. Our resort finance
business has relationships primarily with large private
timeshare developers and our health capital business has
relationships with physician groups and other healthcare service
providers. We believe that we have been able to provide creative
capital solutions tailored to our customers individual
needs, resulting in strong relationships with our customers.
Because of these relationships, we have been able to conduct
multiple and varied transactions with these customers to expand
our business.
International
Business
Outside the United States, our International operations are
primarily located in the United Kingdom, The Netherlands, and
Germany.
The following table summarized our international mortgage loan
production:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
mortgage loan production
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
Dollar
|
|
Year
ended December 31,
|
|
No.
of
|
|
|
amount
of
|
|
|
No.
of
|
|
|
amount
of
|
|
|
No.
of
|
|
|
amount
of
|
|
($ in
millions)
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
|
United
Kingdom
|
|
|
93,215
|
|
|
|
$22,417
|
|
|
|
57,747
|
|
|
|
$12,538
|
|
|
|
58,838
|
|
|
|
$11,571
|
|
Continental Europe
|
|
|
21,849
|
|
|
|
3,926
|
|
|
|
15,618
|
|
|
|
2,833
|
|
|
|
7,915
|
|
|
|
1,718
|
|
Other
|
|
|
11,915
|
|
|
|
1,439
|
|
|
|
12,605
|
|
|
|
1,168
|
|
|
|
9,216
|
|
|
|
724
|
|
|
|
Total international loan production
|
|
|
126,979
|
|
|
|
$27,782
|
|
|
|
85,970
|
|
|
|
$16,539
|
|
|
|
75,969
|
|
|
|
$14,013
|
|
|
|
The following table sets forth our international servicing
portfolio for which we hold the corresponding mortgage servicing
rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
servicing portfolio
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
Dollar
|
|
Year
ended December 31,
|
|
No.
of
|
|
|
amount
of
|
|
|
No.
of
|
|
|
amount
of
|
|
|
No.
of
|
|
|
amount
of
|
|
($ in
millions)
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
loans
|
|
|
|
United Kingdom
|
|
|
108,672
|
|
|
|
$23,817
|
|
|
|
91,574
|
|
|
|
$16,219
|
|
|
|
59,599
|
|
|
|
$14,349
|
|
Continental Europe
|
|
|
49,251
|
|
|
|
9,956
|
|
|
|
33,273
|
|
|
|
5,796
|
|
|
|
17,486
|
|
|
|
4,005
|
|
Other
|
|
|
17,990
|
|
|
|
2,444
|
|
|
|
13,573
|
|
|
|
1,696
|
|
|
|
21,100
|
|
|
|
1,084
|
|
|
|
Total international servicing
portfolio
|
|
|
175,913
|
|
|
|
$36,217
|
|
|
|
138,420
|
|
|
|
$23,711
|
|
|
|
98,185
|
|
|
|
$19,438
|
|
|
|
Credit Risk
Management
As previously discussed, we often sell mortgage loans to third
parties in the secondary market subsequent to origination or
purchase. While loans are held in mortgage inventory prior to
sale in the secondary market, we are exposed to credit losses on
the loans. In addition, we bear credit risk through investments
in subordinate loan participations or other subordinated
interests related to certain consumer and commercial mortgage
loans sold to third parties through securitizations. Management
estimates credit losses for mortgage loans held for sale and
subordinate loan participations and records a valuation
allowance when losses are considered probable and estimable. The
valuation allowance is included as a component of the fair value
and carrying amount of mortgage loans held for sale. As
previously discussed, certain loans that are sold in the
secondary market are subject to recourse in the event of
borrower default. Management closely monitors historical
experience, borrower payment activity, current economic trends
and other risk factors, and establishes an allowance for
foreclosure losses that, we believe, is sufficient to cover
incurred foreclosure losses in the portfolio.
We periodically acquire or originate certain finance receivables
and loans held for investment purposes. Additionally, certain
loans held as collateral for securitization transactions
(treated as financings) are also classified as mortgage loans
held for investment. We have the intent and ability to hold
these finance receivables and loans for the foreseeable future.
Credit risk on finance receivables and mortgage loans held for
investment is managed and guided by policies and procedures that
are designed to ensure that risks are accurately assessed,
properly approved and continuously monitored. In particular, we
use risk-based loan pricing and appropriate underwriting
policies and loan-collection methods to manage credit risk.
Management closely monitors historical experience, borrower
payment activity, current economic trends and other risk factors
and establishes an allowance for credit losses, which we
consider
38
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
sufficient to cover incurred credit losses in the portfolio of
loans held for investment.
In addition to credit exposure on the mortgage loans held for
sale and held for investment portfolios, we also bear credit
risk related to investments in certain asset- and
mortgage-backed securities, which are carried at estimated fair
value (or at amortized cost for those classified as held to
maturity) in our Consolidated Balance Sheet. Typically, our
non-investment grade and unrated asset- and mortgage-backed
securities provide credit support and are subordinate to the
higher-rated senior certificates in a securitization transaction.
We are also exposed to risk of default by banks and financial
institutions that are counterparties to derivative financial
instruments. These counterparties are typically rated single A
or above. This credit risk is managed by limiting the maximum
exposure to any individual counterparty and, in some instances,
holding collateral, such as cash deposited by the counterparty.
Allowance for
Credit Losses
Our allowance for credit losses is intended to cover
managements estimate of incurred losses in the portfolio.
Refer to the Critical Accounting Estimates section of this
MD&A and Note 1 to our Consolidated Financial
Statements for further discussion.
The following table summarizes the activity related to the
allowance for credit losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($
in millions)
|
|
Consumer
|
|
Commercial
|
|
Total
|
|
|
|
Balance at January 1, 2005
|
|
|
$916
|
|
|
|
$142
|
|
|
|
$1,058
|
|
|
|
Provision for credit losses
|
|
|
574
|
|
|
|
52
|
|
|
|
626
|
|
|
|
Charge-offs
|
|
|
(461
|
)
|
|
|
(7
|
)
|
|
|
(468
|
)
|
|
|
Recoveries
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
Balance at
December 31, 2005
|
|
|
1,066
|
|
|
|
187
|
|
|
|
1,253
|
|
|
|
Provision for credit losses
|
|
|
1,116
|
|
|
|
218
|
|
|
|
1,334
|
|
|
|
Charge-offs
|
|
|
(721
|
)
|
|
|
(9
|
)
|
|
|
(730
|
)
|
|
|
Recoveries
|
|
|
47
|
|
|
|
1
|
|
|
|
48
|
|
|
|
|
|
Balance at
December 31, 2006
|
|
|
$1,508
|
|
|
|
$397
|
|
|
|
$1,905
|
|
|
|
Allowance coverage 2005 (a)
|
|
|
1.6
|
%
|
|
|
1.4
|
%
|
|
|
1.5
|
%
|
|
|
Allowance coverage 2006 (a)
|
|
|
2.2
|
%
|
|
|
2.7
|
%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
(a) |
Represents the related allowance for credit losses as a
percentage of total on-balance sheet residential mortgage loans.
|
39
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
Nonperforming
Assets
The following table summarizes the nonperforming assets in our
on-balance sheet held for sale and held for investment
residential mortgage loan portfolios for each of the periods
presented. Nonperforming assets are nonaccrual loans, foreclosed
assets and restructured loans. Mortgage loans are generally
placed on nonaccrual status when they are 60 days or more
past due or when the timely collection of the principal of the
loan, in whole or in part, is doubtful. Managements
classification of a loan as nonaccrual does not necessarily
indicate that the principal of the loan is uncollectible in
whole or in part. In certain cases, borrowers make payments to
bring their loans contractually current; in all cases, our
mortgage loans are collateralized by residential real estate. As
a result, our experience has been that any amount of ultimate
loss is substantially less than the unpaid balance of a
nonperforming loan.
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
2005
|
|
|
|
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
Prime conforming
|
|
|
$11
|
|
|
|
$10
|
|
|
|
Prime nonconforming
|
|
|
419
|
|
|
|
362
|
|
|
|
Prime second-lien
|
|
|
142
|
|
|
|
85
|
|
|
|
Nonprime (a)
|
|
|
6,736
|
|
|
|
5,731
|
|
|
|
Lending receivables:
|
|
|
|
|
|
|
|
|
|
|
Warehouse (b)
|
|
|
1,318
|
|
|
|
42
|
|
|
|
Construction (c)
|
|
|
69
|
|
|
|
8
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
17
|
|
|
|
|
|
Total nonaccrual assets
|
|
|
8,695
|
|
|
|
6,255
|
|
|
|
Restructured loans
|
|
|
8
|
|
|
|
23
|
|
|
|
Foreclosed assets
|
|
|
1,141
|
|
|
|
506
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
9,844
|
|
|
$
|
6,784
|
|
|
|
|
|
Total nonperforming assets as a
percentage of total ResCap assets
|
|
|
7.5
|
%
|
|
|
5.7
|
%
|
|
|
|
|
|
|
(a)
|
Includes $415 and $374 for 2006 and 2005, respectively, of loans
that were purchased distressed and already in nonaccrual status.
|
(b)
|
Includes $10 of nonaccrual restructured loans as of
December 31, 2006 that are not included in
Restructured Loans.
|
(c)
|
Includes $19 and $9 for 2006 and 2005, respectively, of
nonaccrual restructured loans that are not included in
restructured loans.
|
The following table summarizes the delinquency information for
our mortgage loans held for investment portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
December 31,
|
|
|
|
%
|
|
|
|
%
|
($ in
millions)
|
|
Amount
|
|
of
total
|
|
Amount
|
|
of total
|
|
Current
|
|
$
|
55,964
|
|
|
|
81
|
|
|
$
|
56,576
|
|
|
|
83
|
|
Past due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 days
|
|
|
4,273
|
|
|
|
6
|
|
|
|
4,773
|
|
|
|
7
|
|
60 to 89 days
|
|
|
1,818
|
|
|
|
3
|
|
|
|
1,528
|
|
|
|
2
|
|
90 days or more
|
|
|
3,403
|
|
|
|
5
|
|
|
|
2,258
|
|
|
|
4
|
|
Foreclosures pending
|
|
|
2,132
|
|
|
|
3
|
|
|
|
1,356
|
|
|
|
2
|
|
Bankruptcies
|
|
|
1,219
|
|
|
|
2
|
|
|
|
1,520
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unpaid principal balances
|
|
|
68,809
|
|
|
|
|
|
|
|
68,011
|
|
|
|
|
|
Net premiums
|
|
|
627
|
|
|
|
|
|
|
|
948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
69,436
|
|
|
|
|
|
|
$
|
68,959
|
|
|
|
|
|
|
|
In the fourth quarter of 2006, we experienced a significant
increase in nonprime delinquencies. Loans 60 days or more
delinquent, which are all nonaccrual loans, increased from 10.6%
of the mortgage loans held for investment portfolio as of
September 30, 2006, to 12.5% as of December 31,
2006. In addition, the level of home price appreciation declined
to a five-year low, which negatively impacted the severity we
experienced upon the disposal of real estate acquired through
foreclosure.
We originate and purchase mortgage loans that have contractual
features that may increase our exposure to credit risk and
thereby result in a concentration of credit risk. These mortgage
loans include loans that may subject borrowers to significant
future payment increases, create the potential for negative
amortization of the principal balance or result in high
loan-to-value
ratios. These loan products include interest only mortgages,
option adjustable rate mortgages, high
loan-to-value
mortgage loans and teaser rate mortgages. Total loan production
and combined exposure related to these products recorded in
finance receivables and loans and loans held for sale for the
years ended and as of December 31, 2006 and 2005 is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
principal
|
|
|
Loan
production
|
|
balance as of
|
|
|
for the
year
|
|
December 31,
|
($
in millions)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Interest only mortgage loans
|
|
$
|
48,335
|
|
|
$
|
43,298
|
|
|
$
|
22,416
|
|
|
$
|
19,361
|
|
Payment option adjustable rate
mortgage loans
|
|
|
18,308
|
|
|
|
5,077
|
|
|
|
1,955
|
|
|
|
1,114
|
|
High
loan-to-value
(100% or more) mortgage loans
|
|
|
8,768
|
|
|
|
6,610
|
|
|
|
11,978
|
|
|
|
13,364
|
|
Below market initial rate (teaser)
mortgages
|
|
|
257
|
|
|
|
537
|
|
|
|
192
|
|
|
|
411
|
|
|
|
The underwriting guidelines for these products takes into
consideration the borrowers capacity to repay the loan and
credit
40
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
history. We believe our underwriting procedures adequately
consider the unique risks which may come from these products. We
conduct a variety of quality control procedures and periodic
audits to ensure compliance with our underwriting standards.
|
|
|
Interest-only mortgages Allow interest-only
payments for a fixed period of time. At the end of the
interest-only period, the loan payment includes principal
payments and increases significantly. The borrowers new
payment, once the loan becomes amortizing (i.e., includes
principal payments), will be greater than if the borrower had
been making principal payments since the origination of the loan.
|
|
|
Payment option adjustable rate mortgages
Permit a variety of repayment options. The repayment options
include minimum, interest-only, fully amortizing
30-year and
fully amortizing
15-year
payments. The minimum payment option sets the monthly payment at
the initial interest rate for the first year of the loan. The
interest rate resets after the first year, but the borrower can
continue to make the minimum payment. The interest-only option
sets the monthly payment at the amount of interest due on the
loan. If the interest-only option payment would be less than the
minimum payment, the interest-only option is not available to
the borrower. Under the fully amortizing
30-year and
15-year
payment options, the borrowers monthly payment is set
based on the interest rate, loan balance and remaining loan term.
|
|
|
High
loan-to-value
mortgages Defined as first-lien loans with
loan-to-value
ratios in excess of 100% or second-lien loans that when combined
with the underlying first-lien mortgage loan result in a
loan-to-value
ratio in excess of 100%.
|
|
|
Below market rate (teaser) mortgages Contain
contractual features that limit the initial interest rate to a
below market interest rate for a specified time period with an
increase to a market interest rate in a future period. The
increase to the market interest rate could result in a
significant increase in the borrowers monthly payment
amount.
|
Results of
Operations
The following table summarizes the operating results of our
Insurance operations for the periods indicated. The amounts
presented are before the elimination of balances and
transactions with our other operating segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006-2005
|
|
|
2005-2004
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
%
change
|
|
|
%
change
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums and service
revenue earned
|
|
|
$4,149
|
|
|
|
$3,729
|
|
|
|
$3,502
|
|
|
|
11
|
|
|
|
6
|
|
Investment income
|
|
|
1,321
|
|
|
|
408
|
|
|
|
345
|
|
|
|
224
|
|
|
|
18
|
|
Other income
|
|
|
146
|
|
|
|
122
|
|
|
|
136
|
|
|
|
20
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Insurance premiums and other
income
|
|
|
5,616
|
|
|
|
4,259
|
|
|
|
3,983
|
|
|
|
32
|
|
|
|
7
|
|
Insurance losses and loss
adjustment expenses
|
|
|
(2,420
|
)
|
|
|
(2,355
|
)
|
|
|
(2,371
|
)
|
|
|
3
|
|
|
|
(1
|
)
|
Acquisition and underwriting expense
|
|
|
(1,478
|
)
|
|
|
(1,186
|
)
|
|
|
(1,043
|
)
|
|
|
25
|
|
|
|
14
|
|
Premium tax and other expense
|
|
|
(92
|
)
|
|
|
(86
|
)
|
|
|
(83
|
)
|
|
|
7
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,626
|
|
|
|
632
|
|
|
|
486
|
|
|
|
157
|
|
|
|
30
|
|
Income tax expense
|
|
|
(499
|
)
|
|
|
(215
|
)
|
|
|
(157
|
)
|
|
|
132
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$1,127
|
|
|
|
$417
|
|
|
|
$329
|
|
|
|
170
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
13,424
|
|
|
$
|
12,624
|
|
|
$
|
11,744
|
|
|
|
6
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums and service
revenue written
|
|
|
$4,001
|
|
|
|
$4,039
|
|
|
|
$3,956
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio (a)
|
|
|
92.3
|
%
|
|
|
93.9
|
%
|
|
|
95.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Management uses combined ratio as a primary measure of
underwriting profitability, with its components measured using
accounting principles generally accepted in the United States of
America. Underwriting profitability is indicated by a combined
ratio under 100% and is calculated as the sum of all reported
losses and expenses (excluding interest and income tax expense)
divided by the total of premiums and service revenues earned and
other income.
|
2006 Compared to
2005
Net income from Insurance totaled a record $1.1 billion in
2006, as compared to $417 million in 2005. The increase in
income was mainly a result of higher realized capital gains of
approximately $1.0 billion in 2006 as compared to
$108 million in 2005. Underwriting results were favorable
primarily due to increased insurance premiums and service
revenue earned and improved loss and loss adjustment expense
experience partially offset by higher
41
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
expenses, resulting in a favorable decline of 1.6% in the
combined ratio. In addition, 2006 results were enhanced by the
first quarter acquisition of MEEMIC, a consumer products
business that offers automobile and homeowners insurance in the
Midwest.
Insurance premiums and service revenue earned grew by
$420 million, or 11%, over 2005. This increase was driven
by the extended service contract line primarily due to premiums
and revenue from a higher volume of contracts written in prior
years. Growth in domestic consumer products, mainly from the
acquisition of MEEMIC, was partially offset by a decline in
existing business due to a competitive environment. In addition,
domestic and international assumed reinsurance businesses grew
due to new product introductions, while international consumer
products have seen improvement in existing business.
Investment income increased by $913 million or 224% in 2006
compared to 2005. The increase was primarily attributable to
higher realized capital gains, as well as increased interest and
dividend income due to higher average portfolio balances
throughout the majority of the year. During the fourth quarter,
as part of our investment and capital strategy, the Insurance
operations completed a securities portfolio review and decided
to reduce the elevated investment leverage and redirect capital
for growth strategies and dividends. This was achieved by
reducing the investment in equity securities from just over 30%
of total invested assets to under 10%. The proceeds from the
sales have been either invested in fixed income securities or
will be used to remit dividends in 2007. The market value of the
investment portfolio was $7.6 billion and $7.7 billion
at December 31, 2006 and 2005, respectively.
Insurance losses and loss adjustment expenses increased by
$65 million, or 3%. The increase was primarily driven by
the acquisition of MEEMIC and growth in the domestic assumed
reinsurance and international consumer products businesses. This
increase was partially offset by favorable loss trends
experienced in the domestic and international extended service
contract product lines driven by product mix, improved vehicle
quality and aggressive loss control efforts and lower losses in
domestic consumer products due to decreased earned premium.
Acquisition and underwriting expenses increased
$292 million, or 25% in 2006, as compared to 2005, due to
higher insurance premiums and service revenue earned and higher
amortization of deferred acquisition costs.
Insurance premiums and service revenue written totaled
$4.0 billion in 2006, unchanged from 2005. Impacts in the
year can be attributed to fewer extended service contracts sold,
lower levels of new business and renewals in domestic consumer
products due to a competitive marketplace and the
discontinuation of our force-place products. The primary factors
impacting extended service contract volume throughout the year
were declining vehicle retail sales for GM brand products and
lower penetration. The decrease in written business was
partially offset by the acquisition of MEEMIC and growth in the
assumed reinsurance product line with the introduction of new
products.
In addition, the results were impacted by GMs announcement
in the third quarter that it was extending its powertrain
warranty in the United States and Canada across its entire 2007
car and light-duty truck lineup. The warranty extension provides
coverage for up to five years or 100,000 miles. GM also
expanded its roadside assistance and courtesy transportation
programs to match the powertrain warranty term. Refunds of
$9.7 million were made in the fourth quarter to customers
who had already purchased an extended service contract on a 2007
GM vehicle. The ongoing financial impact is expected to be
mitigated by alternative products offered to customers
immediately after the announcement of the warranty extension.
2005 Compared to
2004
Insurance generated record net income of $417 million in
2005, up $88 million or 27% over the previous record
earnings in 2004 of $329 million. The higher net income is
evidenced by a decrease in the combined ratio to 93.9% from the
prior year of 95.7%, primarily driven by improved loss
experience. The increase reflects a combination of strong
results achieved through increased premium revenue, higher
realized capital gains and improved investment portfolio
performance. The favorable impact of these items during 2005 was
partially offset by increased acquisition and underwriting
expenses and higher income taxes, commensurate with increased
volumes and revenues.
The 6% increase in insurance premiums and service revenue earned
was driven by business growth across major product lines
(domestic and international). Consumer products experienced
higher volumes in a highly competitive market, partly driven by
the acquisition of several fleet contracts in Mexico. In
addition, automotive extended service contracts experienced
volume growth, with strong growth outside of the traditional
General Motors Protection Plan. Increased earnings were also
driven by multi-year extended service contracts and the
Guaranteed Asset Protection product written in prior years
entering higher earning rate periods. This was partially offset
by lower revenues for the automobile dealer physical damage
product due to lower dealer inventories.
The increase in investment income was attributable to higher
interest and dividends from a larger portfolio balance through
the majority of the year, as well as a higher yield on the fixed
income portfolio. In addition, a higher amount of capital gains
was realized in comparison to 2004. Certain securities were
liquidated in December 2005 in anticipation of the acquisition
of MEEMIC Insurance Company, which was completed on
January 4, 2006, with a purchase price of $325 million.
Industry and
Competition
We operate in a highly competitive environment and face
significant competition from insurance carriers, reinsurers,
third-party administrators, brokers and other insurance-related
companies. Competitors in the property and casualty markets in
which we operate consist of large multi-line companies and
smaller specialty carriers. Our competitors sell directly to
customers through the mail
42
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
or the internet, or they use agency sales forces. None of the
companies in this market, including us, holds a dominant overall
position in these markets.
Through our Insurance operations, we provide automobile and
homeowners insurance, automobile mechanical protection,
reinsurance and commercial insurance. We primarily operate in
the United States; however, we also have operations in the
United Kingdom, Canada, Mexico, and throughout Europe and Latin
America.
Factors affecting our consumer products business include overall
demographic trends that impact the volume of vehicle owners
requiring insurance policies, as well as claims behavior. Since
the business is highly regulated in the U.S. by state
insurance agencies and primarily by national regulators outside
the U.S., differentiation is largely a function of price and
service quality. In addition to pricing policies, profitability
is a function of claims costs as well as investment income.
Although the industry does not experience significant seasonal
trends, it can be negatively impacted by extraordinary weather
conditions that can affect frequency and severity of automobile
claims. Our automotive extended service contract business is
dependent on new vehicle sales and market penetration.
The Insurance operations are subject to market pressures which
can result in price erosion in the personal automobile and
commercial insurance products. In addition, future performance
can be impacted by extraordinary weather that can affect
frequency and severity of automobile and other contract claims.
While we expect that contract volumes will grow, we are unable
to predict if market pricing pressures will adversely impact
future performance.
Royalty
Arrangement
For certain insurance products, GM and GMAC have entered into
agreements allowing GMAC to use the GM name on certain insurance
products. In exchange, GMAC will pay to GM a minimum annual
guaranteed royalty fee of $15 million.
Consumer
Products
We underwrite and market non-standard, standard and preferred
risk physical damage and liability insurance coverages for
private passenger automobiles, motorcycles, recreational
vehicles and commercial automobiles through independent agency,
direct response and internet channels. Additionally, we market
private-label insurance through a long-term agency relationship
with Homesite Insurance, a national provider of home insurance
products. We currently operate in 48 states and the
District of Columbia in the United States, with a significant
amount of our business written in California, Florida, Michigan,
New York and North Carolina.
As of December 31, 2006, we had approximately
1.9 million consumer products policyholders. Our consumer
product policies are offered on a direct response basis through
affinity groups, worksite programs, the internet and through an
extensive network of independent agencies. Approximately 435,000
of our policyholders were GM-related persons as of
December 31, 2006. Through our relationship with GM, we
utilize direct response and internet channels to reach GMs
current employees and retirees, as well as their families, and
GM dealers and suppliers and their families. We have similar
programs that utilize relationships with affinity groups. In
addition, we reach a broader market of customers through
independent agents and internet channels.
While we underwrite most of the consumer products we offer, we
do not underwrite the homeowners insurance offered through the
GMAC Insurance Homeowners Program. The GMAC Insurance Homeowners
Program is a long-term agency relationship between GMAC
Insurance and Homesite Insurance, a national provider of home
insurance products. The relationship provides for Homesite
Insurance to be the exclusive underwriter of homeowners
insurance for our direct automobile and home insurance customer
base, with Homesite Insurance assuming all underwriting risk and
administration responsibilities. We receive a commission based
on the policies written through this program.
ABA Seguros, one of Mexicos largest automobile insurers,
is a subsidiary of GMAC Insurance. ABA Seguros underwrites
personal automobile insurance and certain consumer and
commercial business coverages exclusively in Mexico. In Europe,
we assume selected motor insurance risks, including credit life,
through programs with Vauxhall, Opel and SAAB vehicle owner
relationships as well as similar programs in Latin America and
Asia Pacific regions. We also sell personal automobile insurance
in Ontario and Quebec, Canada and in Germany.
Other Consumer
Products
We are a leading provider of automotive extended service
contracts with mechanical breakdown and maintenance coverages.
Our automotive extended service contracts offer vehicle owners
and lessees mechanical repair protection and roadside assistance
for new and used vehicles beyond the manufacturers new
vehicle warranty. These extended service contracts are marketed
through automobile dealerships, on a direct response basis and
through independent agents in the U.S. and Canada. The extended
service contracts cover virtually all vehicle makes and models;
however, our flagship extended service contract product is the
General Motors Protection Plan. A significant portion of our
overall vehicle service contracts is through the General Motors
Protection Plan and covers vehicles manufactured by General
Motors and its subsidiaries.
Our other products include Guaranteed Asset
Protection (GAP) Insurance, which allows the recovery of a
specified economic loss beyond the insured value.
Internationally, our U.K.-based Car Care Plan subsidiary sells
GAP products and provides automotive extended service contracts
to customers via direct and dealer distribution channels; it is
a leader in the extended service contract market in the U.K. Car
Care Plan also operates in Mexico, Brazil and Germany.
43
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
Commercial
Products
We provide commercial insurance, primarily covering
dealers wholesale vehicle inventory, and reinsurance
products. Internationally, ABA Seguros provides certain
commercial business insurance exclusively in Mexico and Car Care
Plan reinsures dealer vehicle inventory in Europe, Latin America
and Asia Pacific.
We are a market leader with respect to wholesale vehicle
inventory insurance. Our wholesale vehicle inventory insurance
provides physical damage protection for dealers floor plan
vehicles. It includes coverage for both GMAC and non-GMAC
financed inventory and is available in the U.S. to
virtually all new car franchise dealerships.
We also conduct reinsurance operations primarily in the United
States market through our subsidiary, GMAC RE, which underwrites
diverse property and casualty risks. Reinsurance coverage is
primarily insurance for insurance companies, designed to
stabilize their results, protect against unforeseen events and
facilitate business growth. We primarily provide reinsurance
through broker treaties and direct treaties with other insurers,
and we also provide facultative reinsurance. Facultative
reinsurance allows the reinsured party the option of submitting
individual risks and allows the reinsurer the option of
accepting or declining individual risks. Reinsurance products
are offered internationally, generated primarily from GM and
GMAC distribution channels.
International operations also manage a fee-focused insurance
program on which commissions are earned from third party
insurers offering insurance products primarily to GMAC customers
worldwide.
Underwriting and
Risk Management
We determine the premium rates for our insurance policies and
pricing for our extended service contracts based upon an
analysis of expected losses using historical experience and
anticipated future trends. For example, in pricing our extended
service contracts, we make assumptions as to the price of
replacement parts and repair labor rates in the future.
In underwriting our insurance policies and extended service
contracts, we assess the particular risk involved and determine
the acceptability of the risk, as well as the categorization of
the risk for appropriate pricing. We base our determination of
the risk on various assumptions tailored to the respective
insurance product. With respect to extended service contracts,
assumptions include the quality of the vehicles produced and new
model introductions. Personal automotive insurance assumptions
include individual state regulatory requirements.
In some instances, ceded reinsurance is used to reduce the risk
associated with volatile businesses, such as catastrophe risk in
United States dealer vehicle inventory insurance or smaller
businesses, such as Canadian automobile or European dealer
vehicle inventory insurance. In 2006 we ceded approximately 12%
of our consumer products insurance premiums to
government-managed pools of risk. Our consumer products business
is covered by traditional catastrophe protection, aggregate stop
loss protection and an extension of catastrophe coverage for
hurricane events. In addition, loss control techniques, such as
hail nets or storm path monitoring to assist dealers in
preparing for severe weather, help to mitigate loss potential.
We mitigate losses by the active management of claim settlement
activities using experienced claims personnel and the evaluation
of current period reported claims. Losses for these events may
be compared to prior claims experience, expected claims or loss
expenses from similar incidents to assess the reasonableness of
incurred losses.
Loss
Reserves
In accordance with industry and accounting practices and
applicable insurance laws and regulatory requirements, we
maintain reserves for both reported losses and losses incurred
but not reported, as well as loss adjustment expenses. These
reserves are based on various estimates and assumptions and are
maintained both for business written on a current basis and
policies written and fully earned in prior years, to the extent
there continues to be outstanding and open claims in the process
of resolution. Refer to the Critical Accounting Estimates
section of this MD&A and Note 1 to our Consolidated
Financial Statements for further discussion. The estimated
values of our prior reported loss reserves and changes to the
estimated values are routinely monitored by credentialed
actuaries. Our reserve estimates are regularly reviewed by
management. However, since the reserves are based on estimates
and numerous assumptions, the ultimate liability may differ from
the amount estimated.
Investments
A significant aspect of our Insurance operations is the
investment of proceeds from premiums and other revenue sources.
We will use these investments to satisfy our obligations related
to future claims at the time such claims are settled. Investment
securities are classified as available for sale and carried at
fair value. Holding period losses on investment securities that
are considered by management to be other than temporary are
recognized in earnings, through a write-down in the carrying
value to the current fair value of the investment. Unrealized
gains or losses (excluding other than temporary impairments) are
included in other comprehensive income, as a component of
equity. Fair value of fixed income and equity securities is
based upon quoted market prices where available.
Our Insurance operations have a Finance Committee, which
develops guidelines and strategies for these investments. The
guidelines established by this finance committee reflect our
risk tolerance, liquidity requirements, regulatory requirements
and rating agencies considerations, among other factors. Our
investment portfolio is managed by General Motors Asset
Management (GMAM). GMAM directly manages certain portions of our
insurance investment portfolio and recommends, oversees and
evaluates specialty asset managers in other areas.
44
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
Financial
Strength Ratings
Substantially all of our U.S. Insurance operations have a
Financial Strength Rating (FSR) and an Issuer Credit Rating
(ICR) from A.M. Best Company. Our Insurance operations
outside the U.S. are not rated. The FSR is intended to be
an indicator of the ability of the insurance company to meet its
senior most obligations to policyholders. Lower ratings
generally result in fewer opportunities to write business as
insureds, particularly large commercial insureds, and insurance
companies purchasing reinsurance, have guidelines requiring high
FSR ratings.
On November 30, 2006, A.M. Best confirmed the FSR of
our U.S. Insurance companies at A− and raised the
outlook to stable.
In 2006, net loss for our Other operations was $881 million
as compared to $36 million in 2005. The decrease from the
prior year was mainly due to the decline in our income from
Capmark (our former commercial mortgage operation) of
$237 million due to the sale of 79% of the business on
March 23, 2006, additional non-cash goodwill
impairment charges, higher loss provisions and the tax impact
related to the companys LLC conversion.
At our Commercial Finance Group, we recognized non-cash goodwill
and intangible asset impairment charges in accordance with
Statements of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(SFAS 142) and No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144),
of $840 million ($695 million after-tax) during 2006
as the carrying value for the assets were greater than their
fair value based on a discounted cash flow model. The business
also experienced a goodwill impairment charge of
$712 million ($439 million after-tax) million in
2005. All goodwill for our Other operations has been written off
as of December 31, 2006. The provision for credit
losses increased by $122 million mostly due to a decline in
the present value of expected future cash flows or collateral
value, for collateral dependent loans, resulting from
managements decision to take a liquidate versus hold
approach to many troubled legacy accounts. Higher funding and
maintenance costs on these primarily non-earning loans drove the
change in approach. Finally, the results were also unfavorably
impacted by the write-off of $115 million of deferred tax
assets related to the LLC conversion.
Net financing revenue and other income decreased mainly from the
sale of Capmark in 2006, as the results of operations of Capmark
were fully consolidated in 2005.
In 2005, our Other operations incurred a net loss of
$36 million as compared to net income of $320 million
in 2004. The decrease mainly resulted from goodwill impairment
in 2005 of $712 million ($439 million after-tax)
related to our Commercial Finance Group and our affordable
housing partnership business within our former commercial
mortgage business. These charges resulted from the carrying
value for the assets were greater than their fair value based on
a discounted cash flow model, as determined during our annual
impairment tests required to be made for all of our reporting
units in accordance with SFAS 142. Net income was also
negatively affected by an increase in other noninterest expense
of $77 million. These declines were partially offset by
increases in net financing revenue and other income of
$307 million due to higher loan production and asset levels
and lower income taxes of $126 million due to lower
earnings.
45
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
Funding Sources
and Strategy
Our liquidity and our ongoing profitability is, in large part,
dependent upon our timely access to capital and the costs
associated with raising funds in different segments of the
capital markets. Over the past several years, our funding
strategy has focused on the development of diversified funding
sources across a global investor base, both public and private
and, as appropriate, the extension of debt maturities. This
diversification has been achieved in a variety of ways,
including whole loan sales, the public debt capital markets,
conduit facilities and asset-backed securities, as well as
through deposit-gathering and other financing activities.
In 2006, as part of the Sale Transactions, GMAC was able to
further diversify our funding through the issuance of
$2.1 billion in preferred interests to FIM Holdings, GM and
GM Preferred Finance Co. Holdings, Inc. Additionally, as a
result of the Sale Transactions and improved credit ratings, our
unsecured credit spreads tightened.
During the first quarter of 2007, under the terms of the
purchase and sale agreement between FIM Holdings and GM, a final
purchase price adjustment is required to the extent that
GMACs equity upon the November 30, 2006 closing of
the sale transaction differs from a specified level. As a
result, we expect to receive a common equity injection from GM
of approximately $1 billion, based on these final
settlement provisions.
In 2005, as a result of a series of credit rating downgrades,
our unsecured credit spreads widened to unprecedented levels. In
anticipation of and as a result of these credit rating actions,
we modified our diversified funding strategy to focus on secured
funding and automotive whole loan sales. These funding sources
are generally unaffected by ratings on unsecured debt and,
therefore, offer both relative stability in spread and access to
the market.
The diversity of our funding sources enhances funding
flexibility, limits dependence on any one source of funds and
results in a more cost effective strategy over the longer term.
In developing this approach, management considers market
conditions, prevailing interest rates, liquidity needs and the
desired maturity profile of our liabilities. This strategy has
helped us maintain liquidity during periods of weakness in the
capital markets, changes in our business or changes in our
credit ratings. Despite our diverse funding sources and
strategies, our ability to maintain liquidity may be affected by
certain risk. Refer to Risk Factors in Item 1A. for further
discussion.
The following table summarizes debt and other sources of funding
by source for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
2005
|
December 31,
($ in millions)
|
|
2006
|
|
(Restated)
|
|
|
Commercial paper
|
|
|
$1,523
|
|
|
|
$524
|
|
Institutional term debt
|
|
|
70,266
|
|
|
|
82,538
|
|
Retail debt programs
|
|
|
29,308
|
|
|
|
34,482
|
|
Secured financings
|
|
|
123,485
|
|
|
|
121,138
|
|
Bank loans and other
|
|
|
12,512
|
|
|
|
15,704
|
|
|
|
Total debt (a)
|
|
|
237,094
|
|
|
|
254,386
|
|
Bank deposits (b)
|
|
|
10,488
|
|
|
|
6,855
|
|
Off-balance sheet
securitizations: (c)
|
|
|
|
|
|
|
|
|
Retail finance receivables
|
|
|
7,456
|
|
|
|
3,165
|
|
Wholesale loans
|
|
|
18,624
|
|
|
|
20,724
|
|
Mortgage loans
|
|
|
118,918
|
|
|
|
77,573
|
|
|
|
Total funding
|
|
|
392,580
|
|
|
|
362,703
|
|
Less: cash reserves (d)
|
|
|
(18,252
|
)
|
|
|
(19,605
|
)
|
|
|
Net funding
|
|
$
|
374,328
|
|
|
$
|
343,098
|
|
|
|
Leverage ratio per covenant (e)
|
|
|
10.8:1
|
|
|
|
7.6:1
|
|
|
|
Funding commitments ($ in
billions)
|
|
|
|
|
|
|
|
|
Bank liquidity facilities (f)
|
|
|
$43.8
|
|
|
|
$44.1
|
|
Secured funding facilities (g)
|
|
|
$188.7
|
|
|
|
$161.8
|
|
|
|
|
|
(a)
|
Excludes fair value adjustment as described in Note 12 to
our Consolidated Financial Statements.
|
(b)
|
Includes consumer and commercial bank deposits and dealer
wholesale deposits.
|
(c)
|
Represents net funding from securitizations of retail and
wholesale automotive receivables and mortgage loans accounted
for as sales, as further described in Note 7 to our
Consolidated Financial Statements.
|
(d)
|
Includes $15.5 billion cash and cash equivalents and
$2.8 billion invested in marketable securities at
December 31, 2006, and $15.4 billion and
$4.2 billion, respectively, at December 31, 2005.
|
(e)
|
As described in Note 12 to our Consolidated Financial
Statements, our liquidity facilities and certain other funding
facilities contain a leverage ratio covenant of 11.0:1, which
excludes from debt certain securitization transactions that are
accounted for on-balance sheet as secured financings (totaling
$81,461 and $94,346 at December 31, 2006, and
December 31, 2005, respectively).
|
(f)
|
Represents both committed and uncommitted bank liquidity
facilities. Refer to Note 12 to our Consolidated Financial
Statements for details.
|
(g)
|
Represents both committed and uncommitted secured funding
facilities. Includes commitments with third-party asset-backed
commercial paper conduits, as well as forward flow sale
agreements with third parties, securities purchase commitments
with third parties and repurchase facilities. Refer to
Note 12 to our Consolidated Financial Statements for
further details.
|
46
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
Short-term
Debt
We obtain short-term funding from the sale of floating rate
demand notes under a program referred to as GMAC LLC Demand
Notes. These notes can be redeemed at any time at the option of
the holder thereof without restriction.
Long-term
Unsecured Debt
Our long-term unsecured financings are generated to fund
long-term assets, over-collateralization required to support our
conduits, the liquidity portfolio and the continued growth of
our loan portfolios. We meet these financing needs from a
variety of sources, including public corporate debt and credit
facilities. The public corporate debt markets are a key source
of financing for us. We access these markets by issuing senior
unsecured notes, but are pursuing other structures that will
provide efficient sources of term liquidity. Following the Sale
Transactions and after being absent from the U.S. capital
markets for a couple years, on December 15, 2006, we issued
$1 billion of Senior Unsecured Notes due December 15,
2011.
GMAC has various liquidity facilities with a number of different
lenders in multiple jurisdictions. As a result of having to
restate prior period financial information to eliminate hedge
accounting treatment that had been applied to certain callable
debt hedged with derivatives, it is possible that some of our
lenders under certain of our liquidity facilities could claim
that they are not obligated to honor their commitments. While
such a claim would not be entirely unreasonable, we believe that
any such claims would not be sustainable. Nor do we believe that
this matter is likely to be tested, because we have no current
need or intention to draw on any of the more significant
existing facilities, and renewal and revision of them is
imminent, which likely will eliminate the issue. There can be no
assurance that we are correct in our assessments. If we are not,
and multiple claims were asserted and substantiated, available
funding under certain of our liquidity facilities could be
adversely impacted. However, we believe such an impact is
manageable because of our current, substantial liquidity
position, including $18.3 billion of global cash balances,
among various other sources of liquidity.
From time to time, we repurchase previously issued debt as part
of our cash and liquidity management strategy. In October 2006
we successfully completed a debt tender offer to retire
$1 billion of deferred interest debentures, which will
contribute to interest savings going forward.
We have also been able to diversify our unsecured funding
through the formation of ResCap. ResCap, an indirect wholly
owned subsidiary, was formed as the holding company of our
residential mortgage businesses and, in the second quarter of
2005, successfully achieved an investment grade rating (separate
from GMAC). In the fourth quarter of 2005, ResCap filed a
$12 billion shelf registration statement and has
subsequently issued $8.5 billion of notes through
December 31, 2006.
Secured
Financings and Off-Balance Sheet
Securitizations
As part of our ongoing funding and risk management practices, we
have established secondary market trading and securitization
arrangements that provide long-term financing primarily for our
automotive and mortgage loans. We have had consistent and
reliable access to these markets through our securitization
activities in the past and expect to continue to access the
securitization markets. Refer to the Off Balance Sheet
Arrangements section of this MD&A for further detail.
In 2006 approximately 91% of our U.S. Automotive volume was
funded through a secured funding arrangement or automotive whole
loan sale. The increased use of whole loan sales is part of the
migration to an originate and sell model for our
U.S. Automotive Finance business. In 2006 we executed
approximately $16 billion in automotive whole loan sales.
Customer
Deposits
Through our banking activities in our Automotive Finance and
ResCap operations, bank deposits (certificates of deposits and
brokered deposits) have become an important funding source
for us.
Cash
Reserves
We maintain a large cash reserve, including certain marketable
securities that can be utilized to meet our obligations in the
event of any market disruption. GMAC ended the year with
exceptional liquidity. Cash and cash equivalents and certain
marketable securities totaled $18.3 billion as of
December 31, 2006, up from $14.1 billion on
September 30, 2006. The increase in cash reflects
stronger-than-expected
capital markets during the fourth quarter, which allowed GMAC
and ResCap to raise additional unsecured funds at cost effective
levels.
Other
Sources
On March 23, 2006, we completed the sale of approximately
79% of our equity in Capmark. Under the terms of the
transaction, we received $8.8 billion at closing, which is
comprised of sale proceeds and repayment of intercompany debt,
thereby increasing our liquidity position and reducing the
amount of funding required.
Funding
Commitments
We actively manage our liquidity and mitigate our liquidity risk
by maintaining sufficient short-term and long-term financing,
maintaining diversified secured funding programs and maintaining
sufficient reserve liquidity. Refer to Note 12 for further
detail.
In April 2006 in conjunction with the announcement of the sale
of 51% of GMAC, we announced that we expected to arrange two
asset-backed funding facilities totaling up to $25 billion,
which would support our ongoing business and enhance our
liquidity position. Citigroup has committed $12.5 billion
in aggregate to these two facilities. In August 2006, we closed
on the first of the two asset backed funding facilities, a three
year, $10 billion facility with a subsidiary of Citigroup.
In a review of GMACs overall liquidity position, GMAC has
decided to pursue a smaller asset-based funding facility and is
in the process of structuring that facility at the present time.
The funding facilities are in addition to Citigroups
initial equity investment in FIM Holdings.
Credit
Ratings
The cost and availability of unsecured financing is influenced
by credit ratings, which are intended to be an indicator of the
47
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
creditworthiness of a particular company, security or
obligation. Lower ratings generally result in higher borrowing
costs as well as reduced access to capital markets. This is
particularly true for certain term debt institutional investors
whose investment guidelines require investment grade term
ratings and for short-term institutional investors (money market
investors in particular) whose investment guidelines require the
two highest rating categories for short-term debt. Substantially
all of our debt has been rated by nationally recognized
statistical rating organizations.
Concerns over the competitive and financial strength of GM,
including how it will fund its health care liabilities and
uncertainties at Delphi Corporation, resulted in a series of
credit rating actions, which commenced late in 2001. In the
second and third quarters of 2005, Standard &
Poors, Fitch and Moodys downgraded GMACs
senior debt to a non-investment grade rating with DBRS
continuing to maintain an investment grade rating on our senior
debt. In the fourth quarter of 2005, Fitch and S&P
downgraded our ratings further. As a result of GMs
announcement on October 17, 2005, that it was exploring the
possible sale of a controlling interest in us to a strategic
partner, the four rating agencies changed our review status to
either evolving or developing. On March 16, 2006,
Moodys placed our senior unsecured ratings under review
for a possible downgrade. Following the April 3, 2006
announcement by GM that it agreed to sell a 51% interest in us,
Fitch revised our rating watch status to Positive from Evolving,
indicating that the ratings may be upgraded or maintained at
current levels. As a result of the consummation of GMs
sale of a controlling stake in GMAC, S&P and Fitch raised
GMACs ratings, although they remain below investment
grade. Fitch removed the rating from Ratings Watch, and S&P
removed the rating from CreditWatch. Both DBRS and Moodys
affirmed our ratings.
The following table summarizes our current ratings, outlook and
the date of last rating or outlook change by the respective
nationally recognized rating agencies.
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|
|
|
|
|
|
|
|
|
|
|
|
Rating
|
|
Commercial
|
|
Senior
|
|
|
|
Date of
|
agency
|
|
paper
|
|
debt
|
|
Outlook
|
|
last
action
|
|
Fitch
|
|
B
|
|
|
BB+
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|
|
Positive
|
|
|
November 30, 2006 (a)
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|
Moodys
|
|
Not-Prime
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|
|
Ba1
|
|
|
Negative
|
|
|
November 30, 2006 (b)
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|
S&P
|
|
B-1
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|
|
BB+
|
|
|
Developing
|
|
|
November 27, 2006 (c)
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DBRS
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|
R-3
|
|
|
BBB (low)
|
|
|
Stable
|
|
|
November 30, 2006 (d)
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|
|
|
|
|
(a)
|
Fitch upgraded our senior debt to BB+ from BB, affirmed the
commercial paper rating of B, and removed the rating from Rating
Watch on November 30, 2006. The outlook remained
Positive.
|
(b)
|
Moodys confirmed our senior debt rating at Ba1 and the
commercial paper rating at Not-Prime, removed the rating from
CreditWatch and maintained the outlook at Negative on
November 30, 2006.
|
(c)
|
Standard & Poors upgraded our senior debt to BB+
from BB, confirmed the commercial paper rating of B-1, removed
the rating from CreditWatch and maintained the Developing
outlook on November 27, 2006.
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(d)
|
DBRS confirmed our senior debt of BBB (low) and the commercial
paper rating of R-3, removed the rating from Under Review status
and changed the outlook from Developing to Stable on
November 30, 2006.
|
In addition, ResCap, our indirect wholly owned subsidiary, has
investment grade ratings (separate from GMAC) from the
nationally recognized rating agencies. The following table
summarizes ResCaps current ratings, outlook and the date
of the last rating or outlook change by the respective agency.
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|
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|
|
|
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|
|
Rating
|
|
Commercial
|
|
Senior
|
|
|
|
Date of
|
agency
|
|
paper
|
|
debt
|
|
Outlook
|
|
last
action
|
|
Fitch
|
|
F2
|
|
|
BBB
|
|
|
Positive
|
|
|
November 30, 2006 (a)
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Moodys
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P-3
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|
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Baa3
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|
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Stable
|
|
|
November 30, 2006 (b)
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S&P
|
|
A-3
|
|
|
BBB
|
|
|
Negative
|
|
|
November 27, 2006 (c)
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|
DBRS
|
|
R-2 (middle)
|
|
|
BBB
|
|
|
Stable
|
|
|
November 30, 2006 (d)
|
|
|
|
|
|
(a)
|
Fitch upgraded the senior debt of ResCap to BBB from BBB,
upgraded the commercial paper rating to F2 from F3, removed the
ratings from Rating Watch Positive and maintained the outlook at
Positive on November 30, 2006.
|
(b)
|
Moodys affirmed its rating of the senior debt of ResCap at
Baa3 and of the commercial paper rating at P3, removed the
review status of the long-term debt ratings and assigned a
stable outlook at November 30, 2006.
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(c)
|
Standard & Poors upgraded the senior debt of
ResCap to BBB from BBB, affirmed the short-term rating of
A-3, removed
the ratings from Credit Watch and changed the outlook from
Evolving to Negative on November 27, 2006.
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(d)
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DBRS initial ratings for ResCap were assigned and on
October 11, 2005, DBRS placed the ratings under review
with developing implications and affirmed the review status on
October 17, 2005. On November 30, 2006, DBRS
affirmed ResCaps short- and long-term ratings, removed the
rating from Under Review status and changed the outlook from
Developing to Stable.
|
Derivative
Financial Instruments
In managing the interest rate and foreign exchange exposures of
a multinational finance company, we utilize a variety of
interest rate and currency derivative financial instruments. As
an end user of these financial instruments, we are in a better
position to minimize our funding costs, enhancing our ability to
offer attractive, competitive financing rates to our customers.
Our derivative financial instruments consist primarily of
interest rate swaps, futures and options, currency swaps, and
forwards used to hedge related assets or funding obligations.
The use of these instruments is further described in
Note 15 to our Consolidated Financial Statements.
Derivative financial 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 periodic
monitoring and approval of financially sound counterparties and
through limiting the potential credit exposures to individual
counterparties to predetermined exposure limits. Market risk is
inherently limited by the fact that the instruments are used for
risk management purposes only and, therefore, generally
designated as hedges of assets or liabilities. Market risk is
also managed on an ongoing basis by monitoring the fair value of
each financial instrument position and further by measuring and
monitoring the volatility of such positions, as further
described in the Market Risk section of this MD&A.
48
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
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Off-balance Sheet
Arrangements
|
We use off-balance sheet entities as an integral part of our
operating and funding activities. The arrangements include the
use of qualifying special purpose entities (QSPEs) and variable
interest entities (VIEs) for securitization transactions,
mortgage warehouse facilities and other mortgage-related funding
programs. The majority of our off-balance sheet arrangements
consist of securitization structures believed to be similar to
those used by many other financial service companies.
The following table summarizes assets carried off-balance sheet
in these entities.
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|
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|
|
|
|
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December 31,
($ in billions)
|
|
2006
|
|
2005
|
|
|
Securitization (a)
|
|
|
|
|
|
|
|
|
Retail finance receivables
|
|
|
$8.2
|
|
|
|
$6.0
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Wholesale loans
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|
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19.9
|
|
|
|
21.4
|
|
Mortgage loans
|
|
|
121.7
|
|
|
|
79.4
|
|
|
|
Total securitization
|
|
|
149.8
|
|
|
|
106.8
|
|
Other off-balance sheet
activities
Mortgage warehouse
|
|
|
0.3
|
|
|
|
0.6
|
|
Other mortgage
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
Total off-balance sheet
activities
|
|
$
|
150.2
|
|
|
$
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107.6
|
|
|
|
|
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(a) |
Includes only securitizations accounted for as sales under
SFAS 140, as further described in Note 7 to our
Consolidated Financial Statements.
|
Securitization
As part of our ongoing operations and overall funding and
liquidity strategy, we securitize consumer automotive finance
retail contracts, wholesale loans, mortgage loans, and
asset-backed securities. Securitization of assets allows us to
diversify funding sources by enabling us to convert assets into
cash earlier than what would have occurred in the normal course
of business and to support the core activities of Automotive
Finance and ResCap relative to originating and purchasing
finance receivables and loans. Termination of our securitization
activities would reduce funding sources for both Automotive
Finance and ResCap and disrupt the core mortgage banking
activity, adversely impacting our operating results.
Information regarding our securitization activities is further
described in Note 7 to our Consolidated Financial
Statements. As part of these activities, assets are generally
sold to bankruptcy-remote subsidiaries. These bankruptcy-remote
subsidiaries are separate legal entities that assume the risk
and reward of ownership of the receivables. Neither we nor these
subsidiaries are responsible for the other entities debts,
and the assets of the subsidiaries are not available to satisfy
our claim or those of our creditors. In turn, the
bankruptcy-remote subsidiaries establish separate trusts to
which they transfer the assets in exchange for the proceeds from
the sale of asset- or mortgage-backed securities issued by the
trust. The trusts activities are generally limited to
acquiring the assets, issuing asset- or mortgage-backed
securities, making payments on the securities and periodically
reporting to the investors. Due to the nature of the assets held
by the trusts and the limited nature of each trusts
activities, most trusts are QSPEs, in accordance with Statement
of Financial Accounting Standards No. 140, Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (SFAS 140). In
accordance with SFAS 140, assets and liabilities of the
QSPEs are generally not consolidated in our Consolidated Balance
Sheet, and therefore, we account for the transfer of assets into
the QSPE as a sale.
Certain of our securitization transactions, while similar in
legal structure to the transactions described in the foregoing
(i.e., the assets are legally sold to a bankruptcy-remote
subsidiary), do not meet the isolation and control criteria of
SFAS 140 and, therefore, are accounted for as secured
financings. As secured financings, the underlying automotive
finance retail contracts, automotive leases or mortgage loans
remain in our Consolidated Balance Sheet with the corresponding
obligation (consisting of the debt securities issued) reflected
as debt. We recognize income on the finance receivables,
automotive leases and loans and interest expense on the
securities issued in the securitization, and we provide for
credit losses on the finance receivables and loans as incurred.
Approximately $94.3 billion and $98.7 billion of our
finance receivables, automotive leases and loans were related to
secured financings at December 31, 2006 and 2005,
respectively. Refer to Note 12 to our Consolidated
Financial Statements for further discussion.
The increase in the amount of mortgage loans carried in
off-balance sheet facilities reflects ResCaps increased
use of securitization transactions accounted for as sales versus
those accounted for as secured financings, and whole loan sales
in order to take advantage of certain market conditions in 2006
in which it was, more economical to securitize or sell the
credit risk on nonprime and home equity products, from a pricing
and execution perspective, than to retain them on-balance sheet.
As part of our securitization activities, we typically agree to
service the transferred assets for a fee, and we may earn other
related ongoing income. We may also retain a portion of senior
and subordinated interests issued by the trusts; for
transactions accounted for as sales, these interests are
reported as investment securities in our Consolidated Balance
Sheet and are disclosed in Note 7 to our Consolidated
Financial Statements. Subordinate interests typically provide
credit support to the more highly rated senior interests in a
securitization transaction and may be subject to all or a
portion of the first loss position related to the sold assets.
The amount of the fees earned and the levels of retained
interests that we maintain are disclosed in Note 5 to our
Consolidated Financial Statements.
49
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
We sometimes use derivative financial instruments to facilitate
securitization activities, as further described in Note 15
to our Consolidated Financial Statements.
Our exposure related to the securitization trusts is generally
limited to cash reserves held for the benefit of investors in
the trusts retained interests and certain purchase
obligations. The trusts have a limited life and generally
terminate upon final distribution of amounts owed to investors
or upon exercise by us, as servicer, of a cleanup call option
when the servicing of the sold contracts becomes burdensome. In
addition, the trusts do not invest in our equity or in the
equity of any of our affiliates. In certain transactions,
limited recourse provisions exist that allow holders of the
asset- or mortgage-backed securities to put those securities
back to us.
We have also entered into agreements to provide credit loss
protection for certain high
loan-to-value
(HLTV) mortgage loan securitization transactions. We are
required to perform on our guaranty obligation when the security
credit enhancements are exhausted and losses are passed through
to investors. The guarantees terminate the first calendar month
during which the security aggregate note amount is reduced to
zero. Refer to Note 23 to our Consolidated Financial
Statements and the Guarantees section in this MD&A for
further information.
Other Off-Balance
Sheet Activities
We also use other off-balance sheet entities for operational and
liquidity purposes, which are in addition to the securitization
activities that are part of the transfer and servicing of
financial assets under SFAS 140 (as described in the
previous section). The purposes and activities of these entities
vary, with some entities representing QSPEs under SFAS 140
and others, whose activities are not sufficiently limited to
meet the QSPE criteria of SFAS 140, considered to be VIEs
and accounted for in accordance with FASB Interpretation
No. 46R, Consolidation of Variable Interest Entities
(FIN 46R).
We may also act as a counterparty in derivative financial
instruments with these entities to facilitate transactions.
Although representing effective risk management techniques,
these derivative financial instrument positions do not qualify
for hedge accounting treatment, as the assets or liabilities
that are economically hedged are carried off-balance sheet. As
such, these derivative financial instruments are reported in our
Consolidated Balance Sheet at fair value, with valuation
adjustments reflected in our Consolidated Statement of Income on
a current period basis, and are disclosed in Note 15 to our
Consolidated Financial Statements.
Our most significant off-balance sheet entity is described as
follows:
|
|
|
New Center Asset Trust (NCAT) NCAT is a QSPE
that was established for purchasing and holding privately issued
asset-backed securities created through our automotive finance
asset securitization activities, as previously described. NCAT
funds the activity through the issuance of asset-backed
commercial paper. NCAT acquires the asset-backed securities from
special purpose trusts established by our limited purpose
bankruptcy-remote subsidiaries. As of December 31, 2006,
NCAT had $9.5 billion in asset-backed securities, which
were fully supported by commercial paper. We act as
administrator of NCAT to provide for the administration of the
trust. NCAT maintains a $18.3 billion revolving credit
agreement, characterized as a liquidity and receivables purchase
facility, to support its issuance of commercial paper. Refer to
Note 12 to our Consolidated Financial Statements for
further discussion. The assets underlying the NCAT securities
are retail finance receivables, wholesale loans and operating
leases that are securitized as a part of our automotive finance
funding strategies. As such, the $9.5 billion of NCAT
securities outstanding at December 31, 2006, are considered
in the non-mortgage securitization amounts included in the table
on page 46.
|
We do not guarantee debt issued in connection with any of our
off-balance sheet facilities, nor do we guarantee liquidity
support (to the extent applicable) that is provided by
third-party banks. Further, there are limited recourse
provisions that would permit holders to put debt obligations
back to us. If liquidity banks fail to renew their commitment
(which commitments may be subject to periodic renewal) and we
are 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. Finally, none of these
entities related to our off-balance sheet facilities owns stock
in us or any of our affiliates.
Purchase
Obligations and Options
Certain of the structures related to securitization transactions
and other off-balance sheet activities contain provisions, which
are standard in the securitization industry, where we may (or,
in limited circumstances, are obligated to) purchase specific
assets from the entities. Our purchase obligations relating to
off-balance sheet transactions are as follows:
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|
|
Representations and warranties obligations In
connection with certain asset sales and securitization
transactions, we typically deliver standard representations and
warranties to the purchaser regarding the characteristics of the
underlying transferred assets. These representations and
warranties conform to specific guidelines, which are customary
in securitization transactions. These clauses are intended to
ensure that the terms and conditions of the sales contracts are
met upon transfer of the assets. Prior to any sale or
securitization transaction, we perform due diligence with
respect to the assets to be included in the sale to ensure that
they meet the purchasers requirements, as expressed in the
representations and warranties. Due to these procedures, we
believe the potential for loss under these arrangements is
remote. Accordingly, no liability is reflected in our
Consolidated Balance Sheet related to these potential
obligations. The maximum potential amount of future payments we
could be required to make would be equal to the current balances
of all
|
50
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
|
|
|
assets subject to such securitization or sale activities. We do
not monitor the total value of assets historically transferred
to securitization vehicles or through other asset sales.
Therefore, we are unable to develop an estimate of the maximum
payout under these representations and warranties.
|
Representations and warranties made by us in off-balance sheet
arrangements relate to the required characteristics of the
receivables (e.g., contains customary and enforceable
provisions, is secured by an enforceable lien, has an original
term of no less than x months and no greater than y months,
etc.) as of the initial sale date. Purchasers rely on these
representations and warranties, which are common in the
securitization industry, when purchasing the receivables. In
connection with mortgage assets, it is common industry practice
to include assets in a sale of mortgage loans before we have
physically received all of the original loan documentation from
a closing agent, recording office or third-party register. In
these cases, the loan origination process is completed through
the disbursement of cash and the settlement process with the
consumer; however, all of the loan documentation may not have
been received by us and, in some cases, delivered to custodians
that hold them for investors. When the documentation process is
not yet complete, a representation is given that documents will
be delivered within a specified number of days after the initial
sale date.
Loans for which there are trailing or defective legal documents
generally perform as well as loans without such administrative
complications. Such loans merely fail to conform to the
requirements of a particular sale. Upon discovery of a breach of
a representation, the loans are either corrected in a manner
conforming to the provisions of the sale agreement, replaced
with a similar mortgage loan that conforms to the provisions, or
investors are made whole by us through the purchase of the
mortgage loan at a price determined by the related transaction
documents, consistent with industry practice.
We purchased $157 million and $29 million in mortgage
assets under these provisions in 2006 and 2005, respectively.
The majority of purchases under representations and warranties
occurring in 2006 and 2005 resulted from the inability to
deliver underlying mortgage documents within a specified number
of days after the initial sale date. The remaining purchases
occurred due to a variety of non-conformities (typically related
to clerical errors discovered after sale in the post-closing
review).
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|
|
Administrator or servicer actions In our
capacity as servicer, we covenant, in certain automotive
securitization transaction documents, that we will not amend or
modify certain characteristics of any receivable after the
initial sale date (e.g., amount financed, annual percentage
rate, etc.). In addition, we are required to service sold
receivables in the same manner in which we service owned
receivables. In servicing our owned receivables, we may make
changes to the underlying contracts at the request of the
borrower, for example, because of errors made in the origination
process or to prevent imminent default as a result of temporary
economic hardship (e.g., borrower requested deferrals or
extensions). When we would otherwise modify an owned receivable
in accordance with customary servicing practices, therefore, we
are required to modify a sold and serviced receivable, also in
accordance with customary servicing procedures. If the
modification is not otherwise permitted by the securitization
transaction documents, we are required to purchase such serviced
receivable that has been sold. We purchased $27 million and
$76 million in automotive receivables under these
provisions in 2006 and 2005, respectively.
|
Our purchase options relating to off-balance sheet transactions
are as follows:
|
|
|
Asset performance conditional calls In our
mortgage off-balance sheet transactions, we typically retain the
option (but not an obligation) to purchase specific assets that
become delinquent beyond a specified period of time, as set
forth in the transaction legal documents (typically
90 days). We report affected assets when the purchase
option becomes exercisable. Assets are purchased after the
option becomes exercisable when it is in our best economic
interest to do so. We purchased $324 million and
$99 million of mortgage assets under these provisions in
2006 and 2005, respectively.
|
|
|
Cleanup calls In accordance with
SFAS 140, we retain a cleanup call option in securitization
transactions that allows the servicer to purchase the remaining
transferred financial assets, once such assets or beneficial
interests reach a minimal level and the cost of servicing those
assets or beneficial interests become burdensome in relation to
the benefits of servicing (defined as a specified percentage of
the original principal balance). We purchased $1.3 billion
and $2.9 billion in assets under these cleanup call
provisions in 2006 and in 2005, respectively.
|
When purchases of assets from off-balance sheet facilities
occur, either as a result of an obligation to do so or upon us
obtaining the ability to acquire sold assets through an option,
any resulting purchase is executed in accordance with the legal
terms in the facility or specific transaction documents. In most
cases, we record no net gain or loss, as the provisions for the
purchase of specific assets in automotive receivables and
mortgage asset transactions state that the purchase price is
equal to the unpaid principal balance (i.e., par value) of the
receivable, plus any accrued interest thereon. An exception
relates to cleanup calls, which may result in a net gain or
loss. In these cases, we record assets when the option to
purchase is exercisable, as determined by the legal
documentation. Any difference between the purchase price and
amounts paid to discharge third-party beneficial interests is
remitted to us through the recovery on the related retained
interest. Any resulting gain or loss is recognized upon the
exercise of a cleanup call option.
51
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
We have entered into arrangements that contingently require
payments to non-consolidated third parties that are defined as
guarantees. The following table summarizes primary categories of
guarantees, with further qualitative and quantitative
information in Note 23 to our Consolidated Financial
Statements:
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|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Maximum
|
|
value of
|
December 31,
2006 ($ in millions)
|
|
liability
|
|
liability
|
|
Standby letters of credit
|
|
|
$161
|
|
|
|
$7
|
|
HLTV and international
securitization
|
|
|
108
|
|
|
|
|
|
Agency loan program
|
|
|
6,390
|
|
|
|
|
|
Guarantees for repayment of
third-party debt
|
|
|
617
|
|
|
|
|
|
Repurchase guarantees
|
|
|
204
|
|
|
|
|
|
Non-financial
guarantees
|
|
|
233
|
|
|
|
|
|
Other guarantees
|
|
|
223
|
|
|
|
4
|
|
|
|
Standby letters of credit Letters of credit
are issued by our financing and ResCap operations that represent
irrevocable guarantees of payment of specified financial
obligations of a client and which are generally collateralized
by assets.
Securitizations and sales Under certain
mortgage securitization and sales transactions, we have agreed
to guarantee specific amounts depending on the performance of
the underlying assets. In particular, these guarantees relate to
particular agency loans sold with recourse, high
loan-to-value
securitizations and sales of mortgage-related securities.
Agency loan program Our ResCap operations
deliver loans to certain agencies that allow streamlined loan
processing and limited documentation requirements. In the event
any loans delivered under these programs reach a specified
delinquency status, we may be required to provide certain
documentation or, in some cases, repurchase the loan or
indemnify the investor for any losses sustained.
Guarantees for repayment of third-party debt
Under certain arrangements, we guarantee the repayment of
third-party debt obligations in the case of default. Some of
these guarantees are collateralized by letters of credit.
Repurchase guarantees We have issued
guarantees to buyers of certain mortgage loans whereby, if a
closing condition or document deficiency is identified by an
investor after the closing, we may be required to indemnify the
investor in the event the loan becomes delinquent.
Non-financial
guarantees In connection with the sale of 79% of
our equity in Capmark we were released from all financial
guarantees related to the former GMAC Commercial Mortgage
business. Certain
non-financial
guarantees did survive closing, but we are indemnified by
Capmark for payments made or liabilities incurred by us in
connection with these guarantees.
In addition to these guarantees, we have standard
indemnification clauses in some of our funding arrangements that
would require us to pay lenders for increased costs due to
certain changes in laws or regulations. Furthermore, our ResCap
operations sponsor certain agents who originate mortgage loans
under government programs, and we have guaranteed uninsured
losses resulting from the actions of the agents. As the nature
of these exposures is unpredictable and not probable, management
is not able to estimate a liability for the guarantees in these
arrangements.
52
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
|
|
|
Aggregate
Contractual Obligations
|
The following table provides aggregated information about our
outstanding contractual obligation as of December 31, 2006,
that are disclosed elsewhere in our Consolidated Financial
Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by
period
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
December 31,
2006 ($ in millions)
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
|
Description of obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured (a)
|
|
|
$99,568
|
|
|
|
$22,823
|
|
|
|
$27,617
|
|
|
|
$21,244
|
|
|
|
$27,884
|
|
Secured
|
|
|
94,314
|
|
|
|
12,391
|
|
|
|
23,100
|
|
|
|
3,638
|
|
|
|
55,185
|
|
Mortgage purchase and sale
commitments
|
|
|
34,950
|
|
|
|
26,294
|
|
|
|
5,591
|
|
|
|
95
|
|
|
|
2,970
|
|
Commitments to remit excess cash
flows on certain loan portfolios
|
|
|
5,334
|
|
|
|
5,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to sell retail
automotive receivables
|
|
|
21,500
|
|
|
|
|
|
|
|
|
|
|
|
21,500
|
|
|
|
|
|
Commitments to provide capital to
equity method investees
|
|
|
278
|
|
|
|
|
|
|
|
116
|
|
|
|
4
|
|
|
|
158
|
|
Commitments to fund construction
lending
|
|
|
352
|
|
|
|
59
|
|
|
|
275
|
|
|
|
18
|
|
|
|
|
|
Lending commitments
|
|
|
16,400
|
|
|
|
13,709
|
|
|
|
1,406
|
|
|
|
627
|
|
|
|
658
|
|
Lease commitments
|
|
|
868
|
|
|
|
207
|
|
|
|
283
|
|
|
|
166
|
|
|
|
212
|
|
Purchase obligations
|
|
|
1,093
|
|
|
|
322
|
|
|
|
440
|
|
|
|
246
|
|
|
|
85
|
|
Bank certificates of deposit
|
|
|
6,686
|
|
|
|
3,969
|
|
|
|
2,253
|
|
|
|
424
|
|
|
|
40
|
|
|
Total
|
|
|
$281,343
|
|
|
|
$85,108
|
|
|
|
$61,081
|
|
|
|
$47,962
|
|
|
|
$87,192
|
|
|
|
|
(a) |
Total amount reflects the remaining principal obligation and
excludes fair value adjustment of $109 and unamortized discount
of $386.
|
The foregoing table does not include our reserves for insurance
losses and loss adjustment expenses, which total
$2.6 billion as of December 31, 2006. While payments
due on insurance losses are considered contractual obligations
because they relate to insurance policies issued by us, the
ultimate amount to be paid and the timing of payment for an
insurance loss is an estimate, subject to significant
uncertainty. Furthermore, the timing on payment is also
uncertain; however, the majority of the balance is expected to
be paid out in less than five years.
The following provides a description of the items summarized in
the preceding table of contractual obligations:
Debt Amounts represent the scheduled maturity
of debt at December 31, 2006, assuming that no early
redemptions occur. For debt issuances without a stated maturity
date (i.e., Demand Notes), the maturity is assumed to
occur within one year. The maturity of secured debt may vary
based on the payment activity of the related secured assets.
Debt issuances redeemable at or above par during the callable
period are presented based on stated maturity date. The amounts
presented are before the effect of any unamortized discount or
fair value adjustment. Refer to Note 12 to our Consolidated
Financial Statements for additional information on our debt
obligations.
Mortgage purchase and sale commitments As
part of our ResCap operations, we enter into commitments to
originate, purchase, and sell mortgages and mortgage-backed
securities. Refer to Note 23 to our Consolidated Financial
Statements for additional information on our mortgage purchase
and sale commitments.
Commitments to remit excess cash flows on certain loan
portfolios We are committed to remitting, under
certain shared execution arrangements, cash flows that exceed a
required rate of return less credit loss reimbursements. This
commitment is accounted for as a derivative. Refer to
Note 23 to our Consolidated Financial Statements for
additional information on our shared execution arrangements.
Commitments to sell retail automotive
receivables We have entered into agreements with
third-party banks to sell automotive retail receivables in which
we transfer all credit risk to the purchaser (retail automotive
whole loan transactions). Refer to Note 23 to our
Consolidated Financial Statements for additional information.
Commitments to fund construction lending We
have entered into agreements to fund construction and resort
financing through financing obtained from third-party
asset-backed paper commercial conduits.
Commitments to provide capital to equity method
investees As part of arrangements with specific
private equity funds, we are obligated to provide capital to
equity method investees. Refer to Note 23 to our
Consolidated Financial Statements for additional information.
Lending commitments Both our Automotive
Financing and ResCap operations have outstanding revolving
lending commitments
53
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
with customers. The amounts presented represent the unused
portion of those commitments as of December 31, 2006, that
the customers may draw upon, in accordance with the lending
arrangement. Refer to Note 23 to our Consolidated Financial
Statements for additional information on our lending commitments.
Lease commitments We have obligations under
various operating lease arrangements (primarily for real
property) with noncancelable lease terms that expire after
December 31, 2006. Refer to Note 23 to our
Consolidated Financial Statements for additional information on
our lease commitments.
Purchase obligations We enter into multiple
contractual arrangements for various services. The arrangements
represent fixed payment obligations under our most significant
contracts and primarily relate to contracts with information
technology providers. Refer to Note 23 to our Consolidated
Financial Statements for additional information on our purchase
obligations.
Bank certificates of deposit We accept cash
deposits through GMAC Bank. A portion of these deposits are
escrow balances related to the servicing of mortgage loans.
|
|
|
Critical
Accounting Estimates
|
Accounting policies are integral to understanding our
Managements Discussion and Analysis of Financial Condition
and Results of Operations. The preparation of financial
statements, in accordance with accounting principles generally
accepted in the United States of America (GAAP), requires
management to make certain judgments and assumptions, based on
information available at the time of the financial statements,
in determining accounting estimates used in the preparation of
such statements. Our significant accounting policies are
described in Note 1 to our Consolidated Financial
Statements; critical accounting estimates are described in this
section. Accounting estimates are considered critical if the
estimate requires management to make assumptions about matters
that were highly uncertain at the time the accounting estimate
was made and if different estimates reasonably could have been
used in the reporting period, or changes in the accounting
estimate are reasonably likely to occur from period to period
that would have a material impact on our financial condition,
results of operations or cash flows. Our management has
discussed the development, selection and disclosure of these
critical accounting estimates with the Audit Committee of the
Board, and the Audit Committee has reviewed our disclosure
relating to these estimates.
Determination of
the Allowance for Credit Losses
The allowance for credit losses is managements estimate of
incurred losses in our lending portfolios. Management
periodically performs detailed reviews of these portfolios to
determine if an impairment has occurred and to assess the
adequacy of the allowance for credit losses, based on historical
and current trends and other factors affecting credit losses.
Additions to the allowance for credit losses are charged to
current period earnings through the provision for credit losses;
amounts determined to be uncollectible are charged directly
against the allowance for credit losses, while amounts recovered
on previously charged-off accounts increase the allowance.
Determination of the allowance for credit losses requires
management to exercise significant judgment about the timing,
frequency and severity of credit losses which could materially
affect the provision for credit losses and, therefore, net
income. The methodology for determining the amount of the
allowance differs for consumer and commercial portfolios.
The consumer portfolios consist of smaller-balance, homogeneous
contracts and loans, divided into two broad
categories automotive retail contracts and
residential mortgage loans. Each of these portfolios is further
divided by our business units into several pools (based on
contract type, underlying collateral, geographic location,
etc.), which are collectively evaluated for impairment. Due to
the homogenous nature of the portfolios, the allowance for
credit losses is based on the aggregated characteristics of the
portfolio. The allowance for credit losses is established
through a process that begins with estimates of incurred losses
in each pool based upon various statistical analyses (including
migration analysis), in which historical loss experience,
believed by management to be indicative of the current
environment, is applied to the portfolio to estimate incurred
losses. In addition, management considers the overall portfolio
size and other portfolio indicators (i.e., delinquencies,
portfolio credit quality, etc.), as well as general economic and
business trends that management believes are relevant to
estimating incurred losses.
The commercial loan portfolio is comprised of larger-balance,
non-homogeneous exposures within our Automotive Financing,
Commercial Financing and ResCap operations. These loans are
evaluated individually and are risk-rated based upon borrower,
collateral and industry-specific information that management
believes is relevant to determining the occurrence of a loss
event and measuring impairment. Management establishes specific
allowances for commercial loans determined to be individually
impaired. The allowance for credit losses is estimated by
management based upon the borrowers overall financial
condition, financial resources, payment history and, when
applicable, the estimated realizable value of any collateral. In
addition to the specific allowances for impaired loans, we
maintain allowances that are based on a collective evaluation
for impairment of certain commercial portfolios. These
allowances are based on historical loss experience,
concentrations, current economic conditions and performance
trends within specific geographic and portfolio segments.
The determination of the allowance for credit losses is
influenced by numerous assumptions. The critical assumptions
underlying the
54
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
allowance for credit losses include: (1) segmentation of
loan pools based on common risk characteristics;
(2) identification and estimation of portfolio indicators
and other factors that management believes are key to estimating
incurred credit losses and (3) evaluation by management of
borrower, collateral and geographic information. Management
monitors the adequacy of the allowance for credit losses and
makes adjustments as the assumptions in the underlying analyses
change to reflect an estimate of incurred credit losses as of
the reporting date, based upon the best information available at
that time.
At December 31, 2006, the allowance for credit losses was
$3.6 billion, as compared to $3.1 billion at
December 31, 2005. The provision for credit losses was
$2.0 billion for the year ended December 31, 2006, as
compared to $1.1 billion for 2005 and $2.0 billion for
2004. Our allowance for credit losses and the provision for
credit losses increased primarily due to negative loss severity
trends in our consumer portfolio as well as a decline in the
performance of the non-automotive commercial portfolio at our
financing operations.
The allowance for credit losses represents managements
estimate of incurred credit losses in the portfolios based on
assumptions management believes are reasonably likely to occur.
However, since this analysis involves a high degree of judgment,
the actual level of credit losses will vary depending on actual
experiences in relation to these assumptions. Accordingly,
management estimates a range of reasonably possible incurred
credit losses within the consumer and commercial portfolios.
Management maintains an allowance for credit losses that it
believes represents the best estimate of the most likely outcome
within that range.
Valuation of
Automotive Lease Residuals
Our Automotive Financing operations have significant investments
in vehicles in our operating lease portfolio. In accounting for
operating leases, management must make a determination at the
beginning of the lease of the estimated realizable value (i.e.,
residual value) of the vehicle at the end of the lease. Residual
value represents an estimate of the market value of the vehicle
at the end of the lease term, which typically ranges from two to
four years. We establish residual values at contract inception
by using independently published residual values (as further
described in the Lease Residual Risk discussion within the
Automotive Financing Operations section of this MD&A). The
customer is obligated to make payments during the term of the
lease for the difference between the purchase price and the
contract residual value. However, since the customer is not
obligated to purchase the vehicle at the end of the contract, we
are exposed to a risk of loss to the extent the value of the
vehicle is below the residual value estimated at contract
inception. Management periodically performs a detailed review of
the estimated realizable value of leased vehicles to assess the
appropriateness of the carrying value of lease assets.
To account for residual risk, we depreciate automotive operating
lease assets to estimated realizable value at the end of the
lease on a straight-line basis over the lease term. The
estimated realizable value is initially based on the residual
value established at contract inception. Over the life of the
lease, management evaluates the adequacy of the estimate of the
realizable value and may make adjustments to the extent the
expected value of the vehicle at lease termination changes. Any
such adjustments would result in a change in the depreciation
rate of the lease asset, thereby impacting the carrying value of
the operating lease asset. Overall business conditions
(including the used vehicle market), our remarketing abilities
and GMs vehicle and marketing programs may cause
management to adjust initial residual projections (as further
described in the Lease Residual Risk Management discussion in
the Automotive Financing Operations section of this MD&A).
In addition to estimating the residual value at lease
termination, we must also evaluate the current value of the
operating lease assets and test for the impairment to the extent
necessary in accordance with SFAS 144. Impairment is
determined to exist if the undiscounted expected future cash
flows (including the expected residual value) are lower than the
carrying value of the asset.
Our depreciation methodology on operating lease assets considers
managements expectation of the value of the vehicles upon
lease termination, which is based on numerous assumptions and
factors influencing used automotive vehicle values. The critical
assumptions underlying the estimated carrying value of
automotive lease assets include: (1) estimated market value
information obtained and used by management in estimating
residual values, (2) proper identification and estimation
of business conditions, (3) our remarketing abilities and
(4) GMs vehicle and marketing programs. Changes in
these assumptions could have a significant impact on the value
of the lease residuals.
Our net investment in operating leases totaled
$24.2 billion (net of accumulated depreciation of
$6.1 billion) at December 31, 2006, as compared to
$31.2 billion (net of accumulated depreciation of
$8.2 billion) at December 31, 2005. Depreciation
expense for the year ended December 31, 2006, 2005 and 2004
was $5.3 billion, $5.2 billion and $4.8 billion,
respectively. Prior to the Sale Transactions, we distributed to
GM certain assets with respect to automotive leases owned by us
and our affiliates having a net book value of $4.0 billion
(and related deferred tax liabilities of $1.8 billion). The
distribution consisted of $12.6 billion of
U.S. operating lease assets, $1.5 billion of
restricted cash and miscellaneous assets and a
$10.1 billion note payable.
Valuation of
Mortgage Servicing Rights
Mortgage servicing rights represent the capitalized value
associated with the right to receive future cash flows in
connection with the servicing of mortgage loans. Mortgage
servicing rights constitute a significant source of value
derived from originating or acquiring mortgage loans. Because
residential mortgage loans typically contain a prepayment
option, borrowers often elect to prepay their mortgages,
refinancing at lower rates during declining interest rate
environments. When this occurs, the stream of cash flows
generated from servicing the original mortgage loan is
terminated.
55
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
As such, the market value of residential mortgage servicing
rights is very sensitive to changes in interest rates, and tends
to decline as market interest rates decline and increase as
interest rates rise.
We capitalize mortgage servicing rights on loans that we have
originated based upon the fair market value of the servicing
rights associate with the underlying mortgage loans at the time
the loans are sold or securitized. We capitalize purchased
mortgage servicing rights at cost (which approximates the
estimated fair market value of such assets).
Effective January 1, 2006, mortgage servicing rights are
carried at fair value.
Prior to 2006, the carrying value of mortgage servicing rights
was dependent upon whether the rights were hedged. We carried
mortgage servicing rights that received hedge accounting
treatment at fair value. Changes in fair value were recognized
in current period earnings, which were generally offset by
changes in the fair value of the underlying derivative if the
changes in the value of the asset and derivative were highly
correlated. The majority of our mortgage servicing rights were
hedged as part of our risk management program. Mortgage
servicing rights that did not receive hedge accounting were
carried at the lower of cost or fair value. We evaluated
mortgage servicing rights for impairment by stratifying our
portfolio on the basis of the predominant risk characteristics
(mortgage product type and interest rate). To the extent that
the carrying value of an individual tranche exceeded its
estimated fair value, the mortgage servicing rights were
considered impaired. We recognized impairment that was
considered to be temporary through the establishment of (or
increase in) a valuation allowance, with a corresponding
unfavorable effect on earnings. If it was later determined all
or a portion of the temporary impairment no longer existed for a
particular tranche, we reduced the valuation allowance, with a
favorable effect on earnings. If the impairment was determined
to be other than temporary, the valuation allowance was reduced
along with the carrying value of the mortgage servicing right.
Accounting principles generally accepted in the United States of
America require that the value of mortgage servicing rights be
determined based upon market transactions for comparable
servicing assets or, in the absence of representative market
trade information, based upon other available market evidence
and modeled market expectations of the present value of future
estimated net cash flows that market participants would expect
to be derived from servicing. In certain international markets
with very limited or no market evidence, we have determined it
is not practicable to determine fair value. In other
circumstances when benchmark transaction data is not available,
management relies on estimates of the timing and magnitude of
cash inflows and outflows to derive an expected net cash flow
stream and then discounts this stream using an appropriate
market discount rate. Servicing cash flows primarily include
servicing fees, float income and late fees, less operating costs
to service the loans. Cash flows are derived based on internal
operating assumptions, which management believes would be used
by market participants, combined with market-based assumptions
for loan prepayment rates, interest rates and discount rates
that management believes approximate yields required by
investors in this asset. Management considers the best available
information and exercises significant judgment in estimating and
assuming values for key variables in the modeling and
discounting process.
We use the following key assumptions in our valuation approach:
|
|
|
Prepayments The most significant driver of
mortgage servicing rights value is actual and anticipated
portfolio prepayment behavior. Prepayment speed represents the
rate at which borrowers repay the mortgage loans prior to
scheduled maturity. As interest rates rise, prepayment speeds
generally slow, and as interest rates decline, prepayment speeds
generally accelerate. When mortgage loans are paid or expected
to be paid sooner than originally estimated, the expected future
cash flows associated with servicing the loans are reduced. We
primarily use third-party models to project residential mortgage
loan payoffs. In other cases, we estimated prepayment speeds
based on historical and expected future prepayment rates. We
measure model performance by comparing prepayment predictions
against actual results at both the portfolio and product level.
|
|
|
Discount rate The mortgage servicing rights
cash flows are discounted at prevailing market rates, which
include an appropriate risk-adjusted spread.
|
|
|
Base mortgage rate The base mortgage rate
represents the current market interest rate for newly originated
mortgage loans. This rate is a key component in estimating
prepayment speeds of our portfolio, because the difference
between the current base mortgage rate and the interest rate on
existing loans in our portfolio is an indication of the
borrowers likelihood to refinance.
|
|
|
Cost to service In general, servicing cost
assumptions are based on actual expenses directly related to
servicing. These servicing cost assumptions are compared to
market servicing costs when market information is available. Our
servicing cost assumptions include expenses associated with our
activities related to loans in default.
|
|
|
Volatility Volatility represents the expected
rate of change of interest rates. The volatility assumption used
in or valuation methodology is intended to place a band around
the potential interest rate movements from one period to the
next. We use implied volatility assumptions in connection with
the valuation of our mortgage servicing rights. Implied
volatility is defined as the expected rate of change in interest
rates derived from the prices at which options on interest rate
swaps, or swaptions, are trading. We update our volatility
assumptions for the change in implied swaption volatility during
the period, adjusted by the ratio of historical mortgage
swaption volatility.
|
56
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
We periodically perform a series of reasonableness tests, as
management deems appropriate, including the following:
|
|
|
Review and compare recent bulk mortgage servicing right
acquisition activity. We evaluate market trades
for reliability and relevancy and then consider, as appropriate,
our estimate of fair value of each significant deal to the
traded price. Currently, there is a lack of comparable
transactions between willing buyers and sellers in the bulk
acquisition market, which are our best indicators of fair value.
However, we continue to monitor market activity on an ongoing
basis.
|
|
|
Review and compare recent flow servicing
trades. We evaluate market trades of flow
transactions to compare prices on our mortgage servicing rights.
Fair values of flow market transactions may differ from our fair
value estimate for several reasons, including age/credit
seasoning of product, perceived profit margin/discount assumed
by aggregators, economy of scale benefits and cross-sell
benefits.
|
|
|
Review and compare fair value
price/multiples. We evaluate and compare our fair
value price/multiples to market fair price/multiples quoted in
external surveys produced by third parties.
|
|
|
Reconcile actual monthly cash flows to
projections. We reconcile actual monthly cash
flows to those projected in the mortgage servicing rights
valuation. Based upon the results of this reconciliation, we
assess the need to modify the individual assumptions used in the
valuation. This process ensures the model is calibrated to
actual servicing cash flow results.
|
We generally expect our valuation to be within a reasonable
range of that implied by each test. If we determine our
valuation has exceeded the reasonable range, we may adjust it
accordingly.
The assumptions used in modeling expected future cash flows of
mortgage servicing rights have a significant impact on the fair
value of mortgage servicing rights and potentially a
corresponding impact to earnings. For example, a 10% increase in
the prepayment assumptions would have negatively impacted the
fair value of the residential mortgage servicing rights asset by
$227 million, or approximately 5%, as of December 31,
2006. This sensitivity is hypothetical and is designed to
highlight the magnitude a change in assumptions could have. The
calculation assumes that a change in the constant prepayment
assumption would not impact other modeling assumptions. However,
changes in one factor may result in changes in another, which
might magnify or counteract the sensitivities. In addition, the
factors that may cause a change in the prepayment assumption may
also positively or negatively impact other areas (i.e.,
decreasing interest rates while increasing prepayments would
likely have a positive impact on mortgage loan production volume
and gains recognized on the sale of mortgage loans).
At December 31, 2006, based upon the market information
obtained, we determined that our mortgage servicing rights
valuations and assumptions used to value those servicing rights
were reasonable and consistent with what an independent market
participant would use to value the asset. At December 31,
2006, we had $4.9 billion outstanding in mortgage servicing
rights as compared to $4.0 billion at December 31,
2005.
Valuation of
Interests in Securitized Assets
When we securitize automotive retail contracts, wholesale
finance receivables, mortgage loans and mortgage-backed
securities, we typically retain an interest in the sold assets.
These interests may take the form of asset- and mortgage-backed
securities (including senior and subordinated interests),
interest-only, principal-only, investment grade, non-investment
grade or unrated securities. We retain an interest in these
transactions to provide a form of credit enhancement for the
more highly rated securities or because it is more economical to
hold these interests as opposed to selling. In addition to the
primary securitization activities, our mortgage operations
purchase mortgage-backed securities, interest-only strips and
other interests in securitized mortgage assets. In particular,
we have mortgage broker-dealer operations that are in the
business of underwriting, private placement, trading and selling
of various mortgage-backed securities. As a result of these
activities, we may hold investments (primarily with the intent
to sell or securitize) in mortgage-backed securities similar to
those retained by us in securitization activities. Interests in
securitized assets are accounted for as investments in debt
securities pursuant to Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities (SFAS 115). Our estimate of
the fair value of these interests requires management to
exercise significant judgment about the timing and amount of
future cash flows of the securities.
Interests in securitized assets that are classified as trading
or available for sale are valued on the basis of external dealer
quotes, where available. External quotes are not available for a
significant portion of these assets, given the relative
illiquidity of such assets in the market. In these
circumstances, valuations are based on internally-developed
models, which consider recent market transactions, experience
with similar securities, current business conditions, analysis
of the underlying collateral and third-party market information,
as available. In conjunction with the performance of such
valuations, management determined that the assumptions and the
resulting valuations of asset- and mortgage-backed securities
were reasonable and consistent with what an independent market
participant would use to value the positions. In addition, we
have certain interests in securitized assets that are classified
as held to maturity. Investments classified as held to maturity
are carried at amortized cost and are periodically reviewed for
impairment.
Estimating the fair value of these securities requires
management to make certain assumptions based upon current market
information. The following describes the significant assumptions
impacting future cash flow and, therefore, the valuation of
these assets.
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Prepayment Speeds Prepayment speeds are
primarily impacted by changes in interest rates. As interest
rates rise, prepayment speeds generally slow, and as interest
rates
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57
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
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decrease, prepayment speeds generally accelerate. Similar to
mortgage servicing rights, estimated prepayment speeds
significantly impact the valuation of our residential
mortgage-backed securities because increases in actual and
expected prepayment speed significantly reduce expected cash
flows from these securities. For certain securities, management
is able to obtain market information from parties involved in
the distribution of such securities to estimate prepayment
speeds. In other cases, management estimates prepayment speeds
based upon historical and expected future prepayment rates. In
comparison to residential mortgage-backed securities, prepayment
speeds on the automotive asset-backed securities are not as
volatile and do not have as significant an earnings impact due
to the relative short contractual term of the underlying
receivables and the fact that many of these receivables have
below-market contractual rates due to GM-sponsored special rate
incentive programs.
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Credit Losses Expected credit losses on
assets underlying the asset- and mortgage-backed securities also
significantly impact the estimated fair value of the related
residual interests we retain. Credit losses can be impacted by
many economic variables including unemployment, housing
valuation and regional factors. The type of loan product and the
interest rate environment are also key variables impacting the
credit loss assumptions. For certain securities, market
information for similar investments is available to estimate
credit losses and collateral defaults (e.g., dealer-quoted
credit spreads). For other securities, future credit losses are
estimated using internally- developed credit loss models, which
generate indicative credit losses on the basis of our historical
credit loss frequency and severity.
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Discount Rate Discount rate assumptions are
primarily impacted by changes in the assessed risk on the sold
assets or similar assets and market interest rate movements.
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.
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Interest Rates Estimates of interest rates on
variable- and adjustable-rate contracts are based on spreads
over the applicable benchmark interest rate using market-based
yield curves. The movement in interest rates can have a
significant impact on the valuation of retained interests in
floating-rate securities.
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Asset- and mortgage-backed securities are included as a
component of investment securities in our Consolidated Balance
Sheet. Changes in the fair value of asset- and mortgage-backed
securities held for trading are included as a component of
investment income in our Consolidated Statement of Income. The
changes in the fair value of
asset-and-mortgage-backed
securities available for sale are recorded in other
comprehensive income, a component of equity in our Consolidated
Balance Sheet. If management determines that other than
temporary impairment should be recognized related to
asset-and-mortgage-backed
securities available for sale, we recognize such amounts in
investment income in our Consolidated Statement of Income.
Similar to mortgage servicing rights, changes in model
assumptions can have a significant impact on the carrying value
of interests in securitized assets. Note 7 to our
Consolidated Financial Statements summarizes the impact on the
fair value due to a change in key assumptions for the
significant categories of interests in securitized assets as of
December 31, 2006. The processes and assumptions used to
determine the fair value of interest in securitized assets
results in a valuation that fairly states the assets and are
consistent with what a market participant would use to value the
positions. At December 31, 2006 and 2005, the total
interests in securitized assets approximated $6.3 billion
and $4.0 billion, respectively.
Determination of
Reserves for Insurance Losses and Loss Adjustment
Expenses
Our Insurance operations include an array of insurance
underwriting, including consumer products, automotive extended
service contracts, assumed reinsurance and commercial coverage
that creates a liability for unpaid losses and loss adjustment
expenses incurred (further described in the Insurance section of
this MD&A). The reserve for insurance losses and loss
adjustment expenses represents an estimate of our liability for
the unpaid cost of insured events that have occurred as of a
point in time. More specifically, it represents the accumulation
of estimates for reported losses and an estimate for losses
incurred but not reported, including claims adjustment expenses.
GMAC Insurances claim personnel estimate reported losses
based on individual case information or average payments for
categories of claims. An estimate for current incurred, but not
reported, claims is also recorded based on the
actuarially-determined expected loss ratio for a particular
product, which also considers significant events that might
change the expected loss ratio, such as severe weather events
and the estimates for reported claims. These estimates of the
reserves are reviewed regularly by the product line management,
by actuarial and accounting staffs and, ultimately, by senior
management.
GMAC Insurances actuaries assess reserves for each
business at the lowest meaningful level of homogeneous data
within each type of insurance, such as general or product
liability and automobile physical damage. The purpose of these
assessments is to confirm the reasonableness of the reserves
carried by each of the individual subsidiaries and product lines
and, thereby, the insurance operations overall carried reserves.
The selection of an actuarial methodology is judgmental and
depends on variables such as the type of insurance, its expected
payout pattern and the manner in which claims are processed.
Special characteristics such as deductibles, reinsurance
recoverable or special policy provisions are also considered in
the reserve estimation process. Estimates for salvage and
subrogation recoverable are recognized at the time losses are
incurred and netted against the provision for losses. Our
reserves include a liability for the related costs that are
expected to be
58
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
incurred in connection with settling and paying the claim. These
loss adjustment expenses are generally established as a
percentage of loss reserves. Our reserve process considers the
actuarially indicated reserves based on prior patterns of claim
incurrence and payment, as well as the degree of incremental
volatility associated with the underlying risks for the types of
insurance, and represents managements best estimate of the
ultimate liability. Since the reserves are based on estimates,
the ultimate liability may be more or less than our reserves.
Any necessary adjustments, which may be significant, are
included in earnings in the period in which they are deemed
necessary. Such changes may be material to the results of the
operations and financial condition and could occur in a future
period.
Our determination of the appropriate reserves for insurance
losses and loss adjustment expenses for significant business
components is based on numerous assumptions that vary based on
the underlying business and related exposure:
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Personal Automobile Automobile insurance
losses are principally a function of the number of occurrences
(e.g., accidents or thefts) and the severity (e.g., the ultimate
cost of settling the claim) for each occurrence. The number of
incidents is generally driven by the demographics and other
indicators or predictors of loss experience of the insured
customer base, including geographic location, number of miles
driven, age, sex, type and cost of vehicle and types of coverage
selected. The severity of each claim, within the limits of the
insurance purchased, is generally random and settles to an
average over a book of business, assuming a broad distribution
of risks. Changes in the severity of claims have an impact on
the reserves established at a point in time. Changes in bodily
injury claim severity are driven primarily by inflation in the
medical sector of the economy. Changes in automobile physical
damage claim severity are caused primarily by inflation in
automobile repair costs, automobile parts prices and used car
prices. However, changes in the level of the severity of claims
paid may not necessarily match or track changes in the rate of
inflation in these various sectors of the economy.
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Extended Service Contracts Extended service
contract losses in the U.S. and abroad are generally reported
and settled quickly through dealership service departments,
resulting in a relatively small balance of outstanding claims at
any point in time relative to the volume of claims processed
annually. Mechanical service contract claims are primarily
comprised of parts and labor for repair or replacement of the
affected components or systems. Changes in the cost of
replacement parts and labor rates will impact the cost of
settling claims. Considering the short time frame between a
claim being incurred and paid, changes in key assumptions (e.g.,
part prices, labor rates) will have a minimal impact on the loss
reserve as of a point in time. The loss reserve amount is
influenced by the estimate of the lag between vehicles being
repaired at dealerships and the claim being reported by the
dealership.
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Assumed Reinsurance The assumed reinsurance
losses generally are from contracts with regional insurers and
facultative excess of loss agreements with national writers
within the United States and personal automobile in Europe. The
reserve analysis is performed at a group level. A group can be
an individual contract or a group of similar contracts,
depending mostly upon contract size and the type of business
being insured and coverages provided. Some considerations that
can impact reserve estimates are changes in claim severity
(e.g., building costs, automobile repair costs, wage inflation,
medical costs), as well as changes in the legal and regulatory
environment.
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As of December 31, 2006, we concluded that our insurance
loss reserves were reasonable and appropriate based on the
assumptions and data used in determining the estimate. However,
as insurance liabilities are based on estimates, the actual
claims ultimately paid may vary from such estimates.
At December 31, 2006 and 2005, our reserve for insurance
losses and loss adjustment expenses totaled $2.6 billion
and $2.5 billion, respectively. Insurance losses and loss
adjustment expenses totaled $2.4 billion for the years
ended December 31, 2006, 2005 and 2004.
59
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
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Accounting and
Reporting Developments
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Change in
Accounting Principle
On January 1, 2006, we adopted Statement of Financial
Accounting Standards No. 156, Accounting for Servicing of
Financial Assets (SFAS 156) that: (1) provides
revised guidance on when a servicing asset and servicing
liability should be recognized; (2) requires all separately
recognized servicing assets and liabilities to be initially
measured at fair value, if practicable; (3) permits an
entity to elect to measure servicing assets and liabilities at
fair value each reporting date and report changes in fair value
in earnings in the period in which the changes occur;
(4) upon initial adoption, permits a one time
reclassification of
available-for-sale
securities to trading securities for securities, which are
identified as offsetting an entitys exposure to changes in
the fair value of servicing assets or liabilities that a
servicer elects to subsequently measure at fair value and
(5) requires separate presentation of servicing assets and
liabilities subsequently measured at fair value in the balance
sheet and additional disclosures. We elected to subsequently
measure the majority of servicing assets and liabilities at fair
value and report changes in fair value in earnings in the period
in which the changes occur. In addition, we made a one-time
reclassification of $927 million of available for sale
securities to trading securities for those securities identified
as offsetting our exposure to changes in the fair value of
servicing assets or liabilities. The adoption of
SFAS No. 156 resulted in a $13 million reduction
in the beginning of the year retained earnings, net of tax, as a
cumulative effect of change in accounting principle. However,
the impact to total members equity was a $4 million
increase, net of tax.
We define our classes of servicing rights based on both the
availability of market inputs and the manner in which we manage
the risks of our servicing assets and liabilities. We manage our
servicing rights at the reportable operating segment level. For
all servicing assets and liabilities recorded on our balance
sheet at January 1, 2006, the date of adoption, we
identified three classes of servicing rights, those pertaining
to: residential mortgage in our Residential Capital, LLC
(ResCap), reporting segment, auto finance in our North American
Operations reporting segment and commercial mortgages. As a
result of the sale of Capmark on March 23, 2006, the
commercial mortgage servicing rights are no longer recorded on
our balance sheet at December 31, 2006. We have elected to
measure our residential mortgage servicing rights at fair value
for each reporting date and report changes in fair value in
earnings during the period in which the changes occur. At
December 31, 2006 and 2005, these assets were valued at
$4.9 billion and $4.0 billion, respectively, and
recorded separately on our Consolidated Balance Sheet.
For auto finance servicing assets and liabilities, we have
elected to continue to use the amortization method of
accounting. Our auto finance servicing assets and liabilities at
December 31, 2006, totaled $9 million and
$18 million, respectively, and are recorded in other assets
and other liabilities, respectively, on our Consolidated Balance
Sheet.
Recently Issued
Accounting Standards
Statement of Position
05-1
In September 2005 the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position
05-1,
Accounting by Insurance Enterprises for Deferred Acquisition
Costs in Connection with Modifications or Exchanges of Insurance
Contracts
(SOP 05-1).
SOP 05-1
provides guidance on accounting for deferred acquisition costs
on internal replacements of insurance contracts.
SOP 05-1
defines an internal replacement and specifies the conditions
that determine whether the replacement contract is substantially
or unsubstantially changed from the replaced contract. An
internal replacement determined to result in a substantially
changed contract should be accounted for as an extinguishment of
the replaced contract; unamortized deferred acquisition costs
and unearned revenue liabilities of the replaced contract should
no longer be deferred. An internal replacement determined to
result in an unsubstantially changed contract should be
accounted for as a continuation of the replaced asset.
SOP 05-01
introduces the terms integrated and non-integrated contract
features and specifies that non-integrated features do not
change the base contract and are to be accounted for in a manner
similar to a separately issued contract. Integrated features are
evaluated in conjunction with the base contract.
SOP 05-1
is effective for internal replacements occurring in fiscal years
beginning after December 15, 2006. Adoption of
SOP 05-1
is not expected to have a material impact on our consolidated
financial position or results of operations.
Statement of Financial Accounting Standards
No. 155 In February 2006 the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Standards No. 155 Accounting for Certain Hybrid
Financial Instruments an amendment of FASB
Statements No. 133 and 140 (SFAS 155). This
standard permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that
otherwise would require bifurcation. SFAS 155 allows an
entity to make an irrevocable election to measure such a hybrid
financial instrument at fair value on an
instrument-by-instrument
basis. The standard eliminates the prohibition on a QSPE from
holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial
instrument. SFAS 155 also clarifies which interest-only and
principal-only strips are not subject to the requirements of
SFAS 133, as well as determines that concentrations of
credit risk in the form of subordination are not embedded
derivatives. SFAS 155 is effective for all financial
instruments acquired or issued after the beginning of the fiscal
year that begins after September 15, 2006. Adoption of
SFAS 155 is not expected to have a material impact on our
consolidated financial position or results of operations.
60
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
FASB Staff Position
FIN 46(R)-6 In April 2006 the FASB issued
FIN 46(R)-6, Determining the Variability to Be
Considered in Applying FASB Interpretation No. 46(R),
which requires the variability of an entity to be analyzed
based on the design of the entity. The nature and risks in the
entity, as well as the purpose for the entitys creation,
are examined to determine the variability in applying
FIN 46(R). The variability is used in applying
FIN 46(R) to determine whether an entity is a variable
interest entity, which interests are variable interests in the
entity and who is the primary beneficiary of the variable
interest entity. This statement is applied prospectively and is
effective for all reporting periods after
June 15, 2006. The guidance did not have a material
impact on our consolidated financial position or results of
operations.
FASB Interpretation No. 48 In June 2006
the FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48), which supplements
Statement of Financial Accounting Standard No. 109 by
defining the confidence level that a tax position must meet in
order to be recognized in the financial statements. The
Interpretation requires that the tax effects of a position be
recognized only if it is more-likely-than-not to be
sustained solely on its technical merits as of the reporting
date. The more-likely-than-not threshold represents a positive
assertion by management that a company is entitled to the
economic benefits of a tax position. If a tax position is not
considered more-likely-than-not to be sustained based solely on
its technical merits, no benefits of the position are to be
recognized. Moreover, the more-likely-than-not threshold must
continue to be met in each reporting period to support continued
recognition of a benefit. At adoption, companies must adjust
their financial statements to reflect only those tax positions
that are more-likely-than-not to be sustained as of the adoption
date. Any necessary adjustment would be recorded directly to
retained earnings in the period of adoption and reported as a
change in accounting principle. The adoption of this
Interpretation on January 1, 2007, is not expected to have
a material impact on our consolidated financial position.
FASB Staff Position (FSP)
No. 13-2
In July 2006 the FASB issued FSP
No. 13-2
Accounting for a Change or Projected Change in the Timing of
Cash Flows Relating to Income Taxes Generated by a Leveraged
Lease Transaction, (FSP
13-2), which
amends SFAS No. 13, Accounting for Leases, by
requiring lessors to recalculate the rate of return and periodic
income allocation for leveraged-lease transactions when there is
a change or projected change in the timing of income tax cash
flows related to the lease. FSP
13-2
requires lessors to use the model in FIN 48 to determine
the timing and amount of expected tax cash flows in
leveraged-lease calculations and recalculations. FSP
13-2 is
effective in the same period as FIN 48. At the date of
adoption, the lessor is required to reassess projected income
tax cash flows related to leveraged leases using the FIN 48
model for recognition and measurement. Revisions to the net
investment in a leverage lease required when FSP
13-2 is
adopted would be recorded as an adjustment to the beginning
balance of retained earnings and reported as a change in
accounting principle. Adoption of this guidance is not expected
to have a material impact on our consolidated financial position
or results of operations.
SEC Staff Accounting
Bulletin No. 108 In September 2006 the
SEC issued Staff Accounting Bulletin (SAB) No. 108
Quantifying Financial Misstatements, which expresses the
Staffs views regarding the process of quantifying
financial statement misstatements. Registrants are required to
quantify the impact of correcting all misstatements, including
both the carryover and reversing effects of prior year
misstatements, on the current year financial statements. The
techniques most commonly used in practice to accumulate and
quantify misstatements are generally referred to as the
rollover (current year income statement perspective)
and iron curtain (year-end balance perspective)
approaches. The financial statements would require adjustment
when either approach results in quantifying a misstatement that
is material, after considering all relevant quantitative and
qualitative factors. SAB 108 did not have a material effect
on our current process for assessing and quantifying financial
statement misstatements.
SFAS No. 157 In September 2006 the
FASB issued SFAS No. 157 Fair Value
Measurements, which provides a definition of fair value,
establishes a framework for measuring fair value and requires
expanded disclosures about fair value measurements. The standard
applies when GAAP requires or allows assets or liabilities to be
measured at fair value, and therefore, does not expand the use
of fair value in any new circumstance. Fair value refers to the
price that would be received to sell an asset or paid to
transfer a liability in an arms length transaction between
market participants, in such markets where we conduct business.
SFAS 157 clarifies that fair value should be based on the
assumptions market participants would use when pricing an asset
or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions.
The fair value hierarchy gives the highest priority to quoted
prices available in active markets and the lowest priority to
data lacking transparency. The level of the reliability of
inputs utilized for fair value calculations drive the extent of
disclosure requirements of the valuation methodologies used
under the standard. SFAS 157 is effective for financial
statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those years.
The provisions of SFAS 157 should be applied prospectively.
Management is assessing the potential impact on our financial
condition and results of operations.
SFAS No. 158 In September 2006 the
FASB issued SFAS No. 158 Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans,
which amends SFAS No. 87 Employers Accounting
for Pensions, SFAS No. 88 Employers
Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits,
SFAS No. 106 Employers Accounting for
Postretirement Benefits Other Than Pensions, and
SFAS No. 132(R) Employers Disclosures about
Pensions and Other Postretirement Benefits (revised 2003).
This Statement requires companies to
61
Managements Discussion and
Analysis
GMAC
LLC Form 10-K
recognize an asset or liability for the overfunded or
underfunded status of their benefit plans in their financial
statements. The asset or liability is the offset to other
comprehensive income, consisting of previously unrecognized
prior service costs and credits, actuarial gains or losses and
transition obligations and assets. SFAS 158 also required
the measurement date for plan assets and liabilities to coincide
with the sponsors year end. The standard provides two
transition alternatives for companies to make the
measurement-date provisions. The recognition of asset and
liability related to funded status provision is effective for us
for fiscal years ending after June 15, 2007, and the change
in measurement is effective for fiscal years ending
December 15, 2008. Adoption of this guidance is not
expected to have a material impact on our consolidated financial
position or results of operations.
SFAS No. 159 In February 2007 the
FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159).
SFAS 159 permits entities to choose to measure at fair
value many financial instruments and certain other items that
are not currently required to be measured at fair value.
Subsequent changes in fair value for designated items will be
required to be reported in earnings in the current period.
SFAS 159 also establishes presentation and disclosure
requirements for similar types of assets and liabilities
measured at fair value. SFAS 159 is effective for financial
statements issued for fiscal years beginning after
November 15, 2007. We are currently assessing the effect of
implementing this guidance, which directly depends on the nature
and extent of eligible items elected to be measured at fair
value, upon initial application of the standard on
January 1, 2008.
62
Quantitative and
Qualitative Disclosures About Market Risk
GMAC
LLC Form 10-K
Item 7A.
Quantitative and Qualitative Disclosures About Market
Risk
Our automotive financing, mortgage, and insurance activities
give rise to market risk, representing the potential loss in the
fair value of assets or liabilities caused by movements in
market variables, such as interest rates, foreign exchange rates
and equity prices. We are primarily exposed to interest rate
risk arising from changes in interest rates related to
financing, investing and cash management activities. More
specifically, we have entered into contracts to provide
financing, to retain mortgage servicing rights and to retain
various assets related to securitization activities, all of
which are exposed in varying degrees to changes in value due to
movements in interest rates. Interest rate risk arises from the
mismatch between assets and the related liabilities used for
funding. We enter into various financial instruments, including
derivatives, to maintain the desired level of exposure to the
risk of interest rate fluctuations. Refer to Note 15 to our
Consolidated Financial Statements for further information.
We are exposed to foreign currency risk arising from the
possibility that fluctuations in foreign exchange rates will
impact future earnings or asset and liability values related to
our global operations. Our most significant foreign currency
exposures relate to the Euro, the Canadian dollar, the British
pound sterling, Brazilian real, Mexican peso and the Australian
dollar.
We are also exposed to equity price risk, primarily in our
Insurance operations, which invests in equity securities that
are subject to price risk influenced by capital market
movements. Our equity securities are considered investments and
we do not enter into derivatives to modify the risks associated
with our Insurance investment portfolio.
While the diversity of our activities from our complementary
lines of business naturally mitigates market risk, we also
actively manage this risk. We maintain 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.
Additional risks include credit risk and lease residual risk,
which are discussed in Item 7.
Value at
Risk
One of the measures we use to manage market risk is Value at
Risk (VaR), which gauges the dollar amount of potential loss in
fair value from adverse interest rate and currency movements in
an ordinary market. The VaR model uses a distribution of
historical changes in market prices to assess the potential for
future losses. In addition, VaR takes into account correlations
between risks and the potential for movements in one portfolio
to offset movements in another.
We measure VaR using a 95% confidence interval and an assumed
one month holding period, meaning that we would expect to incur
changes in fair value greater than those predicted by VaR in
only one out of every 20 months. Currently, our VaR
measurements do not include all of our market risk sensitive
positions. The VaR estimates encompass the majority
(approximately 90%) of our market risk sensitive positions,
which management believes are representative of all positions.
The following table represents the maximum, average and minimum
potential VaR losses measured for the years indicated.
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Year
ended December 31, ($ in millions)
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2006
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2005
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Value at Risk
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Maximum
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$159
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$239
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Average
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84
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129
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Minimum
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27
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66
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While no single risk statistic can reflect all aspects of market
risk, the VaR measurements provide an overview of our exposure
to changes in market influences. Less than 2% of our assets are
accounted for as trading activities (i.e., those in which
changes in fair value directly affect earnings). As such, our
VaR measurements are not indicative of the impact to current
period earnings caused by potential market movements. The actual
earnings impact would differ because the accounting for our
financial instruments is a combination of historical cost, lower
of cost or market and fair value (as further described in the
accounting policies in Note 20 to our Consolidated
Financial Statements).
Sensitivity
Analysis
While VaR reflects the risk of loss due to unlikely events in a
normal market, sensitivity analysis captures our exposure to
isolated hypothetical movements in specific market rates. The
following analyses, which include Capmarks financial
instruments for 2005 that are exposed to changes in interest
rates, foreign exchange rates and equity prices, are based on
sensitivity analyses performed
63
Quantitative and Qualitative
Disclosures About Market Risk
GMAC
LLC Form 10-K
assuming instantaneous, parallel shifts in market exchange
rates, interest rate yield curves and equity prices.
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2006
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2005
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Non-
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Trading
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Non-
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Trading
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December 31,
($ in millions)
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trading
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(a)
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trading
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(a)
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Financial instruments exposed to
changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
|
($35,614)
|
|
|
|
$4,784
|
|
|
|
($26,609)
|
|
|
|
$4,580
|
|
Effect of 10% adverse change in
rates
|
|
|
(1,090)
|
|
|
|
92
|
|
|
|
(1,662)
|
|
|
|
127
|
|
Foreign exchange rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
|
($16,936)
|
|
|
|
$222
|
|
|
|
($7,177)
|
|
|
|
$254
|
|
Effect of 10% adverse change in
rates
|
|
|
1,694
|
|
|
|
(22)
|
|
|
|
718
|
|
|
|
(25)
|
|
Equity prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value
|
|
|
$574
|
|
|
|
$
|
|
|
|
$2,367
|
|
|
|
$
|
|
Effect of 10% decrease in prices
|
|
|
(57)
|
|
|
|
|
|
|
|
(236)
|
|
|
|
|
|
|
|
|
|
(a) |
Includes our trading investment securities. Refer to Note 5
to our Consolidated Financial Statements for additional
information on our investment securities portfolio.
|
There are certain shortcomings inherent to the sensitivity
analysis data presented. The models assume that interest rate
and foreign exchange rate changes are instantaneous parallel
shifts. In reality, changes are rarely instantaneous or
parallel, and therefore, the sensitivities summarized in the
foregoing table may be overstated. While this sensitivity
analysis is our best estimate of the impacts of the scenarios
described, actual results could differ from those projected.
Because they do not represent financial instruments, our
operating leases are not required to be included in the interest
rate sensitivity analysis. This exclusion is significant to the
overall analysis and any resulting conclusions. While the
sensitivity analysis shows an estimated fair value change for
the debt which funds our operating lease portfolio, a
corresponding change for our operating lease portfolio (which
had a carrying value of $24.2 billion and
$31.2 billion at December 31, 2006 and 2005,
respectively) was excluded from the foregoing analysis. As a
result, the overall impact to the estimated fair value of
financial instruments from hypothetical changes in interest and
foreign currency exchange rates is greater than what we would
experience in the event of such market movements.
We define operational risk as the risk of loss resulting from
inadequate or failed processes or systems, human factors or
external events. Operational risk is an inherent risk element in
each of our businesses and related support activities. Such risk
can manifest in various ways, including breakdowns, errors,
business interruptions and inappropriate behavior of employees
and can potentially result in financial losses and other damage
to us.
To monitor and control such risk, we maintain a system of
policies and a control framework designed to provide a sound and
well-controlled operational environment. The goal is to maintain
operational risk at appropriate levels in view of our financial
strength, the characteristics of the businesses and the markets
in which we operate, and the related competitive and regulatory
environment. While each operating unit is responsible for risk
management, we supplement this decentralized model with a
centralized enterprise risk management function. This risk
management function is responsible for ensuring that each
business unit has proper policies and procedures for managing
risk and for identifying, measuring and monitoring risk across
our enterprise. We utilize an enterprise-wide control
self-assessment process. The focus of the process has been to
identify key risks specific to areas impacting financial
reporting and disclosure controls and procedures.
Notwithstanding these risk and control initiatives, we may incur
losses attributable to operational risks from time to time, and
there can be no assurance such losses will not be incurred in
the future.
64
Statement of
Responsibility for Preparation
of Financial Statements
GMAC
LLC Form
10-K
Item 8.
Financial Statements and Supplementary Data
Our Consolidated Financial Statements, together with the notes
thereto and the reports of Management and of Deloitte &
Touche LLP begin on page 69. Unaudited supplementary
financial data for each quarter within the two years ended
December 31, 2006, is included on page 124.
Our Consolidated Financial Statements, Financial Highlights and
Managements Discussion and Analysis of Financial Condition
and Results of Operations of GMAC LLC and subsidiaries (GMAC)
were prepared by management, who is responsible for their
integrity and objectivity. Where applicable, this financial
information has been prepared in conformity with the Securities
Exchange Act of 1934, as amended, and accounting principles
generally accepted in the United States of America. The
preparation of this financial information requires the use of
estimates, judgments, and assumptions that affect the reported
amounts of assets and liabilities at the date of our
Consolidated Financial Statements and the reported amounts of
revenues and expenses during the periods presented. The critical
accounting estimates that may involve a higher degree of
judgment and complexity are included in Managements
Discussion and Analysis.
Deloitte & Touche LLP, an independent registered public
accounting firm, has audited the Consolidated Financial
Statements of GMAC; and their report is included herein. The
audit was conducted in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
The GMAC Board of Members, through its Audit Committee, is
responsible for overseeing managements fulfillment of its
responsibilities in the preparation of the Consolidated
Financial Statements. The GMAC LLC Audit Committee annually
recommends to the Board the selection of independent auditors.
In addition, the GMAC LLC Audit 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 GMAC LLC Audit Committee to
review the activities of each and to ensure that each is
properly discharging its responsibilities. To reinforce complete
independence, Deloitte & Touche LLP has full and free
access to meet with the GMAC LLC Audit Committee without
management representatives present, to discuss the results of
the audit, the adequacy of internal control and the quality of
financial reporting. Prior to the Sale Transactions certain of
these Audit Committee responsibilities were carried out by the
predecessor GM Audit Committee. Certain aspects of these
responsibilities were delegated to GMACs Audit Committee,
comprised of General Motors Chief Financial Officer,
Treasurer and President of GM Asset Management.
|
|
|
/s/ Eric
A. Feldstein
|
|
/s/ Sanjiv
Khattri
|
|
|
|
Eric A. Feldstein
Chief Executive Officer
March 12, 2007
|
|
Sanjiv Khattri
Executive Vice President and
Chief Financial Officer
March 12, 2007
|
65
Managements
Report on Internal Control over
Financial Reporting
GMAC
LLC Form 10-K
GMAC management is responsible for establishing and maintaining
effective internal control over financial reporting. The
Companys internal control over financial reporting is a
process designed under the supervision of the Companys
Chief Executive Officer and Chief Financial Officer to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of published financial statements
in accordance with accounting principles generally accepted in
the United States of America.
The Companys internal control over financial reporting
includes policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the
assets of the Company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of the Consolidated Financial Statements in
conformity with accounting principles generally accepted in the
United States of America, and that receipts and expenditures of
the Company are being made only in accordance with
authorizations of management and directors of the Company; and
(3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of the Companys assets that could have a material effect
on the Consolidated Financial Statements.
Because of its inherent limitations, internal control over
financial reporting can provide only reasonable assurance and
may not prevent or detect misstatements. Further, projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management conducted, under the supervision of the
Companys Chief Executive Officer and Chief Financial
Officer, an evaluation of the effectiveness of the
Companys internal control over financial reporting based
on the framework in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, commonly referred to
as the COSO criteria.
A material weakness is a control deficiency or a combination of
control deficiencies that result in a more than remote
likelihood that a material misstatement of the annual or interim
consolidated financial statements will not be prevented or
detected. Management identified the following material weakness
in its assessment as of December 31, 2006.
As a result of a recent review of our hedge documentation for
certain fair value hedges, management concluded that such
documentation and hedge effectiveness assessment methodologies
related to particular hedges of callable fixed rate debt
instruments funding our North American Automotive Finance
operations did not satisfy the requirements of SFAS 133.
One of the requirements of SFAS 133 is that hedge
accounting is appropriate only for those hedging relationships
for which a company has a sufficiently documented expectation
that such relationships will be highly effective in achieving
offsetting changes in fair value or cash flows attributable to
the risk being hedged at the inception of the hedging
relationship. To determine whether transactions continue to
satisfy this requirement, companies must periodically assess and
document the effectiveness of hedging relationships both
prospectively and retrospectively.
Management has determined that hedge accounting treatment should
not have been applied to these hedging relationships. As a
result, we should not have recorded any adjustments on the debt
instruments included in the hedging relationships related to
changes in fair value due to movements in the designated
benchmark interest rate. As such, we determined that our
controls over the documentation and effectiveness assessment of
SFAS 133 were not sufficiently designed or implemented to
ensure that SFAS 133 was properly applied and continued to
be applicable to these hedging relationships. Accordingly, we
have restated our results to remove such recorded adjustments on
these debt instruments from our reported interest expense during
the affected periods.
We are restating our historical consolidated financial
statements for the quarters ended March 31, 2006 and 2005,
June 30, 2006 and 2005, and September 30, 2006 and
2005, the year ended December 31, 2005, the Consolidated
Statements of Income, Changes in Equity and Cash Flows as well
as selected balance sheet data for the year ended
December 31, 2004, and other selected financial data as
presented in Item 6 for the years ended December 31,
2003 and 2002.
Based on the assessment performed and solely as a result of the
material weakness described above, management concluded that as
of December 31, 2006, GMACs internal control over
financial reporting was not effective based upon the COSO
criteria.
|
|
|
/s/ Eric
A. Feldstein
|
|
/s/ Sanjiv
Khattri
|
|
|
|
Eric A. Feldstein
Chief Executive Officer
March 12, 2007
|
|
Sanjiv Khattri
Executive Vice President and
Chief Financial Officer
March 12, 2007
|
66
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Member Interest Holders of GMAC
LLC:
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting, that GMAC LLC and subsidiaries (the
Company) did not maintain effective internal control
over financial reporting as of December 31, 2006, because
of the effect of the material weakness identified in
managements assessment based on the criteria established
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Companys management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on managements assessment and an
opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America. A companys internal control over financial
reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a
material effect on the financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
A material weakness is a significant deficiency, or combination
of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The
following material weakness has been identified and included in
managements assessment: management did not sufficiently
design or implement controls over the documentation and
effectiveness assessment required by Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended and
interpreted (SFAS 133) to ensure that
SFAS 133 was properly applied and continued to be
applicable for certain North American Automotive Finance hedges
of callable fixed rate debt instruments. This material weakness
has caused the restatement of the historical consolidated
financial statements for the quarters ended March 31, 2006
and 2005, June 30, 2006 and 2005, and September 30,
2006 and 2005, the year ended December 31, 2005, the
Consolidated Statements of Income, Changes in Equity and Cash
Flows as well as selected balance sheet data for the year ended
December 31, 2004 and other selected financial data as
presented in Item 6 for the years ended December 31,
2003 and 2002. This material weakness was considered in
determining the nature, timing, and extent of audit tests
applied in our audit of the consolidated financial statements as
of and for the year ended December 31, 2006 of the Company
and this report does not affect our report on such consolidated
financial statements.
In our opinion, managements assessment that the Company
did not maintain effective internal control over financial
reporting as of December 31, 2006, is fairly stated, in all
material respects, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, because of the effect of the
material weakness described above on the achievement of the
objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting
as of December 31, 2006, based on the criteria established
in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended
December 31, 2006, of the Company and our report dated
March 12, 2007, expressed an unqualified opinion on those
consolidated financial statements and included an explanatory
paragraph regarding the restatement described in Notes 1
and 24 to the consolidated financial statements.
/s/ Deloitte &
Touche LLP
Deloitte & Touche LLP
Detroit,
Michigan
March 12, 2007
67
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Member Interest Holder of GMAC LLC:
We have audited the accompanying Consolidated Balance Sheet of
GMAC LLC and subsidiaries (the Company) as of
December 31, 2006 and 2005, and the related Consolidated
Statements of Income, Changes in Equity, and Cash Flows for each
of the three years in the period ended December 31, 2006.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 financial position of the
Company at December 31, 2006 and 2005, and the results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2006, in conformity with
accounting principles generally accepted in the United States of
America.
As discussed in Notes 1 and 24 to the consolidated
financial statements, the accompanying Consolidated Balance
Sheet as of December 31, 2005, and Consolidated Statements
of Income, Changes in Equity, and Cash Flows for the years ended
December 31, 2005 and 2004 have been restated.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2006, based on the
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
March 12, 2007 expressed an unqualified opinion on
managements assessment of the effectiveness of the
Companys internal control over financial reporting and an
adverse opinion on the effectiveness of the Companys
internal control over financial reporting because of a material
weakness.
/s/ Deloitte &
Touche LLP
Deloitte & Touche LLP
Detroit,
Michigan
March 12, 2007
68
Consolidated
Statement of Income
GMAC
LLC Form 10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(As restated
|
|
|
(As restated
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
|
see
Note 1)
|
|
|
see
Note 1)
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
$10,472
|
|
|
|
$9,943
|
|
|
|
$10,316
|
|
Commercial
|
|
|
3,112
|
|
|
|
2,685
|
|
|
|
2,177
|
|
Loans held for sale
|
|
|
1,777
|
|
|
|
1,652
|
|
|
|
1,269
|
|
Operating leases
|
|
|
7,742
|
|
|
|
7,032
|
|
|
|
6,563
|
|
|
|
Total financing revenue
|
|
|
23,103
|
|
|
|
21,312
|
|
|
|
20,325
|
|
Interest expense
|
|
|
15,560
|
|
|
|
13,106
|
|
|
|
9,659
|
|
|
|
Net financing revenue before
provision for credit losses
|
|
|
7,543
|
|
|
|
8,206
|
|
|
|
10,666
|
|
Provision for credit losses
|
|
|
2,000
|
|
|
|
1,074
|
|
|
|
1,953
|
|
|
|
Net financing revenue
|
|
|
5,543
|
|
|
|
7,132
|
|
|
|
8,713
|
|
Servicing fees
|
|
|
1,893
|
|
|
|
1,730
|
|
|
|
1,547
|
|
Amortization and impairment of
servicing rights
|
|
|
(23
|
)
|
|
|
(869
|
)
|
|
|
(1,112
|
)
|
Servicing asset valuation and
hedge activities, net
|
|
|
(1,100
|
)
|
|
|
61
|
|
|
|
243
|
|
|
|
Net loan servicing income
|
|
|
770
|
|
|
|
922
|
|
|
|
678
|
|
Insurance premiums and service
revenue earned
|
|
|
4,183
|
|
|
|
3,762
|
|
|
|
3,528
|
|
Gain on sale of mortgage and
automotive loans
|
|
|
1,470
|
|
|
|
1,656
|
|
|
|
1,347
|
|
Investment income
|
|
|
2,143
|
|
|
|
1,216
|
|
|
|
845
|
|
Gains on sale of equity method
investment
|
|
|
411
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
3,643
|
|
|
|
4,399
|
|
|
|
3,470
|
|
|
|
Total net financing revenue and
other income
|
|
|
18,163
|
|
|
|
19,087
|
|
|
|
18,581
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense on operating
lease assets
|
|
|
5,341
|
|
|
|
5,244
|
|
|
|
4,828
|
|
Compensation and benefits expense
|
|
|
2,558
|
|
|
|
3,163
|
|
|
|
2,916
|
|
Insurance losses and loss
adjustment expenses
|
|
|
2,420
|
|
|
|
2,355
|
|
|
|
2,371
|
|
Other operating expenses
|
|
|
4,776
|
|
|
|
4,134
|
|
|
|
4,210
|
|
Impairment of goodwill and other
intangible assets
|
|
|
840
|
|
|
|
712
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
15,935
|
|
|
|
15,608
|
|
|
|
14,325
|
|
Income before income tax
expense
|
|
|
2,228
|
|
|
|
3,479
|
|
|
|
4,256
|
|
Income tax expense
|
|
|
103
|
|
|
|
1,197
|
|
|
|
1,362
|
|
|
|
Net income
|
|
|
$2,125
|
|
|
|
$2,282
|
|
|
|
$2,894
|
|
|
|
Preferred interest accretion to
redemption value and dividends
|
|
|
(295
|
)
|
|
|
|
|
|
|
|
|
Net income available to
members
|
|
|
$1,830
|
|
|
|
$
|
|
|
|
$
|
|
|
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
69
Consolidated Balance
Sheet
GMAC
LLC Form 10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
(As restated
|
|
December 31,
($ in millions)
|
|
2006
|
|
|
see
Note 1)
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$15,459
|
|
|
|
$15,424
|
|
Investment securities
|
|
|
16,791
|
|
|
|
18,207
|
|
Loans held for sale
|
|
|
27,718
|
|
|
|
21,865
|
|
Assets held for sale
|
|
|
|
|
|
|
19,030
|
|
Finance receivables and loans, net
of unearned income
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
130,542
|
|
|
|
140,436
|
|
Commercial
|
|
|
43,904
|
|
|
|
44,574
|
|
Allowance for credit losses
|
|
|
(3,576
|
)
|
|
|
(3,085
|
)
|
|
|
Total finance receivables and
loans, net
|
|
|
170,870
|
|
|
|
181,925
|
|
Investment in operating leases, net
|
|
|
24,184
|
|
|
|
31,211
|
|
Notes receivable from GM
|
|
|
1,975
|
|
|
|
4,565
|
|
Mortgage servicing rights
|
|
|
4,930
|
|
|
|
4,015
|
|
Premiums and other insurance
receivables
|
|
|
2,016
|
|
|
|
1,873
|
|
Other assets
|
|
|
23,496
|
|
|
|
22,442
|
|
|
|
Total assets
|
|
|
$287,439
|
|
|
|
$320,557
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
$113,500
|
|
|
|
$133,560
|
|
Secured
|
|
|
123,485
|
|
|
|
121,138
|
|
|
|
Total debt
|
|
|
236,985
|
|
|
|
254,698
|
|
Interest payable
|
|
|
2,592
|
|
|
|
3,057
|
|
Liabilities related to assets held
for sale
|
|
|
|
|
|
|
10,941
|
|
Unearned insurance premiums and
service revenue
|
|
|
5,002
|
|
|
|
5,054
|
|
Reserves for insurance losses and
loss adjustment expenses
|
|
|
2,630
|
|
|
|
2,534
|
|
Accrued expenses and other
liabilities
|
|
|
22,659
|
|
|
|
18,224
|
|
Deferred income taxes
|
|
|
1,007
|
|
|
|
4,364
|
|
|
|
Total liabilities
|
|
|
270,875
|
|
|
|
298,872
|
|
Preferred interests
|
|
|
2,195
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Common stock and paid-in capital
|
|
|
|
|
|
|
5,760
|
|
Members interest
|
|
|
6,711
|
|
|
|
|
|
Retained earnings
|
|
|
7,173
|
|
|
|
15,095
|
|
Accumulated other comprehensive
income
|
|
|
485
|
|
|
|
830
|
|
|
|
Total equity
|
|
|
14,369
|
|
|
|
21,685
|
|
|
|
Total liabilities, preferred
interests and equity
|
|
|
$287,439
|
|
|
|
$320,557
|
|
|
The Notes to the Consolidated
Financial Statements are an integral part of these statements.
70
Consolidated
Statement of Changes in Equity
GMAC
LLC Form 10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
other
|
|
|
|
|
and paid-
|
|
Members
|
|
Retained
|
|
Comprehensive
|
|
comprehensive
|
|
Total
|
($ in
millions)
|
|
in
capital
|
|
interest
|
|
earnings
|
|
income
|
|
income
(loss)
|
|
equity
|
|
|
Balance
at December 31, 2003 (As restated see Note
1)
|
|
|
$5,641
|
|
|
|
$
|
|
|
|
$14,114
|
|
|
|
|
|
|
|
$518
|
|
|
|
$20,273
|
|
Increase in paid-in capital
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
2,894
|
|
|
|
$2,894
|
|
|
|
|
|
|
|
2,894
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,500
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
650
|
|
|
|
650
|
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3,544
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004 (As restated see Note
1)
|
|
|
$5,760
|
|
|
|
$
|
|
|
|
$15,508
|
|
|
|
|
|
|
|
$1,168
|
|
|
|
$22,436
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
2,282
|
|
|
|
2,282
|
|
|
|
|
|
|
|
2,282
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,500
|
)
|
Repurchase transaction (a)
|
|
|
|
|
|
|
|
|
|
|
(195
|
)
|
|
|
|
|
|
|
|
|
|
|
(195
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(338
|
)
|
|
|
(338
|
)
|
|
|
(338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1,944
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005 (As restated see Note
1)
|
|
|
$5,760
|
|
|
|
$
|
|
|
|
$15,095
|
|
|
|
|
|
|
|
$830
|
|
|
|
$21,685
|
|
|
Conversion of common stock to
members interest on July 20, 2006
|
|
|
(5,760
|
)
|
|
|
5,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
2,125
|
|
|
|
2,125
|
|
|
|
|
|
|
|
2,125
|
|
Preferred interest accretion to
redemption value and dividends
|
|
|
|
|
|
|
|
|
|
|
(295
|
)
|
|
|
|
|
|
|
|
|
|
|
(295
|
)
|
Cumulative effect of a change in
accounting principle, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of unrealized loss for
certain available for sale securities to trading securities
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
17
|
|
|
|
|
|
Recognize mortgage servicing
rights at fair value
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
(9,739
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,739
|
)
|
Capital contributions
|
|
|
|
|
|
|
951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
951
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(362
|
)
|
|
|
(362
|
)
|
|
|
(362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1,767
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31,
2006
|
|
|
$
|
|
|
|
$6,711
|
|
|
|
$7,173
|
|
|
|
|
|
|
|
$485
|
|
|
|
$14,369
|
|
|
|
|
(a) |
In October 2005 we repurchased operating lease assets and
related deferred tax liabilities from GM. Refer to Note 18
to our Consolidated Financial Statements for further detail.
|
The Notes to the Consolidated
Financial Statements are an integral part of these statements.
71
Consolidated
Statement of Cash Flows
GMAC
LLC Form 10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(As restated
|
|
|
(As restated
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
|
see
Note 1)
|
|
|
see
Note 1)
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$2,125
|
|
|
|
$2,282
|
|
|
|
$2,894
|
|
Reconciliation of net income to net
cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6,459
|
|
|
|
5,964
|
|
|
|
5,433
|
|
Goodwill impairment
|
|
|
840
|
|
|
|
712
|
|
|
|
|
|
Amortization and valuation
adjustments of mortgage servicing rights
|
|
|
843
|
|
|
|
782
|
|
|
|
1,384
|
|
Provision for credit losses
|
|
|
2,000
|
|
|
|
1,074
|
|
|
|
1,953
|
|
Net gains on sales of finance
receivables and loans
|
|
|
(1,470
|
)
|
|
|
(1,741
|
)
|
|
|
(1,332
|
)
|
Net gains on investment securities
|
|
|
(1,005
|
)
|
|
|
(104
|
)
|
|
|
(52
|
)
|
Capitalized interest income
|
|
|
|
|
|
|
(23
|
)
|
|
|
(30
|
)
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
370
|
|
|
|
(1,155
|
)
|
|
|
614
|
|
Loans held for sale (a)
|
|
|
(19,346
|
)
|
|
|
(29,119
|
)
|
|
|
(2,312
|
)
|
Deferred income taxes
|
|
|
(1,346
|
)
|
|
|
351
|
|
|
|
(118
|
)
|
Interest payable
|
|
|
(470
|
)
|
|
|
(290
|
)
|
|
|
311
|
|
Other assets
|
|
|
(2,340
|
)
|
|
|
(2,446
|
)
|
|
|
2,426
|
|
Other liabilities
|
|
|
(1,067
|
)
|
|
|
45
|
|
|
|
(2,875
|
)
|
Other, net
|
|
|
(287
|
)
|
|
|
568
|
|
|
|
1,167
|
|
|
|
Net cash (used in) provided by
operating activities
|
|
|
(14,694
|
)
|
|
|
(23,100
|
)
|
|
|
9,463
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available for sale
securities
|
|
|
(28,184
|
)
|
|
|
(19,165
|
)
|
|
|
(12,783
|
)
|
Proceeds from sales of available
for sale securities
|
|
|
6,628
|
|
|
|
5,721
|
|
|
|
3,276
|
|
Proceeds from maturities of
available for sale securities
|
|
|
23,147
|
|
|
|
8,887
|
|
|
|
7,250
|
|
Net increase in finance receivables
and loans
|
|
|
(94,869
|
)
|
|
|
(96,028
|
)
|
|
|
(125,183
|
)
|
Proceeds from sales of finance
receivables and loans
|
|
|
117,830
|
|
|
|
125,836
|
|
|
|
108,147
|
|
Purchases of operating lease assets
|
|
|
(18,190
|
)
|
|
|
(15,496
|
)
|
|
|
(14,055
|
)
|
Disposals of operating lease assets
|
|
|
7,303
|
|
|
|
5,164
|
|
|
|
7,668
|
|
Change in notes receivable from GM
|
|
|
1,660
|
|
|
|
1,053
|
|
|
|
(1,635
|
)
|
Purchases of mortgage servicing
rights, net
|
|
|
(61
|
)
|
|
|
(267
|
)
|
|
|
(326
|
)
|
Acquisitions of subsidiaries, net
of cash acquired
|
|
|
(340
|
)
|
|
|
(2
|
)
|
|
|
9
|
|
Proceeds from sale of business
units, net
|
|
|
8,537
|
|
|
|
|
|
|
|
|
|
Settlement of residual support and
risk sharing obligations with GM
|
|
|
1,357
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(21
|
)
|
|
|
(1,549
|
)
|
|
|
260
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
24,797
|
|
|
|
14,154
|
|
|
|
(27,372
|
)
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term debt
|
|
|
2,665
|
|
|
|
(9,970
|
)
|
|
|
4,123
|
|
Proceeds from issuance of long-term
debt
|
|
|
88,180
|
|
|
|
77,890
|
|
|
|
72,753
|
|
Repayments of long-term debt
|
|
|
(100,840
|
)
|
|
|
(69,520
|
)
|
|
|
(57,743
|
)
|
Other financing activities
|
|
|
2,259
|
|
|
|
6,168
|
|
|
|
4,723
|
|
Dividends paid
|
|
|
(4,755
|
)
|
|
|
(2,500
|
)
|
|
|
(1,500
|
)
|
Proceeds from issuance of preferred
interests
|
|
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities
|
|
|
(10,591
|
)
|
|
|
2,068
|
|
|
|
22,356
|
|
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
152
|
|
|
|
(45
|
)
|
|
|
295
|
|
|
|
Net (decrease) increase in cash and
cash equivalents
|
|
|
(336
|
)
|
|
|
(6,923
|
)
|
|
|
4,742
|
|
Cash and cash equivalents at
beginning of year (d)
|
|
|
15,795
|
|
|
|
22,718
|
|
|
|
17,976
|
|
|
|
Cash and cash equivalents at end of
year (b)
|
|
|
$15,459
|
|
|
|
$15,795
|
|
|
|
$22,718
|
|
|
|
Supplemental
disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
$15,889
|
|
|
|
$13,025
|
|
|
|
$8,887
|
|
Income taxes
|
|
|
1,087
|
|
|
|
1,339
|
|
|
|
2,003
|
|
Non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables and loans held
for sale (c)
|
|
|
|
|
|
|
|
|
|
|
6,849
|
|
(Decrease) increase in
equity (d)
|
|
|
|
|
|
|
(195
|
)
|
|
|
119
|
|
Loans held for sale transferred to
finance receivables and loans
|
|
|
14,549
|
|
|
|
20,084
|
|
|
|
4,332
|
|
Finance receivables and loans
transferred to loans held for sale
|
|
|
3,889
|
|
|
|
3,904
|
|
|
|
3,506
|
|
Finance receivables and loans
transferred to other assets
|
|
|
1,771
|
|
|
|
1,017
|
|
|
|
388
|
|
Transfer of investment securities
classified as trading to investment securities classified as
available for sale
|
|
|
|
|
|
|
257
|
|
|
|
561
|
|
Various assets and liabilities
acquired through consolidation of variable interest entities
|
|
|
|
|
|
|
325
|
|
|
|
|
|
Available for sale securities
transferred to trading securities
|
|
|
927
|
|
|
|
|
|
|
|
|
|
Capital contributions from GM
relating to GMAC sale (e)
|
|
|
951
|
|
|
|
|
|
|
|
|
|
Non cash dividends paid to GM
relating to GMAC sale (e)
|
|
|
4,984
|
|
|
|
|
|
|
|
|
|
Proceeds from sales and repayments
of mortgage loans held for investment originally designated as
held for sale
|
|
|
7,562
|
|
|
|
2,063
|
|
|
|
1,550
|
|
|
|
|
(a)
|
Includes origination of mortgage
servicing rights of $1,732, $1,272 and $1,228 for 2006, 2005 and
2004, respectively.
|
(b)
|
2005 includes $371 of cash and cash
equivalents classified as assets held for sale. Refer to
Note 1 to our Consolidated Financial Statements.
|
(c)
|
Represents the consolidation of
certain assets related to an accounting change under
SFAS 140 in 2004.
|
(d)
|
For 2005 represents the repurchase
of operating lease assets and related deferred tax liabilities
from GM. For 2004 represents the consolidation of Banco GM under
FIN 46R beginning January 1, 2004; in the fourth
quarter, we purchased Banco GM.
|
(e)
|
As further described in
Note 18 to our Consolidated Financial Statements.
|
The Notes to the Consolidated
Financial Statements are an integral part of these statements.
72
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
1 Description
of Business and Significant Accounting Policies
GMAC LLC (referred to herein as GMAC, we, our or us) was founded
in 1919 as a wholly owned subsidiary of General Motors
Corporation (General Motors or GM). On November 30, 2006,
GM sold a 51% interest in us for approximately $7.4 billion
(the Sale Transactions) to FIM Holdings LLC (FIM Holdings). FIM
Holdings is an investment consortium led by Cerberus FIM
Investors, LLC, the sole managing member, Citigroup Inc., Aozora
Bank Ltd., and a subsidiary of The PNC Financial Services Group,
Inc.
Prior to consummation of the Sale Transactions, (i) GMAC
distributed to GM certain assets with respect to automotive
leases owned by GMAC and its affiliates, such assets having a
net book value of approximately $4.0 billion and related
deferred tax liabilities of $1.8 billion, (ii) GM
assumed or retained certain of GMACs post-employment
welfare benefits, (iii) GMAC transferred to GM certain
entities that hold a fee interest in certain real properties,
(iv) GMAC made distributions to GM for a portion of
GMACs net income from September 30, 2005, to the date
of consummation of the Sale Transactions, (v) GM and its
subsidiaries repaid certain indebtedness owing to GMAC such that
the specified unsecured obligations owing to GMAC and its
subsidiaries from GM and its U.S. subsidiaries are no
greater than $1.5 billion and (vi) GMAC made a
one-time distribution to GM of approximately $2.7 billion
of cash primarily to reflect the increase in GMACs equity
resulting from the elimination of a portion of its net deferred
tax liabilities arising from the conversion of GMAC and certain
of its subsidiaries to limited liability form.
Restatement of
Previously Issued Consolidated Financial Statements
As discussed in Note 24 to the Consolidated Financial
Statements, we are restating our historical Consolidated Balance
Sheet as of December 31, 2005 and Consolidated Statements
of Income, Changes in Equity and Cash Flows for the two years
then ended. This restatement relates to the accounting treatment
for certain hedging transactions under Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended and
interpreted (SFAS 133). We are also correcting certain
other
out-of-period
errors, which were deemed immaterial, individually and in the
aggregate, in the years in which they were originally recorded
and identified. These items relate to transactions involving
certain transfers of financial assets, valuations of certain
financial instruments, amortization of unearned income on
certain products, income taxes and other inconsequential items.
Because of this derivative restatement, we are correcting these
amounts to record them in the proper period.
The following table sets forth a reconciliation of previously
reported and restated net income for the annual periods shown.
The restatement increased January 1, 2004 retained earnings
to $14,114 million from $14,078 million. The increase
of $36 million was comprised of a $55 million increase
related to the elimination of hedge accounting related to
certain debt instruments and a decrease of $16 related to other
immaterial items.
|
|
|
|
|
|
|
|
|
|
|
Net income for the
year ended December 31,
|
|
($
in millions)
|
|
2005
|
|
|
2004
|
|
|
|
Previously reported net income
|
|
$
|
2,394
|
|
|
$
|
2,913
|
|
Elimination of hedge accounting
related to certain debt instruments
|
|
|
(256
|
)
|
|
|
(143
|
)
|
Other, net
|
|
|
136
|
|
|
|
52
|
|
|
|
Total pre-tax adjustments
|
|
|
(120
|
)
|
|
|
(91
|
)
|
Related income tax effects
|
|
|
8
|
|
|
|
72
|
|
|
|
Restated net income
|
|
$
|
2,282
|
|
|
$
|
2,894
|
|
|
|
% change
|
|
|
(4.7
|
)
|
|
|
(0.7
|
)
|
|
|
Consolidation and
Basis of Presentation
The consolidated financial statements include our accounts and
accounts of our majority-owned subsidiaries after eliminating
all significant intercompany balances and transactions, and
includes all variable interest entities in which we are the
primary beneficiary. Refer to Note 21 to our Consolidated
Financial Statements for further details on our variable
interest entities. Our accounting and reporting policies conform
to accounting principles generally accepted in the United States
of America (GAAP). Certain amounts in prior periods have been
reclassified to conform to the current periods
presentation.
We operate our international subsidiaries in a similar manner as
in the United States of America (U.S. or United States),
subject to local laws or other circumstances that may cause us
to modify our procedures accordingly. The financial statements
of subsidiaries which operate outside of the U.S. generally
are measured using the local currency as the functional
currency. All assets and liabilities of foreign subsidiaries are
translated into U.S. dollars at year-end
73
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
exchange rates. Income and expense items are translated at
average exchange rates prevailing during the reporting period.
The resulting translation adjustments are recorded as
accumulated other comprehensive income, a component of equity.
Use of Estimates
and Assumptions
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the financial statements and income and expenses during
the reporting period. In developing the estimates and
assumptions, management uses all available evidence. However,
because of uncertainties associated with estimating the amounts,
timing, and likelihood of possible outcomes, actual results
could differ from estimates.
Cash
Equivalents
Cash equivalents are generally defined as short-term, highly
liquid investments with original maturities of 90 days or
less and include investments. The balance of cash equivalents
was $13.4 billion and $13.8 billion at
December 31, 2006 and 2005, respectively. The book value of
cash equivalents approximates fair value because of the short
maturities of these instruments. Certain securities with
original maturities less than 90 days that are held as a
portion of longer term investment portfolios, primarily relating
to GMAC Insurance Holdings, Inc., are classified as investment
securities.
Investment
Securities
Our portfolio of investment securities includes bonds, equity
securities, asset- and mortgage-backed securities, notes,
interests in securitization trusts and other investments.
Investment securities are classified based on managements
intent. Our trading securities primarily consist of retained and
purchased interests in certain securitizations. The retained
interests are carried at fair value with changes in fair value
recorded in current period earnings. Debt securities which
management has the intent and ability to hold to maturity are
classified as held to maturity and reported at amortized cost as
of the trade date. Premiums and discounts on debt securities are
amortized as an adjustment to yield over the contractual term of
the security. All other investment securities are classified as
available for sale and carried at fair value as of the trade
date, with unrealized gains and losses (excluding other than
temporary impairments) included in accumulated other
comprehensive income, a component of equity, on an after-tax
basis. Investments classified as available for sale or held to
maturity are considered to be impaired when a decline in fair
value is judged to be other than temporary. We employ a
systematic methodology that considers available evidence in
evaluating potential impairment of our investments. In the event
that the cost of an investment exceeds its fair value, we
evaluate, among other factors, the magnitude and duration of the
decline in fair value. For equity and debt securities, we also
evaluate the financial health of and business outlook for the
issuer, the performance of the underlying assets for interests
in securitized assets and our intent and ability to hold the
investment. Once a decline in fair value is determined to be
other than temporary, a new cost basis in the investment is
established. Realized gains and losses on investment securities
are reported in investment income and are determined using the
specific identification method.
In the normal course of business, we enter into securities
lending agreements with various other counterparties. Under
these agreements, we lend the rights to designated securities we
own in exchange for collateral in the form of cash or
governmental securities, approximating 102% (domestic) or 105%
(foreign) of the value of the securities loaned. These
agreements are primarily overnight in nature and settle the next
business day. At December 31, 2006, we had loaned
securities of $439 million and had received corresponding
cash collateral of $445 million for such loans. We had no
such securities on loan at December 31, 2005.
Loans Held for
Sale
Loans held for sale may include automotive, commercial finance
and residential receivables and loans and are carried at the
lower of aggregate cost or estimated fair value, or, if such
loans are part of hedge accounting relationships pursuant to
SFAS 133, they are reported at fair value. Fair value is
based on contractually established commitments from investors or
is based on current investor yield requirements. Revenue
recognition on consumer automotive finance receivables is
suspended when finance receivables and loans are placed on
nonaccrual status. Retail automotive receivables held for sale
are placed on nonaccrual status when contractually delinquent
for 120 days.
Assets Held for
Sale
On August 3, 2005, we announced that we had entered into a
definitive agreement to sell a majority equity interest in
Capmark. As a result of this previous definitive agreement, the
assets and liabilities of Capmark were classified as held for
sale separately in our Consolidated Balance Sheet at
December 31, 2005. On March 23, 2006, we completed the
sale of approximately 79% of our equity in Capmark.
Finance
Receivables and Loans
Finance receivables and loans are reported at the principal
amount outstanding, net of unearned income. Unearned income,
which includes deferred origination fees reduced by origination
costs and unearned rate support received from GM, is amortized
over the contractual life of the related finance receivable or
loan using the interest method. Loan commitment fees are
generally deferred and amortized into commercial revenue over
the commitment period.
Acquired
Loans
We acquire certain loans individually and in groups or
portfolios, which have experienced deterioration of credit
quality between origination and our acquisition. The amount paid
for these loans reflects our determination that it is probable
that we will be unable to collect all amounts due according to
the loans contractual terms. These acquired loans are
accounted for under American Institute of
74
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
Certified Public Accountants Statement of
Position 03-3,
Accounting for Certain Loans or Debt Securities Acquired in a
Transfer
(SOP 03-3).
We recognize the accretable yield to the excess of our estimate
of undiscounted expected principal, interest and other cash
flows (expected at acquisition to be collected) over our initial
investment in the acquired asset.
Over the life of the loan or pool, we update the estimated cash
flows we expect to collect. At each balance sheet date, we
evaluate whether the expected cash flows of these loans has
changed. We adjust the amount of accretable yield for any loans
or pools where there is an increase in expected cash flows. We
record a valuation allowance for any loans or pools for which
there is a decrease in expected cash flows. In accordance with
Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan
(SFAS 114), we measure such impairments based upon the
present value of the expected future cash flows discounted using
the loans effective interest rate or, as a practical
expedient when reliable information is available, through the
fair value of the collateral less expected costs to sell. The
present value of any subsequent increase in the loans or
pools actual cash flows or cash flows expected to be
collected is used first to reverse any existing valuation
allowance for that loan or pool.
Nonaccrual
Loans
Consumer and commercial revenue recognition is suspended when
finance receivables and loans are placed on nonaccrual status.
Prime retail automotive receivables are placed on nonaccrual
status when delinquent for 120 days. Nonprime retail
automotive receivables are placed on nonaccrual status when
delinquent for 60 days. Residential mortgages and
commercial real estate loans are placed on nonaccrual status
when delinquent for 60 days. Warehouse, construction, and
other lending receivables are placed on nonaccrual status when
delinquent for 90 days. Revenue accrued but not collected
at the date finance receivables and loans are placed on
nonaccrual status is reversed and subsequently recognized only
to the extent it is received in cash. Finance receivables and
loans are restored to accrual status only when contractually
current and the collection of future payments is reasonably
assured.
Impaired
Loans
Commercial loans are considered impaired when it is probable
that we will be unable to collect all amounts due according to
the terms of the loan agreement and the recorded investment in
the loan exceeds the fair value of the underlying collateral. We
recognize income on impaired loans as discussed previously for
nonaccrual loans. If the recorded investment in impaired loans
exceeds the fair value, a valuation allowance is established as
a component of the allowance for credit losses. In addition to
commercial loans specifically identified for impairment, we have
pools of loans that are collectively evaluated for impairment,
as discussed within the allowance for credit losses accounting
policy.
Allowance for
Credit Losses
The allowance for credit losses is managements estimate of
incurred losses in the lending portfolios. Portions of the
allowance for credit losses are specified to cover the estimated
losses on commercial loans specifically identified for
impairment. The unspecified portion of the allowance for credit
losses covers estimated losses on the homogeneous portfolios of
finance receivables and loans collectively evaluated for
impairment. Amounts determined to be uncollectible are charged
against the allowance for credit losses. Additionally, losses
arising from the sale of repossessed assets collateralizing
automotive finance receivables and loans are charged to the
allowance for credit losses. Recoveries of previously
charged-off amounts are credited at time of collection.
We perform periodic and systematic detailed reviews of our
lending portfolios to identify inherent risks and to assess the
overall collectibility of those portfolios. The allowance
relates to portfolios collectively reviewed for impairment,
generally consumer finance receivables and loans, and is based
on aggregated portfolio evaluations by product type. Loss models
are utilized for these portfolios which consider a variety of
factors including, but not limited to, historical loss
experience, current economic conditions, anticipated
repossessions or foreclosures based on portfolio trends,
delinquencies and credit scores, and expected loss factors by
receivable and loan type. Loans in the commercial portfolios are
generally reviewed on an individual loan basis and, if
necessary, an allowance is established for individual loan
impairment. Loans subject to individual reviews are analyzed
based on factors including, but not limited to, historical loss
experience, current economic conditions, collateral performance,
performance trends within specific geographic and portfolio
segments, and any other pertinent information, which result in
the estimation of specific allowances for credit losses. The
allowance related to specifically identified impaired loans is
established based on discounted expected cash flows, observable
market prices, or for loans that are solely dependent on the
collateral for repayment, the fair value of the collateral. The
evaluation of these factors for both consumer and commercial
finance receivables and loans involves complex, subjective
judgments.
Securitizations
and Other Off-balance Sheet Transactions
We securitize, sell and service retail finance receivables,
operating leases, wholesale loans, securities, and residential
loans. Interests in the securitized and sold loans are generally
retained in the form of interest-only strips, senior or
subordinated interests, cash reserve accounts and servicing
rights. Our retained interests are generally subordinate to
investors interests. The investors and the securitization
trusts generally have no recourse to our other assets for
failure of debtors to pay when due.
We retain servicing responsibilities for all of our retail
finance receivable, operating lease, and wholesale loan
securitizations and for the majority of our residential loan
securitizations. We may
75
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
receive servicing fees based on the securitized loan balances
and certain ancillary fees, all of which are recorded in
servicing fees income. We also retain the right to service the
residential loans sold as a result of mortgage-backed security
transactions with Ginnie Mae, Fannie Mae, and Freddie Mac. We
also serve as the collateral manager in the securitizations of
commercial investment securities.
Gains or losses on securitizations and sales depend on the
previous carrying amount of the assets involved in the transfer
and are allocated between the assets sold and the retained
interests based on relative fair values, except for certain
servicing assets or liabilities which are initially recorded at
fair value, at the date of sale. Since quoted market prices are
generally not available, we estimate the fair value of retained
interests by determining the present value of future expected
cash flows using modeling techniques that incorporate
managements best estimates of key variables, including
credit losses, prepayment speeds, weighted average life and
discount rates commensurate with the risks involved and, if
applicable, interest or finance rates on variable and adjustable
rate contracts. Credit loss assumptions are based upon
historical experience, market information for similar
investments, and the characteristics of individual receivables
and loans underlying the securities. Prepayment speed estimates
are determined utilizing data obtained from market participants,
where available, or based on historical prepayment rates on
similar assets. 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 using market-based yield curves. Gains
on securitizations and sales are reported in gain on sale of
mortgage and automotive loans for retail finance receivables,
wholesale loans and residential loans. Retained interests are
recorded at fair value with any declines in fair value below the
carrying amount reflected in other comprehensive income, a
component of equity, or in earnings, if declines are determined
to be other than temporary or if the interests are classified as
trading. Retained interest-only strips and senior and
subordinated interests are generally included in available for
sale investment securities, or in trading investment securities,
depending on managements intent at the time of
securitization. Retained cash reserve accounts are included in
other assets.
Investment in
Operating Leases
Investment in operating leases is reported at cost, less
accumulated depreciation and net of origination fees or costs.
Income from operating lease assets, which includes lease
origination fees net of lease origination costs, is recognized
as operating lease revenue on a straight-line basis over the
scheduled lease term. Depreciation of vehicles is generally
provided on a straight-line basis to an estimated residual value
over a period of time, consistent with the term of the
underlying operating lease agreement. We evaluate our
depreciation policy for leased vehicles on a regular basis.
We have significant investments in the residual values of assets
in our operating lease portfolio. 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 residual values
established at contract inception by consulting independently
published residual value guides. Realization of the residual
values is dependent on our future ability to market the vehicles
under the prevailing market conditions. Over the life of the
lease, we evaluate the adequacy of our estimate of the residual
value and may make adjustments to the depreciation rates to the
extent the expected value of the vehicle (including any residual
support payments from GM) at lease termination changes. In
addition to estimating the residual value at lease termination,
we also evaluate the current value of the operating lease asset
and test for impairment to the extent necessary based on market
considerations and portfolio characteristics. Other than
temporary impairment is determined to exist if the undiscounted
expected future cash flows are lower than the carrying value of
the asset. When a lease vehicle is returned to us, the asset is
reclassified from investment in operating leases to other assets
at the lower of cost or estimated fair value, less costs to sell.
Mortgage
Servicing Rights
Primary servicing involves the collection of payments from
individual borrowers and the distribution of these payments to
the investors. Master servicing rights represent our right to
service mortgage and asset-backed securities and whole loan
packages issued for investors. Master servicing involves the
collection of borrower payments from primary servicers and the
distribution of those funds to investors in mortgage and
asset-backed securities and whole loan packages.
We capitalize the value expected to be realized from performing
specified mortgage servicing activities for others as mortgage
servicing rights (MSRs). Such capitalized servicing rights are
purchased or retained upon sale or securitization of mortgages.
Prior to January 1, 2006, mortgage servicing rights were
recorded on both securitizations that were accounted for as
sales, as well as those accounted for as secured financings.
Effective January 1, 2006, with the adoption of
SFAS 156, mortgage servicing rights are not recorded on
securitizations accounted for as secured financings. The total
cost of the mortgage loans, which includes the cost to acquire
the mortgage servicing rights, is allocated to the mortgage
loans, the servicing rights and other retained assets based on
their relative fair values. We measure mortgage servicing assets
and liabilities at fair value.
We define our classes of servicing rights based on both the
availability of market inputs and the manner in which we manage
the risks of our servicing assets and liabilities. We manage our
servicing rights at the reportable operating segment level where
sufficient market inputs exist to determine the fair value of
our recognized servicing assets and liabilities.
Since quoted market prices for MSRs are not available, we
estimate the fair value of MSRs by determining the present value
of future expected cash flows using modeling techniques that
incorporate
76
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
managements best estimates of key variables, including
expected cash flows, credit losses, prepayment speeds and return
requirements commensurate with the risks involved. Cash flow
assumptions are based on our actual performance, and where
possible, the reasonableness of assumptions is periodically
validated through comparisons to other market participants.
Credit loss assumptions are based upon historical experience and
the characteristics of individual loans underlying the MSRs.
Prepayment speed estimates are determined from historical
prepayment rates on similar assets or obtained from third-party
data. Return requirement assumptions are determined using data
obtained from market participants, where available, or based on
current relevant interest rates plus a risk-adjusted spread.
Since many factors can affect the estimate of the fair value of
mortgage servicing rights, we regularly evaluate the major
assumptions and modeling techniques used in our estimate and
review such assumptions against market comparables, if available.
We monitor the actual performance of our MSRs by regularly
comparing actual cash flow, credit and prepayment experience to
modeled estimates. We periodically invest in trading and
available for sale securities and derivative financial
instruments to mitigate the effect of changes in fair value from
the interest rate risk inherent in the MSRs.
Reinsurance
We assume and cede insurance risk under various reinsurance
agreements. We seek to reduce the loss that may arise from
catastrophes or other events that cause unfavorable underwriting
results by reinsuring certain levels of risk with other
insurance enterprises. We remain liable with respect to any
reinsurance ceded if the assuming companies are unable to meet
their obligations under these reinsurance agreements. We also
assume insurance risks from other insurance companies, receiving
a premium as consideration for the risk assumption. Amounts
recoverable from reinsurers on paid losses and loss adjustment
expenses are included in premiums and other insurance
receivables. Amounts recoverable from reinsurers on unpaid
losses, including incurred but not reported losses and loss
adjustment expenses, pursuant to reinsurance contracts are
estimated and reported with premiums and other insurance
receivables. Amounts paid to reinsurers relating to the
unexpired portion of reinsurance contracts are reported as
prepaid reinsurance premiums within premiums and other insurance
receivables.
Repossessed and
Foreclosed Assets
Assets are classified as repossessed and foreclosed and included
in other assets when physical possession of the collateral is
taken, regardless of whether foreclosure proceedings have taken
place. Repossessed and foreclosed assets are carried at the
lower of the outstanding balance at the time of repossession or
foreclosure, or fair value of the asset less estimated costs to
sell. Losses on the revaluation of repossessed and foreclosed
assets are charged to the allowance for credit losses at the
time of repossession. Subsequent holding period losses and
losses arising from the sale of repossessed assets
collateralizing automotive finance receivables and loans are
expensed as incurred in other operating expenses.
Goodwill and
Other Intangibles
Goodwill and other intangible assets, net of accumulated
amortization, are reported in other assets. In accordance with
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (SFAS 142),
goodwill represents the excess of the cost of an acquisition
over the fair value of net assets acquired. Goodwill is reviewed
for impairment utilizing a two step process. The first step of
the impairment test requires us to define the reporting units,
which for us represents the operating segments as disclosed in
Note 22 and compare the fair value of each of these
reporting units to the respective carrying value. The fair value
of the reporting units is determined based on various analyses,
including discounted cash flow projections. If the carrying
value is less than the fair value, no impairment exists and the
second step does not need to be completed. If the carrying value
is higher than the fair value, there is an indication that
impairment may exist and a second step must be performed to
compute the amount of the impairment. SFAS 142 requires
goodwill to be tested for impairment annually at the same time
every year, and when an event occurs or circumstances change
such that it is reasonably possible that an impairment may
exist. We conclude on our annual impairment test in the fourth
quarter.
Other intangible assets, which include customer lists,
trademarks and other identifiable intangible assets, are
amortized on a straight-line basis over an estimated useful life
of 3 to 15 years.
Impairment of
Long Lived Assets
The carrying value of long-lived assets (including premises and
equipment and investment in operating leases as well as certain
identifiable intangibles) are evaluated for impairment whenever
events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable from the estimated
undiscounted future cash flows expected to result from its use
and eventual disposition. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of
an asset to future net undiscounted cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment is measured as the amount by which the
carrying amount of the assets exceeds the fair value as
estimated by discounted cash flows. No material impairment was
recognized.
Premises and
Equipment
Premises and equipment, stated at cost net of accumulated
depreciation and amortization, are reported in other assets.
Included in premises and equipment are certain capitalized
software costs. 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
development costs significantly exceed
77
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
the amount originally expected is considered impaired and
written down to fair value.
Deferred Policy
Acquisition Costs
Commissions and other costs of acquiring insurance, and
compensation paid to producers of extended service contracts
that are primarily related to and vary with the production of
business are deferred and recorded in other assets. These costs
are subsequently amortized over the terms of the related
policies and service contracts on the same basis as premiums and
revenue are earned, except for direct response advertising costs
which are amortized over a three year period, based on the
anticipated future benefit.
Unearned
Insurance Premiums and Service Revenue
Insurance premiums, net of premiums ceded to reinsurers, and
service revenue are earned over the terms of the policies. The
portion of premiums and service revenue written applicable to
the unexpired terms of the policies is recorded as unearned
insurance premiums or unearned service revenue. For short
duration contracts, premiums and unearned service revenue are
earned on a pro rata basis. For extended service and maintenance
contracts, premiums and service revenues are earned on a basis
proportionate to the anticipated loss emergence.
Reserves for
Insurance Losses and Loss
Adjustment Expenses
Reserves for insurance losses and loss adjustment expenses are
established for the unpaid cost of insured events that have
occurred as of a point in time. More specifically, the reserves
for insurance losses and loss adjustment expenses represent the
accumulation of estimates for reported losses and a provision
for losses incurred but not reported, including claims
adjustment expenses, relating to direct insurance and assumed
reinsurance agreements. Estimates for salvage and subrogation
recoverable are recognized at the time losses are incurred and
netted against insurance losses and loss adjustment expenses.
Reserves are established for each business at the lowest
meaningful level of homogeneous data based on actuarial analysis
and volatility considerations. Since the reserves are based on
estimates, the ultimate liability may be more or less than such
reserves. Adjustments in such estimated reserves are included in
the period in which the adjustments are considered necessary.
Such adjustments may occur in future periods and could have a
material impact on our consolidated financial position, results
of operations or cash flows.
Derivative
Instruments and Hedging Activities
In accordance with SFAS 133, all derivative financial
instruments, whether designated for hedging relationships or
not, are required to be recorded on the balance sheet as assets
or liabilities, carried at fair value and periodically adjusted.
At inception of a hedging relationship, we designate each
qualifying derivative financial instrument as a hedge of the
fair value of a specifically identified asset or liability (fair
value hedge) or as a hedge of the variability of cash flows to
be received or paid related to a recognized asset or liability
(cash flow hedge). We also use derivative financial instruments
which, although acquired for risk management purposes, do not
qualify as hedges under GAAP. Changes in the fair value of
derivative financial instruments that are designated and qualify
as fair value hedges, along with the gain or loss on the hedged
asset or liability attributable to the hedged risk, are recorded
in current period earnings. For qualifying cash flow hedges, the
effective portion of the change in the fair value of the
derivative financial instruments is recorded in other
comprehensive income, a component of equity, and recognized in
the income statement when the hedged cash flows affect earnings.
Changes in the fair value of derivative financial instruments
held for risk management purposes that do not meet the criteria
to qualify as hedges under GAAP are reported in current period
earnings. The ineffective portions of fair value and cash flow
hedges are immediately recognized in earnings. The hedge
accounting treatment described herein is no longer applied if a
derivative financial instrument is terminated or the hedge
designation is removed. For these terminated fair value hedges,
any changes to the hedged asset or liability remain as part of
the basis of the asset or liability and are recognized into
income over the remaining life of the asset or liability. For
terminated cash flow hedges, unless it is probable that the
forecasted cash flows will not occur within a specified time
frame, any changes in fair value of the derivative financial
instrument remain in other comprehensive income, a component of
equity, and are reclassified into earnings in the same period
during which the cash flows affect earnings.
Loan Commitments
We enter into commitments to make loans whereby the interest
rate on the loan is set prior to funding (i.e., interest rate
lock commitments). Interest rate lock commitments for loans to
be originated or purchased for sale, and for loans to be
purchased and held for investment (including commitments to
acquire senior interests in mortgage loan pools from off-balance
sheet facilities), are derivative financial instruments carried
at fair value in accordance with SFAS 133 and Staff
Accounting Bulletin No. 105, Application of
Accounting Principles to Loan Commitments
(SAB 105). SAB 105 provides specific guidance on
the measurement of loan commitments, specifying that fair value
measurement exclude any expected future cash flows related to
the customer relationship or loan servicing. Servicing assets
are recognized once they are contractually separated from the
underlying loan by sale or securitization.
Income
Taxes
Prior to November 30, 2006, we filed a consolidated
U.S. federal income tax return with GM. The portion of the
consolidated tax recorded by us and our subsidiaries included in
the consolidated tax return generally is equivalent to the
liability that we would have incurred on a separate return basis
and is settled as GMs tax payments are due.
78
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
During 2006, we and a number of our U.S. subsidiaries
converted to limited liability companies (LLCs) and effective
November 28, 2006, became disregarded or pass-through
entities for U.S. federal income tax purposes. Income taxes
incurred by these converting entities have been provided through
November 30, 2006 as required under the tax sharing
agreement between GM and GMAC. Subsequent to November 30,
2006, income taxes have not been provided for these entities as
they have ceased to be taxable entities. Taxation for these
entities is generally levied at each members level for
their allocable share of taxable income. Where entity level tax
applies, it has been provided for in the consolidated financial
statements. Any related deferred taxes have been eliminated with
respect to entities that have ceased to be taxable enterprises.
Our banking, insurance and foreign subsidiaries are generally
corporations and continue to be subject to and provide for
U.S. federal, state, and foreign income taxes. Deferred tax
assets and liabilities are established for future tax
consequences of events that have been recognized in the
financial statements or tax returns, based upon enacted tax laws
and rates. Deferred tax assets are recognized subject to
managements judgment that realization is more likely than
not. We also establish reserves related to disputed items with
various tax authorities when an unfavorable judgment against us
becomes probable and the costs can be reasonably estimated.
Preferred
Membership Interest
We issued 2,110,000 Preferred Membership Interests (Preferred
Interests) each with a face value of $1,000 in November 2006. GM
and FIM Holdings purchased 1,555,000 and 555,000 Preferred
Interests, respectively, at a 10% discount, for total cash
proceeds of $1.9 billion. Preferred Interests are
non-voting, can not be converted into any additional membership
interest in us, and have a 3% redemption premium if redeemed
within the first five years after issuance. In accordance with
Emerging Issues Task Force Topic
No. D-98,
Classification and Measurement of Redeemable Securities,
the Preferred Interests have been recorded as mezzanine equity
at their redemption value, as they are redeemable at the option
of the holder, and are revalued to redemption value at each
balance sheet date. The accretion to redemption value and
dividends on the Preferred Interests were recorded as an
adjustment to retained earnings.
Membership
Interest
We currently have three additional classes of Membership
Interests, consisting of 51,000 Class A Membership
Interests, 49,000 Class B Membership Interests and 5,820
Class C Membership Interests. All Class A and
Class B Membership Interests are issued and outstanding at
December 31, 2006, and have equal rights and preferences in
the assets of GMAC. FIM Holdings owns all 51,000 Class A
Interests (a 51% ownership interest in us) and GM, through a
wholly-owned subsidiary, owns all 49,000 Class B Interests
(a 49% ownership interest in us). There were 3,703 Class C
Membership Interests authorized, at December 31, 2006,
which are considered profit interests and not
capital interests as defined in Revenue Procedure
93-27,
1993-2 C.B.
343. These Class C Membership Interests may be issued from
time to time pursuant to the GMAC Management LLC Class C
Membership Interest Plan. Each outstanding class of membership
interest is classified as equity in our consolidated financial
statements. Any additional membership interests must be approved
by the Board of Managers (Board). There is no established
trading market for our Common Equity interests, Preferred
Membership Interest or Class C Membership Interests. At
December 31, 2006, there were no Class C Membership
Interests granted.
Membership
Interest Distributions
We are required to make certain distributions to holders of the
Preferred Interests (preferred holders). Distributions will be
made in cash on a pro rata basis within ten business days of
delivering the GMAC financial statements to the members.
Distributions are issued in units of $1,000 and will accrue
yield during each fiscal quarter at a rate of 10% per
annum. Our Board may reduce any distribution to the extent
required to avoid a reduction of the equity capital of GMAC
below a minimum amount of equity capital equal to the net book
value of GMAC as of November 30, 2006 (determined in
accordance with GAAP).
In addition, our Board may suspend the payment distributions
with respect to any one or more fiscal quarters with majority
members consent. If distributions are not made with
respect to any fiscal quarter, the distributions will be
non-cumulative and will be reduced to zero. If the accrued yield
of GMACs preferred interests for any fiscal quarter is
fully paid to the preferred members, then the excess of the net
financial book income of GMAC in any fiscal quarter over the
amount of yield distributed to the holders of our preferred
equity interests in such fiscal quarter, will be distributed to
the holders of our common membership interests (Class A and
Class B Membership Interests) as follows: at least 40% of
the excess will be paid for fiscal quarters ending prior to
December 31, 2008 and at least 70% of the excess will
be paid for fiscal quarters ending after December 31, 2008.
In this event, distribution priorities are to common membership
interest holders first, up to the agreed upon amounts, and then
ratably to Class A, Class B and Class C
Membership Interest holders based on the total interest of each
such holder.
In the event of sale or dissolution of GMAC, cash proceeds
available for distribution to the members shall be distributed
first to the Preferred Interest holders ratably for the amount
of preferred accrued dividends. Thereafter, distributions shall
be made to the Preferred Interest holders ratably for the amount
of aggregate unreturned preferred capital amounts, until the
unreturned preferred capital amounts are fully paid. Following
these dividends to preferred holders, distributions shall be
made to the holder of our common equity interest ratably until
such holders have received a return of their agreed initial
value. Finally, remaining distributions shall be made to
Class A, Class B and Class C Membership Interest
holders based on the total interest of each such holder.
79
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
Share-based
Incentive Plans
During the 2006 year, the Compensation Committee of the
Board approved two share-based compensation plans for senior and
executive-level employees a Long-term Phantom
Incentive Plan (LTIP) and a Management Profits Interest Plan
(MPI). The LTIP provides for a cash bonus paid after a
three-year performance period based on our performance. The MPI
provides for an equity interest in a management company that
holds our Class C Membership Interests. There were no
grants under either plan in 2006.
Change in
Accounting Principle
On January 1, 2006, we adopted Statement of Financial
Accounting Standards No. 156, Accounting for Servicing
of Financial Assets (SFAS 156) that:
(1) provides revised guidance on when a servicing asset and
servicing liability should be recognized; (2) requires all
separately recognized servicing assets and liabilities to be
initially measured at fair value, if practicable;
(3) permits an entity to elect to measure servicing assets
and liabilities at fair value each reporting date and report
changes in fair value in earnings in the period in which the
changes occur; (4) upon initial adoption, permits a one
time reclassification of
available-for-sale
securities to trading securities for securities, which are
identified as offsetting an entitys exposure to changes in
the fair value of servicing assets or liabilities that a
servicer elects to subsequently measure at fair value and
(5) requires separate presentation of servicing assets and
liabilities subsequently measured at fair value in the balance
sheet and additional disclosures. We elected to subsequently
measure the majority of servicing assets and liabilities at fair
value and report changes in fair value in earnings in the period
in which the changes occur. In addition, we made a one-time
reclassification of $927 million of available for sale
securities to trading securities for those securities identified
as offsetting our exposure to changes in the fair value of
servicing assets or liabilities. The adoption of
SFAS No. 156 resulted in a $13 million reduction
in the beginning of the year retained earnings, net of tax, as a
cumulative effect of a change in accounting principle. However,
the impact to total equity was a $4 million increase, net
of tax.
We define our classes of servicing rights based on both the
availability of market inputs and the manner in which we manage
the risks of our servicing assets and liabilities. We manage our
servicing rights at the reportable operating segment level. For
all servicing assets and liabilities recorded on our
consolidated balance sheet at January 1, 2006, the date of
adoption, we identified three classes of servicing rights, those
pertaining to: residential mortgage in our Residential Capital,
LLC (ResCap), reporting segment, auto finance in our North
American Operations reporting segment and commercial mortgages.
As a result of the sale of approximately 79% of Capmark on
March 23, 2006, the commercial mortgage servicing
rights are no longer recorded on our consolidated balance sheet
at December 31, 2006. We have elected to measure our
residential mortgage servicing rights at fair value for each
reporting date and report changes in fair value in earnings
during the period in which the changes occur. At
December 31, 2006 and 2005, these mortgage servicing rights
were valued at $4.9 billion and $4.0 billion,
respectively, on our Consolidated Balance Sheet.
For auto finance servicing assets we have elected to continue to
use the amortization method of accounting. Our auto finance
servicing assets and liabilities at December 31, 2006,
totaled $9 million and $18 million, respectively, and
are recorded in other assets and other liabilities,
respectively, on our Consolidated Balance Sheet.
Recently Issued
Accounting Standards
Statement of Position
05-1
In September 2005 the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position
05-1,
Accounting by Insurance Enterprises for Deferred Acquisition
Costs in Connection with Modifications or Exchanges of Insurance
Contracts
(SOP 05-1).
SOP 05-1
provides guidance on accounting for deferred acquisition costs
on internal replacements of insurance contracts.
SOP 05-1
defines an internal replacement and specifies the conditions
that determine whether the replacement contract is substantially
or unsubstantially changed from the replaced contract. An
internal replacement determined to result in a substantially
changed contract should be accounted for as an extinguishment of
the replaced contract; unamortized deferred acquisition costs
and unearned revenue liabilities of the replaced contract should
no longer be deferred. An internal replacement determined to
result in an unsubstantially changed contract should be
accounted for as a continuation of the replaced asset.
SOP 05-01
introduces the terms integrated and non-integrated contract
features and specifies that non-integrated features do not
change the base contract and are to be accounted for in a manner
similar to a separately issued contract. Integrated features are
evaluated in conjunction with the base contract.
SOP 05-1
is effective for internal replacements occurring in fiscal years
beginning after December 15, 2006. Adoption of
SOP 05-1
is not expected to have a material impact on our consolidated
financial position or results of operations.
Statement of Financial Accounting Standards
No. 155 In February 2006 the Financial
Accounting Standards Board (FASB) issued Statement of Financial
Standards No. 155 Accounting for Certain Hybrid
Financial Instruments an amendment of FASB
Statements No. 133 and 140 (SFAS 155). This
standard permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that
otherwise would require bifurcation. SFAS 155 allows an
entity to make an irrevocable election to measure such a hybrid
financial instrument at fair value on an
instrument-by-instrument
basis. The standard eliminates the prohibition on a QSPE from
holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial
instrument. SFAS 155 also clarifies which interest-only and
principal-only strips are not subject to the requirements of
SFAS 133, as well as determines that concentrations of
credit risk in the form of subordination are not embedded
derivatives. SFAS 155 is effective for all financial
instruments acquired or issued after the
80
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
beginning of the fiscal year that begins after
September 15, 2006. Adoption of SFAS 155 is not
expected to have a material impact on our consolidated financial
position or results of operations.
FASB Staff Position
FIN 46(R)-6 In April 2006 the FASB issued
FIN 46(R)-6, Determining the Variability to Be
Considered in Applying FASB Interpretation No. 46(R),
which requires the variability of an entity to be analyzed
based on the design of the entity. The nature and risks in the
entity, as well as the purpose for the entitys creation,
are examined to determine the variability in applying
FIN 46(R). The variability is used in applying
FIN 46(R) to determine whether an entity is a variable
interest entity, which interests are variable interests in the
entity and who is the primary beneficiary of the variable
interest entity. This statement is applied prospectively and is
effective for all reporting periods beginning after
June 15, 2006. The guidance did not have a material impact
on our consolidated financial position or results of operations.
FASB Interpretation No. 48 In June 2006
the FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48), which supplements
Statement of Financial Accounting Standard No. 109 by
defining the confidence level that a tax position must meet in
order to be recognized in the financial statements. The
Interpretation requires that the tax effects of a position be
recognized only if it is more-likely-than-not to be
sustained solely on its technical merits as of the reporting
date. The more-likely-than-not threshold represents a positive
assertion by management that a company is entitled to the
economic benefits of a tax position. If a tax position is not
considered more-likely-than-not to be sustained based solely on
its technical merits, no benefits of the position are to be
recognized. Moreover, the more-likely-than-not threshold must
continue to be met in each reporting period to support continued
recognition of a benefit. At adoption, companies must adjust
their financial statements to reflect only those tax positions
that are more-likely-than-not to be sustained as of the adoption
date. Any necessary adjustment would be recorded directly to
retained earnings in the period of adoption and reported as a
change in accounting principle. The adoption of this
Interpretation as of January 1, 2007, is not expected to
have a material impact on our consolidated financial position.
FASB Staff Position (FSP)
No. 13-2
In July 2006 the FASB issued FSP
No. 13-2
Accounting for a Change or Projected Change in the Timing of
Cash Flows Relating to Income Taxes Generated by a Leveraged
Lease Transaction, (FSP
13-2), which
amends SFAS No. 13, Accounting for Leases, by
requiring lessors to recalculate the rate of return and periodic
income allocation for leveraged-lease transactions when there is
a change or projected change in the timing of income tax cash
flows related to the lease. FSP
13-2
requires lessors to use the model in FIN 48 to determine
the timing and amount of expected tax cash flows in
leveraged-lease calculations and recalculations. FSP
13-2 is
effective in the same period as FIN 48. At the date of
adoption, the lessor is required to reassess projected income
tax cash flows related to leveraged leases using the FIN 48
model for recognition and measurement. Revisions to the net
investment in a leverage lease required when FSP
13-2 is
adopted would be recorded as an adjustment to the beginning
balance of retained earnings and reported as a change in
accounting principle. Adoption of this guidance is not expected
to have a material impact on our consolidated financial position
or results of operations.
SEC Staff Accounting
Bulletin No. 108 In September 2006 the
SEC issued Staff Accounting Bulletin (SAB) No. 108
Quantifying Financial Misstatements, which expresses the
Staffs views regarding the process of quantifying
financial statement misstatements. Registrants are required to
quantify the impact of correcting all misstatements, including
both the carryover and reversing effects of prior year
misstatements, on the current year financial statements. The
techniques most commonly used in practice to accumulate and
quantify misstatements are generally referred to as the
rollover (current year income statement perspective)
and iron curtain (year-end balance perspective)
approaches. The financial statements would require adjustment
when either approach results in quantifying a misstatement that
is material, after considering all relevant quantitative and
qualitative factors. SAB 108 did not have a material effect
on our current process for assessing and quantifying financial
statement misstatements.
SFAS No. 157 In September 2006 the
FASB issued SFAS No. 157 Fair Value
Measurements, which provides a definition of fair value,
establishes a framework for measuring fair value and requires
expanded disclosures about fair value measurements. The
statement applies when GAAP requires or allows assets or
liabilities to be measured at fair value, and therefore, does
not expand the use of fair value in any new circumstance. Fair
value refers to the price that would be received to sell an
asset or paid to transfer a liability in an arms length
transaction between market participants, in such markets where
we conduct business. SFAS 157 clarifies that fair value
should be based on the assumptions market participants would use
when pricing an asset or liability and establishes a fair value
hierarchy that prioritizes the information used to develop those
assumptions. The fair value hierarchy gives the highest priority
to quoted prices available in active markets and the lowest
priority to data lacking transparency. The level of the
reliability of inputs utilized for fair value calculations drive
the extent of disclosure requirements of the valuation
methodologies used under the standard. SFAS 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods
within those years. The provisions of SFAS 157 should be
applied prospectively. Management is assessing the potential
impact on our consolidated financial position and results of
operations.
SFAS No. 158 In September 2006 the
FASB issued SFAS No. 158 Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans,
which amends SFAS No. 87 Employers Accounting
for Pensions (SFAS No. 87), SFAS No. 88
Employers Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits
(SFAS No. 88), SFAS No. 106
Employers Accounting for Postretirement Benefits Other
Than Pensions (SFAS No. 106), and
SFAS No. 132(R) Employers Disclosures about
Pensions and Other Postretirement
81
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
Benefits (revised 2003) (SFAS 132(R)). This
Statement requires companies to recognize an asset or liability
for the overfunded or underfunded status of their benefit plans
in their financial statements. The asset or liability is the
offset to other comprehensive income, consisting of previously
unrecognized prior service costs and credits, actuarial gains or
losses and transition obligations and assets. SFAS 158 also
required the measurement date for plan assets and liabilities to
coincide with the sponsors year end. The statement
provides two transition alternatives for companies to make the
measurement-date provisions. The recognition of asset and
liability related to funded status provision is effective for us
for fiscal years ending after June 15, 2007, and the change
in measurement is effective for fiscal years ending after
December 15, 2008. Adoption of this guidance is not
expected to have a material impact on our consolidated financial
position or results of operations.
SFAS No. 159 In February 2007 the
FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159).
SFAS 159 permits entities to choose to measure at fair
value many financial instruments and certain other items that
are not currently required to be measured at fair value.
Subsequent changes in fair value for designated items will be
required to be reported in earnings in the current period.
SFAS 159 also establishes presentation and disclosure
requirements for similar types of assets and liabilities
measured at fair value. SFAS 159 is effective for financial
statements issued for fiscal years beginning after
November 15, 2007. We are currently assessing the effect of
implementing this guidance, which directly depends on the nature
and extent of eligible items elected to be measured at fair
value, upon initial application of the standard on
January 1, 2008.
2 Insurance
Premiums and Service Revenue Earned
The following table is a summary of insurance premiums and
service revenue written and earned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Year
ended December 31, ($ in millions)
|
|
Written
|
|
|
Earned
|
|
|
Written
|
|
|
Earned
|
|
|
Written
|
|
|
Earned
|
|
|
|
Insurance premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
|
$2,575
|
|
|
|
$2,733
|
|
|
|
$2,493
|
|
|
|
$2,644
|
|
|
|
$2,400
|
|
|
|
$2,604
|
|
Assumed
|
|
|
696
|
|
|
|
693
|
|
|
|
634
|
|
|
|
595
|
|
|
|
611
|
|
|
|
630
|
|
|
|
Gross insurance premiums
|
|
|
3,271
|
|
|
|
3,426
|
|
|
|
3,127
|
|
|
|
3,239
|
|
|
|
3,011
|
|
|
|
3,234
|
|
Ceded
|
|
|
(445
|
)
|
|
|
(450
|
)
|
|
|
(401
|
)
|
|
|
(387
|
)
|
|
|
(348
|
)
|
|
|
(347
|
)
|
|
|
Net insurance premiums
|
|
|
2,826
|
|
|
|
2,976
|
|
|
|
2,726
|
|
|
|
2,852
|
|
|
|
2,663
|
|
|
|
2,887
|
|
Service revenue
|
|
|
1,209
|
|
|
|
1,207
|
|
|
|
1,345
|
|
|
|
910
|
|
|
|
1,319
|
|
|
|
641
|
|
|
|
Insurance premiums and service
revenue written and earned
|
|
|
$4,035
|
|
|
|
$4,183
|
|
|
|
$4,071
|
|
|
|
$3,762
|
|
|
|
$3,982
|
|
|
|
$3,528
|
|
|
|
82
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
3 Other
Income
Details of other income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Real estate services
|
|
|
$593
|
|
|
|
$712
|
|
|
|
$464
|
|
Interest and service fees on
transactions with GM (a)
|
|
|
576
|
|
|
|
568
|
|
|
|
370
|
|
Interest on cash equivalents
|
|
|
489
|
|
|
|
480
|
|
|
|
244
|
|
Other interest revenue
|
|
|
536
|
|
|
|
450
|
|
|
|
297
|
|
Full service leasing fees
|
|
|
280
|
|
|
|
170
|
|
|
|
153
|
|
Late charges and other
administrative fees
|
|
|
164
|
|
|
|
164
|
|
|
|
164
|
|
Mortgage processing fees
|
|
|
136
|
|
|
|
461
|
|
|
|
518
|
|
Interest on restricted cash deposits
|
|
|
119
|
|
|
|
102
|
|
|
|
60
|
|
Insurance service fees
|
|
|
131
|
|
|
|
111
|
|
|
|
136
|
|
Real estate and other investment
income
|
|
|
106
|
|
|
|
157
|
|
|
|
148
|
|
Factoring commissions
|
|
|
60
|
|
|
|
74
|
|
|
|
77
|
|
Specialty lending fees
|
|
|
57
|
|
|
|
59
|
|
|
|
60
|
|
Fair value adjustment on certain
derivatives (b)
|
|
|
6
|
|
|
|
(36
|
)
|
|
|
(26
|
)
|
Other
|
|
|
390
|
|
|
|
927
|
|
|
|
805
|
|
|
|
Total other income
|
|
|
$3,643
|
|
|
|
$4,399
|
|
|
|
$3,470
|
|
|
|
|
|
(a)
|
Refer to Note 18 to our Consolidated Financial Statements
for a description of transactions with GM.
|
(b)
|
Refer to Note 15 to our Consolidated Financial Statements
for a description of our derivative instruments and hedging
activities.
|
4 Other
Operating Expenses
Details of other operating expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Insurance commissions
|
|
|
$898
|
|
|
|
$901
|
|
|
|
$928
|
|
Technology and communications
expense
|
|
|
573
|
|
|
|
591
|
|
|
|
569
|
|
Professional services
|
|
|
493
|
|
|
|
452
|
|
|
|
474
|
|
Advertising and marketing
|
|
|
363
|
|
|
|
359
|
|
|
|
537
|
|
Premises and equipment depreciation
|
|
|
253
|
|
|
|
288
|
|
|
|
294
|
|
Rent and storage
|
|
|
243
|
|
|
|
272
|
|
|
|
253
|
|
Full service leasing vehicle
maintenance costs
|
|
|
257
|
|
|
|
236
|
|
|
|
215
|
|
Lease and loan administration
|
|
|
222
|
|
|
|
196
|
|
|
|
175
|
|
Auto remarketing and repossession
|
|
|
288
|
|
|
|
187
|
|
|
|
136
|
|
Operating lease disposal loss (gain)
|
|
|
29
|
|
|
|
(304
|
)
|
|
|
(192
|
)
|
Other
|
|
|
1,157
|
|
|
|
956
|
|
|
|
821
|
|
|
|
Total other operating expenses
|
|
|
$4,776
|
|
|
|
$4,134
|
|
|
|
$4,210
|
|
|
|
83
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
5 Investment
Securities
Our portfolio of securities includes bonds, equity securities,
asset- and mortgage-backed securities, notes, interests in
securitization trusts and other investments. The cost, fair
value and gross unrealized gains and losses on available for
sale and held to maturity securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
unrealized
|
|
Fair
|
|
|
|
unrealized
|
|
Fair
|
December 31,
($ in millions)
|
|
Cost
|
|
gains
|
|
losses
|
|
value
|
|
Cost
|
|
gains
|
|
losses
|
|
value
|
|
Available for sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal
agencies
|
|
|
$3,173
|
|
|
|
$3
|
|
|
|
($19
|
)
|
|
|
$3,157
|
|
|
|
$2,945
|
|
|
|
$5
|
|
|
|
($46
|
)
|
|
|
$2,904
|
|
States and political subdivisions
|
|
|
734
|
|
|
|
23
|
|
|
|
(1
|
)
|
|
|
756
|
|
|
|
863
|
|
|
|
27
|
|
|
|
(1
|
)
|
|
|
889
|
|
Foreign government securities
|
|
|
809
|
|
|
|
6
|
|
|
|
(5
|
)
|
|
|
810
|
|
|
|
844
|
|
|
|
11
|
|
|
|
(2
|
)
|
|
|
853
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
185
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
183
|
|
|
|
119
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
117
|
|
Commercial
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Asset-backed securities (a)
|
|
|
1,735
|
|
|
|
2
|
|
|
|
|
|
|
|
1,737
|
|
|
|
956
|
|
|
|
|
|
|
|
|
|
|
|
956
|
|
Interest-only strips
|
|
|
43
|
|
|
|
10
|
|
|
|
|
|
|
|
53
|
|
|
|
122
|
|
|
|
29
|
|
|
|
(3
|
)
|
|
|
148
|
|
Corporate debt securities
|
|
|
3,713
|
|
|
|
18
|
|
|
|
(32
|
)
|
|
|
3,699
|
|
|
|
5,124
|
|
|
|
27
|
|
|
|
(30
|
)
|
|
|
5,121
|
|
Other
|
|
|
994
|
|
|
|
9
|
|
|
|
(3
|
)
|
|
|
1,000
|
|
|
|
909
|
|
|
|
16
|
|
|
|
(5
|
)
|
|
|
920
|
|
|
|
Total debt securities (b)
|
|
|
11,412
|
|
|
|
71
|
|
|
|
(62
|
)
|
|
|
11,421
|
|
|
|
11,901
|
|
|
|
115
|
|
|
|
(89
|
)
|
|
|
11,927
|
|
Equity securities
|
|
|
418
|
|
|
|
161
|
|
|
|
(5
|
)
|
|
|
574
|
|
|
|
1,510
|
|
|
|
874
|
|
|
|
(17
|
)
|
|
|
2,367
|
|
|
|
Total available for sale securities
|
|
|
$11,830
|
|
|
|
$232
|
|
|
|
($67
|
)
|
|
|
$11,995
|
|
|
|
$13,411
|
|
|
|
$989
|
|
|
|
($106
|
)
|
|
|
$14,294
|
|
|
|
Held-to-maturity
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
held-to-maturity
securities
|
|
|
$12
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$12
|
|
|
|
$16
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$16
|
|
|
|
|
|
(a)
|
Includes approximately $471 of Notes secured by operating lease
assets distributed to GM on November 22, 2006. Refer to
Note 18 for further discussion.
|
(b)
|
In connection with certain borrowings and letters of credit
relating to certain assumed reinsurance contracts $194 and
$1,098 of primarily U.S. Treasury securities were pledged
as collateral as of December 31, 2006 and 2005,
respectively.
|
84
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
We had other than temporary impairment write-downs of $12, $16
and $17 million for the years ended December 31, 2006,
2005, and 2004, respectively. Gross unrealized gains and losses
on investment securities available for sale totaled $997 and
$33 million, respectively, as of December 31, 2004.
The fair value, unrealized gains (losses) and amount pledged as
collateral for our portfolio of trading securities were as
follows:
|
|
|
|
|
|
|
|
|
December 31,
($ in millions)
|
|
2006
|
|
2005
|
|
Trading securities
|
|
|
|
|
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities
|
|
|
$401
|
|
|
|
$
|
|
Residential mortgage-backed
securities
|
|
|
1,748
|
|
|
|
1,042
|
|
Mortgage residual interests
|
|
|
1,019
|
|
|
|
764
|
|
Asset backed securities
|
|
|
19
|
|
|
|
|
|
Interest-only strips
|
|
|
572
|
|
|
|
265
|
|
Principal-only strips
|
|
|
957
|
|
|
|
651
|
|
Debt and other
|
|
|
68
|
|
|
|
1,175
|
|
|
|
Total trading securities
|
|
|
$4,784
|
|
|
|
$3,897
|
|
|
|
Net unrealized gains (a)
|
|
|
$118
|
|
|
|
$131
|
|
Pledged as collateral
|
|
|
$1,524
|
|
|
|
$2,697
|
|
|
|
|
|
(a) |
Unrealized gains and losses are included in investment income on
a current period basis. Net unrealized gains totaled $35 at
December 31, 2004.
|
The maturity distribution of available for sale and held to
maturity debt securities outstanding is summarized in the
following table. Prepayments may cause actual maturities to
differ from scheduled maturities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
|
|
Held to
|
|
|
for
sale
|
|
maturity
|
December 31,
2006
|
|
|
|
Fair
|
|
|
|
Fair
|
($ in
millions)
|
|
Cost
|
|
value
|
|
Cost
|
|
value
|
|
|
Due in one year or less
|
|
|
$3,077
|
|
|
|
$3,076
|
|
|
|
$8
|
|
|
|
$8
|
|
Due after one year through
five years
|
|
|
4,059
|
|
|
|
4,042
|
|
|
|
|
|
|
|
|
|
Due after five years through
ten years
|
|
|
1,923
|
|
|
|
1,926
|
|
|
|
|
|
|
|
|
|
Due after ten years
|
|
|
678
|
|
|
|
691
|
|
|
|
4
|
|
|
|
4
|
|
Mortgage-backed securities
and interests in securitization trusts
|
|
|
1,675
|
|
|
|
1,686
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
|
$11,412
|
|
|
|
$11,421
|
|
|
|
$12
|
|
|
|
$12
|
|
|
|
The following table presents gross gains and losses realized
upon the sales of available for sale securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
|
|
|
|
|
($ in
millions)
|
|
2006
|
|
2005
|
|
2004
|
|
|
Gross realized gains (a)
|
|
|
$1,081
|
|
|
|
$186
|
|
|
|
$138
|
|
Gross realized losses
|
|
|
(76
|
)
|
|
|
(66
|
)
|
|
|
(49
|
)
|
|
|
Net realized gains
|
|
|
$1,005
|
|
|
|
$120
|
|
|
|
$89
|
|
|
|
|
|
(a) |
Gains realized in 2006 primarily relate to the rebalancing of
the investment portfolio at our Insurance operations.
|
In the opinion of management, the gross unrealized losses in the
table below are not considered to be other than temporarily
impaired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
|
Less than
12 months
|
|
12 months or
longer
|
|
Less than
12 months
|
|
12 months or
longer
|
Year ended
December 31,
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
($ in
millions)
|
|
Fair value
|
|
loss
|
|
Fair value
|
|
loss
|
|
Fair value
|
|
loss
|
|
Fair value
|
|
loss
|
|
|
Available for sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal
agencies
|
|
|
$858
|
|
|
|
($3
|
)
|
|
|
$919
|
|
|
|
($16
|
)
|
|
|
$1,590
|
|
|
|
($32
|
)
|
|
|
$520
|
|
|
|
($15
|
)
|
States and political subdivision
|
|
|
127
|
|
|
|
(1
|
)
|
|
|
29
|
|
|
|
|
|
|
|
79
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Foreign government securities
|
|
|
338
|
|
|
|
(3
|
)
|
|
|
81
|
|
|
|
(2
|
)
|
|
|
179
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
securities
|
|
|
60
|
|
|
|
|
|
|
|
82
|
|
|
|
(2
|
)
|
|
|
36
|
|
|
|
(1
|
)
|
|
|
76
|
|
|
|
(2
|
)
|
Interest-only strips
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
697
|
|
|
|
(3
|
)
|
|
|
1,191
|
|
|
|
(29
|
)
|
|
|
1,865
|
|
|
|
(20
|
)
|
|
|
331
|
|
|
|
(10
|
)
|
Other
|
|
|
299
|
|
|
|
(1
|
)
|
|
|
107
|
|
|
|
(2
|
)
|
|
|
175
|
|
|
|
(3
|
)
|
|
|
21
|
|
|
|
(1
|
)
|
|
|
Total temporarily impaired
securities
|
|
|
2,379
|
|
|
|
(11
|
)
|
|
|
2,409
|
|
|
|
(51
|
)
|
|
|
4,005
|
|
|
|
(61
|
)
|
|
|
948
|
|
|
|
(28
|
)
|
Equity securities
|
|
|
73
|
|
|
|
(4
|
)
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
137
|
|
|
|
(15
|
)
|
|
|
19
|
|
|
|
(2
|
)
|
|
|
Total available for sale securities
|
|
|
$2,452
|
|
|
|
($15
|
)
|
|
|
$2,416
|
|
|
|
($52
|
)
|
|
|
$4,142
|
|
|
|
($76
|
)
|
|
|
$967
|
|
|
|
($30
|
)
|
|
|
85
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
6 Finance
Receivables and Loans
The composition of finance receivables and loans outstanding was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
December 31,
($ in millions)
|
|
Domestic
|
|
Foreign
|
|
Total
|
|
Domestic
|
|
Foreign
|
|
Total
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail automotive
|
|
|
$40,568
|
|
|
|
$20,538
|
|
|
|
$61,106
|
|
|
|
$53,814
|
|
|
|
$17,663
|
|
|
|
$71,477
|
|
Residential mortgages
|
|
|
65,928
|
|
|
|
3,508
|
|
|
|
69,436
|
|
|
|
65,040
|
|
|
|
3,919
|
|
|
|
68,959
|
|
|
|
Total consumer
|
|
|
106,496
|
|
|
|
24,046
|
|
|
|
130,542
|
|
|
|
118,854
|
|
|
|
21,582
|
|
|
|
140,436
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
12,723
|
|
|
|
7,854
|
|
|
|
20,577
|
|
|
|
13,202
|
|
|
|
7,372
|
|
|
|
20,574
|
|
Leasing and lease financing
|
|
|
326
|
|
|
|
901
|
|
|
|
1,227
|
|
|
|
461
|
|
|
|
767
|
|
|
|
1,228
|
|
Term loans to dealers and others
|
|
|
1,843
|
|
|
|
764
|
|
|
|
2,607
|
|
|
|
2,397
|
|
|
|
719
|
|
|
|
3,116
|
|
Commercial and industrial
|
|
|
14,068
|
|
|
|
2,213
|
|
|
|
16,281
|
|
|
|
14,908
|
|
|
|
2,028
|
|
|
|
16,936
|
|
Real estate construction and other
|
|
|
2,969
|
|
|
|
243
|
|
|
|
3,212
|
|
|
|
2,601
|
|
|
|
119
|
|
|
|
2,720
|
|
|
|
Total commercial
|
|
|
31,929
|
|
|
|
11,975
|
|
|
|
43,904
|
|
|
|
33,569
|
|
|
|
11,005
|
|
|
|
44,574
|
|
|
|
Total finance receivables and
loans (a) (b)
|
|
|
$138,425
|
|
|
|
$36,021
|
|
|
|
$174,446
|
|
|
|
$152,423
|
|
|
|
$32,587
|
|
|
|
$185,010
|
|
|
|
|
(a)
|
Net of unearned income of $5.7 billion and
$5.9 billion at December 31, 2006 and 2005,
respectively.
|
(b)
|
The aggregate amount of finance receivables and loans maturing
in the next five years is as follows: $57,230 in 2007; $18,994
in 2008; $14,974 in 2009; $9,919 in 2010; $6,212 in 2011 and
$72,849 in 2012 and thereafter. Prepayments may cause actual
maturities to differ from scheduled maturities.
|
The following table presents an analysis of the activity in the
allowance for credit losses on finance receivables and loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
2006
|
|
2005
|
|
2004
|
($ in
millions)
|
|
Consumer
|
|
Commercial
|
|
Total
|
|
Consumer
|
|
Commercial
|
|
Total
|
|
Consumer
|
|
Commercial
|
|
Total
|
|
|
Allowance at beginning of year
|
|
|
$2,652
|
|
|
|
$433
|
|
|
|
$3,085
|
|
|
|
$2,931
|
|
|
|
$471
|
|
|
|
$3,402
|
|
|
|
$2,513
|
|
|
|
$509
|
|
|
|
$3,022
|
|
Provision for credit losses
|
|
|
1,668
|
|
|
|
332
|
|
|
|
2,000
|
|
|
|
1,006
|
|
|
|
68
|
|
|
|
1,074
|
|
|
|
1,935
|
|
|
|
18
|
|
|
|
1,953
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
(1,436
|
)
|
|
|
(139
|
)
|
|
|
(1,575
|
)
|
|
|
(1,302
|
)
|
|
|
(45
|
)
|
|
|
(1,347
|
)
|
|
|
(1,469
|
)
|
|
|
(96
|
)
|
|
|
(1,565
|
)
|
Foreign
|
|
|
(182
|
)
|
|
|
(35
|
)
|
|
|
(217
|
)
|
|
|
(194
|
)
|
|
|
(26
|
)
|
|
|
(220
|
)
|
|
|
(269
|
)
|
|
|
(7
|
)
|
|
|
(276
|
)
|
|
|
Total charge-offs
|
|
|
(1,618
|
)
|
|
|
(174
|
)
|
|
|
(1,792
|
)
|
|
|
(1,496
|
)
|
|
|
(71
|
)
|
|
|
(1,567
|
)
|
|
|
(1,738
|
)
|
|
|
(103
|
)
|
|
|
(1,841
|
)
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
198
|
|
|
|
14
|
|
|
|
212
|
|
|
|
168
|
|
|
|
9
|
|
|
|
177
|
|
|
|
112
|
|
|
|
10
|
|
|
|
122
|
|
Foreign
|
|
|
47
|
|
|
|
3
|
|
|
|
50
|
|
|
|
48
|
|
|
|
4
|
|
|
|
52
|
|
|
|
81
|
|
|
|
3
|
|
|
|
84
|
|
|
|
Total recoveries
|
|
|
245
|
|
|
|
17
|
|
|
|
262
|
|
|
|
216
|
|
|
|
13
|
|
|
|
229
|
|
|
|
193
|
|
|
|
13
|
|
|
|
206
|
|
|
|
Net charge-offs
|
|
|
(1,373
|
)
|
|
|
(157
|
)
|
|
|
(1,530
|
)
|
|
|
(1,280
|
)
|
|
|
(58
|
)
|
|
|
(1,338
|
)
|
|
|
(1,545
|
)
|
|
|
(90
|
)
|
|
|
(1,635
|
)
|
Transfers to assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Impacts of foreign currency
translation
|
|
|
19
|
|
|
|
(1
|
)
|
|
|
18
|
|
|
|
(9
|
)
|
|
|
(15
|
)
|
|
|
(24
|
)
|
|
|
20
|
|
|
|
6
|
|
|
|
26
|
|
Securitization activity
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
4
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
28
|
|
|
|
36
|
|
|
|
Allowance at end of year
|
|
|
$2,969
|
|
|
|
$607
|
|
|
|
$3,576
|
|
|
|
$2,652
|
|
|
|
$433
|
|
|
|
$3,085
|
|
|
|
$2,931
|
|
|
|
$471
|
|
|
|
$3,402
|
|
|
86
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The following table presents information about commercial
finance receivables and loans specifically identified for
impairment.
|
|
|
|
|
|
|
|
|
December 31,
($ in millions)
|
|
2006
|
|
2005
|
|
|
Impaired loans
|
|
|
$1,975
|
|
|
|
$887
|
|
Related allowance
|
|
|
346
|
|
|
|
184
|
|
Average balance of impaired loans
during the year
|
|
|
972
|
|
|
|
1,120
|
|
|
|
We have loans that were acquired in a transfer, which at
acquisition, had evidence of deterioration of credit quality
since origination and for which it was probable, at acquisition,
that all contractually required payments would not be collected.
The carrying amount of these loans, included in the balance
sheet amounts of finance receivables and loans, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
($ in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
|
Consumer
|
|
|
$2,576
|
|
|
|
$1,658
|
|
|
|
$1,824
|
|
Commercial
|
|
|
|
|
|
|
680
|
|
|
|
580
|
|
|
|
Total outstanding balance
|
|
|
2,576
|
|
|
|
2,338
|
|
|
|
2,404
|
|
Allowance
|
|
|
(105
|
)
|
|
|
(103
|
)
|
|
|
(99
|
)
|
|
|
Total carrying amount
|
|
|
$2,471
|
|
|
|
$2,235
|
|
|
|
$2,305
|
|
|
|
For loans acquired after December 31, 2005,
SOP 03-3
requires us to record revenue using an accretable yield method.
The following table represents accretable yield activity.
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
2005
|
|
|
Accretable yield at beginning of
year
|
|
|
$52
|
|
|
|
$121
|
|
Additions
|
|
|
251
|
|
|
|
285
|
|
Accretion
|
|
|
(69
|
)
|
|
|
(131
|
)
|
Reclassification from
nonaccretable
difference
|
|
|
|
|
|
|
11
|
|
Transfers to assets held for sale
|
|
|
|
|
|
|
(155
|
)
|
Disposals
|
|
|
(88
|
)
|
|
|
(79
|
)
|
|
|
Accretable yield at end of year
|
|
|
$146
|
|
|
|
$52
|
|
|
|
Loans acquired during each year for which it was probable at
acquisition that all contractually required payments would not
be collected are as follows:
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
2005
|
|
|
Contractually required payments
receivable at acquisition:
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
$6,992
|
|
|
|
$3,158
|
|
Commercial
|
|
|
|
|
|
|
1,848
|
|
|
|
Total payments
|
|
|
$6,992
|
|
|
|
$5,006
|
|
Cash flows expected to be
collected
at acquisition
|
|
|
$3,155
|
|
|
|
$2,333
|
|
Basis in acquired loans at
acquisition
|
|
|
$2,588
|
|
|
|
$1,900
|
|
|
|
87
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
7 Off-Balance
Sheet Securitizations
We securitize automotive and mortgage financial assets as a
funding source. We sell retail finance receivables, wholesale
and dealer loans and residential mortgage loans. The following
discussion and related information is only applicable to the
transfers of finance receivables and loans that qualify as
off-balance sheet securitizations under the requirements of
SFAS 140.
We retain servicing responsibilities for and subordinated
interests in all of our securitizations of retail finance
receivables and wholesale loans. Servicing responsibilities are
retained for the majority of our residential loan
securitizations, and we may retain subordinated interests in
some of these securitizations. We also hold subordinated
interests and act as collateral manager in our collateralized
debt obligation (CDO) securitization program.
As servicer, we generally receive a monthly fee stated as a
percentage of the outstanding sold receivables. Typically, for
retail automotive finance receivables where we are paid a fee,
we have concluded that the fee represents adequate compensation
as a servicer and, as such, no servicing asset or liability is
recognized. Considering the short-term revolving nature of
wholesale loans, no servicing asset or liability is recognized
upon securitization of the loans. As of December 31, 2006,
the weighted average basic servicing fees for our primary
servicing activities were 100 basis points, 100 basis
points and 34 basis points of the outstanding principal
balance for sold retail finance receivables, wholesale loans and
residential mortgage loans, respectively. Additionally, we
retain the rights to cash flows remaining after the investors in
most securitization trusts have received their contractual
payments. In certain retail securitization transactions, retail
receivables are sold on a servicing retained basis but with no
servicing compensation and, as such, a servicing liability is
established and recorded in other liabilities. As of
December 31, 2006 and 2005, servicing liabilities of
$18 million and $32 million, respectively, were
outstanding related to such retail automotive securitization
transactions. In addition, in 2005 we completed a retail
automotive securitization where the servicing fee received is
considered greater than adequate compensation requiring the
recording of a servicing asset. As of December 31, 2006 and
2005, the fair value of the servicing asset was $9 million
and $30 million, respectively. For mortgage servicing, we
capitalize the value expected to be realized from performing
specified residential mortgage servicing activities as mortgage
servicing rights. Refer to Note 9 to our Consolidated
Financial Statements.
We maintain cash reserve accounts at predetermined amounts for
certain securitization activities in the unlikely event that
deficiencies occur in cash flows owed to the investors. The
amounts available in such cash reserve accounts totaled
$39 million, $1,001 million and $309 million, as
of December 31, 2006, related to securitizations of retail
finance receivables, wholesale loans and residential mortgage
loans, respectively, and $52 million, $1,012 million
and $88 million as of December 31, 2005, respectively.
The following table summarizes pre-tax gains (losses) on
securitizations and certain cash flows received from and paid to
securitization trusts for transfers of finance receivables and
loans that were completed during 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
Retail
|
|
|
|
|
|
|
finance
|
|
Wholesale
|
|
|
Year
ended December 31, ($ in millions)
|
|
receivables
|
|
loans
|
|
ResCap
|
|
|
Pre-tax (losses) gains on
securitizations
|
|
|
($51
|
)
|
|
|
$601
|
|
|
|
$825
|
|
Cash inflows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations
|
|
|
6,302
|
|
|
|
|
|
|
|
65,687
|
|
Servicing fees received
|
|
|
65
|
|
|
|
181
|
|
|
|
480
|
|
Other cash flows received on
retained interests
|
|
|
232
|
|
|
|
140
|
|
|
|
587
|
|
Proceeds from collections
reinvested in revolving securitizations
|
|
|
|
|
|
|
96,969
|
|
|
|
|
|
Repayments of servicing advances
|
|
|
46
|
|
|
|
|
|
|
|
1,199
|
|
Cash outflows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing advances
|
|
|
(51
|
)
|
|
|
|
|
|
|
(1,265
|
)
|
Purchase obligations and
options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans under conditional
call option
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
Representations and warranties
obligations
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
Administrator or servicer actions
|
|
|
(27
|
)
|
|
|
|
|
|
|
(60
|
)
|
Asset performance conditional calls
|
|
|
|
|
|
|
|
|
|
|
(82
|
)
|
Cleanup calls
|
|
|
(242
|
)
|
|
|
|
|
|
|
(1,055
|
)
|
|
|
88
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The following table summarizes pre-tax gains (losses) on
securitizations and certain cash flows received from and paid to
securitization trusts for transfers of finance receivables and
loans that were completed during 2005 and 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
Retail
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
Year
ended December 31,
|
|
finance
|
|
Wholesale
|
|
|
|
|
|
finance
|
|
Wholesale
|
|
|
|
|
($ in
millions)
|
|
receivables
|
|
loans
|
|
ResCap
|
|
Other
|
|
receivables
|
|
loans
|
|
ResCap
|
|
Other
|
|
|
Pre-tax gains (losses) on
securitizations
|
|
|
($2
|
)
|
|
|
$543
|
|
|
|
$513
|
|
|
|
$76
|
|
|
|
$9
|
|
|
|
$497
|
|
|
|
$602
|
|
|
|
$65
|
|
Cash inflows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations
|
|
|
4,874
|
|
|
|
7,705
|
|
|
|
41,987
|
|
|
|
4,731
|
|
|
|
1,824
|
|
|
|
9,188
|
|
|
|
29,412
|
|
|
|
3,043
|
|
Servicing fees received
|
|
|
65
|
|
|
|
179
|
|
|
|
245
|
|
|
|
21
|
|
|
|
105
|
|
|
|
174
|
|
|
|
208
|
|
|
|
20
|
|
Other cash flows received on
retained interests
|
|
|
249
|
|
|
|
503
|
|
|
|
583
|
|
|
|
304
|
|
|
|
340
|
|
|
|
808
|
|
|
|
729
|
|
|
|
284
|
|
Proceeds from collections
reinvested in revolving securitizations
|
|
|
|
|
|
|
102,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,360
|
|
|
|
|
|
|
|
|
|
Repayments of servicing advances
|
|
|
43
|
|
|
|
|
|
|
|
1,115
|
|
|
|
198
|
|
|
|
75
|
|
|
|
|
|
|
|
947
|
|
|
|
|
|
Cash outflows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing advances
|
|
|
(46
|
)
|
|
|
|
|
|
|
(1,163
|
)
|
|
|
(188
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
(1,035
|
)
|
|
|
|
|
Purchase obligations and
options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans under conditional
call option
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
Representations and warranties
obligations
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(66
|
)
|
|
|
|
|
Administrator or servicer actions
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset performance conditional calls
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137
|
)
|
|
|
|
|
Clean up calls
|
|
|
(715
|
)
|
|
|
|
|
|
|
(2,202
|
)
|
|
|
|
|
|
|
(269
|
)
|
|
|
|
|
|
|
(3,797
|
)
|
|
|
|
|
|
|
Key economic assumptions used in measuring the estimated fair
value of retained interests of sales completed during 2006,
2005, and 2004 as of the dates of such sales, were as follows:
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
finance
|
|
|
|
|
Year
ended December 31,
|
|
receivables (a)
|
|
ResCap (b)
|
|
Other
|
|
|
2006
|
|
|
|
|
|
|
Key
assumptions (d)
(rates per annum):
|
|
|
|
|
|
|
Annual prepayment rate (e)
|
|
0.9-1.7%
|
|
0.0-90.0%
|
|
(c)
|
Weighted average life (in years)
|
|
1.4-1.9
|
|
1.1-10.5
|
|
(c)
|
Expected credit losses
|
|
0.4-1.0%
|
|
0.0-18.3%
|
|
(c)
|
Discount rate
|
|
9.5-16.0%
|
|
7.0-25.0%
|
|
(c)
|
|
|
2005
|
|
|
|
|
|
|
Key
assumptions (d)
(rates per annum):
|
|
|
|
|
|
|
Annual prepayment rate (e)
|
|
0.9-1.2%
|
|
0.0-60.0%
|
|
0.0-50.0%
|
Weighted average life (in years)
|
|
1.6-1.7
|
|
1.1-8.5
|
|
0.3-9.9
|
Expected credit losses
|
|
0.4-1.6%
|
|
0.0-4.9%
|
|
0.0%
|
Discount rate
|
|
9.5-15.0%
|
|
6.5-21.4%
|
|
4.2-12.0%
|
|
|
2004
|
|
|
|
|
|
|
Key
assumptions (d)
(rates per annum):
|
|
|
|
|
|
|
Annual prepayment rate (e)
|
|
0.9-1.0%
|
|
0.0-51.3%
|
|
0.0-50.0%
|
Weighted average life (in years)
|
|
1.6-1.8
|
|
1.1-6.0
|
|
0.4-17.4
|
Expected credit losses
|
|
0.4%
|
|
0.2-10.9%
|
|
0.0-3.1%
|
Discount rate
|
|
9.5%
|
|
6.5-24.8%
|
|
4.3-15.0%
|
|
|
|
|
(a)
|
The fair value of retained
interests in wholesale securitizations approximates cost because
of the short-term and floating rate nature of wholesale loans.
|
(b)
|
Included within residential
mortgage loans are home equity loans and lines, high
loan-to-value
loans and residential first and second mortgage loans.
|
(c)
|
Represents the former GMAC
Commercial Mortgage, for which we sold approximately 79% of our
equity interest on March 23, 2006.
|
(d)
|
The assumptions used to measure the
expected yield on variable rate retained interests are based on
a benchmark interest rate yield curve plus a contractual spread,
as appropriate. The actual yield curve utilized varies depending
on the specific retained interests.
|
(e)
|
Based on the weighted average
maturity (WAM) for finance receivables and constant prepayment
rate (CPR) for mortgage loans.
|
89
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The following table summarizes the key economic assumptions and
the sensitivity of the fair value of retained interests at
December 31, 2006 and 2005, to immediate 10% and 20%
adverse changes in those assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
|
Retail finance
|
|
|
|
Retail finance
|
|
|
|
|
Year ended
December 31, ($ in millions)
|
|
receivables (a)
|
|
ResCap
|
|
receivables
|
|
ResCap
|
|
Other
|
|
|
Carrying value/fair value of
retained interests
|
|
$355
|
|
$1,420
|
|
$314
|
|
$1,057
|
|
$432
|
Weighted average life (in years)
|
|
0.0-1.3
|
|
1.0-8.9
|
|
0.1-1.2
|
|
1.0-6.2
|
|
0.0-17.7
|
Annual prepayment rate
|
|
0.8-1.4%WAM
|
|
0.0-90.0%CPR
|
|
0.7-1.2%WAM
|
|
0.0-60.0%CPR
|
|
0.0-50.0%CPR
|
Impact of 10% adverse change
|
|
($4)
|
|
($55)
|
|
($1)
|
|
($46)
|
|
($1)
|
Impact of 20% adverse change
|
|
(7)
|
|
(102)
|
|
(2)
|
|
(82)
|
|
(1)
|
|
|
Loss assumption
|
|
0.4-1.0% (b)
|
|
0.0-12.8%
|
|
0.4% (b)
|
|
0.0-16.9%
|
|
0.0%-6.7%
|
Impact of 10% adverse change
|
|
($5)
|
|
($37)
|
|
($2)
|
|
($43)
|
|
($9)
|
Impact of 20% adverse change
|
|
(10)
|
|
(70)
|
|
(4)
|
|
(81)
|
|
(16)
|
|
|
Discount rate
|
|
9.5-16.0%
|
|
6.5-43.5%
|
|
9.5-12.0%
|
|
6.5-40.0%
|
|
0.1-33.5%
|
Impact of 10% adverse change
|
|
($6)
|
|
($51)
|
|
($2)
|
|
($34)
|
|
($14)
|
Impact of 20% adverse change
|
|
(12)
|
|
(94)
|
|
(5)
|
|
(65)
|
|
(27)
|
|
|
Market rate
|
|
(c)
|
|
(c)
|
|
3.9-5.1%
|
|
(c)
|
|
(c)
|
Impact of 10% adverse change
|
|
($4)
|
|
($38)
|
|
($7)
|
|
($11)
|
|
($)
|
Impact of 20% adverse change
|
|
(9)
|
|
(74)
|
|
(15)
|
|
(26)
|
|
()
|
|
|
|
|
(a)
|
The fair value of retained
interests in wholesale securitizations approximates cost of $691
because of the short-term and floating rate nature of wholesale
receivables.
|
(b)
|
Net of a reserve for expected
credit losses totaling $8 and $14 at December 31, 2006
and 2005, respectively. Such amounts are included in the fair
value of the retained interests, which are classified as
investment securities.
|
(c)
|
Forward benchmark interest rate
yield curve plus contractual spread.
|
These sensitivities are hypothetical and should be used with
caution. As the figures indicate, changes in fair value based on
a 10% and 20% 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, which
may magnify or counteract the sensitivities. Additionally, we
hedge interest rate and prepayment risks associated with certain
of the retained interests; the effects of such hedge strategies
have not been considered herein.
Expected static pool net credit losses include actual incurred
losses plus projected net credit losses divided by the original
balance of the outstandings comprising the securitization pool.
The following table displays the expected static pool net credit
losses on our securitization transactions.
|
|
|
|
|
|
|
December 31,
(a)
|
|
2006
|
|
2005
|
|
2004
|
|
|
Retail automotive
|
|
0.6%
|
|
0.4%
|
|
0.4%
|
Residential mortgage
|
|
0.0-12.8%
|
|
0.0-16.9%
|
|
0.0-26.1%
|
Other
|
|
(b)
|
|
0.0-6.7%
|
|
0.0-39.5%
|
|
|
|
|
(a)
|
Static pool losses not applicable to wholesale finance
receivable securitizations because of their short-term nature.
|
(b)
|
Represents the former commercial mortgage operations, for which
we sold approximately 79% of our equity interest on
March 23, 2006.
|
90
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The following table presents components of securitized financial
assets and other assets managed, along with quantitative
information about delinquencies and net credit losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance
|
|
|
Amount
60 days or
|
|
|
|
|
receivables and
loans
|
|
|
more past
due
|
|
Net credit
losses
|
December 31,
($ in millions)
|
|
2006
|
|
2005
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Retail automotive
|
|
|
$68,348
|
|
|
|
$77,222
|
|
|
|
|
$693
|
|
|
|
$892
|
|
|
|
$707
|
|
|
|
$867
|
|
Residential mortgage
|
|
|
217,972
|
|
|
|
167,584
|
|
|
|
|
15,175
|
|
|
|
8,682
|
|
|
|
981
|
|
|
|
885
|
|
|
Total consumer
|
|
|
286,320
|
|
|
|
244,806
|
|
|
|
|
15,868
|
|
|
|
9,574
|
|
|
|
1,688
|
|
|
|
1,752
|
|
|
Wholesale
|
|
|
40,484
|
|
|
|
41,994
|
|
|
|
|
66
|
|
|
|
73
|
|
|
|
2
|
|
|
|
4
|
|
Commercial mortgage (a)
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
4
|
|
Other automotive and commercial
|
|
|
23,385
|
|
|
|
23,996
|
|
|
|
|
1,582
|
|
|
|
575
|
|
|
|
8
|
|
|
|
33
|
|
|
Total commercial
|
|
|
63,869
|
|
|
|
66,033
|
|
|
|
|
1,648
|
|
|
|
648
|
|
|
|
16
|
|
|
|
41
|
|
|
Total managed portfolio (b)
|
|
|
350,189
|
|
|
|
310,839
|
|
|
|
|
$17,516
|
|
|
|
$10,222
|
|
|
|
$1,704
|
|
|
|
$1,793
|
|
Securitized finance receivables and
loans
|
|
|
(148,009
|
)
|
|
|
(103,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale (unpaid
principal)
|
|
|
(27,734
|
)
|
|
|
(21,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance receivables and loans
|
|
|
$174,446
|
|
|
|
$185,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
On March 23, 2006, we sold approximately 79% of our equity
interest in Capmark, our commercial mortgage operations.
|
(b)
|
Managed portfolio represents finance receivables and loans on
the balance sheet or that have been securitized, excluding
securitized finance receivables and loans that we continue to
service but have no other continuing involvement (i.e., in which
we retain an interest or risk of loss in the underlying
receivables).
|
8 Investment
in Operating Leases
Investments in operating leases were as follows:
|
|
|
|
|
|
|
|
|
December 31,
($ in millions)
|
|
2006
|
|
2005
|
|
|
Vehicles and other equipment, at
cost
|
|
|
$30,281
|
|
|
|
$39,443
|
|
Accumulated depreciation
|
|
|
(6,097
|
)
|
|
|
(8,232
|
)
|
|
|
Investment in operating leases, net
(a)
|
|
|
$24,184
|
|
|
|
$31,211
|
|
|
|
|
|
(a) |
On November 22, 2006, $12.6 billion of operating lease
assets comprised of $15.7 billion of vehicles at cost, net
of $3.1 billion of accumulated depreciation were
distributed to GM. Refer to Note 18 to our Consolidated
Financial Statements for further description of the distribution.
|
The future lease payments due from customers for equipment on
operating leases at December 31, 2006, totaled
$11,390 million and are due as follows: $4,937 million
in 2007, $3,553 million in 2008, $2,187 million in
2009, $673 million in 2010 and $40 million in 2011 and
after.
Our investments in operating lease assets represents the
expected future cash flows we expect to realize under the
operating leases and includes both customer payments and the
expected residual value upon remarketing the vehicle at the end
of the lease. As described in Note 18 to our Consolidated
Financial Statements, GM may sponsor residual support programs
that result in the contractual residual value being in excess of
our standard residual value. GM reimburses us if remarketing
sales proceeds are less than the customers contract
residual value limited to our standard residual value. In
addition to residual support programs, GM also participates in a
risk sharing arrangement whereby GM shares equally in residual
losses to the extent that remarketing proceeds are below our
standard residual rates (limited to a floor). In connection with
the sale of 51 percent ownership interest in GMAC, GM
settled its estimated liabilities with respect to residual
support and risk sharing on a portion of our operating lease
portfolio. Based on the December 31, 2006 outstanding
U.S. operating lease portfolio, the maximum amount that
could be paid by GM under the residual support programs and the
risk sharing arrangement is approximately $276 million and
$339 million, respectively, as more fully discussed in
Note 18 to our Consolidated Financial Statements.
9 Mortgage
Servicing Rights
We define our classes of servicing rights based on both the
availability of market inputs and the manner in which we manage
our risks of our servicing assets and liabilities. We manage our
servicing rights at the reportable operating segment level and
where sufficient market inputs exist to determine the fair value
of our recognized servicing assets and servicing liabilities.
91
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The following table summarizes activity related to mortgage
servicing rights (MSRs) carried at fair value.
|
|
|
|
|
Period
ended December 31, 2006 ($ in millions)
|
|
Total
|
|
|
Estimated fair value at
January 1, 2006
|
|
|
$4,021
|
|
Additions obtained from sales of
financial assets
|
|
|
1,723
|
|
Additions from purchases of
servicing rights
|
|
|
12
|
|
Changes in fair value:
|
|
|
|
|
Due to changes in valuation inputs
or assumptions used in the valuation model
|
|
|
(44
|
)
|
Other changes in fair value
|
|
|
(782
|
)
|
|
|
Estimated fair value at
December 31, 2006
|
|
|
$4,930
|
|
|
|
Changes in fair value, due to changes in valuation inputs or
assumptions used in the valuation models, include all changes
due to a revaluation by a model or by a benchmarking exercise.
This line item also includes changes in fair value due to a
change in valuation assumptions
and/or model
calculations. Other changes in fair value primarily include the
accretion of the present value of the discount related to
forecasted cash flows and the economic run-off of the portfolio,
as well as foreign currency adjustments and the extinguishment
of mortgage servicing rights related to
clean-up
calls of securitization transactions.
The key economic assumptions and sensitivity of the current fair
value of MSRs to immediate 10% and 20% adverse changes in those
assumptions are as follows:
|
|
|
December 31,
2006 ($ in millions)
|
|
|
|
|
Range of prepayment speeds
(constant prepayment rate)
|
|
1.0-43.2%
|
Impact on fair value of 10% adverse
change
|
|
($227)
|
Impact on fair value of 20% adverse
change
|
|
($413)
|
Range of discount rates
|
|
8.0-14.0%
|
Impact on fair value of 10% adverse
change
|
|
($67)
|
Impact on fair value of 20% adverse
change
|
|
($132)
|
|
|
These sensitivities are hypothetical and should be considered
with caution. As the figures indicate, changes in fair value
based on a 10% variation in assumptions generally cannot be
extrapolated because the relationship of the change in
assumptions to the change in fair value may not be linear. Also,
the effect of a variation in a particular assumption on the fair
value is calculated without changing any other assumption. In
reality, changes in one factor may result in changes in another
(e.g., increased market interest rates may result in lower
prepayments and increased credit losses), which could magnify or
counteract the sensitivities. Further, these sensitivities show
only the change in the asset balances and do not show any
expected change in the fair value of the instruments used to
manage the interest rates and prepayment risks associated with
these assets.
Our servicing rights primary risk is interest rate risk
and the resulting impact on prepayments. A significant decline
in interest rates could lead to higher than expected
prepayments, which could reduce the value of the mortgage
servicing rights. We economically hedge the income statement
impact of these risks with both derivative and non-derivative
financial instruments. These instruments include interest rate
swaps, caps and floors, options to purchase these items, futures
and forward contracts
and/or
purchasing or selling U.S. Treasury and principal-only
securities. At December 31, 2006, the fair value of
derivative financial instruments and non-derivative financial
instruments used to mitigate these risks amounted to
$159 million and $1.3 billion, respectively. The
change in the fair value of the derivative financial instruments
amounted to a loss of $281 million for the year ended
December 31, 2006, and is included in servicing asset
valuation and hedge activities, net in the Consolidated
Statement of Income.
The components of servicing fees were as follows for the year
ended December 31, 2006:
|
|
|
|
|
($
in millions)
|
|
Total
|
|
|
Contractual servicing fees, net of
guarantee fees and including subservicing
|
|
|
$1,327
|
|
Late fees
|
|
|
130
|
|
Ancillary fees
|
|
|
127
|
|
|
|
Total
|
|
|
$1,584
|
|
|
|
At December 31, 2006, we pledged MSRs of $2.4 billion
as collateral for borrowings.
The following table summarizes activity related to MSRs, which
prior to January 1, 2006, were carried at lower of cost or
fair value:
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2005
|
|
2004
|
|
|
Balance at beginning of year
|
|
|
$4,819
|
|
|
|
$4,869
|
|
Originations and purchases, net of
sales
|
|
|
1,546
|
|
|
|
1,554
|
|
Amortization
|
|
|
(1,106
|
)
|
|
|
(879
|
)
|
SFAS 133 hedge valuation
adjustments
|
|
|
86
|
|
|
|
(272
|
)
|
Transfers to assets held for sale
(a)
|
|
|
(632
|
)
|
|
|
|
|
Other than temporary impairment
|
|
|
(55
|
)
|
|
|
(453
|
)
|
|
|
Balance at end of year
|
|
|
$4,658
|
|
|
|
$4,819
|
|
Valuation allowance
|
|
|
(643
|
)
|
|
|
(929
|
)
|
|
|
Carrying value at end of year
|
|
|
$4,015
|
|
|
|
$3,890
|
|
|
|
Estimated fair value at end of year
|
|
|
$4,021
|
|
|
|
$3,990
|
|
|
|
|
|
(a) |
At December 31, 2005, $632 in Capmark mortgage servicing
rights, net were transferred to assets held for sale in our
Consolidated Balance Sheet.
|
92
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The following table summarizes activity related to changes in
the valuation allowance for impairment of MSRs:
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2005
|
|
2004
|
|
|
Valuation allowance at beginning of
period
|
|
|
$929
|
|
|
|
$1,149
|
|
Additions (deductions) (a)
|
|
|
(237
|
)
|
|
|
233
|
|
Other than temporary impairment
|
|
|
(55
|
)
|
|
|
(453
|
)
|
Other
|
|
|
6
|
|
|
|
|
|
|
|
Valuation allowance at end of year
|
|
|
$643
|
|
|
|
$929
|
|
|
|
|
|
(a) |
Changes to the valuation allowance are reflected as a component
of amortization and impairment of servicing rights in our
Consolidated Statement of Income.
|
During 2005 and 2004, we recorded other than temporary
impairment of $55 million and $453 million,
respectively, reducing both the MSRs gross carrying value
and valuation allowance by this amount. This amount was based on
a statistical analysis of historical changes in mortgage and
other market interest rates to determine the amount that the
MSRs asset value will increase with only a remote probability of
occurring. The adjustment to the valuation allowance reduces the
maximum potential future increase to the MSRs carrying
value (under lower of cost or market accounting), but it has no
impact on the net carrying value of the asset or on earnings.
We have an active risk management program to hedge the value of
MSRs. The MSRs management program contemplates the use of
derivative financial instruments and treasury securities and
principal-only securities that experience changes in value
offsetting those of the MSRs in response to changes in market
interest rates. See Note 15 for a discussion of the
derivative financial instruments used to hedge mortgage
servicing rights. U.S. Treasury securities used in
connection with this risk management strategy are designated as
trading or available for sale. At December 31, 2005, there
were $2.1 billion of U.S. Treasury securities
outstanding related to this risk management activity, which were
reflected as investment securities. Principal-only securities
are designated as trading. At December 31, 2005, there was
$596 million in principal-only securities related to this
risk management activity.
The key economic assumptions and the sensitivity of the current
fair value of MSRs to immediate 10% and 20% adverse changes in
those assumptions are as follows:
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2005
|
|
2004
|
|
|
Estimated fair value of MSRs
|
|
$4,021
|
|
$3,990
|
|
|
Range of prepayment speeds
(constant prepayment rate)
|
|
8.3-28.2%
|
|
2.0-29.8%
|
Impact on fair value of 10% adverse
change
|
|
($183)
|
|
($189)
|
Impact on fair value of 20% adverse
change
|
|
($345)
|
|
($359)
|
Range of discount rates
|
|
8.0-12.7%
|
|
9.4-12.6%
|
Impact on fair value of 10% adverse
change
|
|
($106)
|
|
($107)
|
Impact on fair value of 20% adverse
change
|
|
($206)
|
|
($207)
|
|
|
These sensitivities are hypothetical and should be considered
with caution. As the figures indicate, changes in fair value
based on a 10% variation in assumptions generally cannot be
extrapolated because the relationship of the change in
assumptions to the change in fair value may not be linear. Also,
the effect of a variation in a particular assumption on the fair
value is calculated without changing any other assumption. In
reality, changes in one factor may result in changes in another
(e.g., increased market interest rates may result in lower
prepayments and increased credit losses), which could magnify or
counteract the sensitivities. Further, these sensitivities show
only the change in the asset balances and do not show any
expected change in the fair value of the instruments used to
manage the interest rate and prepayment risks associated with
these assets.
10 Premiums
and Other Insurance Receivables
Premiums and other insurance receivables consisted of the
following:
|
|
|
|
|
|
|
|
|
December 31,
($ in millions)
|
|
2006
|
|
|
2005
|
|
|
|
Prepaid reinsurance premiums
|
|
|
$367
|
|
|
|
$359
|
|
Reinsurance recoverable on unpaid
losses
|
|
|
876
|
|
|
|
762
|
|
Reinsurance recoverable on paid
losses (a)
|
|
|
95
|
|
|
|
87
|
|
Premiums receivable (b)
|
|
|
678
|
|
|
|
665
|
|
|
|
Total premiums and other insurance
receivables
|
|
|
$2,016
|
|
|
|
$1,873
|
|
|
|
|
|
(a)
|
Net of $1 and $1 allowance for uncollectible reinsurance
recoverable on paid losses at December 31, 2006 and 2005,
respectively.
|
(b)
|
Net of $7 and $8 allowance for uncollectible premiums receivable
at December 31, 2006 and 2005, respectively.
|
93
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
11 Other
Assets
Other assets consisted of:
|
|
|
|
|
|
|
|
|
December 31,
($ in millions)
|
|
2006
|
|
|
2005
|
|
|
|
Premises and equipment at cost
|
|
|
$1,645
|
|
|
|
$2,899
|
|
Accumulated depreciation
|
|
|
(1,067
|
)
|
|
|
(1,145
|
)
|
|
|
Net premises and equipment
|
|
|
578
|
|
|
|
1,754
|
|
Cash reserve deposits held for
securitization trusts (a)
|
|
|
2,623
|
|
|
|
2,907
|
|
Fair value of derivative contracts
in receivable position
|
|
|
2,544
|
|
|
|
3,000
|
|
Real estate and other
investments (b)
|
|
|
3,068
|
|
|
|
1,855
|
|
Restricted cash collections for
securitization trusts (c)
|
|
|
1,858
|
|
|
|
1,871
|
|
Goodwill, net of accumulated
amortization
|
|
|
1,827
|
|
|
|
2,446
|
|
Deferred policy acquisition cost
|
|
|
1,740
|
|
|
|
1,696
|
|
Accrued interest and rent receivable
|
|
|
1,315
|
|
|
|
1,163
|
|
Repossessed and foreclosed assets,
net
|
|
|
1,215
|
|
|
|
689
|
|
Debt issuance costs
|
|
|
643
|
|
|
|
726
|
|
Servicer advances
|
|
|
606
|
|
|
|
499
|
|
Securities lending
|
|
|
445
|
|
|
|
|
|
Investment in used vehicles held
for sale, at lower of cost or market
|
|
|
423
|
|
|
|
503
|
|
Subordinated note receivable
|
|
|
250
|
|
|
|
|
|
Intangible assets, net of
accumulated amortization (d)
|
|
|
|
|
|
|
|
|
Customer lists and contracts
|
|
|
48
|
|
|
|
16
|
|
Trademarks and other
|
|
|
11
|
|
|
|
15
|
|
Receivables related to taxes
|
|
|
9
|
|
|
|
774
|
|
Other assets
|
|
|
4,293
|
|
|
|
2,528
|
|
|
|
Total other assets
|
|
|
$23,496
|
|
|
|
$22,442
|
|
|
|
|
|
(a)
|
Represents credit enhancement in the form of cash reserves for
various securitization transactions we have executed. On
November 22, 2006, $710 of cash reserve deposits were
transferred to GM as part of a distribution of certain
securitized U.S. lease assets. Refer to Note 18 to our
Consolidated Financial Statements for further description of the
distribution.
|
(b)
|
Includes residential real estate investments of $2 billion
and $1.3 billion and related accumulated depreciation of
$13 and $9 for years ended December 31, 2006 and 2005,
respectively.
|
(c)
|
Represents cash collection from customer payments on securitized
receivables. These funds are distributed to investors as the
related secured debt matures.
|
(d)
|
Aggregate amortization expense on intangible assets was $16 and
$17, including $1 and $8 for Capmark, for the years ended
December 31, 2006 and 2005, respectively. Amortization
expense is expected to average $10 per year over the next
five fiscal years. In addition, during 2006, our Commercial
Finance Group had $13 of intangible assets that were deemed
impaired and subsequently written off during the third quarter
of 2006.
|
94
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The changes in the carrying amounts of goodwill for the periods
indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
International
|
|
|
|
|
|
|
|
|
($
in millions)
|
|
Operations
|
|
Operations
|
|
ResCap
|
|
Insurance
|
|
Other
|
|
Total
|
|
|
Goodwill at beginning of 2005
|
|
|
$14
|
|
|
|
$515
|
|
|
|
$455
|
|
|
|
$666
|
|
|
|
$1,624
|
|
|
|
$3,274
|
|
Goodwill acquired
|
|
|
|
|
|
|
3
|
|
|
|
16
|
|
|
|
3
|
|
|
|
|
|
|
|
22
|
|
Impairment losses (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(712
|
)
|
|
|
(712
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(18
|
)
|
|
|
(22
|
)
|
Foreign currency translation effect
|
|
|
|
|
|
|
(14
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
(36
|
)
|
|
|
(57
|
)
|
Transfers to assets held for
sale (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
(59
|
)
|
|
|
Goodwill at beginning of 2006
|
|
|
$14
|
|
|
|
$504
|
|
|
|
$460
|
|
|
|
$669
|
|
|
|
$799
|
|
|
|
$2,446
|
|
Goodwill acquired
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
148
|
|
|
|
|
|
|
|
151
|
|
Impairment losses (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(827
|
)
|
|
|
(827
|
)
|
Other
|
|
|
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Foreign currency translation effect
|
|
|
|
|
|
|
16
|
|
|
|
7
|
|
|
|
2
|
|
|
|
28
|
|
|
|
53
|
|
|
|
Goodwill at end of 2006
|
|
|
$14
|
|
|
|
$523
|
|
|
|
$471
|
|
|
|
$819
|
|
|
|
$
|
|
|
|
$1,827
|
|
|
|
|
|
(a)
|
During the fourth quarter of 2005,
we completed our goodwill impairment analysis of our Commercial
Finance Group (CFG) reporting unit in accordance with
SFAS 142. The CFG reporting units goodwill related
primarily to its 1999 acquisition of The Bank of New Yorks
commercial finance business. With the assistance of a third
party, management performed an assessment of the fair value of
the CFG reporting unit. The fair value of the CFG reporting unit
was determined using the average of an internally developed
discounted cash flow methodology and a valuation derived from
recent market precedent transactions. Based on this assessment,
it was determined that indicators of impairment existed as the
carrying amount of the CFG reporting unit including goodwill
exceeded its fair value. These indicators were largely
attributed to current competitive conditions in the industry in
which CFG operates, the relative level of liquidity in its
market and the CFG reporting unit experiencing declining margins
and a more difficult environment for growth than anticipated in
previous forecasts. Because the carrying amount of the CFG
reporting unit, including goodwill, as a whole exceeded its fair
value, management assessed the fair value of the CFG reporting
units individual assets, including identifiable intangible
assets and liabilities, to derive an implied fair value of the
CFG reporting units goodwill. Based on this assessment, we
recorded an impairment charge of $648 in the fourth quarter of
2005 as it was determined that the carrying value of the CFG
reporting units goodwill was greater than its implied fair
value. In addition, other includes impairment losses of $64
related to the former GMAC Commercial Mortgage business.
|
(b)
|
At December 31, 2005, $59 of
goodwill in the former GMAC Commercial Mortgage business was
transferred to assets held for sale in our Consolidated Balance
Sheet.
|
(c)
|
Following attrition of key
personnel around the middle of the year, our Commercial Finance
reporting unit initiated a goodwill impairment test, in
accordance with SFAS 142, outside the normal fourth quarter
cycle. A necessary precedent to such test was a thorough review
of the business by new leadership, with a particular focus on
long-term strategy. As a result of the review the operating
divisions were reorganized and the decision was made to
implement a different exit strategy for the workout portfolio
and to exit product lines with lower returns. These decisions
had a significant impact on expected asset levels and growth
rate assumptions used to estimate the fair value of the
business. In particular, the analysis performed during the third
quarter incorporates managements decision to discontinue
activity in the equipment finance business, which had a
portfolio of over $1 billion, representing approximately
20% of Commercial Finance businesss average commercial
loan portfolio during 2006. Consistent with the prior analysis,
the fair value of the Commercial Finance business was determined
using an internally developed discounted cash flow analysis
based on five-year projected net income and a market driven
terminal value multiple. Based upon the results of the
assessment, we concluded that the carrying value of goodwill
exceeded its fair value, resulting in an impairment loss of $827
during 2006.
|
95
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
12 Debt
The presentation of debt in the following table is classified
between domestic and foreign based on the location of the office
recording the transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average
interest
|
|
|
|
|
|
|
|
|
|
rates (a)
|
|
|
2006
|
|
|
2005
|
|
December 31,
($ in millions)
|
|
2006
|
|
|
2005
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Total
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Total
|
|
|
|
Short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
|
|
|
|
|
|
|
|
$742
|
|
|
|
$781
|
|
|
|
$1,523
|
|
|
|
$227
|
|
|
|
$297
|
|
|
|
$524
|
|
Demand notes
|
|
|
|
|
|
|
|
|
|
|
5,917
|
|
|
|
157
|
|
|
|
6,074
|
|
|
|
5,928
|
|
|
|
119
|
|
|
|
6,047
|
|
Bank loans and overdrafts
|
|
|
|
|
|
|
|
|
|
|
991
|
|
|
|
5,272
|
|
|
|
6,263
|
|
|
|
1,165
|
|
|
|
5,487
|
|
|
|
6,652
|
|
Repurchase agreements and
other (b)
|
|
|
|
|
|
|
|
|
|
|
22,506
|
|
|
|
7,232
|
|
|
|
29,738
|
|
|
|
22,330
|
|
|
|
5,954
|
|
|
|
28,284
|
|
|
|
Total short-term debt
|
|
|
5.8%
|
|
|
|
4.6%
|
|
|
|
30,156
|
|
|
|
13,442
|
|
|
|
43,598
|
|
|
|
29,650
|
|
|
|
11,857
|
|
|
|
41,507
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior indebtedness
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
|
|
5.5%
|
|
|
|
4.9%
|
|
|
|
20,010
|
|
|
|
15,204
|
|
|
|
35,214
|
|
|
|
31,286
|
|
|
|
10,443
|
|
|
|
41,729
|
|
Due after one year
|
|
|
5.9%
|
|
|
|
5.2%
|
|
|
|
135,693
|
|
|
|
22,589
|
|
|
|
158,282
|
|
|
|
147,288
|
|
|
|
23,862
|
|
|
|
171,150
|
|
|
|
Total long-term debt (c)
|
|
|
5.9%
|
|
|
|
5.2%
|
|
|
|
155,703
|
|
|
|
37,793
|
|
|
|
193,496
|
|
|
|
178,574
|
|
|
|
34,305
|
|
|
|
212,879
|
|
Fair value adjustment (d)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(106
|
)
|
|
|
(109
|
)
|
|
|
310
|
|
|
|
2
|
|
|
|
312
|
|
|
|
Total debt
|
|
|
|
|
|
|
|
|
|
|
$185,856
|
|
|
|
$51,129
|
|
|
|
$236,985
|
|
|
|
$208,534
|
|
|
|
$46,164
|
|
|
|
$254,698
|
|
|
|
|
|
(a)
|
The weighted average interest rates include the effects of
derivative financial instruments designated as hedges of debt.
|
(b)
|
Repurchase agreements consist of secured financing arrangements
with third parties at ResCap. Other primarily includes non-bank
secured borrowings, as well as Notes payable to GM. Refer to
Note 18 to our Consolidated Financial Statements for
further details.
|
(c)
|
We have issued warrants to subscribe for up to $300 aggregate
principal amount of 6.5% notes due October 15, 2009.
The warrants entitle the holder to purchase from us the
aggregate principal amount at par plus any accrued interest. The
warrants are exercisable up to and including October 15,
2007. In December 2003 and February 2004, $125 of the warrants
were exercised each year, resulting in $50 aggregate principal
amount of these warrants remaining outstanding.
|
(d)
|
To adjust designated fixed rate debt to fair value in accordance
with SFAS 133.
|
The following summarizes assets that are restricted as
collateral for the payment of the related debt obligation
primarily arising from securitization transactions accounted for
as secured borrowings and repurchase agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Related
secured
|
|
|
|
|
|
Related secured
|
|
December 31,
($ in millions)
|
|
Assets
|
|
|
debt (a)
|
|
|
Assets
|
|
|
debt (a)
|
|
|
|
Loans held for sale
|
|
|
$22,834
|
|
|
|
$20,525
|
|
|
|
$16,147
|
|
|
|
$12,647
|
|
Mortgage assets held for investment
and lending receivables
|
|
|
80,343
|
|
|
|
68,333
|
|
|
|
78,820
|
|
|
|
71,083
|
|
Retail automotive finance
receivables
|
|
|
21,320
|
|
|
|
19,098
|
|
|
|
20,427
|
|
|
|
18,888
|
|
Investment securities
|
|
|
3,662
|
|
|
|
4,523
|
|
|
|
3,631
|
|
|
|
4,205
|
|
Investment in operating leases, net
(b)
|
|
|
6,851
|
|
|
|
6,456
|
|
|
|
13,136
|
|
|
|
11,707
|
|
Real estate investments and other
assets
|
|
|
8,025
|
|
|
|
4,550
|
|
|
|
4,771
|
|
|
|
2,608
|
|
|
|
Total
|
|
|
$143,035
|
|
|
|
$123,485
|
|
|
|
$136,932
|
|
|
|
$121,138
|
|
|
|
|
|
(a)
|
Included as part of secured debt are repurchase agreements of
$11.5 and $9.9 billion where we have pledged assets,
reflected as investment securities, as collateral for
approximately the same amount of debt at December 31, 2006
and 2005, respectively.
|
(b)
|
On November 22, 2006, GM assumed $10.1 billion of debt
secured by $12.6 billion of net operating lease assets that
GMAC distributed to GM. Refer to Note 18 to our
Consolidated Financial Statements for further discussion of the
distribution.
|
From time to time, we repurchase previously issued debt as part
of our cash and liquidity management strategy. In October 2006
we successfully completed a debt tender offer by paying
$1 billion to retire a portion of our deferred interest
debentures, resulting in a $135 million after-tax loss,
which will generate significant interest savings going forward.
In addition, on December 15, 2006, we entered into an
agreement to sell $1 billion of Senior Unsecured Notes due
December 15, 2011.
96
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The following table presents the scheduled maturity of long-term
debt at December 31, 2006, assuming that no early
redemptions will occur. The actual payment of secured debt may
vary based on the payment activity of the related secured assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
Secured
|
|
|
Unsecured
|
|
|
Total
|
|
|
|
2007
|
|
|
$12,391
|
|
|
|
$22,823
|
|
|
|
$35,214
|
|
2008
|
|
|
16,708
|
|
|
|
16,551
|
|
|
|
33,259
|
|
2009
|
|
|
6,392
|
|
|
|
11,066
|
|
|
|
17,458
|
|
2010
|
|
|
2,058
|
|
|
|
7,908
|
|
|
|
9,966
|
|
2011
|
|
|
1,580
|
|
|
|
13,336
|
|
|
|
14,916
|
|
2012 and thereafter
|
|
|
55,185
|
|
|
|
27,884
|
|
|
|
83,069
|
|
|
|
Long-term debt (a)
|
|
|
94,314
|
|
|
|
99,568
|
|
|
|
193,882
|
|
Unamortized discount
|
|
|
(35
|
)
|
|
|
(351
|
)
|
|
|
(386
|
)
|
|
|
Total long-term debt
|
|
|
$94,279
|
|
|
|
$99,217
|
|
|
|
$193,496
|
|
|
|
|
|
(a) |
Debt issues totaling $14,628 are redeemable at or above par, at
our option anytime prior to the scheduled maturity dates, the
latest of which is November 2049.
|
To achieve the desired balance between fixed and variable rate
debt, we utilize interest rate swap and interest rate cap
agreements. The use of such derivative financial instruments had
the effect of synthetically converting $53.3 billion of our
$147.3 billion of fixed rate debt into variable rate
obligations and $40.1 billion of our $90.1 billion of
variable rate debt into fixed rate obligations at
December 31, 2006. In addition, certain of our debt
obligations are denominated in currencies other than the
currency of the issuing country. Foreign currency swap
agreements are used to hedge exposure to changes in the exchange
rates of these obligations.
97
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
Liquidity
facilities
Liquidity facilities represent additional funding sources, if
required. The financial institutions providing the uncommitted
facilities are not legally obligated to fund those facilities.
The following table summarizes the liquidity facilities
maintained by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Unused
|
|
|
|
Committed
|
|
|
Uncommitted
|
|
|
liquidity
|
|
|
liquidity
|
|
|
|
facilities
|
|
|
facilities
|
|
|
facilities
|
|
|
facilities
|
|
December 31,
($ in billions)
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
Automotive Finance operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated multicurrency global
credit facility (a)
|
|
|
$7.6
|
|
|
|
$7.4
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$7.6
|
|
|
|
$7.4
|
|
|
|
$7.6
|
|
|
|
$7.4
|
|
ResCap (b)
|
|
|
3.9
|
|
|
|
3.9
|
|
|
|
1.9
|
|
|
|
0.9
|
|
|
|
5.8
|
|
|
|
4.8
|
|
|
|
2.7
|
|
|
|
2.2
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. asset-backed commercial
paper liquidity and receivables facilities (c)
|
|
|
18.3
|
|
|
|
21.5
|
|
|
|
|
|
|
|
|
|
|
|
18.3
|
|
|
|
21.5
|
|
|
|
18.3
|
|
|
|
21.5
|
|
Other foreign facilities (d)
|
|
|
3.3
|
|
|
|
2.9
|
|
|
|
8.8
|
|
|
|
7.5
|
|
|
|
12.1
|
|
|
|
10.4
|
|
|
|
3.1
|
|
|
|
1.7
|
|
|
|
Total bank liquidity facilities
|
|
|
33.1
|
|
|
|
35.7
|
|
|
|
10.7
|
|
|
|
8.4
|
|
|
|
43.8
|
|
|
|
44.1
|
|
|
|
31.7
|
|
|
|
32.8
|
|
|
|
Secured funding facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Finance
operations (e)
|
|
|
36.6
|
|
|
|
28.1
|
|
|
|
|
|
|
|
|
|
|
|
36.6
|
|
|
|
28.1
|
|
|
|
9.8
|
|
|
|
5.6
|
|
ResCap (f)
|
|
|
29.4
|
|
|
|
26.8
|
|
|
|
73.3
|
|
|
|
42.1
|
|
|
|
102.7
|
|
|
|
68.9
|
|
|
|
59.7
|
|
|
|
35.1
|
|
Whole loan forward flow agreements
|
|
|
45.5
|
|
|
|
64.2
|
|
|
|
|
|
|
|
|
|
|
|
45.5
|
|
|
|
64.2
|
|
|
|
45.5
|
|
|
|
64.2
|
|
Other (g)
|
|
|
3.9
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
0.6
|
|
|
|
2.3
|
|
|
|
0.1
|
|
|
|
Total secured funding facilities
|
|
|
115.4
|
|
|
|
119.7
|
|
|
|
73.3
|
|
|
|
42.1
|
|
|
|
188.7
|
|
|
|
161.8
|
|
|
|
117.3
|
|
|
|
105.0
|
|
|
|
Total
|
|
|
$148.5
|
|
|
|
$155.4
|
|
|
|
$84.0
|
|
|
|
$50.5
|
|
|
|
$232.5
|
|
|
|
$205.9
|
|
|
|
$149.0
|
|
|
|
$137.8
|
|
|
|
|
|
(a)
|
The entire $7.6 is available for use in the U.S., $0.8 is
available for use by GMAC (UK) plc and $0.8 is available for use
by GMAC International Finance B.V. in Europe.
|
(b)
|
ResCap maintains $3.5 of syndicated bank facilities, consisting
of $1.75 syndicated term loan committed through July 2008, an
$875 million syndicated line of credit committed through
July 2008 and an $875 million syndicated line of credit
committed through July 2007.
|
(c)
|
Relates to New Center Asset Trust (NCAT), which is a special
purpose entity administered by us for the purpose of funding
assets as part of our securitization funding programs. This
entity funds assets primarily through the issuance of
asset-backed commercial paper and represents an important source
of liquidity to us. At December 31, 2006, NCAT had
commercial paper outstanding of $9.5, which is not consolidated
in the Consolidated Balance Sheet.
|
(d)
|
Consists primarily of credit facilities supporting operations in
Canada, Europe, Latin America and Asia-Pacific.
|
(e)
|
In August 2006 we closed a three-year, $10 billion facility
with a subsidiary of Citigroup.
|
|
|
(f) |
ResCaps primary sources of secured financing include
whole-loan sales, secured aggregation facilities, asset-backed
commercial paper facilities, and repurchase agreements. In
addition to the above, ResCaps collateralized borrowings
in securitized trusts totaled $53.3 and $56.1 as of
December 31, 2006 and 2005, respectively.
|
|
|
(g) |
Consists primarily of Commercial Finance secured funding
facilities.
|
The syndicated multi-currency global facility includes a
$4.35 billion five-year facility (expires June
2008) and a $3.25 billion
364-day
facility (expires June 2007). The
364-day
facility includes a term out option which, if exercised by us
prior to expiration, carries a one-year term. Additionally, a
leverage covenant in the liquidity facilities and certain other
funding facilities restricts the ratio of consolidated borrowed
funds (excluding certain obligations of bankruptcy remote
special purpose entities) to consolidated net worth to no
greater than 11.0:1 under certain conditions. More specifically,
the covenant is only applicable on the last day of any fiscal
quarter (other than the fiscal quarter during which a change in
rating occurs) during such times that we have senior unsecured
long-term debt outstanding, without third-party enhancement,
which is rated BBB+ or less (by Standard &
Poors), or Baa1 or less (by Moodys). Our leverage
ratio covenant was 10.8:1 at December 31, 2006, and we
are, therefore, in compliance with this covenant.
98
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
13 Reserves
for Insurance Losses and Loss Adjustment Expenses
The following table provides a reconciliation of the activity in
the reserves for insurance losses and loss adjustment expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
|
|
|
|
|
($ in
millions)
|
|
2006
|
|
2005
|
|
2004
|
|
|
Balance at beginning of year
|
|
|
$2,534
|
|
|
|
$2,505
|
|
|
|
$2,340
|
|
Reinsurance recoverables
|
|
|
(762
|
)
|
|
|
(775
|
)
|
|
|
(871
|
)
|
|
|
Net balance at beginning of year
|
|
|
1,772
|
|
|
|
1,730
|
|
|
|
1,469
|
|
Net reserves from acquisitions
|
|
|
80
|
|
|
|
|
|
|
|
|
|
Incurred related to
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
2,513
|
|
|
|
2,471
|
|
|
|
2,344
|
|
Prior years (a)
|
|
|
(93
|
)
|
|
|
(116
|
)
|
|
|
27
|
|
|
|
Total incurred (b)
|
|
|
2,420
|
|
|
|
2,355
|
|
|
|
2,371
|
|
Paid related to
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
(1,723
|
)
|
|
|
(1,682
|
)
|
|
|
(1,567
|
)
|
Prior years
|
|
|
(803
|
)
|
|
|
(619
|
)
|
|
|
(558
|
)
|
|
|
Total paid
|
|
|
(2,526
|
)
|
|
|
(2,301
|
)
|
|
|
(2,125
|
)
|
Other (c)
|
|
|
8
|
|
|
|
(12
|
)
|
|
|
15
|
|
|
|
Net balance at end of year (d)
|
|
|
1,754
|
|
|
|
1,772
|
|
|
|
1,730
|
|
Reinsurance recoverables
|
|
|
876
|
|
|
|
762
|
|
|
|
775
|
|
|
|
Balance at end of year
|
|
|
$2,630
|
|
|
|
$2,534
|
|
|
|
$2,505
|
|
|
|
|
|
(a) |
Incurred losses and loss adjustment expenses during 2006 and
2005 were reduced by $93 and $116, respectively, as a result of
decreases in prior years reserve estimates for certain
reinsurance and private passenger automobile coverages in both
the United States and internationally. In addition, 2006
included the reduction of reserves related to an insurance
program transferred to GM. During 2004, incurred losses and loss
adjustment expenses included increases to prior years
reserve estimates, which were based on additional knowledge
available to us during 2004. In addition, 2004 also includes
$29 related to reinsurance agreements we decided to commute.
|
|
|
(b)
|
Reflected net of reinsurance recoveries totaling $306, $342 and
$312 for the years ended December 31, 2006, 2005 and
2004, respectively.
|
(c)
|
Effects of exchange rate changes for the years ended
December 31, 2006, 2005 and 2004.
|
(d)
|
Includes exposure to asbestos and environmental claims from the
reinsurance of general liability, commercial multiple peril,
homeowners and workers compensation claims. Reported
claim activity to date has not been significant. Net reserves
for loss and loss adjustment expenses for such matters were $5,
$6 and $8 at December 31, 2006, 2005 and 2004,
respectively.
|
14 Accrued
Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of:
|
|
|
|
|
|
|
|
|
December 31,
($ in millions)
|
|
2006
|
|
2005
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
$8,200
|
|
|
|
$4,574
|
|
Commercial
|
|
|
2,288
|
|
|
|
2,280
|
|
Fair value of derivative contracts
in payable position
|
|
|
1,745
|
|
|
|
2,447
|
|
Employee compensation and benefits
(a)
|
|
|
540
|
|
|
|
1,574
|
|
Mortgage escrow deposits
|
|
|
1,366
|
|
|
|
1,356
|
|
Factored client payables
|
|
|
813
|
|
|
|
819
|
|
Securitization trustee payable
|
|
|
902
|
|
|
|
703
|
|
GM payable, net
|
|
|
70
|
|
|
|
152
|
|
Taxes payable (receivable)
|
|
|
249
|
|
|
|
(169
|
)
|
Accounts payable
|
|
|
1,844
|
|
|
|
2,170
|
|
Other liabilities
|
|
|
4,642
|
|
|
|
2,318
|
|
|
|
Total accrued expenses and other
liabilities
|
|
|
$22,659
|
|
|
|
$18,224
|
|
|
|
|
|
(a) |
Reduction reflects $801 of liabilities related to U.S. based GM
sponsored other postretirement programs assumed by GM as part of
the Sales Transactions.
|
15 Derivative
Instruments and Hedging Activities
We enter into interest rate and foreign currency futures,
forwards, options and swaps in connection with our market risk
management activities. Derivative instruments are used to manage
interest rate risk relating to specific groups of assets and
liabilities, including investment securities, loans held for
sale, mortgage servicing rights, debts and deposits, as well as
off-balance sheet securitizations. In addition foreign exchange
contracts are used to hedge foreign currency denominated debt
and foreign exchange transactions. In accordance with
SFAS 133, as amended and interpreted, we record derivative
financial instruments on the consolidated balance sheet as
assets or liabilities at fair value. Changes in fair value are
accounted for depending on the use of the derivative financial
instruments and whether it qualifies for hedge accounting
treatment.
Our primary objective for utilizing derivative financial
instruments is to manage market risk volatility associated with
interest rate and foreign currency risks related to the assets
and liabilities of the automotive and mortgage operations.
Managing this volatility enables us to price our finance and
mortgage offerings at competitive rates and to minimize the
impact of market risk on our earnings. These strategies are
applied on a decentralized basis by the respective automotive
finance and mortgage operations, consistent with the level at
which market risk is managed, but are subject to various limits
and controls at both the local unit and consolidated level. One
of the key goals of our strategy is to modify the asset and
liability and interest rate mix, including the assets and
liabilities associated with securitization transactions that may
be
99
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
recorded in off-balance sheet special purpose entities. In
addition, we use derivative financial instruments to mitigate
the risk of changes in the fair values of mortgage loans held
for sale and mortgage servicing rights. Derivative financial
instruments are also utilized to manage the foreign currency
exposure related to foreign currency denominated debt. The
following summarizes our derivative activity based on the
accounting hedge designation:
Fair Value
Hedges
Our fair value hedges primarily include hedges of fixed-rate
debt and loans held for sale:
|
|
|
Debt obligations Interest rate swaps are used
to modify our exposure to interest rate risk by converting fixed
rate debt to a floating rate. Generally, individual swaps are
designated as hedges of specific debt at the time of issuance
with the terms of the swap matching the terms of the underlying
debt. As the terms of the swap are designed to match the terms
of the debt, a significant portion of our debt obligation
hedging relationships receive short-cut treatment under
SFAS 133, resulting in the assumption of no hedge
ineffectiveness.
|
|
|
Loans held for sale We use derivative
financial instruments to hedge exposure to risk associated with
our mortgage loans held for sale. After loans are funded, they
are generally sold into the secondary market to various
investors, often as mortgage-backed securities sponsored by
Fannie Mae, Freddie Mac or Ginnie Mae. Mortgage loans that are
not eligible for agency sponsored securitization are sold
through public or private securitization transactions or in
whole loan sales. The primary risk associated with closed loans
awaiting sale is a change in the fair value of the loans due to
fluctuations in interest rates. Our primary strategies to
protect against this risk are selling loans or mortgage-backed
securities forward to investors using mandatory and optional
forward commitments and the use of interest rate swaps. Hedge
periods are closed daily, representative of daily hedge
portfolio rebalancing due to new loan funding and sales.
Effectiveness is assessed using historical daily hedge period
data. We assess hedge effectiveness employing a
statistical-based approach, which must meet thresholds for
R-squared, slope, and F-statistic.
|
Cash Flow
Hedges
We enter into derivative financial instrument contracts to hedge
exposure to variability in cash flows related to floating rate
and foreign currency financial instruments. Interest rate swaps
are used to modify exposure to variability in expected future
cash flows attributable to variable rate debt. Currency swaps
and forwards are used to hedge foreign exchange exposure on
foreign currency denominated debt by converting the funding
currency to the same currency of the assets being financed.
Similar to our fair value hedges, the swaps are generally
concurrent with the debt issuance, with the terms of the swap
matching the terms of the underlying debt.
We use derivative financial instruments to hedge exposure to
variability in expected cash flows associated with the future
issuance of bonds payable related to securitizations of mortgage
loans held for investment. The primary risk associated with
these transactions is the variability on the issuance price of
the debt securities. Our primary strategy to protect against
this risk is selling loans or mortgage-backed securities forward
using mandatory and optional forward commitments. Upon issuance
of the debt securities, the hedging relationship terminates and
the changes in fair value of the hedging instrument are
reclassified out of other comprehensive income, a component of
equity, and into earnings over the term of the debt securities,
as an adjustment to yield.
Economic Hedges
not Designated as Accounting Hedges
We utilize certain derivative financial instruments to manage
interest rate, price and foreign exchange risks along with the
value of MSRs and mortgage loans, which do not qualify or
are not designated as hedges under SFAS 133. As these
derivatives are not designated as accounting hedges, changes in
the fair value of the derivative instruments are recognized in
earnings each period.
|
|
|
Mortgage servicing rights We enter into a
combination of derivative contracts that are economic hedges of
the servicing rights associated with groups of similar mortgage
loans. These derivatives include interest rate caps and floors,
futures options, futures, mortgage-backed security options,
interest rate swaps and swaptions. The maturities of these
instruments range between six months and twenty years. We have
entered into written options on U.S. Treasury futures for
notional amounts lower than purchased options on futures. The
purchased option coverage is at a strike price less than or
equal to the corresponding written option coverage, thereby
mitigating our loss exposure. We are required to deposit cash in
margin accounts maintained by counterparties for unrealized
losses on future contracts.
|
In addition, the following describes other uses of derivatives
that do not qualify for or for which we elect not to apply hedge
accounting:
|
|
|
Off-balance sheet securitization activities
We enter into interest rate swaps to facilitate securitization
transactions where the underlying receivables are sold to a
non-consolidated qualified special purpose entity (QSPE). As the
underlying assets are carried in a non-consolidated entity, the
interest rate swaps do not qualify for hedge accounting
treatment.
|
|
|
Foreign currency debt We have elected not to
treat currency swaps that are used to convert foreign
denominated debt back into the functional currency at a floating
rate as hedges for accounting purposes. While these currency
swaps are similar to the foreign currency cash flow hedges
described in the foregoing, we have not designated them as
hedges as the changes in the fair values of the currency swaps
are substantially offset by the
|
100
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
|
|
|
foreign currency revaluation gains and losses of the underlying
debt.
|
|
|
|
Mortgage related securities We use interest
rate options, futures, swaps, caps and floors to mitigate risk
related to mortgage related securities classified as trading.
|
|
|
Callable debt obligations We enter into
cancellable interest rate swaps as economic hedges of certain
callable fixed rate debt in connection with our market risk
management policy.
|
The following table summarizes the pre-tax earnings effect for
each type of hedge classification, segregated by the asset or
liability hedged.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Income
statement classification
|
|
Fair value hedge ineffectiveness
gain (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt obligations
|
|
|
$
|
|
|
|
($2
|
)
|
|
|
$1
|
|
|
Interest expense
|
Mortgage servicing rights
|
|
|
|
|
|
|
57
|
|
|
|
70
|
|
|
Servicing asset valuation and hedge
activities, net
|
Loans held for sale
|
|
|
(1
|
)
|
|
|
(29
|
)
|
|
|
(12
|
)
|
|
Gain on sale of mortgage and
automotive loans, net
|
Cash flow hedges ineffectiveness
gain (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt obligations
|
|
|
|
|
|
|
3
|
|
|
|
(19
|
)
|
|
Interest expense
|
Economic hedge change in fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet securitization
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Finance operations
|
|
|
2
|
|
|
|
(36
|
)
|
|
|
(26
|
)
|
|
Other income
|
Mortgage operations
|
|
|
|
|
|
|
1
|
|
|
|
(18
|
)
|
|
Other income
|
Foreign currency debt (a)
|
|
|
54
|
|
|
|
(202
|
)
|
|
|
44
|
|
|
Interest expense
|
Loans held for sale or investment
|
|
|
35
|
|
|
|
59
|
|
|
|
(60
|
)
|
|
Gain on sale of mortgage and
automotive loans, net
|
Mortgage servicing rights
|
|
|
(281
|
)
|
|
|
(55
|
)
|
|
|
(7
|
)
|
|
Servicing asset valuation and hedge
activities, net
|
Mortgage related securities
|
|
|
3
|
|
|
|
(42
|
)
|
|
|
(95
|
)
|
|
Investment income
|
Callable debt obligations
|
|
|
(22
|
)
|
|
|
(240
|
)
|
|
|
(82
|
)
|
|
Interest expense
|
Other
|
|
|
21
|
|
|
|
(11
|
)
|
|
|
(18
|
)
|
|
Other income, Interest expense,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses
|
|
|
|
|
|
|
Total loss
|
|
|
($189
|
)
|
|
|
($497
|
)
|
|
|
($222
|
)
|
|
|
|
|
|
|
(a) |
Amount represents the difference between the changes in the fair
values of the currency swap, net of the revaluation of the
related foreign denominated debt.
|
The following table presents additional information related to
our derivative financial instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
|
Net gain on fair value hedges
excluded from assessment of effectiveness
|
|
|
$
|
|
|
|
$59
|
|
|
|
$180
|
|
Expected reclassifications from
other comprehensive income to earnings (a)
|
|
|
8
|
|
|
|
12
|
|
|
|
(1
|
)
|
|
|
|
|
(a) |
Estimated to occur over the next 12 months.
|
Derivative financial instruments contain an element of credit
risk if counterparties are unable to meet the terms of the
agreements. Credit risk associated with derivative financial
instruments is measured as the net replacement cost should the
counterparties which owe us under the contract completely fail
to perform under the terms of those contracts, assuming no
recoveries of underlying collateral, as measured by the market
value of the derivative financial instrument. At
December 31, 2006 and 2005, the market value of derivative
financial instruments in an asset or receivable position (from
our perspective) was $2.5 billion and $3.0 billion,
including accrued interest of $0.6 billion and
$0.7 billion, respectively. We minimize the credit risk
exposure by limiting the counterparties to those major banks and
financial institutions that meet established credit guidelines.
As of December 31, 2006, more than 74% of our exposure is
with counterparties with a Fitch rating of A+ or higher (or an
equivalent rating from another rating agency if a counterparty
is not rated by Fitch), as compared with more than 84% as of
December 31, 2005. Additionally, we reduce credit risk on
the majority of our derivative financial instruments by entering
into legally enforceable agreements that permit the closeout and
netting of transactions with the same counterparty upon
occurrence of certain events. To further mitigate the risk of
counterparty default, we maintain collateral agreements with
certain counterparties. The agreements require both parties to
maintain cash deposits in the event the fair values of the
derivative financial instruments meet established thresholds. We
have placed cash deposits totaling $206 million and
$125 million at December 31, 2006 and 2005,
respectively, in accounts maintained by counterparties. We have
received cash deposits from counterparties totaling
$215 million and $247 million at December 31,
2006 and 2005, respectively. The cash deposits placed and
received are included in our Consolidated Balance Sheet in Other
assets and Accrued expenses and other liabilities, respectively.
101
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
16 Pension
and Other Postretirement Benefits
Pension
Until the consummation of the Sale Transactions, a number of our
employees were eligible to participate in various domestic and
foreign pension plans of GM. While we were a participating
employer in these plans, GM allocated to us a portion of their
pension expense which is made on a pro-rata basis and, as such,
is impacted by the various assumptions (discount rate, return on
plan assets, etc.) that GM utilized in determining its pension
obligation. Detailed information about GMs pension plans
can be found in the GM Annual Report
Form 10-K,
filed separately with the SEC, which report is not deemed to be
incorporated into any our filings under the SEC Act or Exchange
Act. Certain of our other employees (primarily at our ResCap,
Commercial Finance, Insurance and International Automotive
Finance groups) participate in separate retirement plans that
provide for pension payments to eligible employees upon
retirement based on factors such as length of service and salary.
During 2006, GM announced that, effective immediately, it would
freeze accrued pension benefits for U.S. salaried
employees. Furthermore, effective November 30, 2006, upon
completion of the sale, our employees were no longer eligible to
participate in these pension plans. Also, pursuant to the
purchase and sale agreement we transferred, froze or terminated
a significant portion of our non-GM sponsored defined benefit
plans during 2006. As such, at December 31, 2006, our
pension obligation is lower than in previous periods. A listing
of the more significant 2006 pension transactions is discussed
below:
|
|
|
During the second quarter, we approved the freezing of the
benefit accrual of a defined benefit retirement plan as of
December 31, 2006, covering primarily ResCap employees. No
further participant benefits will accrue subsequent to that date
and no new entrants will be permitted in the plan. As a result
of these developments, a curtailment gain of approximately
$43 million was recorded in compensation and benefits
expense on our Consolidated Statement of Income.
|
|
|
During the third quarter, GMAC Commercial Finance UK and GMAC
Commercial Finance Canada announced intentions to terminate
their retirement plans, resulting in a curtailment loss of
approximately $9 million expense recorded in compensation
and benefits expense on our Consolidated Statement of Income.
|
|
|
During the fourth quarter, we expensed payments to the plans of
approximately $48 million to fully fund the GMAC portion of
the GM U.K. pension plans. These payments were required as a
Section 75 debt obligation under the UK Pension Act of 2004
and were recorded in compensation and benefits expense on our
Consolidated Statement of Income.
|
|
|
We transferred to GM the financial liability associated with the
GMAC portion of certain GM plans in Canada as of
November 30, 2006.
|
During 2005, GMAC Commercial Finance terminated the GMAC
Commercial Credit LLC U.S. Retirement Plan, resulting in an
extinguishment of approximately $11 million in accumulated
benefits.
The following summarizes information relating to our non-GM
sponsored plans:
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
2005
|
|
|
Benefit obligation
|
|
|
$434
|
|
|
|
$443
|
|
Fair value of plan assets
|
|
|
391
|
|
|
|
334
|
|
|
|
Funded status
|
|
|
(43
|
)
|
|
|
(109
|
)
|
Unrecognized net actuarial gain
|
|
|
16
|
|
|
|
75
|
|
Unrecognized prior service cost
|
|
|
2
|
|
|
|
3
|
|
Net transition obligation
|
|
|
|
|
|
|
(1
|
)
|
|
|
Accrued pension cost
|
|
|
($25
|
)
|
|
|
($32
|
)
|
|
|
Net pension expense, which is recorded in compensation and
benefits expense on our Consolidated Statement of Income,
includes the curtailment and other gains and losses from the
transactions described above. Net pension expense for our
employees that participated in GM sponsored plans totaled
$80 million, $60 million and $50 million for
2006, 2005 and 2004, respectively; net pension expense for
non-GM sponsored plans totaled ($3) million,
$28 million and $44 million for 2006, 2005 and 2004,
respectively. Based on the termination of our eligibility in the
GM sponsored plans and the transactions we have completed to
change our defined benefit plans discussed above, we anticipate
that our net pension expense will not be significant for future
years. Contributions to non-GM sponsored pension plans for 2006
were approximately $4 million, and we expect these
contribution levels to remain minimal for our defined benefit
plans worldwide in 2007.
The expected rate of return on plan assets is an estimate we
determine by summing the expected inflation and the expected
real rate of return on stocks and bonds based on allocation
percentages within the trust. The weighted average assumptions
for the non-GM sponsored pension plans are as follows:
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
2006
|
|
2005
|
|
|
Discount rate
|
|
|
5.47%
|
|
|
|
5.71%
|
|
Expected return on plan assets
|
|
|
8.48%
|
|
|
|
8.61%
|
|
Rate of compensation increase
|
|
|
4.40%
|
|
|
|
4.66%
|
|
|
|
Other
Postretirement Benefits
Certain of our subsidiaries participated in various
postretirement medical, dental, vision and life insurance plans
of GM, while other subsidiaries participated in separately
maintained postretirement plans. These benefits were funded as
incurred from our general assets. We previously accrued
postretirement benefit costs over the active service period of
employees to the date of full eligibility for
102
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
such benefits. Effective November 30, 2006, upon completion
of the sale, our employees were no longer eligible to
participate in GMs postretirement plans. Prior to the
sale, GM agreed to assume or retain approximately
$801 million of liabilities related to U.S. based GM
sponsored other postretirement benefit programs for our
employees, as well as approximately $302 million of related
deferred tax assets, and the net amount was recorded as a
capital contribution. We have 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, we do not admit or otherwise
acknowledge that such amounts or existing postretirement benefit
plans (other than pensions) represent legally enforceable
liabilities. Other postretirement benefits expense, which is
recorded in Compensation and benefits expense in our
Consolidated Statement of Income, totaled $35 million in
2006, which was lower than the $88 million and
$72 million in 2005 and 2004, respectively, primarily due
to GMs restructuring of its benefit plans and the other
transactions mentioned above. We expect our other postretirement
expense to be minimal in future years.
Defined
Contribution Plan
A significant number of our employees are covered by defined
contribution plans. Employer contributions vary based on
criteria specific to each individual plan and amounted to
$40 million, $41 million, and $39 million in
2006, 2005 and 2004, respectively, and were recorded in
Compensation and benefit expenses in our Consolidated Statement
of Income. As a result of the sale and the associated
reorganization of our employee benefit plans, the number of
employees covered by defined contribution plans and the required
employer contributions are expected to increase during 2007.
17 Income
Taxes
Effective November 28, 2006, GMAC, along with certain
U.S. subsidiaries, became disregarded or pass-through
entities for U.S. federal income tax purposes. Income taxes
incurred by these converting entities have been provided through
November 30, 2006, as required under the tax sharing
agreement between GM and GMAC. Subsequent to November 30,
2006, income taxes have not been provided for these entities as
they ceased to be taxable entities, with the exception of a few
local jurisdictions that continue to tax LLCs or partnerships.
Due to our change in tax status, a net deferred tax liability
was eliminated through income tax expense totaling
$791 million. Members each report their share of our
taxable income in their respective income tax returns. Our
banking, insurance and foreign subsidiaries are generally
corporations and continue to be subject to and provide for
U.S. federal and foreign income taxes. The income tax
expense related to these corporations is included in our income
tax expense, along with other miscellaneous state, local and
franchise taxes of GMAC and certain other subsidiaries.
The significant components of income tax expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Current income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
$1,115
|
|
|
|
$620
|
|
|
|
$1,452
|
|
Foreign
|
|
|
432
|
|
|
|
52
|
|
|
|
128
|
|
State and local
|
|
|
43
|
|
|
|
17
|
|
|
|
(43
|
)
|
|
|
Total current expense
|
|
|
1,590
|
|
|
|
689
|
|
|
|
1,537
|
|
|
|
Deferred income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(396
|
)
|
|
|
168
|
|
|
|
(466
|
)
|
Foreign
|
|
|
(316
|
)
|
|
|
271
|
|
|
|
142
|
|
State and local
|
|
|
16
|
|
|
|
69
|
|
|
|
149
|
|
|
|
Total deferred (benefit) expense
|
|
|
(696
|
)
|
|
|
508
|
|
|
|
(175
|
)
|
|
|
Total income tax expense before
change in tax status
|
|
|
894
|
|
|
|
1,197
|
|
|
|
1,362
|
|
Change in tax status
|
|
|
(791
|
)
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
|
$103
|
|
|
|
$1,197
|
|
|
|
$1,362
|
|
|
|
103
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
A reconciliation of the statutory U.S. federal income tax
rate to our effective tax rate applicable to income and our
change in tax status is shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
Statutory U.S. federal tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
Change in tax rate resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local income taxes, net
of federal income tax benefit
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
2.7
|
|
|
|
Tax-exempt income
|
|
|
(0.9
|
)
|
|
|
(1.1
|
)
|
|
|
(0.9
|
)
|
|
|
Foreign income tax rate differential
|
|
|
(5.4
|
)
|
|
|
(1.9
|
)
|
|
|
(1.3
|
)
|
|
|
Goodwill impairment
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
Other (a)
|
|
|
(0.8
|
)
|
|
|
.6
|
|
|
|
(3.5
|
)
|
|
|
|
|
Effective tax rate before change in
tax status
|
|
|
37.2
|
|
|
|
34.4
|
|
|
|
32.0
|
|
|
|
Effect of tax status change
|
|
|
(35.5
|
)
|
|
|
|
|
|
|
|
|
|
|
LLC loss not subject to federal or
state income taxes
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
4.6
|
%
|
|
|
34.4
|
%
|
|
|
32.0
|
%
|
|
|
|
|
|
|
(a) |
In 2004, principally reflects the benefit of favorable
settlements with various tax authorities (both U.S. and
International), as well as the impact of changes in reserve
requirements.
|
Deferred tax assets and liabilities result from differences
between assets and liabilities measured for financial reporting
purposes and those measured for income tax return purposes.
Under the terms of the Purchase and Sale Agreement between GM
and FIM Holdings LLC, the distribution of lease assets and
assumption by GM of certain postretirement benefits resulted in
a reduction of deferred tax liabilities and assets of
$1,845 million and $302 million, respectively.
Additionally, the change in tax status resulted in a
$791 million reduction in income tax expense related to the
elimination of deferred tax liabilities and assets of
$1,486 million and $695 million, respectively. The
significant components of deferred tax assets and liabilities
after consideration of these adjustments are reflected in the
following table.
|
|
|
|
|
|
|
|
|
December 31,
($ in millions)
|
|
2006
|
|
|
2005
|
|
|
|
Deferred tax
liabilities
|
|
|
|
|
|
|
|
|
Lease transactions
|
|
|
$1,236
|
|
|
|
$4,020
|
|
Deferred acquisition costs
|
|
|
560
|
|
|
|
676
|
|
Unrealized gains on securities
|
|
|
54
|
|
|
|
277
|
|
Sales of finance receivables
|
|
|
41
|
|
|
|
(327
|
)
|
State and local taxes
|
|
|
3
|
|
|
|
118
|
|
Mortgage servicing rights
|
|
|
15
|
|
|
|
857
|
|
Debt issuance costs
|
|
|
|
|
|
|
316
|
|
Goodwill
|
|
|
3
|
|
|
|
(102
|
)
|
Other
|
|
|
146
|
|
|
|
189
|
|
|
|
Gross deferred tax liabilities
|
|
|
2,058
|
|
|
|
6,024
|
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Unearned insurance premiums
|
|
|
293
|
|
|
|
297
|
|
Tax carryforwards
|
|
|
206
|
|
|
|
54
|
|
Manufacturer incentive payments
|
|
|
132
|
|
|
|
|
|
Provision for credit losses
|
|
|
91
|
|
|
|
809
|
|
Postretirement benefits
|
|
|
15
|
|
|
|
301
|
|
Hedging transactions
|
|
|
2
|
|
|
|
(61
|
)
|
Other
|
|
|
312
|
|
|
|
260
|
|
|
|
Gross deferred tax assets
|
|
|
1,051
|
|
|
|
1,660
|
|
|
|
Net deferred tax liability (a)
|
|
|
$1,007
|
|
|
|
$4,364
|
|
|
|
|
|
(a) |
GMAC Commercial Mortgages net deferred tax asset of
$169 million was transferred to liabilities related to
assets held for sale in our Consolidated Balance Sheet as of
December 31, 2005.
|
At December 31, 2006, our net assets of flow-through
entities exceeded their tax basis by approximately
$2,460 million, primarily related to lease transactions,
mortgage servicing rights and sales of finance receivables.
104
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
Foreign pre-tax income totaled $336 million in 2006,
$988 million in 2005 and $1,003 million in 2004.
Foreign pre-tax income is subject to U.S. taxation when
effectively repatriated. For our entities that are disregarded
for U.S. federal income tax purposes, it is the
responsibility of our members to provide federal income taxes on
the undistributed earnings of foreign subsidiaries to the extent
that such earnings are not deemed permanently reinvested outside
the United States. For our banking and insurance subsidiaries
that continue to be subject to U.S. federal income taxes,
we provide for federal income taxes on the undistributed
earnings of foreign subsidiaries, except to the extent that such
earnings are indefinitely reinvested outside the United States.
At December 31, 2006, $4,388 million of accumulated
undistributed earnings of foreign subsidiaries was indefinitely
reinvested. Quantification of the deferred tax liability, if
any, associated with indefinitely reinvested earnings is not
practicable.
For the eleven months ending November 30, 2006, and years
ending 2005 and 2004, GM had consolidated federal net operating
losses. After GM utilized all prior year federal carryback
potential, the remaining net operating losses were carried
forward. The consolidated federal net operating losses also
created charitable contribution deduction and foreign tax credit
carryforwards. Pursuant to the tax sharing agreement between GM
and us, our consolidated allocation of tax attributes from GM
for this time periods federal net operating losses (due to
certain loss subsidiaries), charitable contributions deduction
and foreign tax credits are carried forward for our subsidiaries
that remain separate U.S. tax paying entities. For the
Company and certain subsidiaries which have converted to limited
liability companies and have elected to be treated as
pass-through entities, intercompany receivables from GM related
to tax attributes totaling $1.1 billion were dividended to
GM as of November 30, 2006. For comparative purposes, at
December 31, 2005, we had an intercompany tax receivable
from GM of $690 million. The receivable was comprised of
federal net operating loss carryforward of $611 million,
charitable contributions carryforward of $12 million and
foreign tax credit carryforward of $67 million.
Under the terms of the Purchase and Sale Agreement between GM
and FIM Holdings LLC, the tax sharing agreement between GM and
us was terminated as of November 30, 2006. Terms of the
sale agreement stipulate that GM will indemnify us for any
contingent tax liabilities related to periods prior to
November 30, 2006, that would be in excess of those
established as of the sale date. Additionally, net tax related
assets consisting of tax deposits, claims and contingencies as
of November 30, 2006, for the converting entities have been
assumed by and transferred to GM through equity totaling
$107 million.
We have open tax years primarily from 2001 to current with
various U.S. and foreign taxing jurisdictions. These open years
contain matters that could be subject to differing
interpretations of applicable tax laws and regulations as they
related to timing or inclusion of revenue and expenses or the
sustainability of income tax credits for a given audit cycle. We
have established a liability of approximately $375 million
for those matters where the amount of loss is probable and
estimable. This amount includes the liability related to our
banking, insurance and foreign subsidiaries that continue to be
subject to U.S. and foreign income taxes, as well as the
liability for the converting entities related to state and local
jurisdictions where we previously filed as a separate company
taxpayer. The amount of the liability is based on
managements best estimate given our history with similar
matters and interpretations of current laws and regulations.
In June 2006 the FASB issued FIN 48. The adoption of this
Interpretation as of January 1, 2007, is not expected to
not have a material impact on our consolidated financial
position.
105
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
18 Related
Party Transactions
Balance
Sheet
A summary of the balance sheet effect of transactions with GM,
FIM Holdings and affiliated companies is as follows:
|
|
|
|
|
|
|
|
|
December 31,
($ in millions)
|
|
2006
|
|
|
2005
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Available for sale investment in
asset-backed security (a)
|
|
|
$471
|
|
|
|
$
|
|
Finance receivables and loans, net
of unearned income (b)
|
|
|
|
|
|
|
|
|
Wholesale auto financing
|
|
|
938
|
|
|
|
1,159
|
|
Term loans to dealers
|
|
|
207
|
|
|
|
207
|
|
Investment in operating leases,
net (c)
|
|
|
290
|
|
|
|
286
|
|
Notes receivable from GM (d)
|
|
|
1,975
|
|
|
|
4,565
|
|
Other assets
|
|
|
|
|
|
|
|
|
Real estate leases (e)
|
|
|
28
|
|
|
|
1,005
|
|
Receivable related to taxes due
from GM (f)
|
|
|
317
|
|
|
|
690
|
|
Other (g)
|
|
|
22
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Unsecured debt
|
|
|
|
|
|
|
|
|
Notes payable to GM
|
|
|
60
|
|
|
|
1,190
|
|
Accrued expenses and other
liabilities (h)
|
|
|
|
|
|
|
|
|
Wholesale payable
|
|
|
499
|
|
|
|
802
|
|
Subvention receivables (rate and
residual support)
|
|
|
(309
|
)
|
|
|
(133
|
)
|
Insurance premium and contract
payable (receivable)
|
|
|
1
|
|
|
|
(81
|
)
|
Lease pull ahead receivable
|
|
|
(62
|
)
|
|
|
(189
|
)
|
Other receivables
|
|
|
(101
|
)
|
|
|
(246
|
)
|
Preferred interests (i)
|
|
|
2,195
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Dividends paid to GM (j)
|
|
|
9,739
|
|
|
|
2,500
|
|
Capital contributions
received (k)
|
|
|
951
|
|
|
|
|
|
Preferred interest accretion to
redemption value
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
In November 2006, GMAC retained an
investment in a note secured by operating lease assets
transferred to GM. As part of the transfer, GMAC provided a note
to the trust, a wholly owned subsidiary of GM. The note is
classified in Investment Securities on our Consolidated Balance
Sheet.
|
(b)
|
|
Represents wholesale financing and
term loans to certain dealerships wholly owned by GM or in which
GM has an interest.
|
(c)
|
|
Includes net balance of vehicles,
buildings and other equipment classified as operating lease
assets that are leased to GM affiliated entities.
|
(d)
|
|
Includes borrowing arrangements
with GM Opel and arrangements related to our funding of GM
company-owned vehicles, rental car vehicles awaiting sale at
auction, our funding of the sale of GM vehicles through the use
of overseas distributors and amounts related to GM trade
supplier finance program. In addition, we provide wholesale
financing to GM for vehicles in which GM retains title while the
vehicles are consigned to us or dealers in the UK and Italy. The
financing to GM remains outstanding until the title is
transferred to the dealers. The amount of financing provided to
GM under this arrangement varies based on inventory levels.
|
(e)
|
|
During 2000 GM entered into a
16-year
lease arrangement, under which we agreed to fund and capitalize
improvements to three Michigan properties leased by GM totaling
$1.2 billion. In 2004 the lease arrangement was increased
to $1.3 billion. The total construction advances as of
December 30, 2005, were $971. On October 31, 2006,
these assets were transferred to GM in the form of a non-cash
dividend. Subsequently, the lease arrangement was terminated,
and no further payments or advances will be made. The balance at
December 31, 2006, represents Argonaut dealership leases.
|
(f)
|
|
In November 2006, GMAC transferred
NOL tax receivables to GM for entities converting to an LLC. For
all non-converting entities, the amount was reclassified to
deferred income taxes on the Consolidated Balance Sheet. At
December 31, 2006, this balance represents an overpayment
of taxes and was included in accrued expenses and other
liabilities on our Consolidated Balance Sheet.
|
(g)
|
|
Represents certain servicing
activities related to automotive leases distributed to GM on
November 22, 2006.
|
(h)
|
|
Includes (receivables) payables
from GM as follows: wholesale settlements payable to GM,
subvention receivables due from GM and other (receivables)
payables due to/from GM, which are included in accrued expenses
and other liabilities and debt, respectively.
|
(i)
|
|
Represents proceeds from preferred
interests issued in November and held by a wholly owned
subsidiary of GM of $1,555 and FIM Holdings of $555 and the
related accrued dividends of $21 and redemption premium of $64.
|
(j)
|
|
Amount includes cash dividends of
$4.8 billion and non-cash dividends of $4.9 billion in
2006. During the fourth quarter of 2006 in connection with the
Sale Transactions, GMAC made $7.8 billion of dividends to
GM which was comprised of the following (i) a cash dividend
of $2.7 billion representing a one-time distribution to GM
primarily to reflect the increase in GMACs equity
resulting from the elimination of a portion of our net deferred
tax liabilities arising from the conversion of GMAC and certain
of our subsidiaries to a limited liability company,
(ii) certain assets with respect to automotive leases owned
by GMAC and its affiliates having a net book value of
approximately $4.0 billion and related deferred tax
liabilities of $1.8 billion, (iii) certain Michigan
properties with a carrying value of approximately
$1.2 billion to GM, (iv) intercompany receivables from
GM related to tax attributes of $1.1 billion, (v) net
contingent tax assets of $491 and (vi) other miscellaneous
transactions.
|
(k)
|
|
Amount is comprised of the
following (i) approximately $801 of liabilities related to
U.S. and Canadian based GM sponsored other postretirement
programs and related deferred tax assets of $302,
(ii) contingent tax liabilities of $384 assumed by GM and
(iii) deferred tax assets transferred from GM of $68.
|
106
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
In October 2005 we repurchased operating lease assets and
related deferred tax liabilities from GM previously sold to them
under a purchase and sale agreement. The leases were repurchased
at fair market value; however, the assets and liabilities were
transferred at their carrying value because this was a
transaction between related parties. The difference between the
net assets acquired and the proceeds remitted to GM is reflected
as a reduction to our stockholders equity.
Retail and lease contracts acquired by us that included rate and
residual subvention from GM, payable directly or indirectly to
GM dealers, as a percent of total new retail installment and
lease contracts acquired, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
2006
|
|
2005
|
|
|
|
GM and affiliates rate subvented
contracts acquired:
|
|
|
|
|
|
|
|
|
|
|
North American operations (a)
|
|
|
90
|
%
|
|
|
78
|
%
|
|
|
International operations
|
|
|
49
|
%
|
|
|
53
|
%
|
|
|
|
|
|
|
|
(a)
|
The increase in 2006 is primarily due to the
72-hour sale
that occurred in July 2006. Contracts were sold at 0% financing
for 72 months.
|
|
GM also provides payment guarantees on certain commercial assets
we have outstanding with certain third-party customers. As of
December 31, 2006, and December 31, 2005, commercial
obligations guaranteed by GM were $216 million and
$934 million, respectively. In addition, we have a
consignment arrangement with GM for commercial inventories in
Europe. As of December 31, 2006 and 2005, commercial
inventories related to this arrangement were $151 million
and $108 million, respectively, and are reflected in Other
assets in our Consolidated Balance Sheet.
Income
Statement
A summary of the income statement effect of transactions with GM
and affiliated companies is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
|
Net financing revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
GM and affiliates lease residual
value support (a)
|
|
|
$749
|
|
|
|
$507
|
|
|
|
$560
|
|
Wholesale subvention and service
fees from GM
|
|
|
207
|
|
|
|
159
|
|
|
|
174
|
|
Interest paid on loans from GM
|
|
|
(50
|
)
|
|
|
(46
|
)
|
|
|
(45
|
)
|
Consumer lease payments from
GM (b)
|
|
|
74
|
|
|
|
168
|
|
|
|
348
|
|
Insurance premiums earned from GM
|
|
|
334
|
|
|
|
384
|
|
|
|
450
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on notes receivable from
GM and affiliates
|
|
|
282
|
|
|
|
300
|
|
|
|
153
|
|
Interest on wholesale
settlements (c)
|
|
|
183
|
|
|
|
150
|
|
|
|
101
|
|
Revenues from GM leased properties,
net
|
|
|
93
|
|
|
|
79
|
|
|
|
73
|
|
Derivatives (d)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Service fee income:
|
|
|
|
|
|
|
|
|
|
|
|
|
GMAC of Canada operating lease
administration (e)
|
|
|
|
|
|
|
18
|
|
|
|
28
|
|
Rental car repurchases held for
resale (f)
|
|
|
18
|
|
|
|
22
|
|
|
|
16
|
|
U.S. Automotive operating
leases (g)
|
|
|
37
|
|
|
|
|
|
|
|
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee retirement plan costs
allocated by GM
|
|
|
136
|
|
|
|
157
|
|
|
|
129
|
|
Off-lease vehicle selling expense
reimbursement (h)
|
|
|
(29
|
)
|
|
|
(17
|
)
|
|
|
(51
|
)
|
Payments to GM for services, rent
and marketing expenses (i)
|
|
|
106
|
|
|
|
131
|
|
|
|
281
|
|
|
|
|
|
|
(a)
|
|
Represents total amount of residual
support and risk sharing paid (or invoiced) under the residual
support and risk sharing programs and deferred revenue related
to the settlement of residual support and risk sharing
obligations for a portion of the lease portfolio, as described
below.
|
(b)
|
|
GM sponsors lease pull-ahead
programs whereby consumers are encouraged to terminate lease
contracts early in conjunction with the acquisition of a new GM
vehicle, with the customers remaining payment obligation
waived. For certain programs, GM compensates us for the waived
payments, adjusted based on the remarketing results associated
with the underlying vehicle.
|
(c)
|
|
The settlement terms related to the
wholesale financing of certain GM products are at shipment date.
To the extent that wholesale settlements with GM are made prior
to the expiration of transit, we receive interest from GM.
|
(d)
|
|
Represents income (loss) related to
derivative transactions entered into with GM as counterparty.
|
(e)
|
|
GMAC of Canada, Limited
administered operating lease receivables on behalf of GM of
Canada, Limited (GMCL) and received a servicing fee, which was
included in other income. As of October 2005, GMAC of Canada,
Limited no longer administers these operating lease receivables.
|
(f)
|
|
We receive a servicing fee from GM
related to the resale of rental car repurchases. At
December 31, 2006, this program was terminated.
|
(g)
|
|
Represents servicing income related
to automotive leases distributed to GM on November 22, 2006.
|
(h)
|
|
An agreement with GM provides for
the reimbursement of certain selling expenses incurred by us on
off-lease vehicles sold by GM at auction.
|
(i)
|
|
GM provides us certain other
services and facilities services for which we reimburse them.
Included in this amount are rental payments for our primary
executive and administrative offices located in the Renaissance
Center in Detroit, Michigan. In December 2006 we signed a lease
to continue renting the facilities, operating expenses and the
associated parking through November 30, 2016.
|
107
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
Operating Lease
Residuals
As a marketing incentive GM may sponsor residual support
programs as a way to lower customer monthly payments. Under
residual support programs, the customers contractual
residual value is adjusted above our standard residual values.
Historically, GM reimbursed us if remarketing sales proceeds
were less than the customers contractual residual value
limited to our standard residual value. In addition to residual
support programs, GM also participated in a risk sharing
arrangement whereby GM shared equally in residual losses to the
extent that remarketing proceeds were below our standard
residual values (limited to a floor).
In connection with the Sale Transactions GM settled its
estimated liabilities with respect to residual support and risk
sharing on a portion of our operating lease portfolio and on the
entire U.S. balloon retail receivables portfolio in a
series of lump-sum payments. A negotiated amount totaling
approximately $1.4 billion was agreed to by GM under these
leases and balloon contracts and was paid to us. As of
December 31, 2006, the maximum amount that would have
been paid under the residual support and risk sharing
arrangements with GM on this portion of these portfolios totaled
approximately $3.3 billion. This amount would only have
been paid in the unlikely event that the proceeds from these
entire portfolios of lease assets and balloon retail receivables
would have been lower than both the contractual residual value
and GMACs standard residual rates. The payments were
recorded as a deferred amount in accrued expenses and other
liabilities in our Consolidated Balance Sheet and are treated as
sales proceeds on the underlying assets, as the contracts
terminate and the vehicles are sold at auction, in recognizing
the gain or loss on sale.
Certain assets with respect to automotive leases that were not
subject to the above settlement having a net book value of
$4.0 billion and related deferred tax liabilities of
$1.8 billion, were distributed to GM just prior to the Sale
Transactions. As part of the transfer of the automotive lease
assets to GM, GMAC relinquished the rights to any residual
support and risk sharing payments that otherwise would have been
due from GM on such lease assets.
In addition, as it relates to U.S. lease originations and
all U.S. balloon retail contract originations occurring
after April 30, 2006, that remained with GMAC after
the consummation of the Sale Transactions, GM agreed to begin
payment of the present value of the expected residual support
owed to us at the time of contract origination as opposed to
after contract termination at the time of sale of the related
vehicle. The residual support amount GM actually owes us is
trued up as the leases actually terminate and, in
cases where the estimate was incorrect, GM may be obligated to
pay us, or we may be obligated to reimburse GM, under the terms
of the residual support programs. For the affected contracts
originated through December 2006, GM paid or agreed to pay us a
total of $486 million in 2006.
Based on the December 31, 2006 outstanding
U.S. operating lease portfolio, the additional maximum
amount that could be paid by GM under the residual support
programs is approximately $276 million and would only be
paid in the unlikely event that the proceeds from the entire
portfolio of lease assets would be lower than both the
contractual residual value and GMACs standard residual
rates. Based on the December 31, 2006 outstanding
U.S. operating lease portfolio, the maximum amount that
could be paid under the risk sharing arrangements is
approximately $339 million and would only be paid in the
unlikely event that the proceeds from all outstanding lease
vehicles would be lower than GMACs standard residual
rates. The amounts in the above table represent the amounts paid
over the past three years under both the residual support and
risk sharing programs.
Distribution of
Operating Lease Assets
In connection with the sale by GM of a 51 percent interest
in GMAC, on November 22, 2006, GMAC transferred to GM
certain GMAC U.S. lease assets, along with related secured debt
and other assets as described in Notes 8, 11 and 12,
respectively. GMAC retained an investment in a note, which had a
balance as of December 31, 2006 of $471 million
secured by the lease assets distributed to GM as described in
Note 5. GMAC will continue to service the assets and
related secured debt on behalf of GM and will receive a fee for
this service. As it does for other securitization transactions,
GMAC is obligated as servicer to repurchase any lease asset that
is in breach of any of the covenants of the securitization
documents. In addition, in a number of the transactions
securitizing the lease assets transferred to GM, the trusts
issued one or more series of floating rate debt obligations and
entered into primary derivative transactions to remove the
market risk associated with funding the fixed payment lease
assets with floating interest rate debt. To facilitate these
securitization transactions, GMAC entered into secondary
derivative transactions with the primary derivative
counterparties, essentially offsetting the primary derivatives.
As part of the distribution, GM assumed the rights and
obligations of the primary derivative while GMAC retained the
secondary, leaving both companies exposed to market value
movements of their respective derivatives. GMAC and GM have
subsequently entered into derivative transactions with each
other that are intended to offset the exposure each party has to
its component of the primary and secondary derivatives.
Exclusivity
Arrangement
GM and GMAC have entered into several service agreements which
codify the mutually beneficial historical relationship between
GM and GMAC. In connection with the agreements, GMAC has been
granted a
10-year
exclusivity right covering U.S. subvented automotive consumer
business. In return for this exclusivity, GMAC will pay GM an
annual exclusivity fee of $75 million and is committed to
provide financing to GM customers in accordance with historical
practices. Specifically, in connection with the U.S. Consumer
Financing Agreement, GMAC must meet certain targets with respect
to consumer retail and lease financings of new GM vehicles. If
the contractual commitments are not met, GM may
108
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
assess financial penalties to GMAC, or even rescind GMACs
exclusivity rights. The agreement provides GMAC ample
flexibility to provide GM with required financing support
without compromising GMACs underwriting standards.
In addition, we have entered into various services agreements
with GM that are designed to document and maintain the current
and historical relationship between us. We are required to pay
GM fees in connection with certain of these agreements related
to our financing of GM consumers and dealers in certain parts of
the world.
Royalty
Arrangement
For certain insurance products, GM and GMAC have entered into
the Intellectual Property License Agreement for the right of
GMAC to use the GM name on certain insurance products. In
exchange, GMAC will pay to GM a minimum annual guaranteed
royalty fee of $15 million.
GM
Option
GM retains an option, for 10 years, to repurchase certain
assets from us related to the Automotive Finance operations of
our North American Operations and our International Operations.
GMs exercise of the option is conditional on GMs
credit rating being investment grade, or higher than our credit
rating. The call option price will be calculated as the higher
of (i) fair market value or (ii) 9.5 times the
consolidated net income of our Automotive Finance operations in
either the calendar year the call option is exercised or the
calendar year immediately following the year the call option is
exercised.
Revolving Line of
Credit
In addition to the financing arrangements summarized in the
foregoing table, GM had a $4 billion revolving line of
credit from us that expired September 15, 2006, and was not
renewed.
19 Comprehensive
Income
Comprehensive income is composed of net income and other
comprehensive income, which includes the after-tax change in
unrealized gains and losses on available for sale securities,
foreign currency translation adjustments and cash flow hedging
activities. The following table presents the components and
annual activity in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Unrealized gains
(losses)
|
|
|
|
|
|
other
|
|
|
on investment
|
|
Translation
|
|
Cash flow
|
|
comprehensive
|
Year
ended December 31, ($ in millions)
|
|
securities
(a)
|
|
adjustments
(b)
|
|
hedges
|
|
income
(loss)
|
|
|
Balance at December 31, 2003
|
|
|
$548
|
|
|
|
$60
|
|
|
|
($90
|
)
|
|
|
$518
|
|
2004 net change
|
|
|
78
|
|
|
|
306
|
|
|
|
266
|
|
|
|
650
|
|
|
|
Balance at December 31, 2004
|
|
|
626
|
|
|
|
366
|
|
|
|
176
|
|
|
|
1,168
|
|
2005 net change
|
|
|
(89
|
)
|
|
|
(295
|
)
|
|
|
46
|
|
|
|
(338
|
)
|
|
|
Balance at December 31, 2005
|
|
|
537
|
|
|
|
71
|
|
|
|
222
|
|
|
|
830
|
|
2006 net change
|
|
|
(431
|
)
|
|
|
291
|
|
|
|
(205
|
)
|
|
|
(345
|
)
|
|
|
Balance at December 31,
2006
|
|
|
$106
|
|
|
|
$362
|
|
|
|
$17
|
|
|
|
$485
|
|
|
|
|
|
(a)
|
Primarily represents the after-tax difference between the fair
value and amortized cost of our available for sale securities
portfolio.
|
(b)
|
Includes after-tax gains and losses on foreign currency
translation from operations for which the functional currency is
other than the U.S. dollar. Net change amounts are net of a
tax benefit of $37 and $35 for the years ended December 31,
2006 and 2005, respectively, and tax expense of $104 for the
year ended December 31, 2004.
|
109
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The net changes in the following table represent the sum of net
unrealized gains (losses) of available for sale securities and
net unrealized gains (losses) on cash flow hedges with the
respective reclassification adjustments. Reclassification
adjustments are amounts recognized in net income during the
current year and that would have been reported in other
comprehensive income in previous years. The 2006 amounts also
include the cumulative effect of a change in accounting
principle due to the adoption of SFAS 156. SFAS 156,
upon initial adoption, permitted a one time reclassification of
available-for-sale securities to trading securities for
securities, which were identified as offsetting an entitys
exposure or liabilities that a servicer elects to subsequently
measure at fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
2005
|
|
2004
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in
accounting principle, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of unrealized loss for
certain available for sale securities
|
|
|
$17
|
|
|
|
$
|
|
|
|
$
|
|
Net unrealized gains (losses)
arising during the period, net of taxes (a)
|
|
|
204
|
|
|
|
(11
|
)
|
|
|
125
|
|
Reclassification adjustment for net
gains included in net income, net of taxes (b)
|
|
|
(652
|
)
|
|
|
(78
|
)
|
|
|
(47
|
)
|
|
|
Net change
|
|
|
(431
|
)
|
|
|
(89
|
)
|
|
|
78
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on
cash flow hedges, net of taxes (c)
|
|
|
(207
|
)
|
|
|
45
|
|
|
|
265
|
|
Reclassification adjustment for net
losses included in net income, net of taxes (d)
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
Net change
|
|
|
($205
|
)
|
|
|
$46
|
|
|
|
$266
|
|
|
|
|
|
(a)
|
Net of tax expense of $107 for 2006, tax benefit of $6 for 2005
and tax expense of $67 for 2004.
|
(b)
|
Net of tax expense of $351 for 2006, $42 for 2005, and tax
benefit of $25 for 2004.
|
(c)
|
Net of tax benefit of $121 for 2006, tax expense of $23 for 2005
and $142 for 2004.
|
(d)
|
Net of tax benefit of $1 for 2006, 2005 and 2004.
|
20 Fair
Value of Financial Instruments
We have 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 or estimation methodologies could be material to the
estimated fair values. Fair value information presented herein
is based on information available at December 31, 2006 and
2005. 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, 2006 and 2005 could differ significantly from
these amounts. The following describes the methodologies and
assumptions used to determine fair value for the respective
classes of financial instruments.
Investment
Securities
Bonds, equity securities, notes and other available for sale
investment securities are carried at fair value, which is
primarily based on quoted market prices. The fair value of
mortgage-related trading securities is based on market quotes to
the extent available, discounted using market prepayment
assumptions and discount rates. If external quotes are not
available, valuations are based on internal valuation models
using market based assumptions. Held to maturity investment
securities are carried at amortized cost. The fair value of the
held to maturity investment securities is based on valuation
models using market based assumptions. Interests in
securitization trusts are carried at fair value based on
expected cash flows discounted at current market rates.
Loans Held for
Sale
The fair value of loans held for sale is based upon actual
prices received on recent sales of loans and securities to
investors and projected prices obtained through investor
indications considering interest rates, loan type and credit
quality.
Finance
Receivables and Loans, Net
The fair value of finance receivables 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 automotive and mortgage lending receivables for which
interest rates reset on a short-term basis with applicable
market indices are assumed to approximate fair value either
because of the short-term nature or because of the interest rate
adjustment feature. The fair value of mortgage loans held for
investment is based on discounted cash flows, using interest
rates currently being offered for loans with similar terms to
borrowers with similar credit quality; the net realizable value
of collateral
and/or the
estimated sales price based on quoted market prices where
available or actual prices received on comparable sales of
mortgage loans to investors.
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.
Derivative Assets
and Liabilities
The fair value of interest rate swaps is estimated based on
discounted expected cash flows using quoted market interest
rates. The fair value of caps, written and purchased options,
and mortgage-related interest rate swaps is based upon quoted
market prices or broker-dealer quotes. The fair value of foreign
currency swaps is based on discounted expected cash flows using
market exchange rates over the remaining term of the agreement.
110
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
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 us 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.
Bank deposits and
escrows
Bank deposits and escrows deposits represent certain consumer
bank deposits as well as mortgage escrow deposits. The fair
value of deposits with no stated maturity is equal to their
carrying amount. The fair value of fixed-maturity deposits was
estimated by discounting cash flows using currently offered
rates for deposits of similar maturities.
The following table presents the carrying and estimated fair
value of assets and liabilities considered financial instruments
under Statements of Financial Accounting Standards No. 107,
Disclosures about Fair Value of Financial Instruments
(SFAS 107). Accordingly, certain items that are not
considered financial instruments are excluded from the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
December 31,
($ in millions)
|
|
value
|
|
value
|
|
value
|
|
value
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
$16,791
|
|
|
|
$16,791
|
|
|
|
$18,207
|
|
|
|
$18,207
|
|
Loans held for sale
|
|
|
27,718
|
|
|
|
28,025
|
|
|
|
21,865
|
|
|
|
21,934
|
|
Finance receivables and loans, net
|
|
|
170,870
|
|
|
|
171,076
|
|
|
|
181,925
|
|
|
|
182,222
|
|
Notes receivable from GM
|
|
|
1,975
|
|
|
|
1,975
|
|
|
|
4,565
|
|
|
|
4,565
|
|
Derivative assets
|
|
|
2,544
|
|
|
|
2,544
|
|
|
|
3,000
|
|
|
|
3,000
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt (a)
|
|
|
237,338
|
|
|
|
237,733
|
|
|
|
255,511
|
|
|
|
247,250
|
|
Bank deposits and escrows
|
|
|
9,566
|
|
|
|
9,566
|
|
|
|
5,930
|
|
|
|
5,930
|
|
Derivative liabilities
|
|
|
1,745
|
|
|
|
1,745
|
|
|
|
2,440
|
|
|
|
2,440
|
|
|
|
|
|
(a) |
Debt includes deferred interest for zero coupon bonds of $353
and $813 for 2006 and 2005, respectively.
|
21 Variable
Interest Entities
The following describes the variable interest entities that we
have consolidated or in which we have a significant variable
interest as described in Interpretation No. 46,
Consolidation of Variable Interest Entities
(FIN 46R).
Automotive finance receivables In certain
securitization transactions, we transfer consumer finance
receivables and wholesale lines of credit into bank-sponsored
multi-seller commercial paper conduits. These conduits provide a
funding source to us (as well as other transferors into the
conduit) as they fund the purchase of the receivables through
the issuance of commercial paper. Total assets outstanding in
these bank-sponsored conduits approximated $12.1 billion as
of December 31, 2006. While we have variable interests
in these conduits, we are not considered to be the primary
beneficiary, as we do not retain the majority of the expected
losses or returns. Our maximum exposure to loss as a result of
our involvement with these non-consolidated variable interest
entities is $109 million and would only be incurred in the
event of a complete loss on the assets that we transferred.
Mortgage warehouse funding Our ResCap
operations transfer residential mortgage loans, lending
receivables, home equity loans and lines of credit pending
permanent sale or securitization through various structured
finance arrangements in order to provide funds for the
origination and purchase of future loans. These structured
finance arrangements include transfers to warehouse funding
entities, including GMAC and bank-sponsored commercial paper
conduits. Transfers of assets into each facility are accounted
for as either sales
(off-balance
sheet) or secured financings (on-balance sheet) based on the
provisions of SFAS 140. However, in either case, creditors
of these facilities have no legal recourse to our general
credit. Some of these warehouse funding entities represent
variable interest entities under FIN 46R.
Management has determined that for certain mortgage warehouse
funding facilities, we are the primary beneficiary and, as such,
we consolidate the entities in accordance with FIN 46R. The
assets of these residential mortgage warehouse entities totaled
$14.5 billion at December 31, 2006, the majority
of which are included in loans held for sale, in our
Consolidated Balance Sheet. The beneficial interest holders of
these variable interest entities do not have legal recourse to
our general credit.
Residential mortgage loan alliances ResCap
has invested in strategic alliances with several mortgage loan
originators. These alliances may include common or preferred
equity investments, working capital or
111
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
other subordinated lending, and warrants. In addition to
warehouse lending arrangements, management has determined that
we do not have the majority of the expected losses or returns
and as such, consolidation is not appropriate. Total assets in
these alliances were $158 million at
December 31, 2006. Our maximum exposure to loss under
these alliances, including commitments to lend additional funds
or purchase loans at above-market rates, is $110 million at
December 31, 2006.
Construction and real estate lending We use a
special purpose entity to finance construction lending
receivables. This special purpose entity purchases and holds the
receivables and funds the majority of the purchases through
financing obtained from third-party asset-backed commercial
paper conduits. The results of our variable interest analysis
indicate that we are the primary beneficiary, and as such, we
consolidate the entity. The assets in this entity totaled
$2.1 billion and $1.6 billion at
December 31, 2006 and 2005, respectively, which are
included in finance receivables and loans, net of unearned
income, in our Consolidated Balance Sheet. The beneficial
interest holders of this variable interest entity do not have
legal recourse to our general credit.
We have subordinated real estate lending arrangements with
certain entities. These entities are created to develop land and
construct residential homes. Management has determined that we
do not have the majority of the expected losses or returns, and
as such, consolidation is not appropriate. Total assets in these
entities were $616 million at December 31, 2006,
of which $201 million represents our maximum exposure to
loss.
Warehouse lending We have a facility in which
we transfer mortgage warehouse lending receivables to a 100%
owned SPE which then sells a senior participation interest in
the receivables to an unconsolidated QSPE. The QSPE funds the
purchase of the participation interest from the SPE through
financing obtained from third-party asset-backed commercial
paper conduits. The SPE funds the purchase of the
receivables from us with cash obtained from the QSPE, as well as
a subordinated loan
and/or an
equity contribution from us. The senior participation interest
sold to the QSPE and the commercial paper issued were not
included in our assets or liabilities in 2004. However, the QSPE
was terminated and a new SPE was created in 2005. As a result,
the senior participation interest sold and commercial paper
issued were included in our Consolidated Balance Sheet at
December 31, 2006 and 2005, respectively. Once the
receivables have been sold, they may not be purchased by us
except in very limited circumstances, such as a breach in
representations or warranties.
Management has determined that we are the primary beneficiary of
the SPE, and as such, consolidates the entity. The assets of the
SPE totaled $14.5 billion and $3.5 billion at
December 31, 2006 and 2005, respectively, which are
included in finance receivables and loans, net of unearned
income, in our Consolidated Balance Sheet. The beneficial
interest holders of this variable interest entity do not have
legal recourse to our general credit.
Collateralized debt obligations (CDOs) Our
ResCap operations sponsors and manages the collateral of a CDOs.
Under CDO transactions, a trust is established that purchases a
portfolio of securities and issues debt and equity certificates,
representing interests in the portfolio of assets. Bonds
representing the collateral for the CDO include both those
issued by us from loan securitizations and those issued by third
parties. In addition to receiving variable compensation for
managing the portfolio, we sometimes retain equity investments
in the CDOs. The majority of the CDOs sponsored by us were
initially structured or have been restructured (with approval by
the senior beneficial interest holders) as qualifying special
purpose entities, and are therefore exempt from FIN 46R.
In the event that an asset is credit impaired, a call option is
triggered whereby we, as collateral manager, may buy the asset
out of the pool and sell it to a third-party. The call is
triggered only by events that are outside of our control, such
as the downgrade by a rating agency of an asset in the pool or
in the event more than a specified percentage of mortgage loans
underlying a security are greater than 60 days delinquent
(or have been liquidated). In the event the conditions under
which we can exercise the call option are met, we recognize
these assets. In accordance with these provisions, we did not
recognize any assets as of December 31, 2006.
Management has determined that for certain CDO entities, we are
the primary beneficiary, and as such, we consolidate the
entities. The assets in these entities totaled $732 million
and $569 million at December 31, 2006 and 2005,
respectively, the majority of which are included in investment
securities in our Consolidated Balance Sheet. The beneficial
interest holders of these variable interest entities do not have
legal recourse to our general credit.
Commercial finance receivables We have a
facility in which we transfer commercial lending receivables to
a 100% owned SPE which, in turn, issues notes received to
third-party financial institutions, GMAC Commercial Finance, and
asset-backed commercial paper conduits. The SPE funds the
purchase of receivables from us with cash obtained from the sale
of notes. Management has determined that we are the primary
beneficiary of the SPE and, as such, consolidates the entity.
The assets of the SPE totaled $879 million as of
December 31, 2006, which are included in finance
receivables and loans, net of unearned income, in our
Consolidated Balance Sheet. The beneficial interest holders of
this variable interest entity do not have legal recourse to our
general credit.
In other securitization transactions, we transfer commercial
trade receivables into bank-sponsored multi-seller commercial
paper conduits. These conduits provide a funding source to us
(as well as other transferors into the conduit) as they fund the
purchase of the receivables through the issuance of commercial
paper. Total assets outstanding in these bank-sponsored conduits
approximated $2.1 billion as of
December 31, 2006. While we have a variable interest
in these conduits, we may at our discretion prepay all or any
portion of the loans at any time.
112
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
22 Segment
and Geographic Information
Operating segments are defined as components of an enterprise
that engage in business activity from which revenues are earned
and expenses incurred for which discrete financial information
is available that is evaluated regularly by the chief operating
decision makers in deciding how to allocate resources and in
assessing performance. Financial information for our reportable
operating segments is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
Finance Operations (a)
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
American
|
|
International
|
|
|
|
|
|
|
|
|
($ in
millions)
|
|
Operations
|
|
Operations
(b)
|
|
ResCap
|
|
Insurance
|
|
Other
(c)
|
|
Consolidated
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing revenue before
provision for credit losses
|
|
|
$4,402
|
|
|
|
$1,613
|
|
|
|
$958
|
|
|
|
$
|
|
|
|
$570
|
|
|
|
$7,543
|
|
Provision for credit losses
|
|
|
(425
|
)
|
|
|
(86
|
)
|
|
|
(1,334
|
)
|
|
|
|
|
|
|
(155
|
)
|
|
|
(2,000
|
)
|
Other revenue
|
|
|
3,065
|
|
|
|
564
|
|
|
|
3,360
|
|
|
|
5,616
|
|
|
|
15
|
|
|
|
12,620
|
|
|
|
Total net financing revenue and
other income
|
|
|
7,042
|
|
|
|
2,091
|
|
|
|
2,984
|
|
|
|
5,616
|
|
|
|
430
|
|
|
|
18,163
|
|
Impairment of goodwill and other
intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
840
|
|
|
|
840
|
|
Other noninterest expense
|
|
|
6,405
|
|
|
|
1,671
|
|
|
|
2,568
|
|
|
|
3,990
|
|
|
|
461
|
|
|
|
15,095
|
|
|
|
Income (loss) before income tax
expense
|
|
|
637
|
|
|
|
420
|
|
|
|
416
|
|
|
|
1,626
|
|
|
|
(871
|
)
|
|
|
2,228
|
|
Income tax (benefit) expense
|
|
|
(229
|
)
|
|
|
112
|
|
|
|
(289
|
)
|
|
|
499
|
|
|
|
10
|
|
|
|
103
|
|
|
|
Net income (loss)
|
|
|
$866
|
|
|
|
$308
|
|
|
|
$705
|
|
|
|
$1,127
|
|
|
|
($881
|
)
|
|
|
$2,125
|
|
|
|
Total assets
|
|
|
$127,822
|
|
|
|
$25,588
|
|
|
|
$130,569
|
|
|
|
$13,424
|
|
|
|
($9,964
|
)
|
|
|
$287,439
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing revenue before
provision for credit losses
|
|
|
$4,216
|
|
|
|
$1,563
|
|
|
|
$1,352
|
|
|
|
$
|
|
|
|
$1,075
|
|
|
|
$8,206
|
|
Provision for credit losses
|
|
|
(313
|
)
|
|
|
(102
|
)
|
|
|
(626
|
)
|
|
|
|
|
|
|
(33
|
)
|
|
|
(1,074
|
)
|
Other revenue
|
|
|
2,815
|
|
|
|
709
|
|
|
|
3,508
|
|
|
|
4,259
|
|
|
|
664
|
|
|
|
11,955
|
|
|
|
Total net financing revenue and
other income
|
|
|
6,718
|
|
|
|
2,170
|
|
|
|
4,234
|
|
|
|
4,259
|
|
|
|
1,706
|
|
|
|
19,087
|
|
Impairment of goodwill and other
intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
712
|
|
|
|
712
|
|
Other noninterest expense
|
|
|
5,987
|
|
|
|
1,604
|
|
|
|
2,607
|
|
|
|
3,627
|
|
|
|
1,071
|
|
|
|
14,896
|
|
|
|
Income before income tax expense
|
|
|
731
|
|
|
|
566
|
|
|
|
1,627
|
|
|
|
632
|
|
|
|
(77
|
)
|
|
|
3,479
|
|
Income tax expense (benefit)
|
|
|
259
|
|
|
|
158
|
|
|
|
606
|
|
|
|
215
|
|
|
|
(41
|
)
|
|
|
1,197
|
|
|
|
Net income (loss)
|
|
|
$472
|
|
|
|
$408
|
|
|
|
$1,021
|
|
|
|
$417
|
|
|
|
($36
|
)
|
|
|
$2,282
|
|
|
|
Total assets
|
|
|
$165,139
|
|
|
|
$27,285
|
|
|
|
$118,608
|
|
|
|
$12,624
|
|
|
|
($3,099
|
)
|
|
|
$320,557
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing revenue before
provision for credit losses
|
|
|
$5,838
|
|
|
|
$1,602
|
|
|
|
$2,429
|
|
|
|
$
|
|
|
|
$797
|
|
|
|
$10,666
|
|
Provision for credit losses
|
|
|
(814
|
)
|
|
|
(145
|
)
|
|
|
(978
|
)
|
|
|
|
|
|
|
(16
|
)
|
|
|
(1,953
|
)
|
Other revenue
|
|
|
2,239
|
|
|
|
601
|
|
|
|
2,427
|
|
|
|
3,983
|
|
|
|
618
|
|
|
|
9,868
|
|
|
|
Total net financing revenue and
other income
|
|
|
7,263
|
|
|
|
2,058
|
|
|
|
3,878
|
|
|
|
3,983
|
|
|
|
1,399
|
|
|
|
18,581
|
|
Noninterest expense
|
|
|
5,972
|
|
|
|
1,491
|
|
|
|
2,371
|
|
|
|
3,497
|
|
|
|
994
|
|
|
|
14,325
|
|
|
|
Income before income tax expense
|
|
|
1,291
|
|
|
|
567
|
|
|
|
1,507
|
|
|
|
486
|
|
|
|
405
|
|
|
|
4,256
|
|
Income tax expense
|
|
|
365
|
|
|
|
152
|
|
|
|
603
|
|
|
|
157
|
|
|
|
85
|
|
|
|
1,362
|
|
|
|
Net income
|
|
|
$926
|
|
|
|
$415
|
|
|
|
$904
|
|
|
|
$329
|
|
|
|
$320
|
|
|
|
$2,894
|
|
|
|
Total assets
|
|
|
$192,250
|
|
|
|
$31,291
|
|
|
|
$93,941
|
|
|
|
$11,744
|
|
|
|
($5,184
|
)
|
|
|
$324,042
|
|
|
|
|
|
(a)
|
North American Operations consist
of automotive financing in the U.S. and Canada and corporate
activities. International Operations consist of automotive
financing and full service leasing in all other countries and
Puerto Rico through March 31, 2006. Beginning April 1,
2006, Puerto Rico is included in North American Operations.
|
(b)
|
Amounts includes
intra-segment
eliminations between the North American Operations and
International Operations.
|
(c)
|
Represents our Commercial Finance
business, Capmark, certain corporate activities and
reclassifications and elimination between the reporting
segments. The financial results for 2006 reflect our
approximately 21% equity interest in Capmark commencing
March 23, 2006, while the 2005 financial results represent
Capmark as wholly owned. At December 31, 2006, total assets
were $5.4 billion for the Commercial Finance business, and
($15.4) billion in reclassifications and eliminations.
|
113
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
Information concerning principal geographic areas was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
|
Year
ended December 31, ($ in millions)
|
|
Revenue (a)
|
|
assets (b)
|
|
|
2006
|
|
|
|
|
|
|
|
|
Canada
|
|
|
$2,304
|
|
|
|
$8,447
|
|
Europe
|
|
|
2,213
|
|
|
|
2,357
|
|
Latin America
|
|
|
957
|
|
|
|
138
|
|
Asia-Pacific
|
|
|
194
|
|
|
|
201
|
|
|
|
Total foreign
|
|
|
5,668
|
|
|
|
11,143
|
|
Total domestic
|
|
|
12,495
|
|
|
|
13,620
|
|
|
|
Total
|
|
|
$18,163
|
|
|
|
$24,763
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
Canada
|
|
|
$1,881
|
|
|
|
$7,784
|
|
Europe
|
|
|
2,285
|
|
|
|
2,740
|
|
Latin America
|
|
|
947
|
|
|
|
121
|
|
Asia-Pacific
|
|
|
302
|
|
|
|
201
|
|
|
|
Total foreign
|
|
|
5,415
|
|
|
|
10,846
|
|
Total domestic
|
|
|
13,672
|
|
|
|
22,119
|
|
|
|
Total
|
|
|
$19,087
|
|
|
|
$32,965
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
Canada
|
|
|
$1,552
|
|
|
|
$5,908
|
|
Europe
|
|
|
2,127
|
|
|
|
2,193
|
|
Latin America
|
|
|
768
|
|
|
|
86
|
|
Asia-Pacific
|
|
|
309
|
|
|
|
265
|
|
|
|
Total foreign
|
|
|
4,756
|
|
|
|
8,452
|
|
Total domestic
|
|
|
13,825
|
|
|
|
19,475
|
|
|
|
Total
|
|
|
$18,581
|
|
|
|
$27,927
|
|
|
|
|
|
(a)
|
Revenue consists of total net financing revenue and other income
as presented in our Consolidated Statement of Income.
|
(b)
|
Consists of net operating leases assets and net property and
equipment.
|
114
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
23 Guarantees,
Commitments, Contingencies and Other Risks
Guarantees
Guarantees are defined as contracts or indemnification
agreements that contingently require us to make payments to
third parties based on changes in an underlying agreement that
is related to a guaranteed party. The following summarizes our
outstanding guarantees made to third parties, including Capmark
for 2005, which has been classified as assets held for sale in
our Consolidated Balance Sheet, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
Carrying value
|
|
|
|
Carrying value
|
December 31,
($ in millions)
|
|
Maximum
liability
|
|
of
liability
|
|
Maximum
liability
|
|
of
liability
|
|
|
Agency/construction lending (a)
|
|
|
$
|
|
|
|
$
|
|
|
|
$847
|
|
|
|
$2
|
|
Standby letters of credit
|
|
|
161
|
|
|
|
7
|
|
|
|
135
|
|
|
|
3
|
|
Securitization and sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLTV and international
securitizations
|
|
|
108
|
|
|
|
|
|
|
|
205
|
|
|
|
1
|
|
Other (a)
|
|
|
|
|
|
|
|
|
|
|
2,113
|
|
|
|
19
|
|
Agency loan program
|
|
|
6,390
|
|
|
|
|
|
|
|
6,196
|
|
|
|
|
|
Guarantees for repayment of
third-party debt
|
|
|
617
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
Repurchase guarantees
|
|
|
204
|
|
|
|
|
|
|
|
256
|
|
|
|
|
|
Non-financial
guarantees
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other guarantees
|
|
|
223
|
|
|
|
4
|
|
|
|
108
|
|
|
|
3
|
|
|
|
|
|
(a) |
On March 23, 2006, GMAC sold approximately 79% of our
equity in Capmark and subsequently recorded the remaining
balance under the equity method. Prior to the sale, Capmark had
a number of guarantees including agency/loan construction
lending, agency/loans sold with recourse, and commercial
mortgage securitizations.
|
Standby letters of credit Our finance
operations (primarily through our Commercial Finance Group)
issues financial standby letters of credit to customers that
represent irrevocable guarantees of payment of specified
financial obligations (typically to clients suppliers). In
addition, our ResCap operations issues financial standby letters
of credit as part of its warehouse and construction lending
activities. Expiration dates on the letters of credit range from
2006 to ongoing commitments and are generally collateralized by
assets of the client (trade receivables, cash deposits, etc.).
High
loan-to-value
(HLTV) and international securitizations Our
ResCap operations have entered into agreements to provide credit
loss protection for certain HLTV and international
securitization transactions. The maximum potential obligation
for certain agreements is equal to the lesser of a specified
percentage of the original loan pool balance or a specified
percentage of the current loan pool balance. We are required to
perform on our guaranty obligation when the bond insurer makes a
payment under the bond insurance policy. We pledged mortgage
loans held for sale totaling $60 million and
$53 million and cash of $9 million and
$43 million as collateral for these obligations as of
December 31, 2006 and 2005, respectively. For certain
other HLTV securitizations, the maximum obligation is equivalent
to the pledged collateral amount. We pledged mortgage loans held
for sale totaling $57 million and $70 million as
collateral for these obligations as of
December 31, 2006 and 2005, respectively. The event
which will require us to perform on our guaranty obligation
occurs when the security credit enhancements are exhausted and
losses are passed through to over the counter dealers. The
guarantees terminate the first calendar month during which the
aggregate note amount is reduced to zero.
Agency loan program Our ResCap operations
deliver loans to certain agencies that allow streamlined loan
processing and limited documentation requirements. In the event
any loans delivered under these programs reach a specified
delinquency status, we may be required to provide certain
documentation or, in some cases, repurchase the loan or
indemnify the investors for any losses sustained. Each program
includes termination features whereby once the loan has
performed satisfactorily for a specified period of time we are
no longer obligated under the program. The maximum liability
represents the principal balance for loans sold under these
programs.
Guarantees for repayment of third-party debt
Under certain arrangements, we guarantee the repayment of
third-party debt obligations in the case of default. Some of
these guarantees are collateralized by letters of credit.
Our Commercial Finance Group provides credit protection to third
parties which guarantee payment of specified financial
obligations of the third parties customers, without purchasing
such obligations.
Repurchase guarantees Our ResCap operations
have issued repurchase guarantees to buyers of certain mortgage
loans
115
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
whereby, if a closing condition or document deficiency is
identified by an investor after the closing, we may be required
to indemnify the investor if the loan becomes delinquent.
Non-financial
guarantees In connection with the sale of
approximately 79% of our equity in Capmark, we were released
from all financial guarantees related to the former GMAC
Commercial Holdings business. Certain
non-financial
guarantees did survive closing, but are indemnified by Capmark
for payment made or liabilities incurred by us in connection
with these guarantees.
Other guarantees We have other standard
indemnification clauses in certain of our funding arrangements
that would require us to pay lenders for increased costs
resulting from certain changes in laws or regulations. Since any
changes would be dictated by legislative and regulatory actions,
which are inherently unpredictable, we are not able to estimate
a maximum exposure under these arrangements. To date, we have
not made any payments under these indemnification clauses.
Our ResCap operations have guaranteed certain amounts related to
servicing advances, set-aside letters and credit enhancement and
performance guarantees.
In connection with certain asset sales and securitization
transactions, we typically deliver standard representations and
warranties to the purchaser regarding the characteristics of the
underlying transferred assets. These representations and
warranties conform to specific guidelines, which are customary
in securitization transactions. These clauses are intended to
ensure that the terms and conditions of the sales contracts are
met upon transfer of the asset. Prior to any sale or
securitization transaction, we perform due diligence with
respect to the assets to be included in the sale to ensure that
they meet the purchasers requirements, as expressed in the
representations and warranties. Due to these procedures, we
believe that the potential for loss under these arrangements is
remote. Accordingly, no liability is reflected in our
Consolidated Balance Sheet related to these potential
obligations. The maximum potential amount of future payments we
could be required to make would be equal to the current balances
of all assets subject to such securitization or sale activities.
We do not monitor the total value of assets historically
transferred to securitization vehicles or through other asset
sales. Therefore, we are unable to develop an estimate of the
maximum payout under these representations and warranties.
Commitments
Financing
Commitments
The contract amount and gain and loss positions of financial
commitments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Contract
|
|
|
Gain
|
|
|
Loss
|
|
|
Contract
|
|
|
Gain
|
|
|
Loss
|
|
December 31,
($ in millions)
|
|
amount
|
|
|
position
|
|
|
position
|
|
|
amount
|
|
|
position
|
|
|
position
|
|
|
|
Commitments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originate/purchase mortgages or
securities (a)
|
|
|
$14,248
|
|
|
|
$
|
|
|
|
($48
|
)
|
|
|
$16,560
|
|
|
|
$42
|
|
|
|
($4
|
)
|
Sell mortgages or
securities (a)
|
|
|
20,702
|
|
|
|
28
|
|
|
|
(1
|
)
|
|
|
11,592
|
|
|
|
4
|
|
|
|
(28
|
)
|
Remit excess cash flows on certain
loan portfolios (b)
|
|
|
5,334
|
|
|
|
39
|
|
|
|
|
|
|
|
4,305
|
|
|
|
|
|
|
|
(39
|
)
|
Sell retail automotive
receivables (c)
|
|
|
21,500
|
|
|
|
|
|
|
|
|
|
|
|
33,000
|
|
|
|
|
|
|
|
|
|
Provide capital to equity method
investees (d)
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
1,038
|
|
|
|
|
|
|
|
|
|
Fund construction lending (e)
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
2,387
|
|
|
|
|
|
|
|
|
|
Unused mortgage lending
commitments (f)
|
|
|
9,019
|
|
|
|
|
|
|
|
|
|
|
|
16,097
|
|
|
|
|
|
|
|
|
|
Bank certificates of deposit
|
|
|
6,686
|
|
|
|
|
|
|
|
|
|
|
|
4,044
|
|
|
|
|
|
|
|
|
|
Unused revolving credit line
commitments (g)
|
|
|
7,381
|
|
|
|
|
|
|
|
|
|
|
|
7,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The fair value is estimated using published market information
associated with commitments to sell similar instruments.
Included as of December 31, 2006 and 2005 are commitments
accounted for as derivatives with a contract amount of $37,082
and $25,670, a gain position of $28 and $46 and a loss position
of $49 and $32, respectively.
|
(b)
|
Under certain residential mortgage purchase agreements, we are
committed to remitting to its shared execution partners
cash flows that exceed a required rate of return less credit
loss reimbursements to the mortgage originators. This commitment
is accounted for as a derivative.
|
(c)
|
We have entered into agreements with third-party banks to sell
automotive retail receivables in which we transfer all credit
risk to the purchaser (whole loan sales).
|
(d)
|
We are committed to lend equity capital to certain private
equity funds. The fair value of these commitments is considered
in the overall valuation of the underlying assets with which
they are associated.
|
(e)
|
We are committed to fund the completion of the development of
certain lots and model homes up to the amount of the agreed upon
amount per project.
|
(f)
|
The fair value of these commitments is considered in the overall
valuation of the related assets.
|
(g)
|
The unused portions of revolving lines of credit reset at
prevailing market rates and, as such, approximate market value.
|
116
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The mortgage lending and revolving credit line commitments
contain an element of credit risk. Management reduces its credit
risk for unused mortgage lending and unused revolving credit
line commitments by applying the same credit policies in making
commitments as it does for extending loans. We typically require
collateral as these commitments are drawn.
Lease
Commitments
Future minimum rental payments required under operating leases,
primarily for real property, with noncancelable lease terms that
expire after December 31, 2006, were as follows:
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
|
|
|
|
2007
|
|
|
$207
|
|
2008
|
|
|
168
|
|
2009
|
|
|
115
|
|
2010
|
|
|
90
|
|
2011
|
|
|
76
|
|
2012 and thereafter
|
|
|
212
|
|
|
|
Total minimum payment required
|
|
|
$868
|
|
|
|
Certain of the leases contain escalation clauses and renewal or
purchase options. Rental expenses under operating leases were
$230 million, $224 million and $230 million in
2006, 2005 and 2004, respectively.
Contractual Commitments We have entered into
multiple agreements for information technology, marketing and
advertising, and voice and communication technology and
maintenance. Many of the agreements are subject to variable
price provisions, fixed or minimum price provisions, and
termination or renewal provisions. Future payment obligations
under these agreements totaled $1,093 million and are due
as follows: $322 million in 2007, $440 million in 2008
and 2009, $246 million in 2010 and 2011, and
$85 million after 2012.
Extended Service and Maintenance Contract
Commitments Extended service contract programs
provide consumers with expansions and extensions of vehicle
warranty coverage for specified periods of time and mileages.
Such coverage generally provides for the repair or replacement
of components in the event of failure. The terms of these
contracts, which are sold through automobile dealerships and
direct mail, range from 3 to 84 months.
The following table presents an analysis of activity in unearned
service revenue.
|
|
|
|
|
|
|
|
|
Year
ended December 31, ($ in millions)
|
|
2006
|
|
2005
|
|
Balance at beginning of year
|
|
|
$3,159
|
|
|
|
$2,723
|
|
Written service contract revenue
|
|
|
1,209
|
|
|
|
1,345
|
|
Earned service contract revenue
|
|
|
(1,207
|
)
|
|
|
(909
|
)
|
|
|
Balance at end of year
|
|
|
$3,161
|
|
|
|
$3,159
|
|
|
|
Legal
Contingencies
We are subject to potential liability under laws and government
regulations and various claims and legal actions that are
pending or may be asserted against us.
We are named as defendants in a number of legal actions and are,
from time to time, involved in governmental proceedings arising
in connection with our various businesses. Some of the pending
actions purport to be class actions. We establish reserves for
legal claims when payments associated with the claims become
probable and the costs can be reasonably estimated. The actual
costs of resolving legal claims may be substantially higher or
lower than the amounts reserved for those claims. Based on
information currently available, advice of counsel, available
insurance coverage and established reserves, it is the opinion
of management that the eventual outcome of the actions against
us will not have a material adverse effect on our consolidated
financial condition, results of operations or cash flows.
Other
Contingencies
We are subject to potential liability under various other
exposures including tax, non-recourse loans, self-insurance and
other miscellaneous contingencies. We establish reserves for
these contingencies when the item becomes probable and the costs
can be reasonably estimated. The actual costs of resolving these
items may be substantially higher or lower than the amounts
reserved for any one item. Based on information currently
available, it is the opinion of management that the eventual
outcome of these items will not have a material adverse effect
on our consolidated financial condition, results of operations
or cash flows.
Other
Risks
Loans Sold with
Recourse
Our outstanding recourse obligations were as follows:
|
|
|
|
|
|
|
|
|
December 31,
($ in millions)
|
|
2006
|
|
2005
|
|
Loans sold with recourse
|
|
|
$800
|
|
|
|
$5,622
|
|
Maximum exposure on loans sold with
recourse (a):
|
|
|
|
|
|
|
|
|
Full exposure
|
|
|
189
|
|
|
|
976
|
|
Limited exposure
|
|
|
58
|
|
|
|
142
|
|
|
|
Total exposure
|
|
|
$247
|
|
|
|
$1,118
|
|
|
|
|
|
(a) |
Maximum recourse exposure is net of amounts reinsured with third
parties totaling $1 and $1 at December 31, 2006 and 2005,
respectively. Loss reserves, included in Accrued expenses and
other liabilities on our Consolidated Balance Sheet, related to
loans sold with recourse totaled $0 and $11 at December 31,
2006 and 2005, respectively.
|
Concentrations
Our 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
consisting of primarily GM vehicles (for wholesale) and GM
117
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
dealership property (for loans). For wholesale financing, we are
also provided further protection by GM factory repurchase
programs. Retail installment contracts and operating lease
assets relate primarily to the secured sale and lease,
respectively, of vehicles (primarily GM). Any protracted
reduction or suspension of GMs production or sale of
vehicles, resulting from a decline in demand, work stoppage,
governmental action or any other event, could have a substantial
adverse effect on us. Conversely, an increase in production or a
significant marketing program could positively impact our
results.
The majority of our finance receivables and loans and operating
lease assets are geographically diversified throughout the
United States. Outside the United States, finance receivables
and loans and operating lease assets are concentrated in Canada,
Germany, the United Kingdom, Italy, Australia, Mexico and Brazil.
Our Insurance operations have a concentration of credit risk
related to loss and loss adjustment expenses and prepaid
reinsurance ceded to certain state insurance funds. Michigan
insurance law and our large market share in North Carolina,
result in credit exposure to the Michigan Catastrophic Claims
Association and the North Carolina Reinsurance Facility totaling
$909 million and $782 million at December 31,
2006 and 2005, respectively.
We originate and purchase residential mortgage loans that have
contractual features that may increase our exposure to credit
risk and thereby result in a concentration of credit risk. These
mortgage loans include loans that may subject borrowers to
significant future payment increases, create the potential for
negative amortization of the principal balance or result in high
loan-to-value
ratios. These loan products include interest only mortgages,
option adjustable rate mortgages, high
loan-to-value
mortgage loans and teaser rate mortgages. Our total loan
production related to these products and our combined exposure
related to these products recorded in finance receivables and
loans and loans held for sale (unpaid principal balance) for the
years ended and as of December 31, 2006 and 2005 is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
principal
|
|
|
Loan
production
|
|
as of
|
|
|
for the
year
|
|
December 31,
|
($
in millions)
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Interest only mortgages
|
|
|
$48,335
|
|
|
|
$43,298
|
|
|
|
$22,416
|
|
|
|
$19,361
|
|
Option adjustable rate mortgages
|
|
|
18,308
|
|
|
|
5,077
|
|
|
|
1,955
|
|
|
|
1,114
|
|
High
loan-to-value
(100% or more) mortgages
|
|
|
8,768
|
|
|
|
6,610
|
|
|
|
11,978
|
|
|
|
13,364
|
|
Below market initial rate (teaser)
mortgages
|
|
|
257
|
|
|
|
537
|
|
|
|
192
|
|
|
|
411
|
|
|
|
|
|
|
Interest-only mortgages Allow interest-only
payments for a fixed period of time. At the end of the
interest-only period, the loan payment includes principal
payments and increases significantly. The borrowers new
payment, once the loan becomes amortizing (i.e., includes
principal payments), will be greater than if the borrower had
been making principal payments since the origination of the loan.
|
|
|
Option adjustable rate mortgages Permit a
variety of repayment options. The repayment options include
minimum, interest-only, fully amortizing
30-year and
fully amortizing
15-year
payments. The minimum payment option sets the monthly payment at
the initial interest rate for the first year of the loan. The
interest rate resets after the first year, but the borrower can
continue to make the minimum payment. The interest-only option
sets the monthly payment at the amount of interest due on the
loan. If the interest-only option payment would be less than the
minimum payment, the interest-only option is not available to
the borrower. Under the fully amortizing
30-year and
15-year
payment options, the borrowers monthly payment is set
based on the interest rate, loan balance and remaining loan term.
|
|
|
High
loan-to-value
mortgages Defined as first-lien loans with
loan-to-value
ratios in excess of 100% or second-lien loans that when combined
with the underlying first-lien mortgage loan result in a
loan-to-value
ratio in excess of 100%.
|
|
|
Below market rate (teaser) mortgages Contain
contractual features that limit the initial interest rate to a
below market interest rate for a specified time period with an
increase to a market interest rate in a future period. The
increase to the market interest rate could result in a
significant increase in the borrowers monthly payment
amount.
|
All of the mortgage loans we originate and most of the mortgages
we purchase (including the higher risk loans in the preceding
table) are subject to our underwriting guidelines and loan
origination standards. This includes guidelines and standards
that we have tailored for these products and include a variety
of factors, including the borrowers capacity to repay the
loan, their credit history and the characteristics of the loan,
including certain characteristics summarized in the table that
may increase our credit risk. When we purchase mortgage loans
from correspondent lenders, we either re-underwrite the loan
prior to purchase or delegate underwriting responsibility to the
correspondent originating the loan. We believe our underwriting
procedures adequately consider the unique risks which may come
from these products. We conduct a variety of quality control
procedures and periodic audits to ensure compliance with our
origination standards, including our criteria for lending and
legal requirements. We leverage technology in performing both
our underwriting process and our quality control procedures.
Capital
Requirements
Various of our international subsidiaries are subject to
regulatory and other requirements of the jurisdictions in which
they operate. These entities operate either as a bank or a
regulated finance company in the local market. The regulatory
restrictions primarily dictate that these subsidiaries meet
certain minimum capital requirements, restrict dividend
distributions and require that some
118
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
assets be restricted. To date, compliance with these various
regulations has not had a materially adverse effect on our
financial position, results of operations or cash flows. Total
assets in these entities approximated $15.5 billion and
$12.9 billion as of December 31, 2006 and 2005,
respectively.
GMAC Bank, which provides services to both the Automotive and
ResCap operations, is licensed as an industrial bank pursuant to
the laws of Utah and its deposits are insured by the Federal
Deposit Insurance Corporation (FDIC). GMAC is required to file
periodic reports with the FDIC concerning its financial
condition. Assets in GMAC Bank totaled $20.2 billion
at December 31, 2006. As of December 31, 2005, certain
depository institution assets were held at a Federal savings
bank that was wholly-owned by ResCap. Effective
November 22, 2006, substantially all of these federal
savings bank assets and liabilities were transferred at book
value to GMAC Bank. Total assets of these institutions at
December 31, 2005, approximated $16.9 billion.
As of December 31, 2006, we have met all regulatory
requirements and were in compliance with the minimum capital
requirements.
On June 24, 2005, we entered into an operating agreement
with GM and ResCap, the holding company for our residential
mortgage business, to create separation between GM and
ourselves, on the one hand, and ResCap, on the other. The
operating agreement restricts ResCaps ability to declare
dividends or prepay subordinated indebtedness to us. As a result
of these arrangements, ResCap has obtained investment grade
credit ratings for its unsecured indebtedness that are separate
from our ratings. This operating agreement was amended on
November 27, 2006, and again on November 30, 2006, in
conjunction with the Sale Transactions. Among other things,
these amendments removed GM as a party to the agreement.
The restrictions contained in the ResCap operating agreement
include the requirements that ResCaps members equity
be at least $6.5 billion for dividends to be paid. If
ResCap is permitted to pay dividends pursuant to the previous
sentence, the cumulative amount of such dividends may not exceed
50% of our cumulative net income (excluding payments for income
taxes from our election for federal income tax purposes to be
treated as a limited liability company), measured from
July 1, 2005, at the time such dividend is paid. These
restrictions will cease to be effective if ResCaps
members equity has been at least $12 billion as of
the end of each of two consecutive fiscal quarters or if we
cease to be the majority owner. In connection with the Sale
Transactions, GM was released as a party to this operating
agreement, but it remains in effect between ResCap and us. At
December 31, 2006, ResCap had consolidated equity of
approximately $7.7 billion.
GMAC Insurance 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, the Financial Services
Authority in England, the Office of the Superintendent of
Financial Institution of Canada and the National Insurance and
Bonding Commission of Mexico. To date, compliance with these
various regulations has not had a materially adverse effect on
our financial condition, results of operations or cash flows.
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, 2006 statutory
policyholders surplus, the maximum dividend that could be
paid by the insurance subsidiaries over the next twelve months
without prior statutory approval approximates $303 million.
24 Restatement
of the Financial Statements
Subsequent to the issuance of our Consolidated Financial
Statements for the year ended December 31, 2005, management
concluded that our hedge accounting documentation and hedge
effectiveness assessment methodologies related to particular
hedges of callable fixed rate debt instruments funding our North
American automotive operations did not satisfy the requirements
of SFAS 133. One of the requirements of SFAS 133 is
that hedge accounting is appropriate only for those hedging
relationships for which a company has a sufficiently documented
expectation that such relationships will be highly effective in
achieving offsetting changes in fair values attributable to the
risk being hedged at the inception of the hedging relationship.
To determine whether transactions continue to satisfy this
requirement, companies must periodically assess the
effectiveness of hedging relationships both prospectively and
retrospectively.
Management determined that hedge accounting treatment should not
have been applied to these hedging relationships. As a result,
we should not have recorded any adjustments on the debt
instruments included in the hedging relationships related to
changes in fair value due to movements in the designated
benchmark interest rate. Accordingly, we have restated our
Consolidated Financial Statements for the years ended
December 31, 2005 and 2004 from the amounts previously
reported to remove such recorded adjustments on these debt
instruments from our reported interest expense during the
affected years. The elimination of hedge accounting treatment
introduces increased funding cost volatility in our restated
results. The changes in the fair value of fixed rate debt
previously recorded were affected by changes in the designated
benchmark interest rate (LIBOR). Prior to the restatement,
adjustments to record increases in the value of this debt
occurred in periods when interest rates declined, and
adjustments to record decreases in value were made in periods
when interest rates rose. As a result, changes in the benchmark
interest rates caused volatility in the debts fair value
adjustments that were recognized in our historical earnings,
which were mitigated by the changes in the value of the interest
rate swaps in the hedge relationships. The interest rate
swaps,
119
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
which economically hedge these debt instruments continue to be
recorded at fair value with changes in fair value recorded in
earnings. We are also correcting certain other out-of-period
errors, which were deemed immaterial, individually and in the
aggregate, in the periods in which they were originally recorded
and identified. These items relate to transactions involving
certain transfers of financial assets, valuations of certain
financial instruments, amortization of unearned income on
certain products, income taxes and other inconsequential items.
Because of this derivative restatement, we are correcting these
amounts to record them in the proper period. For the effect of
the restatement on the quarterly financial data refer to
Note 25 to our Consolidated Financial Statements.
The following table presents the effects of the restatement on
the Consolidated Income Statement. Certain amounts in the
previously reported columns have been reclassified to conform to
the 2006 presentation. The most significant reclassifications
relate to servicing fees; amortization and impairment of
servicing rights; servicing asset valuation and hedge
activities, net and gain on sale of mortgage and automotive
loans, net, which were previously included in mortgage banking
income and other income and are now reflected as separate
components of total net financing revenue and other income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
Previously
|
|
|
|
Previously
|
|
|
Year ended
December 31, ($ in millions)
|
|
reported
|
|
Restated
|
|
reported
|
|
Restated
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
$9,945
|
|
|
|
$9,943
|
|
|
|
$10,332
|
|
|
|
$10,316
|
|
Commercial
|
|
|
2,685
|
|
|
|
2,685
|
|
|
|
2,177
|
|
|
|
2,177
|
|
Loans held for sale
|
|
|
1,652
|
|
|
|
1,652
|
|
|
|
1,269
|
|
|
|
1,269
|
|
Operating leases
|
|
|
7,032
|
|
|
|
7,032
|
|
|
|
6,563
|
|
|
|
6,563
|
|
|
|
Total financing revenue
|
|
|
21,314
|
|
|
|
21,312
|
|
|
|
20,341
|
|
|
|
20,325
|
|
Interest expense
|
|
|
12,930
|
|
|
|
13,106
|
|
|
|
9,535
|
|
|
|
9,659
|
|
|
|
Net financing revenue before
provision for credit losses
|
|
|
8,384
|
|
|
|
8,206
|
|
|
|
10,806
|
|
|
|
10,666
|
|
Provision for credit losses
|
|
|
1,085
|
|
|
|
1,074
|
|
|
|
1,953
|
|
|
|
1,953
|
|
|
|
Net financing revenue
|
|
|
7,299
|
|
|
|
7,132
|
|
|
|
8,853
|
|
|
|
8,713
|
|
Servicing fees
|
|
|
1,730
|
|
|
|
1,730
|
|
|
|
1,547
|
|
|
|
1,547
|
|
Amortization and impairment of
servicing rights
|
|
|
(869
|
)
|
|
|
(869
|
)
|
|
|
(1,112
|
)
|
|
|
(1,112
|
)
|
Servicing asset valuation and hedge
activities, net
|
|
|
61
|
|
|
|
61
|
|
|
|
243
|
|
|
|
243
|
|
|
|
Net loan servicing income
|
|
|
922
|
|
|
|
922
|
|
|
|
678
|
|
|
|
678
|
|
Insurance premiums and service
revenue earned
|
|
|
3,762
|
|
|
|
3,762
|
|
|
|
3,528
|
|
|
|
3,528
|
|
Gain on sale of mortgage and
automotive loans, net
|
|
|
1,656
|
|
|
|
1,656
|
|
|
|
1,347
|
|
|
|
1,347
|
|
Investment income
|
|
|
1,216
|
|
|
|
1,216
|
|
|
|
845
|
|
|
|
845
|
|
Other income
|
|
|
4,352
|
|
|
|
4,399
|
|
|
|
3,416
|
|
|
|
3,470
|
|
|
|
Total net financing revenue and
other income
|
|
|
19,207
|
|
|
|
19,087
|
|
|
|
18,667
|
|
|
|
18,581
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense on operating
lease assets
|
|
|
5,244
|
|
|
|
5,244
|
|
|
|
4,828
|
|
|
|
4,828
|
|
Compensation and benefits expense
|
|
|
3,163
|
|
|
|
3,163
|
|
|
|
2,916
|
|
|
|
2,916
|
|
Insurance losses and loss
adjustment expenses
|
|
|
2,355
|
|
|
|
2,355
|
|
|
|
2,371
|
|
|
|
2,371
|
|
Other operating expenses
|
|
|
4,134
|
|
|
|
4,134
|
|
|
|
4,205
|
|
|
|
4,210
|
|
Impairment of goodwill and other
intangible assets
|
|
|
712
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
15,608
|
|
|
|
15,608
|
|
|
|
14,320
|
|
|
|
14,325
|
|
Income before income tax
expense
|
|
|
3,599
|
|
|
|
3,479
|
|
|
|
4,347
|
|
|
|
4,256
|
|
Income tax expense
|
|
|
1,205
|
|
|
|
1,197
|
|
|
|
1,434
|
|
|
|
1,362
|
|
|
|
Net income
|
|
|
$2,394
|
|
|
|
$2,282
|
|
|
|
$2,913
|
|
|
|
$2,894
|
|
|
|
120
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The following table presents the effects of the restatement on
the Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
December 31,
2005 ($ in millions)
|
|
reported
|
|
Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$15,424
|
|
|
|
$15,424
|
|
Investment securities
|
|
|
18,207
|
|
|
|
18,207
|
|
Loans held for sale
|
|
|
21,865
|
|
|
|
21,865
|
|
Assets held for sale
|
|
|
19,030
|
|
|
|
19,030
|
|
Finance receivables and loans, net
of unearned income
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
140,411
|
|
|
|
140,436
|
|
Commercial
|
|
|
44,574
|
|
|
|
44,574
|
|
Allowance for credit losses
|
|
|
(3,116
|
)
|
|
|
(3,085
|
)
|
|
|
Total finance receivables and
loans, net
|
|
|
181,869
|
|
|
|
181,925
|
|
Investment in operating leases, net
|
|
|
31,211
|
|
|
|
31,211
|
|
Notes receivable from GM
|
|
|
4,565
|
|
|
|
4,565
|
|
Mortgage servicing rights
|
|
|
4,015
|
|
|
|
4,015
|
|
Premiums and other insurance
receivables
|
|
|
1,873
|
|
|
|
1,873
|
|
Other assets
|
|
|
22,457
|
|
|
|
22,442
|
|
|
|
Total assets
|
|
|
$320,516
|
|
|
|
$320,557
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
$133,269
|
|
|
|
$133,560
|
|
Secured
|
|
|
121,138
|
|
|
|
121,138
|
|
|
|
Total debt
|
|
|
254,407
|
|
|
|
254,698
|
|
Interest payable
|
|
|
3,057
|
|
|
|
3,057
|
|
Liabilities related to assets held
for sale
|
|
|
10,941
|
|
|
|
10,941
|
|
Unearned insurance premiums and
service revenue
|
|
|
5,054
|
|
|
|
5,054
|
|
Reserves for insurance losses and
loss adjustment expenses
|
|
|
2,534
|
|
|
|
2,534
|
|
Accrued expenses and other
liabilities
|
|
|
18,381
|
|
|
|
18,224
|
|
Deferred income taxes
|
|
|
4,364
|
|
|
|
4,364
|
|
|
|
Total liabilities
|
|
|
298,738
|
|
|
|
298,872
|
|
Equity
|
|
|
|
|
|
|
|
|
Common stock and paid-in capital
|
|
|
5,760
|
|
|
|
5,760
|
|
Retained earnings
|
|
|
15,190
|
|
|
|
15,095
|
|
Accumulated other comprehensive
income
|
|
|
828
|
|
|
|
830
|
|
|
|
Total equity
|
|
|
21,778
|
|
|
|
21,685
|
|
|
|
Total liabilities and equity
|
|
|
$320,516
|
|
|
|
$320,557
|
|
|
|
121
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The following table presents the effects of the restatement on
the Consolidated Statement of Changes in Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
Previously
|
|
|
|
Previously
|
|
|
Year
ended December 31, ($ in millions)
|
|
reported
|
|
Restated
|
|
reported
|
|
Restated
|
|
Common stock and paid-in
capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
$5,760
|
|
|
|
$5,760
|
|
|
|
$5,641
|
|
|
|
$5,641
|
|
Increase in paid-in capital
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
119
|
|
|
|
Balance at end of year
|
|
|
5,760
|
|
|
|
5,760
|
|
|
|
5,760
|
|
|
|
5,760
|
|
|
|
Retained earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
15,491
|
|
|
|
15,508
|
|
|
|
14,078
|
|
|
|
14,114
|
|
Net income
|
|
|
2,394
|
|
|
|
2,282
|
|
|
|
2,913
|
|
|
|
2,894
|
|
Dividends paid
|
|
|
(2,500
|
)
|
|
|
(2,500
|
)
|
|
|
(1,500
|
)
|
|
|
(1,500
|
)
|
Repurchase transaction
|
|
|
(195
|
)
|
|
|
(195
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
15,190
|
|
|
|
15,095
|
|
|
|
15,491
|
|
|
|
15,508
|
|
|
|
Accumulated other comprehensive
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
1,166
|
|
|
|
1,168
|
|
|
|
517
|
|
|
|
518
|
|
Other comprehensive (loss) income
|
|
|
(338
|
)
|
|
|
(338
|
)
|
|
|
649
|
|
|
|
650
|
|
|
|
Balance at end of year
|
|
|
828
|
|
|
|
830
|
|
|
|
1,166
|
|
|
|
1,168
|
|
|
|
Total equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
22,417
|
|
|
|
22,436
|
|
|
|
20,236
|
|
|
|
20,273
|
|
Increase in paid-in capital
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
119
|
|
Net income
|
|
|
2,394
|
|
|
|
2,282
|
|
|
|
2,913
|
|
|
|
2,894
|
|
Dividends paid
|
|
|
(2,500
|
)
|
|
|
(2,500
|
)
|
|
|
(1,500
|
)
|
|
|
(1,500
|
)
|
Repurchase transaction
|
|
|
(195
|
)
|
|
|
(195
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
(338
|
)
|
|
|
(338
|
)
|
|
|
649
|
|
|
|
650
|
|
|
|
Total equity at end of year
|
|
|
$21,778
|
|
|
|
$21,685
|
|
|
|
$22,417
|
|
|
|
$22,436
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$2,394
|
|
|
|
$2,282
|
|
|
|
$2,913
|
|
|
|
$2,894
|
|
Other comprehensive (loss) income
|
|
|
(338
|
)
|
|
|
(338
|
)
|
|
|
649
|
|
|
|
650
|
|
|
|
Comprehensive income
|
|
|
$2,056
|
|
|
|
$1,944
|
|
|
|
$3,562
|
|
|
|
$3,544
|
|
|
|
122
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
The following table presents the effects of the restatement on
the Consolidated Statement of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
Previously
|
|
|
|
Previously
|
|
|
Year ended
December 31, ($ in millions)
|
|
reported
|
|
Restated
|
|
reported
|
|
Restated
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$2,394
|
|
|
|
$2,282
|
|
|
|
$2,913
|
|
|
|
$2,894
|
|
Reconciliation of net income to net cash (used in) provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,964
|
|
|
|
5,964
|
|
|
|
5,433
|
|
|
|
5,433
|
|
Goodwill impairment
|
|
|
712
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
Amortization and valuation adjustments of mortgage servicing
rights
|
|
|
782
|
|
|
|
782
|
|
|
|
1,384
|
|
|
|
1,384
|
|
Provision for credit losses
|
|
|
1,085
|
|
|
|
1,074
|
|
|
|
1,953
|
|
|
|
1,953
|
|
Net gains on sales of finance receivables and loans
|
|
|
(1,695
|
)
|
|
|
(1,741
|
)
|
|
|
(1,312
|
)
|
|
|
(1,332
|
)
|
Net (gains) losses on investment securities
|
|
|
(104
|
)
|
|
|
(104
|
)
|
|
|
(52
|
)
|
|
|
(52
|
)
|
Capitalized interest income
|
|
|
(23
|
)
|
|
|
(23
|
)
|
|
|
(30
|
)
|
|
|
(30
|
)
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
(1,155
|
)
|
|
|
(1,155
|
)
|
|
|
614
|
|
|
|
614
|
|
Loans held for sale
|
|
|
(29,119
|
)
|
|
|
(29,119
|
)
|
|
|
(2,312
|
)
|
|
|
(2,312
|
)
|
Deferred income taxes
|
|
|
351
|
|
|
|
351
|
|
|
|
(118
|
)
|
|
|
(118
|
)
|
Interest payable
|
|
|
(290
|
)
|
|
|
(290
|
)
|
|
|
311
|
|
|
|
311
|
|
Other assets
|
|
|
(2,366
|
)
|
|
|
(2,446
|
)
|
|
|
2,468
|
|
|
|
2,426
|
|
Other liabilities
|
|
|
49
|
|
|
|
45
|
|
|
|
(2,800
|
)
|
|
|
(2,875
|
)
|
Other, net
|
|
|
315
|
|
|
|
568
|
|
|
|
1,011
|
|
|
|
1,167
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(23,100
|
)
|
|
|
(23,100
|
)
|
|
|
9,463
|
|
|
|
9,463
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available for sale securities
|
|
|
(19,165
|
)
|
|
|
(19,165
|
)
|
|
|
(12,783
|
)
|
|
|
(12,783
|
)
|
Proceeds from sales of available for sale securities
|
|
|
5,721
|
|
|
|
5,721
|
|
|
|
3,276
|
|
|
|
3,276
|
|
Proceeds from maturities of available for sale securities
|
|
|
8,887
|
|
|
|
8,887
|
|
|
|
7,250
|
|
|
|
7,250
|
|
Net increase in finance receivables and loans
|
|
|
(96,028
|
)
|
|
|
(96,028
|
)
|
|
|
(125,183
|
)
|
|
|
(125,183
|
)
|
Proceeds from sales of finance receivables and loans
|
|
|
125,836
|
|
|
|
125,836
|
|
|
|
108,147
|
|
|
|
108,147
|
|
Purchases of operating lease assets
|
|
|
(15,496
|
)
|
|
|
(15,496
|
)
|
|
|
(14,055
|
)
|
|
|
(14,055
|
)
|
Disposals of operating lease assets
|
|
|
5,164
|
|
|
|
5,164
|
|
|
|
7,668
|
|
|
|
7,668
|
|
Change in notes receivable from GM
|
|
|
1,053
|
|
|
|
1,053
|
|
|
|
(1,635
|
)
|
|
|
(1,635
|
)
|
Purchases of mortgage servicing rights, net
|
|
|
(267
|
)
|
|
|
(267
|
)
|
|
|
(326
|
)
|
|
|
(326
|
)
|
Acquisitions of subsidiaries, net of cash acquired
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
9
|
|
|
|
9
|
|
Other, net
|
|
|
(1,549
|
)
|
|
|
(1,549
|
)
|
|
|
260
|
|
|
|
260
|
|
|
Net cash provided by (used in) investing activities
|
|
|
14,154
|
|
|
|
14,154
|
|
|
|
(27,372
|
)
|
|
|
(27,372
|
)
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term debt
|
|
|
(9,970
|
)
|
|
|
(9,970
|
)
|
|
|
4,123
|
|
|
|
4,123
|
|
Proceeds from issuance of long-term debt
|
|
|
77,890
|
|
|
|
77,890
|
|
|
|
72,753
|
|
|
|
72,753
|
|
Repayments of long-term debt
|
|
|
(69,520
|
)
|
|
|
(69,520
|
)
|
|
|
(57,743
|
)
|
|
|
(57,743
|
)
|
Other financing activities
|
|
|
6,168
|
|
|
|
6,168
|
|
|
|
4,723
|
|
|
|
4,723
|
|
Dividends paid
|
|
|
(2,500
|
)
|
|
|
(2,500
|
)
|
|
|
(1,500
|
)
|
|
|
(1,500
|
)
|
|
Net cash provided by financing activities
|
|
|
2,068
|
|
|
|
2,068
|
|
|
|
22,356
|
|
|
|
22,356
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(45
|
)
|
|
|
(45
|
)
|
|
|
295
|
|
|
|
295
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(6,923
|
)
|
|
|
(6,923
|
)
|
|
|
4,742
|
|
|
|
4,742
|
|
Cash and cash equivalents at beginning of year
|
|
|
22,718
|
|
|
|
22,718
|
|
|
|
17,976
|
|
|
|
17,976
|
|
|
Cash and cash equivalents at end of year
|
|
|
$15,795
|
|
|
|
$15,795
|
|
|
|
$22,718
|
|
|
|
$22,718
|
|
|
123
Notes to
Consolidated Financial Statements
GMAC
LLC Form 10-K
25 Quarterly
Financial Statements (unaudited)
The following tables present the quarterly results for 2006 and
2005, including the effects of the restatement on the applicable
periods. For further details on the restatement refer to
Notes 1 and 24 to these Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
Second
quarter
|
|
Third
quarter
|
|
Fourth
quarter
|
2006
|
|
Previously
|
|
|
|
Previously
|
|
|
|
Previously
|
|
|
|
|
($ in
millions)
|
|
reported
|
|
Restated
|
|
reported
|
|
Restated
|
|
reported
|
|
Restated
|
|
|
|
|
Net financing revenue before
provision for credit losses
|
|
|
$2,140
|
|
|
|
$1,891
|
|
|
|
$1,908
|
|
|
|
$1,743
|
|
|
|
$1,691
|
|
|
|
$2,033
|
|
|
|
$1,876
|
|
Provision for credit losses
|
|
|
(135
|
)
|
|
|
(166
|
)
|
|
|
(285
|
)
|
|
|
(268
|
)
|
|
|
(486
|
)
|
|
|
(503
|
)
|
|
|
(1,063
|
)
|
Other revenue
|
|
|
2,911
|
|
|
|
2,899
|
|
|
|
3,542
|
|
|
|
3,522
|
|
|
|
3,083
|
|
|
|
3,015
|
|
|
|
3,184
|
|
|
|
Total net financing revenue and
other income
|
|
|
4,916
|
|
|
|
4,624
|
|
|
|
5,165
|
|
|
|
4,997
|
|
|
|
4,288
|
|
|
|
4,545
|
|
|
|
3,997
|
|
Noninterest expense
|
|
|
3,928
|
|
|
|
3,907
|
|
|
|
3,835
|
|
|
|
3,850
|
|
|
|
4,542
|
|
|
|
4,535
|
|
|
|
3,643
|
|
|
|
Income (loss) before income tax
expense
|
|
|
988
|
|
|
|
717
|
|
|
|
1,330
|
|
|
|
1,147
|
|
|
|
(254
|
)
|
|
|
10
|
|
|
|
354
|
|
Income tax expense (benefit)
|
|
|
316
|
|
|
|
222
|
|
|
|
430
|
|
|
|
360
|
|
|
|
70
|
|
|
|
183
|
|
|
|
(662
|
)(b)
|
|
|
Net income (loss)
|
|
|
$672
|
|
|
|
$495
|
|
|
|
$900
|
|
|
|
$787
|
|
|
|
($324
|
)(a)
|
|
|
($173
|
)(a)
|
|
|
$1,016
|
|
|
|
|
|
(a)
|
Decline in third quarter 2006 net income primarily relates
to goodwill impairment taken at our Commercial Finance business.
Refer to Note 11 to our Consolidated Financial Statements
for further details.
|
(b)
|
Effective November 28, 2006, GMAC, along with certain
U.S. subsidiaries, became disregarded or pass-through
entities for U.S. federal income tax purposes. Due to our
change in tax status, a net deferred tax liability was
eliminated through income tax expense totaling $791 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
Second quarter
|
|
Third quarter
|
|
Fourth quarter
|
2005
|
|
Previously
|
|
|
|
Previously
|
|
|
|
Previously
|
|
|
|
Previously
|
|
|
($ in
millions)
|
|
reported
|
|
Restated
|
|
reported
|
|
Restated
|
|
reported
|
|
Restated
|
|
reported
|
|
Restated
|
|
|
Net financing revenue before
provision for credit losses
|
|
|
$2,187
|
|
|
|
$2,015
|
|
|
|
$2,267
|
|
|
|
$2,510
|
|
|
|
$2,004
|
|
|
|
$1,861
|
|
|
|
$1,926
|
|
|
|
$1,820
|
|
Provision for credit losses
|
|
|
(329
|
)
|
|
|
(313
|
)
|
|
|
(201
|
)
|
|
|
(217
|
)
|
|
|
(385
|
)
|
|
|
(385
|
)
|
|
|
(170
|
)
|
|
|
(159
|
)
|
Other revenue
|
|
|
2,841
|
|
|
|
2,859
|
|
|
|
2,784
|
|
|
|
2,805
|
|
|
|
3,288
|
|
|
|
3,274
|
|
|
|
2,995
|
|
|
|
3,017
|
|
|
|
Total net financing revenue and
other income
|
|
|
4,699
|
|
|
|
4,561
|
|
|
|
4,850
|
|
|
|
5,098
|
|
|
|
4,907
|
|
|
|
4,750
|
|
|
|
4,751
|
|
|
|
4,678
|
|
Noninterest
expense
|
|
|
3,596
|
|
|
|
3,574
|
|
|
|
3,638
|
|
|
|
3,613
|
|
|
|
3,856
|
|
|
|
3,854
|
|
|
|
4,518
|
|
|
|
4,567
|
|
|
|
Income before income tax expense
|
|
|
1,103
|
|
|
|
987
|
|
|
|
1,212
|
|
|
|
1,485
|
|
|
|
1,051
|
|
|
|
896
|
|
|
|
233
|
|
|
|
111
|
|
Income tax expense (benefit)
|
|
|
375
|
|
|
|
363
|
|
|
|
396
|
|
|
|
511
|
|
|
|
376
|
|
|
|
324
|
|
|
|
58
|
|
|
|
(1
|
)
|
|
|
Net income
|
|
|
$728
|
|
|
|
$624
|
|
|
|
$816
|
|
|
|
$974
|
|
|
|
$675
|
|
|
|
$572
|
|
|
|
$175
|
(a)
|
|
|
$112
|
(a)
|
|
|
|
|
(a) |
Decline in fourth quarter 2005 net income primarily relates
to goodwill impairments taken at our Commercial Finance business
and Capmark. Refer to Note 11 to our Consolidated Financial
Statements for further details.
|
124
Part III
GMAC
LLC Form 10-K
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e)
under the Exchange Act), designed to ensure that information
required to be disclosed in reports filed under the Exchange Act
is recorded, processed, summarized and reported within the
specified time periods. As of the end of the period covered by
this report, our Chief Executive Officer (CEO) and our Chief
Financial Officer (CFO) evaluated, with the participation of our
management, the effectiveness of our disclosure controls and
procedures.
Based on managements evaluation and solely because of the
material weakness related to our controls over our application
of Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as
amended and interpreted (SFAS 133) as described below, our
Principal Executive and Principal Financial Officers each
concluded that our disclosure controls and procedures were not
effective as of December 31, 2006.
Material Weakness
in Internal Control over Financial Reporting
A material weakness is a control deficiency or a combination of
control deficiencies that result in a more than remote
likelihood that a material misstatement of the annual or interim
consolidated financial statements will not be prevented or
detected.
As a result of a recent review of our hedge documentation for
certain fair value hedges, management concluded that such
documentation and hedge effectiveness assessment methodologies
related to particular hedges of callable fixed rate debt
instruments funding our North American automotive finance
operations did not satisfy the requirements of SFAS 133.
One of the requirements of SFAS 133 is that hedge
accounting is appropriate only for those hedging relationships
for which a company has a sufficiently documented expectation
that such relationships will be highly effective in achieving
offsetting changes in fair value or cash flows attributable to
the risk being hedged at the inception of the hedging
relationship. To determine whether transactions continue to
satisfy this requirement, companies must periodically assess and
document the effectiveness of hedging relationships both
prospectively and retrospectively.
Management determined that hedge accounting treatment should not
have been applied to these hedging relationships. As a result,
we should not have recorded any adjustments on the debt
instruments included in the hedging relationships related to
changes in fair value due to movements in the designated
benchmark interest rate. As such, we determined that our
controls over the documentation and effectiveness assessment of
SFAS 133 were not sufficiently designed or implemented to
ensure that SFAS 133 was properly applied and continued to
be applicable to these hedging relationships.
Restatement of
Financial Statements
Accordingly, we have restated our historical consolidated
financial statements for the years ended December 31, 2005
and 2004 from the amounts previously reported to remove such
recorded adjustments on these debt instruments from our reported
interest expense during the affected years. The elimination of
hedge accounting treatment introduces increased funding cost
volatility in our restated results. The changes in the fair
value of fixed rate debt previously recorded were affected by
changes in the designated benchmark interest rate (LIBOR). Prior
to the restatement, adjustments to record increases in the value
of this debt occurred in periods when interest rates declined,
and adjustments to record decreases in value were made in
periods when interest rates rose. As a result, changes in the
benchmark interest rates caused volatility in the debts
fair value adjustments that were recognized in our historical
earnings, which were mitigated by the changes in the value of
the interest rate swaps in the hedge relationships. The interest
rate swaps, which economically hedge these debt instruments,
continue to be recorded at fair value with changes in fair value
recorded in earnings.
Remediation of
Material Weakness in Internal Control over Financial
Reporting
In order to address this material weakness in our internal
control over financial reporting, we are working to design and
implement enhanced controls to ensure future applications of
hedge accounting for similar transactions satisfy the initial
and periodic documentation as well as the hedge effectiveness
assessment requirements of SFAS 133. We will monitor,
evaluate and test the operating effectiveness of these controls
on a go forward basis.
Changes in
Internal Control over Financial Reporting
In the fourth quarter of 2006, General Motors sold a 51%
interest in GMAC to FIM Holdings LLC. As result of the
transaction, GMAC LLC has established a new governance structure
with a new board of members and independent audit committee.
There were no other changes in our internal control over
financial reporting that occurred during our most recent fiscal
quarter that may have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
Item 9B.
Other Information
None.
125
GMAC
LLC Form 10-K
Item 10.
Directors, Executive Officers and Corporate Governance
The following table presents information regarding directors,
executive officers and other significant employees of GMAC as of
December 31, 2006.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
|
T. K. Duggan
|
|
|
55
|
|
|
Director (Chairman of Audit
Committee)
|
Douglas A. Hirsch
|
|
|
44
|
|
|
Director (Member of Audit Committee)
|
Robert W. Scully
|
|
|
56
|
|
|
Director
|
J. Ezra Merkin
|
|
|
53
|
|
|
Director (Chairman of the Board)
|
Mark A. Neporent
|
|
|
49
|
|
|
Director
|
Lenard B. Tessler
|
|
|
54
|
|
|
Director
|
Frank W. Bruno
|
|
|
41
|
|
|
Director
|
Seth P. Plattus
|
|
|
45
|
|
|
Director
|
Michael S. Klein
|
|
|
43
|
|
|
Director
|
G. Richard Wagoner, Jr.
|
|
|
53
|
|
|
Director
|
Frederick A. Henderson
|
|
|
48
|
|
|
Director
|
Mark R. LaNeve
|
|
|
47
|
|
|
Director
|
Walter G. Borst
|
|
|
45
|
|
|
Director
|
Eric A Feldstein
|
|
|
47
|
|
|
Chief Executive Officer
|
William F. Muir
|
|
|
52
|
|
|
President
|
Sanjiv Khattri
|
|
|
42
|
|
|
Executive Vice President and Chief
Financial Officer
|
Bruce J. Paradis
|
|
|
58
|
|
|
Executive Vice President, ResCap
|
Barbara J. Stokel
|
|
|
54
|
|
|
Executive Vice President, North
American Operations
|
Mark F. Bole
|
|
|
43
|
|
|
Executive Vice President,
International Operations
|
William B. Solomon, Jr.
|
|
|
53
|
|
|
Group Vice President, General
Counsel
|
Cherri M. Musser
|
|
|
55
|
|
|
Group Vice President and Chief
Information Officer
|
David C. Walker
|
|
|
46
|
|
|
Group Vice President, Global
Borrowings
|
Linda K. Zukauckas
|
|
|
45
|
|
|
Vice President and Corporate
Controller
|
Cathy L. Quenneville
|
|
|
47
|
|
|
Corporate Secretary
|
|
|
Directors
T. K. Duggan, Co-Founder and Managing Principal of
Durham Asset Management. Mr. Duggan has 20 years of
experience in the distressed securities industry and as a
portfolio manager specializing in global, event-driven
distressed debt and special situations. His prior experience
(1988-2004)
includes founder of the Investment Banking, Institutional
Research and Sales & Trading departments of The
Delaware Bay Company, distressed securities boutique, becoming
Chairman and CEO in 1996, directing the firms research,
sales and trading efforts until 2004. Previously he was Director
of Bank Debt Trading at R. D. Smith & Co
(1986-1988),
Generalist Investment Banker at Kidder Peabody & Co
(1983-1986)
and Senior Accountant, Price Waterhouse
(1976-1980).
Mr. Duggan has a Masters of Business Administration (MBA)
from Harvard University and a BS in Business Administration from
the University of Southern Mississippi.
Douglas A. Hirsch, Founder and Managing Partner of Seneca
Capital. Seneca Capital is a $3 billion event-driven
investment partnership that commenced in 1996. Seneca is the
successor fund to Smith New Courts event-driven department
that Mr. Hirsch started in 1990. While managing this
department (the firms most profitable area),
Mr. Hirsch served on Smith New Courts Executive
Committee and as a member of the Board of Directors from 1993
through 1995, at which time Merrill Lynch acquired the firm.
From 1988 to 1989 Mr. Hirsch was an analyst at Kaufman,
Alsberg & Co.; he began his career working for John
Mulheren from 1986 to 1988 at Jamie Securities. In 2004
Mr. Hirsch became a Director of Greenlight Capital
Offshore, Ltd. and Greenlight Masters Offshore, Ltd. He joined
the GMAC Board in 2006. Mr. Hirsch is a 1985 graduate of
Dartmouth College. He is co-founder and co-chairman of the Ira
Sohn Investment Research Conference, an annual event that
benefits the Tomorrows Childrens Fund, a charity devoted
to pediatric cancer research and care. He is also on the
Honorary Board of Directors for The Catalog for Giving of New
York City.
Robert W. Scully, Co-President, Morgan Stanley.
Mr. Scully was appointed Co-President of Morgan Stanley in
February 2006 and is
126
GMAC
LLC Form 10-K
responsible for Asset Management, Discover and Morgan
Stanleys expanding private equity business. Previously,
Mr. Scully served as Chairman of Global Capital Markets and
Vice Chairman of Investment Banking from September 1999 to
February 2006. In that role, Mr. Scully was responsible for
managing relationships with major clients in a broad range of
industries including information technology, telecom equipment,
automotive and financial sponsor organizations. Mr. Scully
received his bachelors degree from Princeton University in
1972 and an MBA from Harvard Business School in 1977.
Mr. Scully serves on the Board of Directors of the Global
Fund for Children and the Board of Trustees of the International
Center of Photography, and is a member of the New York Advisory
Board of Teach for America.
J. Ezra Merkin, GMAC Chairman Managing partner of Gabriel
Capital Group and its predecessor firm since 1985. He manages
approximately five billion dollars in family hedge funds.
Mr. Merkin graduated from Columbia College and Harvard Law
School. He is a Trustee and the Chair of the Investment
Committees of Yeshiva University and of the UJA/Federation of
New York. In addition, he is a Trustee of Carnegie Hall in New
York, the Beyeler Foundation and Museum in Basel, Switzerland,
and of the Gruss Foundation. He is a member of the Board of
Visitors of Columbia College in New York and a Governor of the
Levy Economics Institute of Bard College in
Annandale-on-Hudson,
New York. He serves as President of the Fifth Avenue Synagogue
and Vice Chairman of the Ramaz School, both in New York.
Mark A. Neporent, Chief Operating Officer and Senior
Managing Director, Cerberus. Mr. Neporent joined the
Management Company in 1998 from Schulte Roth & Zabel
LLP, a New York City-based law firm, where he was a partner in
the firms Business Reorganization and Finance Group doing
extensive work on behalf of the Management Company.
Mr. Neporent has over 20 years of experience in the
distressed securities, bankruptcy and high-yield finance
business. He is a 1979 graduate of Lehigh University and a 1982
graduate of Syracuse University College of Law.
Lenard B. Tessler, Managing Director, Cerberus.
Mr. Tessler joined the Cerberus Companies in 2001. Prior to
joining the Cerberus Companies, Mr. Tessler served as
managing partner of TGV Partners, a private equity firm that he
founded. Mr. Tessler served as Chairman of the Board of
Empire Kosher Poultry, Inc., from 1994 to 1997, after acting as
its President and Chief Executive Officer from 1992 to 1994.
Before founding TGV Partners, Mr. Tessler was a founding
partner of Levine, Tessler, Leichtman & Co., a
leveraged buy-out firm formed in 1987. From 1982 to 1987, he was
a founder, director and Executive Vice President of Walker
Energy Partners, and he subsequently acted as an independent
financial consultant to financially troubled companies in the
oil and gas industry. Prior thereto, Mr. Tessler practiced
accounting in New York specializing in tax. Mr. Tessler is
a 1973 graduate of the University of Miami. He received his MBA
in 1975 from Farleigh Dickinson University.
Frank W. Bruno, President Cerberus Global Investments LLC
and Managing Director since January 2002. Mr. Bruno is
responsible for managing the European and Asian businesses for
Cerberus, as well as its global activities in the financial
services sector. Mr. Bruno was previously employed at
Merrill Lynch, Weber Management Consultants and the Bank of
Tokyo, Ltd. Mr. Bruno is a graduate of Cornell University
and received his MBA from the University of Pennsylvania
(Wharton School).
Seth P. Plattus, Senior Managing Director, and the Chief
Administrative Officer and Co-General Counsel of Cerberus
Capital Management, L.P. Mr. Plattus joined Cerberus in
1994 as one of its first investment professionals. Prior to
joining Cerberus, Mr. Plattus was at The Blackstone Group
where from 1990 to 1994 he worked on the firms principal
investments and represented debtors and creditor committees in
restructurings and reorganizations. From 1986 to 1990,
Mr. Plattus was a mergers and acquisitions attorney at the
law firm of Skadden, Arps, Slate, Meagher & Flom.
Mr. Plattus is a 1983 graduate of Cornell University. He
earned a J.D. in 1986 from the University of Pennsylvania Law
School.
Michael S. Klein, Co-President of Global Corporate and
Investment Banking, Citigroup. Mr. Klein is a member of
both the Management Committee of Citigroup and the Planning
Group of the Global Corporate and Investment Bank. He also
serves as the Vice Chairman of Citigroup International PLC.
Prior to his current position, he was CEO of the Global
Corporate and Investment Bank for Europe, the Middle East and
Africa (EMEA). He has also held the positions of Chief Executive
Officer of the Citigroup Corporate and Investment Bank, Europe,
and Co-Head of Global Investment Banking for Salomon Smith
Barney, a member of Citigroup from 2000 to 2003. Mr. Klein
joined the Mergers & Acquisitions group of Salomon
Brothers after graduating cum laude from the Wharton School of
Business. He has also served on the Board of Directors of HIS
Inc. since December 1, 2003. Since 1987, and prior to
becoming Co-Head of the Global Investment Bank, he has been
responsible for the Firms Global Financial Entrepreneurs
and Private Equity Groups. He has been a member of both the
Investment Banks Global Management Committee and
Commitment Committees since 1995.
G. Richard Wagoner, Jr., Director from November
1992 to July 1994 and since November 1998. Mr. Wagoner
was elected GM chairman and chief executive officer on
May 1, 2003. Mr. Wagoner has been GMs president
and chief executive officer since June 2000. Mr. Wagoner
was elected president and chief operating officer of GM in 1998
and had been executive vice president of GM and president of
North American Operations since 1994. Mr. Wagoner received
a bachelors degree in economics from Duke University in
1975 and an MBA from Harvard University in 1977.
Mr. Wagoner is a member of the boards of trustees of Duke
University and Detroit Country Day School, the Board of
Deans Advisors of the Harvard Business School and the
Board of Directors of Catalyst. He is chairman of the Society of
Automotive Engineers A World In Motion Executive
Committee and the Detroit Renaissance Executive Committee and a
member of The Business Council and The Business Roundtable.
Frederick A. Henderson, Director since January 2006 and a
member of the Audit Committee from January 2006 to November
2006. Mr. Henderson became vice chairman and chief
financial officer for GM
127
GMAC
LLC Form 10-K
on January 1, 2006. Prior to his promotion,
Mr. Henderson was a GM group vice president and chairman of
GM Europe, based in Zurich, Switzerland. Mr. Henderson is a
member of GMs Automotive Strategy Board and Automotive
Product Board. Mr. Henderson earned a bachelor of business
administration degree with high distinction from the University
of Michigan in 1980, with an emphasis in accounting and finance.
He also received an MBA from Harvard Business School in 1984,
where he graduated as a George F. Baker Scholar.
Mark R. LaNeve, Director since May 2005. Mr. LaNeve
was appointed General Motors North America vice president of
vehicle sales, service and marketing on March 1, 2005. He
had served as GM North America vice president of marketing and
advertising since September 1, 2004. In May 2001
Mr. LaNeve was named general manager of Cadillac, returning
to GM and Cadillac, where he began his career, following a stint
as president and chief executive officer at Volvo Cars of North
America, Inc. (VCNA). He left GM in 1997 to become vice
president of marketing at VCNA. Mr. LaNeve holds a
bachelors degree in business communications from the
University of Virginia, where he was named to several academic
All-American
teams. Mr. LaNeve is heavily involved in groups supporting
children with autism and other developmental disabilities.
Walter G. Borst, Director since February 2003 and a
member of the Audit Committee from February 2003 to November
2006. Mr. Borst was named Treasurer of GM in February 2003.
Prior to that, Mr. Borst was Executive Director of Finance
and Chief Financial Officer for GMs German subsidiary,
Adam Opel AG, since October 2000. From 1997 to 2000,
Mr. Borst served as assistant treasurer in the GM
Treasurers Office. Mr. Borst joined GM in 1980.
Mr. Borst received a bachelors degree in industrial
administration with an emphasis in finance from General Motors
Institute in 1985 and an MBA from Stanford University in 1987.
GMAC Executive
Officers and Other Significant Employees
Eric A. Feldstein was named Chief Executive Officer of
GMAC Financial Services in December 2006. Prior to that time,
Mr. Feldstein had been GM Group Vice President and Chairman
and Chief Executive Officer of General Motors Acceptance
Corporation since November 2002. Mr. Feldstein became GM
Treasurer in November 1997, and was elected a GM Vice President
the following month. In June 2001 Mr. Feldstein was named
to a broadened assignment as GM Vice President, Finance, and
Treasurer. From March 1996 through October 1997,
Mr. Feldstein served as Executive Vice President and Chief
Financial Officer of GMAC and Chairman of the GMAC Mortgage
Group. Prior to serving at GMAC, Mr. Feldstein served in
various executive capacities since first joining GM in 1981.
Mr. Feldstein received a bachelors degree in
economics from Columbia University in 1981 and an MBA from
Harvard Business School in 1985.
William F. Muir, President of GMAC since 2004, Chairman
of GMAC Insurance Group since June 1999, and a member of the
GMAC Commercial Finance LLC and GMAC Bank boards of directors
since February 2002 and March 2004, respectively. Prior to that
time, Mr. Muir served as executive vice president and Chief
Financial Officer from February 1998 to 2004. From 1996 to 1998,
Mr. Muir served as
executive-in-charge
of operations and then executive director of planning at Delphi
Automotive Systems, a former subsidiary of GM. Prior to serving
at Delphi Automotive Systems, Mr. Muir served in various
executive capacities with GMAC since first joining us in 1992
and in a number of capacities with GM since joining the company
in 1983.
Sanjiv Khattri, Executive Vice President and Chief
Financial Officer of GMAC since March 2004. He is also a member
of the Board of Directors of GMACs wholly-owned
subsidiary, ResCap. Previously Mr. Khattri served as an
assistant treasurer of GM, from January 2001 until March 2004,
and as comptroller of sales, marketing and consumer care of
GMs Vauxhall subsidiary in the United Kingdom from March
2000 until January 2001. Mr. Khattri has been with GM and
GMAC since 1989.
Bruce J. Paradis, Executive Vice President, ResCap.
Mr. Paradis has been Chief Executive Officer of ResCap
since August 2004. Mr. Paradis has been president and chief
executive officer of our subsidiary Residential Funding
Corporation since 1994. Mr. Paradis joined Residential
Funding Corporation in 1983 and served in several executive
positions prior to becoming president and chief executive
officer of Residential Funding Corporation. Prior to joining
Residential Funding Corporation, Mr. Paradis also held
various positions with Mortgage Guaranty Insurance Corporation
and First Federal Savings & Loan.
Barbara J. Stokel, Executive Vice President, North
American Automotive Operations of GMAC since January 1,
2006. From 2004 to 2005, Ms. Stokel served as regional vice
president of GMACs Eastern Region in North American
Operations. Prior to that time, Ms. Stokel served in
various executive capacities with GMAC since first joining GMAC
in 1989 and in a number of capacities with GM since joining the
company in 1974. Ms. Stokel received a bachelor degree in
finance from Eastern Michigan University in 1974 and a Masters
of Science at MIT in 1984.
Mark F. Bole, Executive Vice President, International
Operations of GMAC since April 2005. Prior to becoming executive
vice president of International Operations, Mr. Bole served
as group vice president of our European operations since 2003.
From 2001 to 2003, Mr. Bole served as vice president of our
Asia Pacific operations. Prior to that time, Mr. Bole
served as director of new markets and strategic initiatives for
International Operations and has held other positions with us
since joining us in 1985. Mr. Bole received a
bachelors degree in finance from Michigan State University
in 1985 and an MBA from Harvard Business School in 1989.
William B. Solomon, Jr., Group Vice President and
General Counsel of GMAC since 1999. Prior to that time, he
served as a practice area manager on the GM Legal Staff since
1997. Mr. Solomon joined GM as an attorney in 1988. Before
joining the GM Legal Staff, Mr. Solomon was general counsel
for Vixen Motor Company, regional attorney with Ford Motor
Credit Company, and an appellate court law clerk.
Mr. Solomon holds a Bachelors degree in political
science from the University of Detroit, a Masters Degree
in political
128
GMAC
LLC Form 10-K
science from McMaster University (Hamilton, Ontario), and a
Juris Doctorate from the University of Notre Dame.
Cherri M. Musser, Group Vice President and Chief
Information Officer of GMAC since 2003. Previously,
Ms. Musser served as the Process Information Officer of
Supply Chain and OnStar for General Motors from May 2003 to
September 2003 and as Information Officer for
Order-To-Delivery/E-GM
from 2000 to 2003. Prior to that time, Ms. Musser served in
various executive capacities with GM. Prior to joining GM in
1996, Ms. Musser was vice president of worldwide research
and development in the software division of Texas Instruments.
Ms. Musser also served in various executive and management
positions with Texas Instruments over a period of 20 years.
Ms. Musser earned a bachelors degree in mathematics
from Mississippi State University in 1973 and an MBA from
Southern Methodist University in 1986.
David C. Walker, Group Vice President of Global
Borrowings of GMAC since November 2006. From 2004 to October
2006, Mr. Walker served as the Chief Financial Officer of
GMAC Mortgage Group. Prior to that time, Mr. Walker served
as vice president and chief financial officer of mortgage
operations from 2000 to March 2004. He was appointed director of
U.S. funding and securitization in 1998 and as director of
liability management in 1992. Mr. Walker joined GMAC in
1985.
Linda K. Zukauckas, Vice President and Corporate
Controller of GMAC. Ms. Zukauckas has served as vice
president and corporate controller of GMAC since September 2004
and as Chief Accounting Officer since May 2002. Prior to
becoming Chief Accounting Officer, Ms. Zukauckas served as
head of audit for GMAC from January 2000 until May 2002.
Prior to joining GMAC, Ms. Zukauckas served Deutsche Bank
from 1997 until January 2000, most recently as chief auditor of
the global investment bank, and Price Waterhouse LLP (now
PricewaterhouseCoopers LLP) from 1984 until 1997, most recently
as senior manager.
Cathy Quenneville, Corporate Secretary of GMAC.
Ms. Quenneville has served as Secretary of GMAC since 1997.
She is also Secretary and an officer of GMAC Bank, GMAC
Insurance, ResCap and GMAC Commercial Finance and certain of
their respective subsidiaries. Ms. Quenneville served as
Assistant Secretary from 1990 to 1997. From 1981 to 1990, she
worked in GMACs Borrowings department.
Ms. Quenneville joined GM in 1978 when she joined General
Motors Information Systems Communications Activity.
There are no family relationships among any of the above-named
directors or executive officers.
Code of Ethics
Applicable to Senior Financial Officers
Before the closing of the Sale Transactions, the senior
financial officers of GMAC and any other persons performing
similar functions were subject to the General Motors code of
ethics entitled Winning with Integrity. GMAC is
currently developing its own code of ethics. Pending completion
of development, senior financial officers of GMAC and any other
persons performing similar functions continue to be subject to
Winning with Integrity. The text has been posted on
GMACs Internet website at www.gmacfs.com, under
United States, Investor Relations, Corporate Governance. Any
amendment to, or waiver from, a provision of Winning with
Integrity that applies to our principal executive officer,
principal financial officer, principal accounting officer or
controller, or persons performing similar functions, will be
posted at this same Internet website location as required by
applicable law.
Certain Corporate
Governance Matters
Election of Directors Our directors are
elected pursuant to the terms of our Amended and Restated
Limited Liability Company Operating Agreement, which was
effective November 30, 2006, and is incorporated by
reference into this
Form 10-K
as Exhibit 3.3. Refer to Item 13 Certain
Relationships and Related Transactions Amended and
Restated Limited Liability Company Operating Agreement,
for further details.
Audit Committee We have established a
separately-designated standing Audit Committee in accordance
with Section 3(a)(58)(A) of the Exchange Act. Members
currently include T. K. Duggan and Douglas A. Hirsch. Both
members are independent as required by
Rule 10A-3
of the Exchange Act and under applicable listing standards, and
the GMAC Board has determined that both members are also
qualified as audit committee financial experts, as
defined by the SEC, and are financially literate.
Item 11.
Executive Compensation
Compensation
Committee Report
The GMAC Compensation and Leadership Committee has reviewed and
discussed with GMAC management the Compensation Discussion and
Analysis and, based on that discussion, recommended it to the
GMAC Board of Managers (Board) for inclusion in this
Form 10-K.
THE COMPENSATION AND
LEADERSHIP COMMITTEE
Mark A. Neporent, Chair
Lenard B. Tessler
Frederick A. Henderson
Compensation
Committee Process
GMACs executive compensation program is administered by
the newly formed Compensation and Leadership Committee (the
Committee) of our Board. The Committee consists of two
Class A Managers, currently Messrs. Mark A. Neporent
and Lenard B. Tessler, and one Class B Manager, currently
Mr. Frederick A. Henderson. Mr. Neporent has been
appointed Chair of the Committee. The Committee expects to meet
a minimum of four times per year. The purpose of the Committee
is to discharge the Boards responsibilities relating to
executive officer and senior executive compensation and
employment benefit plans, policies and programs of GMAC, as well
as the assessment, development and deployment of executive
officer and senior executive talent, and, to
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GMAC
LLC Form 10-K
the extent applicable, prepare annual reports on executive
compensation as required by applicable rules and regulations. In
carrying out its duties and responsibilities, the Committee may
delegate certain administrative functions to GMAC management.
Frederic W. Cook & Co. (Cook) has been appointed by the
Committee to serve as its independent advisor. Cook reports
directly to the Committee and provides on-going advice with
respect to the plans and programs covering the senior
executives, including our named executives, for which the
Committee is responsible and undertakes no separate work for the
management of GMAC.
Compensation
Discussion and Analysis
New GMAC
Compensation Program
Overview
As a result of the sale of a 51% interest in GMAC completed at
November 30, 2006, the company operated under different
compensation structures prior to and after the transaction
closing. Prior to the transaction, the compensation structure
for each of our named executive officers, other than
Mr. Paradis, was established and maintained by GM and the
GM Executive Compensation Committee. Prior to the sale, ResCap
also maintained its own, separate compensation structure that
applied to Mr. Paradis, which was subject to review and
oversight by GM and the GM Executive Compensation Committee.
Following the closing of the transaction, GMAC established a new
compensation structure that is applicable to all GMAC named
executive officers going forward. Accordingly, the following
Compensation Discussion and Analysis section primarily reviews
the new executive compensation programs at GMAC effective
immediately after the transaction closing. In addition,
information is provided on the former ResCap compensation plans
applicable to Mr. Paradis for 2006. The GM compensation
structure and philosophy is discussed in detail in its Proxy
Statements filed with the SEC.
The Committees first meeting was held in December 2006, at
which time it approved the new executive compensation program.
The program includes metrics for a new annual incentive plan,
long-term incentive and equity plans, a transition compensation
program, the 2007 compensation of approximately 50 senior
executives under its purview, including the five named
executives for whom total compensation is disclosed in this
Item 11, and employment agreements for Eric A. Feldstein,
Chief Executive Officer, Sanjiv Khattri, Chief Financial Officer
and William F. Muir, President. Our management participated in
the development of the new and transition compensation programs
and incentive plans. Mr. Feldstein made recommendations to
the Committee for the 2007 compensation of senior executives
below Messrs. Khattri and Muir. Compensation for
Messrs. Feldstein, Khattri and Muir was developed by the
Committee with the assistance of Cook and input of management.
Cook also assisted in the development of new and transition
compensation programs.
GMAC Compensation
Philosophy
Our executive compensation program is designed to provide an
attractive, competitive and motivational compensation program
that allows us to hire, develop, retain and reward senior
executives of outstanding ability and reflects a
pay-for-performance
compensation philosophy. Our compensation program includes base
salary, annual cash incentives, long-term cash incentives and
equity awards. We also provide benefit and perquisite programs
to our executives. Promoting cooperation across business units
is an important goal as we will seek to drive revenue growth
through the cross selling of products amongst our business
units. To this end, at least a portion of annual incentives and
all of long-term incentives and equity awards covering senior
executives are tied to the consolidated performance of GMAC.
This is a significant departure from our former program, under
which approximately half of our senior executives participated
in GMs incentive plans, while the other half participated
in separate subsidiary annual and long-term incentive plans.
Our equity awards are subject to more stringent vesting and
transferability restrictions than are typically found in
publicly owned companies because our owners want management
aligned with the same long-term commitment and terms of their
investment in GMAC. Our owners expect superior returns on their
investment in exchange for the risk and illiquidity of their
investment, and they have provided an opportunity for management
to share in these returns through an equity stake directly in
GMAC for the first time. This serves to strengthen the
performance characteristics of our new compensation program by
providing a significant incentive for our senior executives to
achieve and sustain high company performance over the long term.
We entered into employment agreements with
Messrs. Feldstein, Khattri and Muir in order to retain
their services through the negotiations of our sale and to
provide continuing leadership under the new ownership structure.
Assessing GMAC
Compensation Competitiveness
We benchmark our total annual cash compensation against other
comparably sized global financial companies with whom we compete
for business in the auto finance, mortgage finance, commercial
finance and insurance markets. We secure competitive
compensation information from several sources. For our named
executives, the Committee has approved a peer group consisting
of the 18 public financial companies listed below for the
purpose of conducting competitive pay and performance analyses
using publicly disclosed information in company proxy statements
and annual financial reports:
Competitive peer
group
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Aflac
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Loews
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American
Express
|
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MetLife
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Bank
of America
|
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J.P. Morgan
Chase
|
|
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Capital
One Financial
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Prudential
Financial
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CIT
Group
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UnumProvident
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Countrywide
Financial
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U.S. Bancorp
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Genworth
Financial
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Wachovia
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Golden
West Financial
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Washington
Mutual
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Hartford
Financial Services
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Wells
Fargo
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GMAC
LLC Form 10-K
For our other senior executives, we have access to competitive
compensation information for a larger frame of public and
private financial companies through participation in third-party
surveys. Our competitive philosophy is to target base salaries
and employee benefits at median competitive levels and to set
annual incentive targets to deliver above-median total annual
cash compensation commensurate with achievement of above-median
performance goals. If our annual performance goals are not
achieved, annual incentives will be reduced or eliminated, and
total annual cash compensation will be below median.
Individual equity and long-term cash incentive award amounts
were not determined to achieve a target competitive position.
Because we are privately owned, our long-term incentives are
more difficult to value and compare to long-term incentives and
stock-based awards granted by publicly owned companies. Instead,
a total carried interest of 10% of the increase in value of GMAC
in excess of the preferred return to certain of our investors,
which is 10% compounded annually, has been set aside for awards
of equity
and/or
long-term cash incentives to approximately 400 executives of the
company. This is a competitive level of carried interest
compared to other large financial companies. Of this amount,
6.8% has been awarded, leaving 3.2% for future awards. The
principal criteria used for awarding equity and long-term cash
incentives to senior executives include the importance of the
position held by the executive to the long-term performance of
GMAC, the past performance of the executive and an assessment of
each executives potential for future advancement within
our company.
Components of
GMAC Compensation Program
Our compensation program consists of base salary, annual cash
incentives, long-term cash incentives, equity awards, benefits
and perquisites, which are the components of a competitive
executive compensation program. Incentive plans promote our
pay-for-performance
compensation philosophy by providing an opportunity to earn
additional compensation based on the achievement of corporate
and business unit annual and longer term financial and strategic
performance objectives. Offering a limited selection of
perquisites, in many cases, enhances the ability of senior
executives, including our named executives, to focus their time
and energy on performing their duties and responsibilities and
is a competitive practice enabling us to attract and retain
senior executives of outstanding ability.
Base
Salary
Base salaries are generally set at median competitive levels and
recognize the individual skills, knowledge and experience of
each executive in his or her current position. Although we will
review salaries on an annual basis, we expect that salaries will
be increased on a less frequent basis, especially at more senior
levels where a larger portion of total annual compensation is in
the form of annual incentives. For 2007, the salaries of our
named executives were increased, as compared to 2006, to reflect
the increase in their responsibilities resulting from the change
in our ownership and to be competitive with the financial
services industry.
Annual
Incentives
Annual cash incentives are provided to reward the achievement of
short-term GMAC and business unit performance goals. Target
annual incentives are set in terms of dollar amounts that, in
combination with base salary, provide a total annual cash
compensation opportunity tied to financial and operational
performance. For many senior executives, including our named
executives, target annual incentives represent more than half of
their annual compensation opportunity. For 2007, target annual
incentives for our senior executives who were paid on the GM
program, which includes our named executives other than
Mr. Paradis, were increased to be competitive with
opportunities provided in the financial services industry.
Annual incentives under the new compensation program will be
administered on a pooled basis. Target annual incentive pools
for corporate executives and the executives of each business
unit will be formed at the start of each year equal to the sum
of individual annual incentive targets. Target and threshold
performance goals will be pre-established, also at the start of
each year, for four or more performance metrics and assigned
weightings that reflect the relative importance of the metric to
overall performance. Each funding entity will use metrics most
relevant to its business operations.
For corporate executives, including our named executives, 2007
performance goals and weightings have been set based on the 2007
financial budget approved by the Committee for the metrics
listed below:
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2007 Performance
goals
|
Performance
metric
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Weighting
|
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Net income
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35%
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Return on equity
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20%
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Operating expense/revenue
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25%
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Diversified revenues
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20%
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|
To promote cooperation and cross selling across business units,
each business unit will have 25% of its annual incentive funding
based on GMACs consolidated results and 75% on its own
business units results using similar performance metrics
and weightings. Because long-term incentives are based 100% on
GMAC corporate performance, we believe it is important for
business unit executives to have most of their annual incentives
correlated to their performance. The Committee has the
flexibility to change performance metrics and weightings from
year to year to ensure that the annual incentive plan
appropriately reflects changing business conditions and needs.
Following year-end, the Committee will approve actual annual
incentive pools based on a weighted-average composite
performance score for corporate and each business unit.
Performance below threshold will result in a zero payout.
Performance at threshold up to target will result in a payout
between 50% and 100% of target. Performance above target will
result in an uncapped payout determined as two times the
incentive leverage for performance between threshold and target.
For
131
GMAC
LLC Form 10-K
example, if each percentage point of Return on Equity (ROE)
performance above threshold up to target equates to another 10%
of target pool funding, then each percentage point of ROE
performance above target equates to another 20% of target pool
funding. As a general principle, performance is measured after
accrual of all incentive costs so that our incentive plans are
self-funding. In terms of target attainment, GMAC establishes
target incentive levels reflective of enhanced levels of
performance, which if attained, would create value for its
owners. While management believes attainment of target or near
target performance is reasonable, such attainment could be
unfavorably impacted by market factors such as the condition of
the U.S. residential real estate market or the volume of US
automotive vehicle sales.
Allocation of the available incentive pools to individual senior
executives, including our named executives, will be determined
on a discretionary basis based on evaluations of individual
performance on key strategic objectives established by the
Committee and other personal goals and objectives established
annually under our performance management system, as well as on
assessments of the relative value of each executives
contributions to performance for the year. The Committee does
not believe in formulaic annual incentives that automatically
pay out to individuals. Payments to senior executives will be
made in cash as soon as practical following approval by the
Committee. GMAC does not intend to permit executives to
voluntarily defer payment of annual incentives to a future date.
Long-Term
Incentives
Long-term cash incentives provide senior executives, including
our named executives, with an opportunity to share in the growth
in value of GMAC in excess of the preferred return to certain of
our investors, which is 10% compounded annually, over
consecutive three-year performance periods, thereby aligning the
interests of senior executives with the interests of GMACs
owners. A new three-year long-term incentive award may be
granted at the conclusion of the initial three-year performance
period. The initial three-year performance period covers the
years 2007 through 2009. The Committee believes that consecutive
performance periods better support a focus on long-term
performance and retention than annual overlapping performance
periods.
The Long-Term Phantom Incentive Plan (LTIP) is designed to
operate similar to a cash-based stock appreciation right (see
Exhibit 10.5). Awards vest at the end of three years and
are paid in cash as soon as practicable following the valuation
of GMAC and a determination by the Committee of the amount that
GMACs value has increased in excess of 10% compounded
annually. As with annual incentives, we do not intend to permit
executives to voluntarily defer payment of long-term incentives
to a future date.
The LTIP is intended to provide a balance to annual incentives,
which are geared to short-term performance goals and business
unit performance. It is also the sole long-term incentive and
retention vehicle for most of our executives. For senior
executives, including our named executives, who also receive
equity awards, the LTIP provides mid-term liquidity to balance
the stringent transferability and liquidity provisions of equity
awards.
Equity
Awards
Similar to the LTIP, equity awards are valued based on the
increase in value of GMAC after the closing date of the
transaction in excess of the preferred return to certain of our
investors, which is 10% compounded annually. Equity awards are
in the form of a profits interest in GMAC that is awarded to a
more select group of senior executives, including our named
executives, who also participate in the LTIP. Because of
limitations on the total number of holders of interests in GMAC,
senior executives could not be awarded profit interests directly
in GMAC. Instead, managements profit interest is held by a
management corporation, GMAC Management LLC, and awards to
senior executives are in the form of restricted membership
interests in GMAC Management LLC, under the Class C
Membership Interests Plan (see Exhibit 10.8).
Equity awards are subject to pro rata annual vesting over five
years. Half of each award vests over time based on continued
service with GMAC. The other half vests based on annual GMAC
performance under our new annual incentive program. Any annual
performance-vesting portion that does not vest will carry
forward and be eligible for vesting on a cumulative basis in a
future year. This carry-forward feature was incorporated in the
design of the plan because the Committee did not want an
impediment to its ability to set stringent performance goals for
earning annual incentives and vesting in equity awards. It is
unlikely that senior executives will be granted additional
equity awards beyond their initial grants unless they are
promoted or otherwise assume additional responsibilities.
132
GMAC
LLC Form 10-K
The following table summarizes 2007 base salaries and target
annual incentives for the GMAC named executives, as well as LTIP
and equity award grants. As mentioned above, base salaries and
target annual incentives were set to reflect the level of
responsibilities for our named executives, which increased as a
result of the change in our ownership, and to be competitive
with the financial services industry. The LTIP and equity grants
were determined based on the internal, relative importance of
each executive to the long-term performance of GMAC.
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Target
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2007-2009
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annual
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LTIP
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Equity
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Name
and principal position
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Salary
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incentive
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awards
(a)
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awards
(b)
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Eric A. Feldstein
Chief Executive Officer
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$1,200,000
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$1,800,000
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0.125%
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0.50%
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Sanjiv Khattri
Executive Vice President,
Chief Financial Officer
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$700,000
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$900,000
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0.050%
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0.20%
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William F. Muir
President
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$850,000
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$1,150,000
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0.075%
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0.30%
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Bruce Paradis
Executive Vice President
Chairman and CEO, ResCap
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$390,000
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$1,600,000
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0.036%
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0.18%
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William B. Solomon, Jr.
Group Vice President
General Counsel
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$375,000
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$400,000
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0.010%
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0.05%
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|
(a)
|
Long-term incentive plan award percentages granted for the
performance period covering 2007 to 2009, expressed as a
percentage of the increase in value of GMAC after the closing
date of the transaction, in excess of 10% compounded annually.
These amounts do not include grants related to the replacement
of GM equity under the GM Long-Term Incentive Program, as
described on page 134.
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(b)
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Equity awards granted expressed as a percentage of the increase
in value of GMAC after the closing date of the transaction, in
excess of 10% compounded annually.
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Benefits and
Perquisites
Our corporate senior executives, including our named executives
except for Mr. Paradis, participated in the GM qualified
and nonqualified defined benefit pension plans and 401(K)
savings plan, which were designed to provide a competitive level
of benefits as part of a competitive total compensation package.
Accrued pension benefits under the defined benefit pension plans
were frozen as of the date of our sale of November 30,
2006, and the liabilities remain with GM. Going forward, pension
benefits were replaced with enhanced GMAC contributions under
our 401(k) savings plan. For December 2006, employee
contributions up to 6% of salary were matched 100% by GMAC under
our qualified and non-qualified savings plans. In addition, a
2%-of-salary
non-matching company contribution was made to the accounts of
all eligible employees whether or not they are making
contributions to the savings plans. Beginning with 2007 bonus
payments made in 2008, the additional 2% non-matching company
contribution will also apply to annual incentives earned in the
year. The 401(k) plan also has the potential for a company
contribution of up to 2% of salary based on GMACs annual
performance.
Senior executives, including our named executives, have
comparable perquisites to the former GM program, which include
participation on a modified basis in the GM executive car
program (cars will be provided on an annual basis), supplemental
life insurance, personal umbrella liability insurance, and
financial counseling as explained on page 138 and, for
senior executives working in New York, parking in the office
building.
Tax
Implications
All of the compensation we will pay to our named executives will
be tax deductible by us.
Employment
Agreements
On November 30, 2006, Messrs. Feldstein, Khattri and
Muir each entered into written employment agreements with terms
expiring December 31, 2011 (see Exhibits 10.2, 10.3
and 10.4). Each agreement provides for an annual base salary,
subject to increases at the discretion of the Board or the
Committee, and an annual bonus under a plan established by GMAC
based upon the achievement of performance targets and certain
key measures. Each agreement further provides for long-term
incentive compensation, the grant of equity awards, retention
payments that relate to the sale by GM of a 51% interest in GMAC
and severance payments in certain circumstances. For additional
details with respect to these compensation components (other
than severance), refer to the section of the CD&A, titled
Components of GMAC Compensation Program, beginning on
page 131. For additional details with respect to potential
severance obligations, refer to the section titled Executive
Compensation Post Employment and Termination
Benefits, beginning on page 147.
133
GMAC
LLC Form 10-K
GMAC Transition
Program
Retention Bonus
Plan
A retention bonus plan was developed and communicated to senior
executives below Messrs. Feldstein, Khattri and Muir prior
to the closing of the transaction to allay concerns about the
impact of the change in ownership on senior executives
future prospects with GMAC. On average, senior executives have
retention bonuses equal to 30% of salaries in effect on
August 1, 2006. All retention bonuses will vest and be
payable in cash in four equal quarterly installments. The first
installment was paid on February 28, 2007. If a participant
is terminated by GMAC without cause, the remaining installments
will be paid on their originally scheduled payment dates.
Messrs. Feldstein, Khattri and Muir have separate retention
bonuses under their employment agreements, which are $1,000,000,
$500,000 and $700,000, respectively. Refer to page 133 in
the section titled Employment Agreements for additional details
on the employment agreements for Messrs. Feldstein, Khattri
and Muir. The retention bonus for Mr. Solomon is $92,700.
Mr. Paradis and the substantial majority of other ResCap
executives do not participate in the retention plan.
Severance
Program
Senior executives below Messrs. Feldstein, Khattri and Muir
who are terminated by GMAC without cause within 18 months
of the transaction closing date will be eligible for severance
if they sign a general release and non-compete agreement.
Messrs. Feldstein, Khattri and Muir have separate severance
arrangements under their employment agreements as described on
page 133 in the section Employment Agreements and discussed
on page 147 in the section Executive
Compensation Post Employment and Termination
Benefits.
Replacement of GM
Equity
Executives who participated in the GM long-term incentive
program, which included our named executives, except
Mr. Paradis, forfeited the portion of outstanding GM cash
based restricted stock unit and LTIP awards applicable to
periods after November 30, 2006. We decided it was fair and
appropriate to replace the value of the forfeited GM awards with
an additional grant under the new GMAC LTIP. The replacement
awards will operate under the terms of the GMAC LTIP for the
2007-2009
performance period only without regard to the original terms and
conditions of the forfeited GM awards. Replacement awards that
have been granted to our named executives, expressed as a
percentage of the increase in value of GMAC after the closing
date of the transaction, in excess of 10% compounded annually,
are:
2007-2009
LTIP replacement awards
|
|
|
|
|
|
|
Eric A. Feldstein
|
|
0.0588%
|
|
|
Sanjiv Khattri
|
|
0.0153%
|
|
|
William F. Muir
|
|
0.0237%
|
|
|
William B. Solomon, Jr.
|
|
0.0101%
|
|
|
|
|
Annual
Incentives
Executives who participated in the GM annual incentive program,
which included our named executives except Mr. Paradis,
also forfeited the portion of annual incentives for 2006
performance applicable to the portion of the year after
November 30, 2006. For fairness, we paid annual incentives
based solely on GMACs 2006 performance, adjusted to be pro
rata for the portion of the year not covered under the GM
program. Our GMAC performance goals for 2006 were based 50% on
return on economic capital, which is the same as return on
equity now that we are a separate company; 25% on retail finance
penetration, which is our share of the retail finance markets in
which we participate; and 25% on insurance product penetration,
which is our share of the insurance markets in which we
participate. When establishing these 2006 GMAC goals, GMAC
management believed it was reasonable to expect attainment of
target or near target performance.
Retiree Medical
Benefits
GM employees whose length of service date was prior to
January 1, 1993, including Messrs. Feldstein,
Khattri, Muir and Solomon, were eligible for retiree medical
benefits from GM if they met the age and service requirements
when they retired. These benefits have been eliminated at GMAC.
Any employee who was eligible to participate in the GM retiree
medical plan based on service date and met the age and service
requirements under the GM retiree medical plan as of the closing
of the sales transaction will be entitled to receive retiree
medical benefits from GM upon retirement from GMAC, subject to
the terms of the GM retiree medical plan. As part of the
transition, any employee, including Messrs. Feldstein, Khattri,
Muir and Solomon, who was eligible to participate in the GM
retiree medical plan based on service date, but, as of the
closing of the sales transaction, did not meet the age and
service requirements of the GM retiree medical plan, will be
given a lump sum payment during 2007 based on years of service
with GM. To the extent possible under IRS limitations, this lump
sum payment will be made to the employees 401(k) account.
Any remaining amounts will be paid in cash. Lump sum payments
were calculated based strictly on an employees years of
accrued service and did not differentiate between executives and
nonexecutives.
Former ResCap
Compensation Program
Overview
ResCap historically had its own compensation program separate
from the GM program. No new annual or long-term incentives will
be awarded under the ResCap program, but previously granted
long-term incentive awards remain outstanding.
Compensation
Philosophy
The executive compensation philosophy of ResCap was similar to
the one adopted by GMAC, which is described above. Incentive
plans were designed to reward employees well for achieving
superior results that supported ResCaps business
strategies and its goal of exceeding shareholder expectations.
Base salary and incentive pay were managed within a market-based
structure of total compensation separate from the GM program.
The mix of target annual and long-term incentives and base
salary was set within the
134
GMAC
LLC Form 10-K
approved structure of target total compensation. Incentive
funding was designed to encourage employees to achieve
aggressive performance goals, but not to induce them to take
excessive or inappropriate risk that could have a negative
impact on customers, segments, shareholders, other employees or
the overall ResCap business.
Assessing
Compensation Competitiveness
ResCap benchmarked its target total compensation levels against
other public and private diversified financial and real estate
finance companies using information secured from third-party
surveys. ResCaps competitive positioning philosophy was to
set pay levels to be highly competitive compared to the firms
with whom it competes for talent within the relevant industry
and geographic market. Base salary ranges and benefit programs
were set at the median, with compensation above the median
delivered in the form of incentive pay commensurate with
performance results. Target total compensation levels for highly
effective employees delivering target-level results, as defined
under ResCaps high-performance expectations, were set at
approximately the 75th percentile of the relevant labor
market.
Components of
Compensation Program
Base
Salary
Base salary recognizes employees responsibilities as well
as their skills and knowledge as demonstrated through their
sustained performance over time. Employees are paid a base
salary in the market salary range of their position based on
their demonstrated skills and knowledge relative to those
required for their job and their ongoing performance relative to
the competitive labor market.
Annual
Incentives
The purpose of ResCaps Annual Incentive Plan (ResCap AIP)
was to reward short-term corporate, segment and individual
performance. Employees, working together, drive organizational
performance. Therefore, all ResCap employees had the opportunity
to earn rewards for meeting and exceeding individual, segment
and overall ResCap short-term performance goals through
incentive compensation. The ResCap AIP was composed of two
annual incentive pools covering senior management and all other
employees, excluding sales and marketing employees who have
their own compensation structure. The incentive pool applicable
to senior management, including Mr. Paradis, was funded
based on annual net income achieved and return on economic
capital (which is the risk-adjusted equity allocated to the
ResCap business). Net income used for incentive purposes was
calculated after including all incentive costs, and as such, the
incentive plans were self-funding. This funding formula was
reviewed periodically by GM and, for 2006, was reset based on
the growth and higher levels of profitability of ResCap in 2005.
Each segment and individual employee had performance objectives
set annually under ResCaps performance management process.
The senior management incentive pool available at year-end was
allocated by the CEO under the governance of ResCaps
Compensation Committee to the segments based on their
achievement of performance objectives for the year and the
CEOs assessment of relative segment contributions to
overall ResCap performance. Allocated incentive pools were then
awarded discretionarily to individuals by the segment heads
based on his or her evaluation of individual performance against
objectives set for the year, evaluations of relative
contributions to segment and overall corporate performance and
individual target incentive levels. Annual incentive awards were
paid in cash shortly following year-end. Previously, executives
had the opportunity to voluntarily defer payment of annual
incentives to a future date. This opportunity is no longer
offered, and previously deferred amounts have been paid out in
2007.
For 2006, there was no annual incentive funding under the senior
management incentive pool because of performance below 9% return
on economic capital.
Long-Term
Incentives
Rather than receive cash- and stock-based long-term incentives
under GMs long-term incentive program, ResCap has had its
own cash-based Long-Term Incentive Plan (ResCap LTIP). The
purpose of the plan was to reward senior management for the
growth in value of ResCap. Performance was measured over a
three-year period and the aggregate dollar value of a
participants award was based on a formula tied to
ResCaps increase in net income and average return on
economic capital over the measurement period, which was called
total shareholder return. The formula was periodically evaluated
by GM and reset to be in line with external market valuations of
comparable companies. No change in the formula was made for
awards granted in 2006.
If total shareholder return was positive for the measurement
period, participants were paid an amount equal to the percentage
increase in total shareholder return for the period multiplied
by the aggregate dollar value of the units. One-third of such
amounts was paid annually in each of the three years following
the applicable measurement period, provided the executive
remained employed at the time of payment. If total shareholder
return was not positive for the measurement period, participants
were not paid any amount under the ResCap LTIP with respect to
that measurement period. As with annual incentives, participants
previously had the opportunity to defer payment to a future
date. This opportunity is no longer offered, and amounts that
were previously deferred on a voluntary basis have been paid out
in 2007.
For the 2004 to 2006 measurement period, total shareholder
return was not positive and no amount was earned under the
ResCap LTIP. Participants who had earned amounts from previous
measurement periods are continuing to receive payments according
to the payout schedules associated with those awards. Awards
remain outstanding and may be earned based on future total
shareholder return for measurement periods covering 2005 to 2007
and 2006 to 2008.
Benefits and
Perquisites
ResCap previously offered a qualified defined benefits pension
plan, which was frozen as of the end of 2006 and replaced with
an
135
GMAC
LLC Form 10-K
additional
2%-of-salary
contribution under ResCaps defined contribution retirement
plan beginning in 2007. ResCaps defined contribution plan
also has the potential for a company contribution of up to 2% of
salary based on ResCaps annual performance.
ResCap has a modest perquisites program that is more limited
than the perquisites customarily offered in the marketplace or
continuing for our other named executives. ResCap provides a
monthly car allowance to executives, including Mr. Paradis,
to be used for the lease or purchase of a GM vehicle. Executives
are also reimbursed for financial planning assistance up to an
annual limit. Finally, senior executives are eligible for an
executive physical either biennially or annually depending on
their age.
Former GM
Compensation Program
Prior to the close of the sale by GM of a 51% interest in us, GM
established and maintained an executive compensation program
that applied to the GMAC named executives, except for
Mr. Paradis. The former GM program was only applicable to
the eleven months ended November 30, 2006, which was the
closing date of our sale transaction. Additional details on
GMs compensation and programs are available in its Proxy
Statements filed with the SEC. The below, which we have derived
from the GM Definitive Proxy Statement filed with the SEC on
April 28, 2006 (GM 2006 Proxy), is GMs general
description of its compensation philosophies for 2005.
Under this GM philosophy:
|
|
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A significant portion of each executives total
compensation is linked to accomplishing specific, measurable
results intended to create value for stockholders in both the
short- and long-term.
|
|
|
Compensation plans are developed to motivate executives to
improve the overall performance and profitability of GM, and the
specific region/unit to which they are assigned. Executives will
be rewarded only when and if the business goals previously
established by management and the appropriate committee have
been achieved.
|
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Each executives individual performance and contribution
will be reflected through differentiated salary adjustments and
the amount of incentive awards paid, if any.
|
|
|
Long-term incentive awards are denominated in GM common stock to
further reinforce the link between executives and
stockholders interests. Long-term incentive awards may be
paid in shares of GM common stock or cash, or both.
|
|
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The compensation structure is established to provide total
compensation in the third quartile for superior performance. As
a result, in years of strong performance, executives can earn
highly competitive levels of compensation as compared to
executives at comparator companies. GM will thus be able to
attract, retain, and motivate the leadership talent it needs to
maintain and grow its businesses successfully. Conversely, in
years where performance falls below targeted levels, executives
will receive compensation that is lower than competitive
benchmarks.
|
The above description was derived from the GM 2006 Proxy.
Further discussion by GM of its compensation philosophies will
be provided by GM in its Proxy Statement to be filed in 2007.
GMs compensation structure and philosophies were
applicable to the GMAC named executives (except
Mr. Paradis) for the eleven month period ended
November 30, 2006.
136
GMAC
LLC Form 10-K
Summary
Compensation Table
The following table summarizes the compensation of the named
executives for the 2006 calendar year.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-equity
|
|
|
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
incentive plan
|
|
|
expense/change
in
|
|
|
All other
|
|
|
|
|
Name and
|
|
|
|
|
|
|
|
|
|
|
awards
|
|
|
awards
|
|
|
compensation
|
|
|
pension value
|
|
|
compensation
|
|
|
|
|
principal
position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
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|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
Total
|
|
|
|
|
Eric A. Feldstein
Chief Executive Officer
|
|
|
2006
|
|
|
|
$897,500
|
|
|
|
$
|
|
|
|
$356,513
|
|
|
|
$262,756
|
|
|
|
$570,600
|
|
|
|
$270,000
|
|
|
|
$167,532
|
|
|
|
$2,524,901
|
|
|
|
Sanjiv Khattri
Executive Vice President,
Chief Financial Officer
|
|
|
2006
|
|
|
|
$406,250
|
|
|
|
$
|
|
|
|
$183,080
|
|
|
|
$47,877
|
|
|
|
$228,400
|
|
|
|
$70,900
|
|
|
|
$57,512
|
|
|
|
$994,019
|
|
|
|
William F. Muir
President
|
|
|
2006
|
|
|
|
$511,667
|
|
|
|
$
|
|
|
|
$311,563
|
|
|
|
$105,880
|
|
|
|
$303,600
|
|
|
|
$163,200
|
|
|
|
$66,385
|
|
|
|
$1,462,295
|
|
|
|
Bruce Paradis
Executive Vice President
Chairman and CEO, ResCap
|
|
|
2006
|
|
|
|
$353,846
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$69,900
|
|
|
|
$33,759
|
|
|
|
$457,505
|
|
|
|
William B. Solomon, Jr.
Group Vice President
General Counsel
|
|
|
2006
|
|
|
|
$306,025
|
|
|
|
$
|
|
|
|
$127,269
|
|
|
|
$36,164
|
|
|
|
$169,700
|
|
|
|
$98,700
|
|
|
|
$47,803
|
|
|
|
$785,661
|
|
|
|
|
|
(a)
|
Includes expenses recognized for financial statement purposes
with respect to the year ended December 31, 2006, for the
GM Long-Term Incentive Plan (GM LTIP), GM Cash-Based Restricted
Stock Units (GM CRSUs), and GM Restricted Stock Units (GM
RSUs). The GM LTIP amounts pertain to target long term
incentive awards granted to Messrs. Feldstein, Khattri,
Muir and Solomon for the performance periods
2005-2007
and
2006-2008.
The number of target shares for the
2006-2008 GM
LTIP are shown in the following Grants of Plan Based Awards
Table on page 141 at their fair value of $24.81 on the date
of grant, February 23, 2006. GM intends to settle these
awards in cash.
|
|
The GM CRSU plan provides cash equal to
the value of underlying restricted share units to certain global
executives, including Messrs. Khattri, Muir and Solomon.
|
|
As a result of GMs sale of a 51%
interest in GMAC as of November 30, 2006, the GMAC named
executives, except Mr. Paradis, forfeited portions of their
outstanding GM LTIP and GM CRSU awards. The GMAC named
executives will be eligible for pro rata GM LTIP and GM CRSU
awards based on amounts earned through November 30, 2006.
The pro-rata portion of the GM CRSU awards for
Messrs. Khattri, Muir and Solomon were vested in February
2007, with payment scheduled for March 2007.
|
|
The GM RSUs were granted to certain
executives, including Mr. Feldstein. For
Mr. Feldsteins grants, the first 50% of the awards
vest in either four or five years, whereas the remaining
50% vests in nine to ten years. Mr. Feldsteins
outstanding GM RSU awards had not vested as of November 30,
2006, the closing date for GMs sale of a 51% interest in
GMAC. The terms of Mr. Feldsteins RSU awards have
been modified to allow his GM RSU awards to continue during his
employment with GMAC. As a result of this modification,
Mr. Feldsteins unvested GM RSUs are now considered as
new awards issued to a non-employee. Compensation cost
previously recognized for these awards was adjusted to zero as
of the November 30, 2006 closing date, therefore, amounts
reported as stock awards for Mr. Feldstein include
approximately ($390,000) pertaining to reversals of stock award
expense recognized in years prior to 2006. Compensation cost
will be recognized prospectively as if these awards were newly
granted at the closing date of GMs sale of a 51% interest
in GMAC. Compensation cost for these modified awards will also
be recognized based on the current value of these awards at the
end of each reporting period. See SFAS 123(R) Valuation
Assumption section on page 138 for further discussion.
|
(b)
|
Represents the expenses recognized for financial statement
purposes with respect to the year ended December 31, 2006,
in accordance with SFAS 123(R) for stock options granted
under the GM Stock Incentive Plan. GM stock option grants
awarded since 1997 are generally exercisable one-third after one
year, one-third after two years and fully after three years from
the dates of grant. Option prices are 100% of fair market value
on the dates of grant and the options generally expire ten years
from the dates of grant, subject to earlier termination under
certain conditions. As a result of GMs sale of a 51%
interest in GMAC as of November 30, 2006, the expiration
date of stock options for GMAC named executives has been
accelerated such that remaining GM stock options are exercisable
in accordance with their original schedule, but not beyond their
stated term, up to November 30, 2009. Furthermore, GM stock
option awards issued in 2006 to the named executives had not
vested as of November 30, 2006. Similar to the GM RSU
treatment discussed above, the terms of the unvested GM stock
options have been modified to allow the GMAC named executives to
keep these awards during their employment with GMAC and be
treated as if these were new awards issued to non-employees.
Compensation cost will be recognized prospectively as if these
2006 GM stock option awards were newly granted at the
November 30, 2006 closing date of GMs sale of a 51%
interest in GMAC. See SFAS 123(R) Valuation Assumption
section on page 138 for further discussion.
|
(c)
|
Amounts reported for Messrs. Feldstein, Khattri, Muir and
Solomon in the non-equity incentive plan compensation column are
awards earned under the GM Annual Incentive Plan (GM AIP)
through November 30, 2006, and under the GMAC transition
annual incentive program for December 2006. Mr. Paradis
participated in the ResCap Annual Incentive Plan (ResCap AIP),
which did not result in an award due to performance below the
threshold level.
|
(d)
|
These amounts represent the
year-over-year
increase in the present value of the executives accrued
pension benefit resulting from additional amounts of credited
service, as well as executive, GM and ResCap contributions to
the plans as of December 31, 2006, as described in the
Pension Benefits Table on page 146. Amounts shown for
Mr. Paradis include $26,900 for above market interest on
deferred compensation associated with the ResCap Long Term
Incentive Plan. The above-market portion of interest was
calculated by comparing interest paid, using a ResCap weighted
average cost of funding rate, to the applicable federal long
term rate with compounding under Section 1274(d) of the
Internal Revenue Code.
|
(e)
|
See All Other Compensation section for further details.
|
137
GMAC
LLC Form 10-K
All Other
Compensation
The following table Includes perquisites and other items
comprising the All Other Compensation column for the named
executives in the Summary Compensation Table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric A.
|
|
Sanjiv
|
|
William F.
|
|
Bruce
|
|
William B.
|
|
|
Feldstein
|
|
Khattri
|
|
Muir
|
|
Paradis
|
|
Solomon
|
|
|
Executive company vehicle program
(a)
|
|
|
$10,104
|
|
|
|
$10,104
|
|
|
|
$10,104
|
|
|
|
$10,800
|
|
|
|
$10,104
|
|
New York parking (b)
|
|
|
6,600
|
|
|
|
6,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial counseling (c)
|
|
|
7,000
|
|
|
|
5,700
|
|
|
|
|
|
|
|
3,500
|
|
|
|
5,700
|
|
Leadership event (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,926
|
|
|
|
|
|
|
|
Total perquisites
|
|
|
23,704
|
|
|
|
22,404
|
|
|
|
10,104
|
|
|
|
23,226
|
|
|
|
15,804
|
|
Dividend equivalents (e)
|
|
|
85,931
|
|
|
|
4,635
|
|
|
|
8,025
|
|
|
|
|
|
|
|
3,142
|
|
Life and liability insurance and
death (f)
|
|
|
10,712
|
|
|
|
3,512
|
|
|
|
11,258
|
|
|
|
632
|
|
|
|
3,792
|
|
Tax reimbursements (g)
|
|
|
7,185
|
|
|
|
7,295
|
|
|
|
4,332
|
|
|
|
6,901
|
|
|
|
6,005
|
|
Retiree medical benefits (h)
|
|
|
32,000
|
|
|
|
15,000
|
|
|
|
27,000
|
|
|
|
|
|
|
|
17,000
|
|
401(k) matching contributions (i)
|
|
|
8,000
|
|
|
|
4,666
|
|
|
|
5,666
|
|
|
|
3,000
|
|
|
|
2,060
|
|
|
|
Total all other compensation
|
|
|
$167,532
|
|
|
|
$57,512
|
|
|
|
$66,385
|
|
|
|
$33,759
|
|
|
|
$47,803
|
|
|
|
|
|
(a)
|
GMAC maintains a program that provides executives, including
Messrs. Feldstein, Khattri, Muir and Solomon, with a GM
vehicle of their choice. This program is not mandatory.
Participants are required to pay a monthly administration fee of
$150, and they are charged with imputed income based on the
value of the vehicle they choose to drive. Executives are
reimbursed for taxes on this income, subject to a maximum
vehicle value. Beyond this maximum amount, taxes assessed on
imputed income are the responsibility of the executive. Amounts
reported represent the incremental cost for usage of the
vehicles, after consideration of the proceeds from the sale of
the company vehicles. Mr. Paradis participates in a ResCap
vehicle program at a cost of $900 per month, which provides
a monthly car allowance for the lease or purchase of a GM
vehicle.
|
(b)
|
Mr. Feldstein and Mr. Khattri have their primary
office in New York City where they are permitted to park in one
of the company rented parking spaces at a cost to the company of
$550 per month.
|
(c)
|
The Company provides a taxable allowance to certain senior
executives for financial counseling and estate planning services
with one of several approved providers. Named executives are
provided an enhanced financial and estate planning service. This
program does not provide for tax preparation services, with the
exception of Mr. Paradis. Costs associated with this
benefit are reflected in the tables above, based on the actual
charge for the services received. Any taxes assessed on the
imputed income for the value of this service are the
responsibility of the executive.
|
(d)
|
The incremental cost for Mr. Paradis and his spouse to
attend an annual leadership event for a select group of
employees and their spouses to recognize their contributions to
business results.
|
(e)
|
Represents the dividend equivalents earned and paid in cash on
undelivered stock awards.
|
(f)
|
Represents the total cost of life and liability insurance and
other death benefits for 2006.
|
(g)
|
The aggregate amount of payments made on the executives
behalf by GMAC during the year for the payment of taxes related
to the executive vehicle program, spousal accompaniment on
business trips and the value of miscellaneous gifts.
|
(h)
|
Tax deferred one-time 401(k) contributions to all GMAC
employees, including all named executive officers, except
Mr. Paradis, that were eligible to receive post retirement
health-care from GM. The contributions were as a result of a
GMAC negotiated settlement with GM in exchange for the employees
to waive any rights to GM post-retirement health care.
|
(i)
|
Employer match amount to the employees 401(k) fund.
|
SFAS 123(R)
Valuation Assumptions
Beginning January 1, 2006, in accordance with the adoption
of SFAS 123(R), the fair value of cash settled awards under
the GM LTIP is recalculated at the end of each reporting period,
and the liability and expense are adjusted based on the new fair
value. The fair value of each award under the GM LTIP is
estimated at the end of each reporting period using a lattice
based option valuation model, which as of December 31,
2006, incorporates the following assumptions: (i) expected
volatilities of 38.1% and 37.6% respectively for the
2006-2008
LTIP and
2005-2007
LTIP, based on the implied volatility from GMs tradable
options; (ii) expected term of two years and one year for
the
2006-2008
LTIP and
2005-2007
LTIP, respectively, representing the remaining time in the
performance period; and (iii) risk-free rate of 5.24% and
5.13%, respectively, for the
2006-2008
LTIP and
2005-2007
LTIP, for periods during the contractual life of the performance
units based on the U.S. Treasury yield curve in effect at
the time of valuation. Additionally, because the payout depends
on GMs performance ranked against the S&P 500 Index,
the valuation also depends on the performance of other stocks in
the S&P 500 from the grant date to the end of the
performance period, as well as estimates of the correlations
among their future performances. The fair values used to
calculate the SFAS 123(R) expenses at December 31,
2006, were $43.80 for the
2006-2008
performance period and $11.90 for the
2005-2007
performance period.
For the GM CRSUs, compensation expense is recognized over the
requisite service period for each separately vesting award.
Since the awards are settled in cash, these cash-settled awards
are recorded as a liability until the date of vesting and
payment. In accordance with SFAS No. 123(R), the fair
value of each cash-settled award is recalculated at the end of
each reporting period and the liability and
138
GMAC
LLC Form 10-K
expense adjusted based on the new fair value. The fair value
used to calculate the SFAS 123(R) expenses for the GM CRSUs
was $30.72 at December 31, 2006.
For GM stock options up to the November 30, 2006 closing
date of GMs sale of a 51% interest in GMAC, the fair value
of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the weighted-average
assumptions noted in the following table. Expected volatilities
are based on both the implied and historical volatility of
GMs stock. The expected term of options represents the
period of time that options granted are expected to be
outstanding. The interest rate for periods during the expected
life of the option is based on the U.S. Treasury yield
curve in effect at the time of the grant.
GM stock
options through
November 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Interest rate
|
|
|
4.63
|
%
|
|
|
3.74
|
%
|
|
|
3.06
|
%
|
Expected life (years)
|
|
|
6
|
|
|
|
6
|
|
|
|
5
|
|
Expected volatility
|
|
|
48.40
|
%
|
|
|
32.40
|
%
|
|
|
33.90
|
%
|
Dividend yield
|
|
|
4.78
|
%
|
|
|
5.50
|
%
|
|
|
3.71
|
%
|
Grant date fair value
|
|
|
$7.06
|
|
|
|
$7.21
|
|
|
|
$12.85
|
|
|
|
As discussed in footnote (c) to the Summary Compensation
Table on page 137, the 2006 GM stock option awards to the
GMAC named executives were modified as of
November 30, 2006, the closing date of GMs sale
of a 51% interest in GMAC, and are now treated as if these are
new awards issued to non-employees. Furthermore, 2005 and 2004
GM stock option awards, which will also be retained by the GMAC
named executives, were subject to a change in status to
non-employee awards as a result of GMs sale of a 51%
interest in GMAC. For these 2005 and 2004 GM stock options, no
adjustments were made to previously recorded compensation
expense through November 30, 2006. Remaining
unrecognized portions of the 2005 and 2004 GM stock options will
be accounted for as if the outstanding awards were newly granted
as of the date of the change in status on
November 30, 2006.
GM stock
options as of
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Interest rate
|
|
|
4.69
|
%
|
|
|
4.69
|
%
|
|
|
4.69
|
%
|
Expected life (years)
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Expected volatility
|
|
|
39.41
|
%
|
|
|
36.35
|
%
|
|
|
34.39
|
%
|
Dividend yield
|
|
|
3.26
|
%
|
|
|
3.26
|
%
|
|
|
3.26
|
%
|
Grant date fair value
|
|
|
$12.20
|
|
|
|
$5.64
|
|
|
|
$2.17
|
|
|
|
The assumptions displayed in the table above represent the
valuation assumptions for the modified and change in status GM
stock option awards for the GMAC named executives as of
December 31, 2006, as costs for the modified and change in
status awards will be recognized based on the current fair value
of these awards at the end of each reporting period.
139
GMAC
LLC Form 10-K
Grants of Plan
Based Awards Estimated Future Payments under
Non-Equity Incentive Plan Awards
The following table represents target awards under non-equity
incentive plans. For Messrs. Feldstein, Khattri, Muir and
Solomon, this includes amounts under the GM AIP. For the GM AIP,
target awards were established for 2006, consistent with past
practice, for possible delivery in early 2007. Any payout at the
end of the period is determined based on the achievement of
established performance targets. For Mr. Paradis, includes
amounts under the ResCap LTIP and the ResCap AIP. Similar to the
GM AIP, the ResCap AIP established target awards in 2006 for
possible delivery in 2007. Under the ResCap LTIP, at the
beginning of each year participants are awarded units, each
valued at $1/unit. Performance is measured over a three-year
period and the aggregate dollar value of a participants
units is based on ResCaps increase in net income and
average return on economic capital over the measurement period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated future
payouts under
|
|
Name
and
|
|
|
|
Grant
|
|
non-equity
incentive plan awards (a)
|
|
principal
position
|
|
Award
|
|
date
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
|
|
Eric A. Feldstein
Chief Executive Officer
|
|
Annual Incentive Plan
|
|
1/1/2006
|
|
|
$374,760
|
|
|
|
$828,900
|
|
|
|
$2,285,280
|
|
|
|
Sanjiv Khattri
Executive Vice President,
Chief Financial Officer
|
|
Annual Incentive Plan
|
|
1/1/2006
|
|
|
$132,020
|
|
|
|
$266,000
|
|
|
|
$695,660
|
|
|
|
William F. Muir
President
|
|
Annual Incentive Plan
|
|
1/1/2006
|
|
|
$202,180
|
|
|
|
$413,300
|
|
|
|
$1,090,340
|
|
|
|
Bruce Paradis
Executive Vice President
|
|
Long-term Incentive Plan
|
|
1/1/2006
|
|
|
$
|
|
|
|
$1,332,000
|
|
|
|
$
|
|
Chairman and CEO, ResCap
|
|
Annual Incentive Plan
|
|
1/1/2006
|
|
|
$
|
|
|
|
$3,000,000
|
|
|
|
$
|
|
|
|
William B. Solomon, Jr.
Group Vice President
General Counsel
|
|
Annual Incentive Plan
|
|
1/1/2006
|
|
|
$97,500
|
|
|
|
$196,100
|
|
|
|
$512,300
|
|
|
|
|
|
|
(a)
|
|
Target award under the GM AIP for
Mr. Feldstein was established for 2006 based on adjusted
net income, operating cash flow, and operational metrics. For
Messrs. Khattri, Muir and Solomon, in addition to adjusted net
income and operating cash flow, a portion of their 2006 target
GM AIP awards were also based on GMAC regional or unit measures
including return on economic capital, global retail penetration
and global insurance product penetration. Final payouts under
the GM AIP for 2006, to be delivered in 2007, are dependent upon
achievement of specific performance targets for each measure.
|
|
|
For the
2006 ResCap LTIP covering the 2006 to 2008 measurement period,
ResCaps total shareholder return was determined using a
price-earnings-multiple formula that ranges from a multiple of
zero for average return on economic capital less than 8% up to a
multiple of 10.4 for average return on economic capital of 18%
or higher. If total shareholder return is positive for the
measurement period, participants are paid an amount equal to the
percentage increase in total shareholder return for the period
multiplied by the aggregate dollar value of the units. One third
of such amounts are paid annually in each of the three years
following the applicable measurement period, provided the
executive remains employed at the time of payment. Unpaid earned
amounts are credited using a ResCap weighted cost of funding
interest rate annually from the end of the measurement period
until the payment date. A participant may forfeit any amounts
that have not been paid in the event of termination prior to the
final payment date. If total shareholder return is not positive
for the measurement period, participants are not paid any amount
under the ResCap LTIP with respect to that measurement period.
|
|
|
The ResCap
AIP consists of two annual incentive pools covering senior
management and all other employees, excluding sales and
marketing employees who have their own compensation structure.
The incentive pool applicable to senior management, including
Mr. Paradis, is funded based on annual net income achieved
and return on economic capital. The funding formula that was in
place for 2006 for the senior management incentive pool ranged
from 0% of net income for a return on economic capital of 9% or
less up to 8.4% of net income for a return on economic capital
of 13.5% or higher. Net income for incentive purposes is
calculated by deducting incentive costs, and as such, the
incentive plans are self funding. This funding formula was
reviewed periodically and reset based on changes in the growth
and profitability of ResCap and in the number of participants
eligible to receive awards from the incentive pool. For 2006,
there was no annual incentive funding under the senior
management incentive pool because of performance below 9% return
on economic capital.
|
|
|
Given the
formulaic basis of both the ResCap LTIP and AIP, no threshold or
maximum levels have been disclosed for these awards.
|
140
GMAC
LLC Form 10-K
Grants of Plan
Based Awards Estimated Future Payments under Equity
Incentive Plan Awards
The following table represents target awards under various GM
equity incentive plans for the named executives, with the
exception of Mr. Paradis. These plans include the GM LTIP,
GM CRSU awards and GM stock option awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
option awards
|
|
|
Exercise or
|
|
|
Grant date
|
|
|
|
|
|
|
|
|
Estimated
future
|
|
|
stock awards
|
|
|
number of
|
|
|
base price
|
|
|
fair value
|
|
|
|
|
|
|
|
|
payouts under
equity
|
|
|
number of
|
|
|
securities
|
|
|
of option
|
|
|
of stock
|
|
Name and
|
|
|
|
Grant
|
|
|
incentive plan
award shares (a)
|
|
|
shares of
stocks
|
|
|
underlying
|
|
|
awards (d)
|
|
|
and option
|
|
principal
position
|
|
Award
|
|
date
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
or units
(b)
|
|
|
options
(c)
|
|
|
($/Sh)
|
|
|
awards
(e)
|
|
|
|
Eric A. Feldstein
|
|
LTIP
|
|
|
2/23/2006
|
|
|
|
6,146
|
|
|
|
12,292
|
|
|
|
24,584
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$304,965
|
|
Chief Executive Officer
|
|
Stock Options
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,000
|
|
|
|
$20.90
|
|
|
|
$254,160
|
|
|
|
Sanjiv Khattri
|
|
LTIP
|
|
|
2/23/2006
|
|
|
|
1,105
|
|
|
|
2,210
|
|
|
|
4,420
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$54,830
|
|
Executive Vice President,
|
|
Stock Options
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,520
|
|
|
|
$20.90
|
|
|
|
$38,971
|
|
Chief Financial Officer
|
|
CRSUs
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,717
|
|
|
|
|
|
|
|
$
|
|
|
|
$35,885
|
|
|
|
William F. Muir
|
|
LTIP
|
|
|
2/23/2006
|
|
|
|
1,627
|
|
|
|
3,254
|
|
|
|
6,508
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$80,732
|
|
President
|
|
Stock Options
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
$20.90
|
|
|
|
$84,720
|
|
|
|
CRSUs
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,972
|
|
|
|
|
|
|
|
$
|
|
|
|
$62,115
|
|
|
|
William B. Solomon, Jr.
|
|
LTIP
|
|
|
2/23/2006
|
|
|
|
714
|
|
|
|
1,427
|
|
|
|
2,854
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$35,404
|
|
Group Vice President
|
|
Stock Options
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,030
|
|
|
|
$20.90
|
|
|
|
$28,452
|
|
General Counsel
|
|
CRSUs
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,164
|
|
|
|
|
|
|
|
$
|
|
|
|
$24,327
|
|
|
|
|
|
(a)
|
GM 2006-2008
LTIP target awards for the
2006-2008
performance period were granted to certain senior executives,
including Messrs. Feldstein, Khattri, Muir and Solomon.
These grants are made annually. However, any payout is
determined based on the total shareholder return performance
ranking of GM Common Stock compared to that of other stocks in
the S&P 500 Index over a three-year period. The awards will
be denominated in nominal shares of Common Stock during the
performance period. If threshold performance is achieved, awards
will then be converted to cash and delivered in one installment.
The expense accrued in 2006 for these target shares reported
here are reflected in the Summary Compensation Table on
page 137. The final award value to be delivered at the end
of the three-year performance period, if any, will depend on
GMs total shareholder return performance ranking, based on
market price appreciation plus the compounding effect of
reinvested dividends, relative to other companies in the S&P
500 Index. There were no payouts under this plan in 2005 or
2006. As a result of GMs sale of a 51% interest in GMAC as
of November 30, 2006, the GMAC named executives, except
Mr. Paradis, forfeited portions of the outstanding GM LTIP
awards and will be eligible for pro rata awards displayed above,
based on amounts earned through November 30, 2006.
|
(b)
|
Includes GM CRSUs issued in 2006, which provide cash equal to
the value of underlying restricted share units to certain
executives, including Messrs. Khattri, Muir and Solomon at
predetermined vesting dates. Historically, awards under the plan
vest and pay in one-third increments on each anniversary date of
the award over a three year period. As a result of GMs
sale of a 51% interest in GMAC as of November 30, 2006, the
GMAC named executives, except Mr. Paradis, forfeited
portions of the outstanding GM CRSUs and will be eligible for
pro rata awards displayed above, based on amounts earned through
November 30, 2006, which will be paid in March 2007.
|
(c)
|
GM stock options were awarded in 2006 to certain senior GM
executives, including Messrs. Feldstein, Khattri, Muir and
Solomon. Option grants awarded are generally exercisable one
third after one year, one third after two years and fully after
three years from the dates of grants. As a result of the sale of
a 51% interest in GMAC as of November 30, 2006, the
expiration date of stock options for GMAC named executives has
been accelerated such that remaining GM stock options are
exercisable in accordance with their original schedule but not
beyond their stated term, up to November 30, 2009.
|
(d)
|
The exercise or base price of $20.90 for GM stock options
granted to the named executives is calculated by taking the
average of the high and low price on the date of issuance,
February 23, 2006. The closing price of GM stock on
February 23, 2006, was $20.59.
|
(e)
|
The grant date fair value computed in accordance with
SFAS 123(R) was $24.81 for the GM LTIP
2006-2008
performance period and $7.06 for the GM stock options awarded in
2006. The fair value of the GM CRSUs at the time they were
issued to the named executives was $20.90.
|
141
GMAC
LLC Form 10-K
Outstanding
Equity Awards at Fiscal Year End Option
Awards
GM option awards include both non-qualified and incentive
options granted to the named executives, with the exception of
Mr. Paradis who did not participate in the GM option
program. The GM options were granted in a combination of
non-qualified and Incentive Stock Options (ISOs), up to the IRC
maximum limit on ISOs, on the grant dates shown below. All
options become exercisable in three equal annual installments
commencing on the first anniversary of the date of grant.
Traditionally, the ISOs expire ten years from the date of grant,
and the non-qualified options expire two days later. As a result
of the sale of a 51% interest in GMAC as of November 30,
2006, the expiration date of stock options for GMAC named
executives has been accelerated such that remaining GM stock
options are exercisable in accordance with their original
schedule but not beyond their stated term, up to
November 30, 2009. GMAC expenses the costs associated with
the granting of all stock options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
|
securities
|
|
securities
|
|
|
|
|
Name
and
|
|
|
|
underlying
|
|
underlying
|
|
|
|
|
principal
|
|
|
|
unexercised
options
|
|
unexercised
options
|
|
Option
|
|
Option
|
position
|
|
Grant
date
|
|
(#)
exercisable
|
|
(#)
unexercisable
|
|
exercise
price
|
|
expiration
date
|
|
Eric A. Feldstein
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
36,000
|
|
|
|
$20.90
|
|
|
|
12/1/2009
|
|
Chief Executive Officer
|
|
|
1/24/2005
|
|
|
|
10,134
|
|
|
|
20,266
|
|
|
|
$36.37
|
|
|
|
12/1/2009
|
|
|
|
|
1/23/2004
|
|
|
|
20,277
|
|
|
|
10,123
|
|
|
|
$53.92
|
|
|
|
12/1/2009
|
|
|
|
|
1/21/2003
|
|
|
|
38,000
|
|
|
|
|
|
|
|
$40.05
|
|
|
|
12/1/2009
|
|
|
|
|
2/4/2002
|
|
|
|
18,000
|
|
|
|
|
|
|
|
$50.82
|
|
|
|
12/1/2009
|
|
|
|
|
1/7/2002
|
|
|
|
30,000
|
|
|
|
|
|
|
|
$50.46
|
|
|
|
12/1/2009
|
|
|
|
|
1/8/2001
|
|
|
|
20,000
|
|
|
|
|
|
|
|
$52.35
|
|
|
|
12/1/2009
|
|
|
|
|
1/10/2000
|
|
|
|
17,000
|
|
|
|
|
|
|
|
$75.50
|
|
|
|
12/1/2009
|
|
|
|
|
1/11/1999
|
|
|
|
18,030
|
|
|
|
|
|
|
|
$71.53
|
|
|
|
1/10/2009
|
|
|
|
|
1/12/1998
|
|
|
|
13,481
|
|
|
|
|
|
|
|
$46.59
|
|
|
|
1/13/2008
|
|
|
|
|
2/3/1997
|
|
|
|
12,111
|
|
|
|
|
|
|
|
$44.73
|
|
|
|
2/4/2007
|
|
|
|
Sanjiv Khattri
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
5,520
|
|
|
|
$20.90
|
|
|
|
12/1/2009
|
|
Executive Vice President,
|
|
|
1/24/2005
|
|
|
|
2,600
|
|
|
|
5,200
|
|
|
|
$36.37
|
|
|
|
12/1/2009
|
|
Chief Financial Officer
|
|
|
1/23/2004
|
|
|
|
3,800
|
|
|
|
1,900
|
|
|
|
$53.92
|
|
|
|
12/1/2009
|
|
|
|
|
1/21/2003
|
|
|
|
8,600
|
|
|
|
|
|
|
|
$40.05
|
|
|
|
12/1/2009
|
|
|
|
|
2/4/2002
|
|
|
|
8,600
|
|
|
|
|
|
|
|
$50.82
|
|
|
|
12/1/2009
|
|
|
|
|
1/7/2002
|
|
|
|
8,600
|
|
|
|
|
|
|
|
$50.46
|
|
|
|
12/1/2009
|
|
|
|
|
1/8/2001
|
|
|
|
5,700
|
|
|
|
|
|
|
|
$52.35
|
|
|
|
12/1/2009
|
|
|
|
|
1/10/2000
|
|
|
|
4,700
|
|
|
|
|
|
|
|
$75.50
|
|
|
|
12/1/2009
|
|
|
|
|
1/11/1999
|
|
|
|
5,168
|
|
|
|
|
|
|
|
$71.53
|
|
|
|
1/10/2009
|
|
|
|
|
1/12/1998
|
|
|
|
3,245
|
|
|
|
|
|
|
|
$46.59
|
|
|
|
1/11/2008
|
|
|
|
|
2/3/1997
|
|
|
|
2,607
|
|
|
|
|
|
|
|
$44.73
|
|
|
|
2/2/2007
|
|
|
|
William F. Muir
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
12,000
|
|
|
|
$20.90
|
|
|
|
12/1/2009
|
|
President
|
|
|
1/24/2005
|
|
|
|
5,334
|
|
|
|
10,666
|
|
|
|
$36.37
|
|
|
|
12/1/2009
|
|
|
|
|
1/23/2004
|
|
|
|
10,138
|
|
|
|
5,062
|
|
|
|
$53.92
|
|
|
|
12/1/2009
|
|
|
|
|
1/21/2003
|
|
|
|
19,000
|
|
|
|
|
|
|
|
$40.05
|
|
|
|
12/1/2009
|
|
|
|
|
2/4/2002
|
|
|
|
12,000
|
|
|
|
|
|
|
|
$50.82
|
|
|
|
12/1/2009
|
|
|
|
|
1/7/2002
|
|
|
|
19,000
|
|
|
|
|
|
|
|
$50.46
|
|
|
|
12/1/2009
|
|
|
|
|
1/8/2001
|
|
|
|
16,000
|
|
|
|
|
|
|
|
$52.35
|
|
|
|
12/1/2009
|
|
|
|
|
1/10/2000
|
|
|
|
14,000
|
|
|
|
|
|
|
|
$75.50
|
|
|
|
12/1/2009
|
|
|
|
|
1/11/1999
|
|
|
|
12,020
|
|
|
|
|
|
|
|
$71.53
|
|
|
|
1/10/2009
|
|
|
|
|
1/12/1998
|
|
|
|
9,015
|
|
|
|
|
|
|
|
$46.59
|
|
|
|
1/11/2008
|
|
|
|
|
2/3/1997
|
|
|
|
9,780
|
|
|
|
|
|
|
|
$44.73
|
|
|
|
2/2/2007
|
|
|
|
William B. Solomon, Jr.
|
|
|
2/23/2006
|
|
|
|
|
|
|
|
4,030
|
|
|
|
$20.90
|
|
|
|
12/1/2009
|
|
Group Vice President
|
|
|
1/24/2005
|
|
|
|
1,816
|
|
|
|
3,634
|
|
|
|
$36.37
|
|
|
|
12/1/2009
|
|
General Counsel
|
|
|
1/23/2004
|
|
|
|
3,635
|
|
|
|
1,815
|
|
|
|
$53.92
|
|
|
|
12/1/2009
|
|
|
|
|
1/21/2003
|
|
|
|
7,000
|
|
|
|
|
|
|
|
$40.05
|
|
|
|
12/1/2009
|
|
|
|
|
2/4/2002
|
|
|
|
4,150
|
|
|
|
|
|
|
|
$50.82
|
|
|
|
12/1/2009
|
|
|
|
|
1/7/2002
|
|
|
|
8,300
|
|
|
|
|
|
|
|
$50.46
|
|
|
|
12/1/2009
|
|
|
|
|
1/8/2001
|
|
|
|
8,300
|
|
|
|
|
|
|
|
$52.35
|
|
|
|
12/1/2009
|
|
|
|
|
1/10/2000
|
|
|
|
6,500
|
|
|
|
|
|
|
|
$75.50
|
|
|
|
12/1/2009
|
|
|
|
|
1/11/1999
|
|
|
|
6,370
|
|
|
|
|
|
|
|
$71.53
|
|
|
|
1/10/2009
|
|
|
|
|
1/12/1998
|
|
|
|
5,048
|
|
|
|
|
|
|
|
$46.59
|
|
|
|
1/11/2008
|
|
|
|
|
2/3/1997
|
|
|
|
5,346
|
|
|
|
|
|
|
|
$44.73
|
|
|
|
2/2/2007
|
|
|
|
142
GMAC
LLC Form
10-K
Outstanding
Equity Awards at Fiscal Year End Stock
Awards
The following table provides information for the named executive
officers regarding the outstanding GM equity awards outstanding
at year-end 2006, with the exception of Mr. Paradis, who
did not participate in the GM programs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
incentive
|
|
|
|
|
|
|
|
|
Equity
incentive
|
|
plan awards:
market
|
|
|
|
|
|
|
|
|
plan awards:
number
|
|
or payout value
of
|
|
|
|
|
Number of
|
|
|
|
of unearned
shares,
|
|
unearned
shares,
|
|
|
|
|
shares or
units
|
|
Market value of
shares
|
|
units or other
|
|
units or other
|
|
|
|
|
of stock that
|
|
or units of stock
that
|
|
rights that
have
|
|
rights that
have
|
Name and
principal position
|
|
Grant
date
|
|
have not vested
(a)
|
|
have not vested
(a)
|
|
not vested
(b)
|
|
not vested
(b)
|
|
|
Eric A. Feldstein
|
|
|
6/6/2005
|
|
|
|
75,491
|
|
|
|
$2,319,084
|
|
|
|
|
|
|
|
$
|
|
Chief Executive Officer
|
|
|
6/5/2001
|
|
|
|
4,455
|
|
|
|
$136,858
|
|
|
|
|
|
|
|
$
|
|
|
|
|
6/6/2000
|
|
|
|
5,985
|
|
|
|
$183,859
|
|
|
|
|
|
|
|
$
|
|
|
|
|
1/1/2006
|
|
|
|
|
|
|
|
$
|
|
|
|
12,292
|
|
|
|
$377,610
|
|
|
|
|
1/1/2005
|
|
|
|
|
|
|
|
$
|
|
|
|
13,879
|
|
|
|
$213,181
|
|
|
|
Sanjiv Khattri
|
|
|
2/10/2006
|
|
|
|
1,717
|
|
|
|
$52,746
|
|
|
|
|
|
|
|
$
|
|
Executive Vice President,
|
|
|
1/1/2006
|
|
|
|
|
|
|
|
$
|
|
|
|
2,210
|
|
|
|
$67,891
|
|
Chief Financial Officer
|
|
|
1/1/2005
|
|
|
|
|
|
|
|
$
|
|
|
|
2,819
|
|
|
|
$43,300
|
|
|
|
William F. Muir
|
|
|
2/10/2006
|
|
|
|
2,972
|
|
|
|
$91,300
|
|
|
|
|
|
|
|
$
|
|
President
|
|
|
1/1/2006
|
|
|
|
|
|
|
|
$
|
|
|
|
3,254
|
|
|
|
$99,963
|
|
|
|
|
1/1/2005
|
|
|
|
|
|
|
|
$
|
|
|
|
6,532
|
|
|
|
$100,332
|
|
|
|
William B. Solomon, Jr.
|
|
|
2/10/2006
|
|
|
|
1,164
|
|
|
|
$35,758
|
|
|
|
|
|
|
|
$
|
|
Group Vice President
|
|
|
1/1/2006
|
|
|
|
|
|
|
|
$
|
|
|
|
1,427
|
|
|
|
$43,837
|
|
General Counsel
|
|
|
1/1/2005
|
|
|
|
|
|
|
|
$
|
|
|
|
2,438
|
|
|
|
$37,448
|
|
|
|
|
|
(a)
|
Represents grants of GM Restricted Stock Units (GM RSUs) for
Mr. Feldstein. Depending on the GM RSU grant, the first 50%
vests in either four or five years, whereas the remaining 50%
vests in nine to ten years. The awards are valued based on the
price of GM Common Stock, which was $30.72 on December 31,
2006. As a result of GMs sale of a 51% interest in GMAC as
of November 30, 2006, Mr. Feldsteins RSU awards have
been modified to allow his GM RSU awards to continue during his
employment with GMAC. For Messrs. Khattri, Muir and
Solomon, represents grants of GM CRSUs. As a result of GMs
sale of a 51% interest in GMAC as of November 30, 2006,
Messrs. Khattri, Muir and Solomon forfeited portions of the
outstanding GM CRSUs and will be eligible for pro rata awards
displayed above, based on amounts earned through
November 30, 2006, which will be paid in March 2007.
|
(b)
|
Amounts reflect GM LTIP awards granted to named executives. If
the minimum or threshold performance level is met or exceeded,
the percentage of the target award that will eventually be paid
to participants will depend on GMs total shareholder
return ranking relative to other companies in the S&P 500
Index over the three-year period. If the minimum performance
level is not met, no awards will be paid. Each unit in the table
refers to a share of GM Common Stock. The awards are valued
based on the price of GM Common Stock, which was $30.72 on
December 31, 2006. For the
2004-2006
period, the target total shareholder return was not achieved and
no payout was earned. Values for the
2005-2007
awards are based on a forecast at threshold performance. Values
for the
2006-2008
awards are based on a forecast of target performance. As a
result of GMs sale of a 51% interest in GMAC as of
November 30, 2006, the GMAC named executives, except
Mr. Paradis, forfeited portions of the outstanding GM LTIP
awards and will be eligible for pro rata awards displayed above,
based on amounts earned through November 30, 2006.
|
Option Exercises
and Stock Vested
During 2006, no stock options were exercised by the named
executive officers, and no outstanding stock awards vested
during the reporting period.
Deferred
Compensation Plan
Deferred compensation plans are maintained to provide named
executives and other senior leaders with the opportunity to
defer on a pre-tax basis all or a portion of any GM or ResCap
AIP payouts, as well as GM and ResCap LTIP awards. The table
below reflects year-end balances and executive contributions,
company contributions, all earnings and any withdrawals during
the year for the GM and ResCap deferred compensation plans for
the named executives.
143
GMAC
LLC Form
10-K
Under the GM deferred compensation plans, no awards were paid in
2006; hence there were no new deferrals. For Mr. Paradis,
new amounts represent mandatory deferrals of installments under
the ResCap LTIP. The table below reflects year-end balances and
executive contributions, company contributions, earnings and any
withdrawals during the year for the GM Benefit Equalization
Plan, GM and ResCap Deferred Compensation Plans, and the ResCap
mandatory deferment of LTIP payments for the named executive
officers.
Non-Qualified
Deferred Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Registrant
|
|
Aggregate
|
|
Aggregate
|
|
Aggregate
|
|
|
|
|
contributions
|
|
contributions
|
|
earnings
|
|
withdrawals/
|
|
balance
|
Name and
principal position
|
|
Plan
name
|
|
in last
FY
|
|
in last
FY
|
|
in last
FY
|
|
distributions
|
|
at last
FYE
|
|
|
Eric A. Feldstein
Chief Executive Officer
|
|
Non-Qualified Benefit
Equalization Plan (a)
|
|
|
$
|
|
|
|
$
|
|
|
|
$24,179
|
|
|
|
$
|
|
|
|
$67,556
|
|
|
|
GM Deferred
Compensation Plan (b)
|
|
|
$
|
|
|
|
$
|
|
|
|
$3,505
|
|
|
|
$146,889
|
|
|
|
$73,927
|
|
|
|
Sanjiv Khattri
Executive Vice President,
|
|
Non-Qualified Benefit
Equalization Plan (a)
|
|
|
$
|
|
|
|
$
|
|
|
|
$3,861
|
|
|
|
$
|
|
|
|
$10,786
|
|
Chief Financial Officer
|
|
GM Deferred
Compensation Plan (b)
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
William F. Muir
President
|
|
Non-Qualified Benefit
Equalization Plan (a)
|
|
|
$
|
|
|
|
$
|
|
|
|
$13,265
|
|
|
|
$
|
|
|
|
$37,061
|
|
|
|
GM Deferred
Compensation Plan (b)
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
Bruce Paradis
Executive Vice President
|
|
ResCap Deferred
Compensation Plan (b)
|
|
|
$
|
|
|
|
$
|
|
|
|
$186,349
|
|
|
|
$
|
|
|
|
$3,228,416
|
(g)
|
Chairman and CEO, ResCap
|
|
Mandatory Deferment on LTIP (c)
|
|
|
$
|
|
|
|
$3,797,500
|
(d)
|
|
|
$349,701
|
(e)
|
|
|
$4,538,201
|
(f)
|
|
|
$5,828,700
|
(h)
|
|
|
William B. Solomon, Jr.
Group Vice President
|
|
Non-Qualified Benefit
Equalization Plan (a)
|
|
|
$
|
|
|
|
$
|
|
|
|
$4,484
|
|
|
|
$
|
|
|
|
$12,530
|
|
General Counsel
|
|
GM Deferred
Compensation Plan (b)
|
|
|
$
|
|
|
|
$
|
|
|
|
$7,076
|
|
|
|
$
|
|
|
|
$570,742
|
|
|
|
|
|
(a)
|
GM maintains two deferred compensation programs for executives,
including Messrs. Feldstein, Khattri, Muir and Solomon. The
Benefit Equalization Plan (BEP) is a non-qualified savings plan
designed to allow for the equalization of benefits for highly
compensated salaried employees under the General Motors
Saving-Stock Purchase Program for Salaried Employees when such
employees contribution and benefit levels exceed the
maximum limitations on contributions and benefits imposed by
Section 2004 of the Employee Retirement Income Security Act
of 1974, as amended, and Section 401(a)(17) and 415 of the
Internal Revenue Code of 1986, as amended. The plan is
maintained as an unfunded plan and all expenses for
administration of the plan and payment of amounts to
participants are borne by GM. Registrant contributions to
employee accounts are denominated in shares of GM Common Stock,
and dividend equivalents are credited on accumulated share
balances.
|
(b)
|
Under the GM Deferred Compensation Plan, senior level executives
eligible to receive a GM LTIP award as of the date the deferral
election, are eligible to make deferrals to the Plan. Deferrals
of GM AIP and LTIP earnings may be made into the plan in amounts
from 5% to 100% of the award amount. Available investment
options include GM Common Stock, US Treasury Notes and the
Promark Large Cap Index Fund. Dividend equivalents are credited
and paid on GM Common Stock units. The GM plan does not provide
for interest or earnings to be paid at above -market rates.
ResCap has a similar deferred compensation plan for their senior
leaders who participate in the ResCap AIP and ResCap LTIP.
|
(c)
|
Amounts earned under the ResCap LTIP are subject to a mandatory
deferment period. If total shareholder return is positive for
the measurement period, the ResCap LTIP participants, including
Mr. Paradis, will be paid one third of their awards
annually in each of the three years following the applicable
measurement period, provided the executive remains employed by
GMAC at the time of the payment. ResCap LTIP amounts earned and
not paid are considered deferred compensation, and they are
reported as Mandatory Deferment on LTIP in the table above.
Interest on the deferred LTIP compensation amounts is calculated
using the ResCap weighted average cost of funding. At the end of
the mandatory deferment period, the executive may elect a cash
disbursement or move the value of the payout at their discretion
to the non-qualified voluntary ResCap Deferred Compensation
Plan, subject to the investment options discussed in footnote
(b) above.
|
(d)
|
Registrant contribution represents the mandatory deferred
portion of the
2003-2005
ResCap LTIP award.
|
(e)
|
For Mr. Paradis, aggregate earnings for the Mandatory
Deferment on LTIP represents 2006 interest earned on the
mandatory deferred LTIP calculated using the ResCap weighted
average cost of funding for 2006. This interest calculation
resulted in an over market amount of $26,900, which is also
reported in the Summary Compensation Table.
|
(f)
|
For Mr. Paradis, withdrawals/distributions are for
one-third payment for the
2001-2003
ResCap LTIP award, one-third for the
2002-2004
ResCap LTIP award and the interest earned on the mandatory
deferred portions of ResCap LTIP awards.
|
(g)
|
ResCap Deferred Compensation Plan was closed subsequent to the
sale of a 51% interest in GMAC. The aggregate balance as of
December 31, 2006, was paid to Mr. Paradis in
January 2007.
|
(h)
|
For Mr. Paradis, the Mandatory Deferment on LTIP represents
the remaining one-third balance of the
2002-2004
ResCap LTIP award and the remaining two-thirds balance of the
2003-2005
ResCap LTIP award.
|
144
GMAC
LLC Form
10-K
Retirement
Programs Applicable to Executive Officers
General Motors
Plans
GM executives in the U.S. may receive benefits in
retirement from both a
tax-
qualified plan that is subject to the requirements of ERISA (The
Salaried Retirement Program) and from a non-qualified plan that
provides supplemental benefits under one of two formulas
described below (The Supplemental Executive Retirement Plan or
the SERP). Retired executives tax-qualified benefits are
pre-funded and paid out of the assets of the General Motors
Retirement Program for Salaried Employees; however,
non-qualified benefits are not pre-funded and are paid out of
GMs general assets. Messrs. Feldstein, Khattri, Muir
and Solomon were participants in these two GM retirement plans.
Two formulas are used to calculate the total of both the
tax-qualified and non-qualified retirement benefits available to
eligible U.S. executives, both of which require a minimum
of ten years of eligible service. One formula, the Regular SERP
Formula, offers benefits that are calculated based upon the
average of the highest five years of base salary during the ten
years preceding retirement, and also takes into account the
executives eligible contributory or non-contributory
service at GM. These benefits are subject to an offset of a
portion of the maximum Social Security benefit available to an
individual in the year of retirement, regardless of actual
receipt.
The Alternative SERP Formula determines benefits based upon
average annual total direct compensation, calculated as the sum
of (i) the average of the highest five years of base salary
during the ten years preceding retirement, plus (ii) the
average of the highest five years of bonus received in the ten
years preceding retirement each average calculated
independently. The Alternative SERP Formula also takes into
account the executives eligible contributory (or
non-contributory) service subject to a maximum of 35 years
and provides for an offset of 100 percent of the maximum
Social Security benefit available to an individual in the year
of retirement, regardless of actual receipt. Only those
executives who satisfy certain criteria, including not working
for a competitor or otherwise acting in any manner that is not
in the best interests of GM, are eligible to receive benefits
calculated under the Alternative SERP Formula in lieu of
benefits calculated under the Regular SERP Formula. If the
executive is eligible for the alternative formula, total tax
qualified and non-qualified retirement benefits payable under
both SERP formulas are compared, and the executive receives
whichever retirement benefit is greater. Both the regular and
alternative forms of the SERP benefit are provided under a
program that is non-qualified for tax purposes and not
pre-funded.
Non-qualified
benefits under either the regular or the alternative formulas
can be reduced or eliminated for both retirees and active
employees by the GM Executive Compensation Committee
and/or the
GM Board of Directors.
Benefits are generally paid in monthly installments as a single
life annuity to GM executives retiring as early as age 62
in 2006. If an eligible executive elects to receive the
retirement benefits in the form of a 65 percent joint and
survivor annuity, the single life annuity amounts generally are
reduced by 5 percent to 12 percent, depending upon the
age differential between spouses. In addition, certain
executives grandfathered under the American Jobs Creation Act of
2004 may elect to receive a portion of the non-qualified SERP
benefit paid in a lump sum, calculated using mortality tables
and a 7 percent discount rate.
Furthermore, as of a result of the sale of a 51% interest in
GMAC, as of November 30, 2006 the GMAC named executives
covered under the GM plans (Messrs. Feldstein, Khattri,
Muir and Solomon) will cease to accrue pension benefits under
the above mentioned plans. Pension benefits for those named
executives will be frozen based on their current levels of
credited service and compensation as of the transaction closing
on November 30, 2006, and will remain with GM.
Effective December 1, 2006, all GMAC executives will
participate in a non-qualified excess defined
contribution plan which will provide for matching and
non-matching 401(k) contributions that exceed the limits
applicable to the tax-qualified 401(k) plan. In addition, the 2%
non-matching contribution will be credited on bonus payments
starting with the 2007 bonus payment made in 2008.
ResCap
Plans
ResCap employees, including Mr. Paradis, participate in the
Employees Retirement Plan for GMAC Mortgage Group, Inc., a
non-contributory defined benefits pension plan that is subject
to the requirements of ERISA. Benefits payable under the plan
are based on years of service, average annual base salary
(excluding bonuses, long-term incentive plan payouts, fringe
benefits, hourly premiums or family allowances) and applicable
covered compensation level. For purposes of determining benefits
under the plan, average annual base salary is an average of the
employees base salary over the five highest consecutive
years and the covered compensation level is the 35 year
average of the taxable wage basis (i.e., the amount of
compensation subject to FICA or Social Security Tax
withholdings) for the year in which the employee reaches full
Social Security retirement age.
Normal retirement benefits under the plan are equal to the sum
of:
|
|
|
1.1% of average annual pay times the number of years of credited
services up to 20 years;
|
|
|
1.3% of average annual pay times the number of years of credit
services over 20 but less than 30 years;
|
|
|
1.0% of average annual pay times the number of years of credited
services over 30 years; and
|
|
|
0.35% of average annual pay over the covered compensation level
times the number of years of credited service up to and
including 30 years
|
Normal retirement age under the GMAC Mortgage Group plan is 65.
A participant may retire earlier than age 65, but the
benefits received will be reduced based on the
participants age and years of credited service at the time
of retirement. A participant with 20 years of service will
be able to receive 100% of the benefit at retirement between
ages 62 and 65. Amounts payable are not
145
GMAC
LLC Form
10-K
subject to any offset or reduction for social security or other
offset amounts. The Internal Revenue Service limits the maximum
salary that may be used to determine benefits payable under the
plan. This limit is currently $210,000 and is adjusted each
year. ResCap has not adopted a supplemental employee retirement
plan.
The following table summarizes the pension benefits for the
named executives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
|
|
|
|
|
Present value
|
|
Payments
|
|
|
|
|
Number of
Years
|
|
of accumulated
|
|
during last
|
Name
and principal position
|
|
Plan
name
|
|
credited
service
|
|
benefit
(a) (b)
|
|
fiscal
year
|
|
|
Eric A. Feldstein
Chief Executive Officer
|
|
GM Salaried Retirement Program
|
|
|
25.4
|
|
|
|
$421,100
|
|
|
|
$
|
|
|
GM Supplemental Executive
Retirement Plan
|
|
|
25.4
|
|
|
|
$1,900,000
|
|
|
|
$
|
|
|
|
Sanjiv Khattri
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President,
Chief Financial Officer
|
|
GM Salaried Retirement Program
|
|
|
17.4
|
|
|
|
$226,000
|
|
|
|
$
|
|
|
GM Supplemental Executive
Retirement Plan
|
|
|
17.4
|
|
|
|
$203,100
|
|
|
|
$
|
|
|
|
William F. Muir
President
|
|
GM Salaried Retirement Program
|
|
|
23.4
|
|
|
|
$539,400
|
|
|
|
$
|
|
|
GM Supplemental Executive
Retirement Plan
|
|
|
23.4
|
|
|
|
$1,183,300
|
|
|
|
$
|
|
|
|
Bruce Paradis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President
Chairman and CEO, ResCap
|
|
Employees Retirement Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for GMAC Mortgage Group
|
|
|
16.0
|
|
|
|
$412,000
|
|
|
|
$
|
|
|
|
William B. Solomon, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group Vice President
General Counsel
|
|
GM Salaried Retirement Program
|
|
|
18.1
|
|
|
|
$493,700
|
|
|
|
$
|
|
|
GM Supplemental Executive
Retirement Plan
|
|
|
18.1
|
|
|
|
$339,100
|
|
|
|
$
|
|
|
|
|
|
(a)
|
Benefits payable to Messrs. Feldstein, Khattri, Muir and
Solomon under the GM Salaried Retirement Program (SRP) and GM
Supplemental Executive Pension Plan (SERP) represent the present
value of accrued benefits as of December 31, 2006. Payments
under these plans are the responsibility of GM and not GMAC LLC.
Pension benefits have been displayed above because
Messrs. Feldstein, Khattri, Muir and Solomon accrued
service and benefits under these plans as former GM employees up
through November 30, 2006, the date of the sale of a 51%
interest in GMAC. Subsequent to that date, Messrs. Feldstein,
Khattri, Muir, and Solomon will cease to accrue pension benefits
under the above mentioned plans.. All amounts shown are the
present value of a joint surviving annuity. The present value
represents the value of the benefit commencing at age 62,
the earliest age at which a participant may retire under the
plan without any benefit reduction due to age. The other
valuation assumptions are consistent with those used by GM for
SFAS 158 purposes. Mortality rates are based on GM actual
and projected plan experience. The discount rate assumptions
used for the calculation of the present value as of
December 31, 2006, was 5.95% for the GM SRP and 6.0% for
the GM SERP. The change in the actuarial present value of the
named executives GM pension plans shown in the Summary
Compensation Table on page 137 was calculated comparing the
November 30, 2006 present values, using the above noted
assumptions, against the present values as of December 31,
2005, which were calculated using a 5.75% discount rate for both
the GM SRP and GM SERP.
|
(b)
|
Benefits payable to Mr. Paradis under the Employees
Retirement Plan for GMAC Mortgage Group Plan represent the
present value of accrued benefits as of December 31, 2006.
As discussed in the CD&A, the Employees Retirement Plan for
GMAC Mortgage Group Plan was frozen as of December 31,
2006, at which time Mr. Paradis ceased to accrue benefits
under this plan. All benefits are shown as the amounts to be
received at the IRS-determined maximum salary for various years
of service if the named executive officer elected to receive a
single life annuity. The present value represents the value of
the benefit commencing at age 62, the earliest age at which a
participant may retire under the plan without any benefit
reduction due to age. The other valuation assumptions are
consistent with those used by ResCap for SFAS 158 purposes.
Mortality rates are based on the Society of Actuaries standard
sex distinct mortality table. The discount rate assumptions used
for the calculation of the present value as of December 31,
2006 was 6.0%. The change in the actuarial present value of
Mr. Paradis pension plan shown in the Summary
Compensation Table on page 137 was calculated comparing the
December 31, 2006 present values, using the above noted
assumptions, against the present values as of December 31,
2005, which were calculated using a 5.75% discount rate.
|
146
GMAC
LLC Form
10-K
Executive
Compensation Post Employment and Termination
Benefits
GMAC maintains certain compensation and benefit plans that will
provide payment of compensation to our named executives in the
following scenarios. It should be noted that these amounts do
not include stock options and CRSUs that have already vested and
are reported on pages 142 and 143 in the Outstanding Equity
Awards Table, qualified pension plan benefits and GM SERPs
disclosed in the Pension Benefits Table, or voluntary deferred
compensation reported in the Non-Qualified Deferred Compensation
Table.
In the event of a Change in Control (CIC) of GMAC, no
payouts would apply to the named executives unless the CIC was
accompanied by an involuntary or good reason termination. In
that situation, payments for named executives would be identical
to the amounts listed in the Involuntary or good reason column.
In the event of a GM CIC, GM stock options, open GM LTIP grants
and outstanding GM RSUs may be entitled to protection under GM
administered and funded plans.
The following tables describe the various potential post
employment payments, assuming the triggering event occurred on
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric A.
Feldstein, Chief Executive Officer (a)
|
|
|
|
Voluntary
|
|
|
Normal
|
|
|
Involuntary or
|
|
|
|
|
Executive
benefits and
|
|
or
for cause
|
|
|
retirement
|
|
|
good
reason
|
|
|
Death
/
|
|
payments upon
termination
|
|
termination
|
|
|
(Age 65)
|
|
|
termination
|
|
|
disability
|
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base salary (b)
|
|
|
$
|
|
|
|
$
|
|
|
|
$2,400,000
|
|
|
|
$
|
|
Annual incentive plan (c)
|
|
|
|
|
|
|
|
|
|
|
3,600,000
|
|
|
|
570,600
|
|
Long-term incentives (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004-2006
GM LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005-2007
GM LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,181
|
|
2006-2008
GM LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
377,610
|
|
Stock options (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353,520
|
|
Restricted stock units (f)
|
|
|
|
|
|
|
|
|
|
|
2,639,800
|
|
|
|
771,934
|
|
Health care (g)
|
|
|
|
|
|
|
|
|
|
|
11,330
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
|
|
|
$
|
|
|
|
$8,651,130
|
|
|
|
$2,286,845
|
|
|
|
|
|
(a)
|
As of December 31, 2006, Mr. Feldstein is not eligible
to retire under any qualified or non-qualified GMAC or GM
retirement plan. Upon termination of employment, he could
receive a deferred vested benefit from the GM Salaried
Retirement Program, reduced for age if received prior to
age 65. This benefit is available to any salaried employee
who participants in the plan.
|
(b)
|
Mr. Feldsteins employment agreement provides for a
severance payment, in the event of an involuntary or good reason
termination, equal to two times base salary.
|
(c)
|
Mr. Feldsteins employment agreement provides for a
severance annual incentive payment, in the event of an
involuntary or good reason termination, equal to the greater of
$600,000 or two times his actual annual incentive earned for the
last fiscal year. The table above assumes GMAC annual incentive
as depicted on page 133 was earned at target. Annual
incentive plan award will be paid out pursuant to plan
provisions on a pro-rata basis based on actual performance for
death and disability, as described above.
|
(d)
|
GM LTIP performance periods are currently forecasted to payout
as follows:
2004-2006:
0%;
2005-2007:
50%;
2006-2008:
100%; year-end; amounts calculated using December 31, 2006
GM stock price of $30.72. Terminations resulting from death will
be prorated for time worked, will vest immediately, and will be
paid out at forecasted performance as soon as practicable.
|
(e)
|
Mr. Feldstein has 66,389 unvested stock options as of
December 31, 2006; stock options vest immediately upon
death; stock options continue original exercise schedule on
disability. Unvested options are forfeited for all other
categories. The calculated stock option value was determined by
the spread between the option grant price and the stock price on
December 31, 2006, which was $30.72. Only 36,000 of the
66,389 options had
in-the-money
value.
|
(f)
|
Mr. Feldstein has 85,931 stock based GM RSUs valued at
$30.72 per share, the closing price of GM stock as of
December 31, 2006; pro-rata RSUs vest immediately upon
death or disability. In the event of an involuntary or good
reason termination, the RSUs pay out in full immediately.
|
(g)
|
Mr. Feldsteins employment agreement provides for the
continuance of health-care coverage for 18 months in the
event of an involuntary termination or a voluntary termination
with good reason. Health-care continues for disability period.
|
147
GMAC
LLC Form
10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sanjiv Khattri,
Chief Financial Officer (a)
|
|
|
Voluntary
|
|
Normal
|
|
Involuntary or
|
|
|
Executive
benefits and
|
|
or
for cause
|
|
retirement
|
|
good
reason
|
|
Death
/
|
payments upon
termination
|
|
termination
|
|
(Age 65)
|
|
termination
|
|
disability
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base salary (b)
|
|
|
$
|
|
|
|
$
|
|
|
|
$1,400,000
|
|
|
|
$
|
|
Annual incentive plan (c)
|
|
|
|
|
|
|
|
|
|
|
1,800,000
|
|
|
|
228,400
|
|
Long-term incentives (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004-2006
GM LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005-2007
GM LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,300
|
|
2006-2008
GM LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,891
|
|
Stock options (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,206
|
|
Restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care (f)
|
|
|
|
|
|
|
|
|
|
|
11,330
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
|
|
|
$
|
|
|
|
$3,211,330
|
|
|
|
$393,797
|
|
|
|
|
|
(a)
|
As of December 31, 2006,
Mr. Khattri is not eligible to retire under any qualified
or non-qualified GMAC or GM retirement plan. Upon termination of
employment, he could receive a deferred vested benefit from the
GM Salaried Retirement Program, reduced for age if received
prior to age 65. This benefit is available to any salaried
employee who participants in the plan.
|
(b)
|
Mr. Khattris employment
agreement provides for a severance payment, in the event of an
involuntary or good reason termination, equal to two times base
salary.
|
(c)
|
Mr. Khattris employment
agreement provides for a severance annual incentive payment, in
the event of an involuntary or good reason termination, equal to
the greater of $350,000 or two times his actual annual incentive
earned for the last fiscal year. The table above assumes GMAC
annual incentive as depicted on page 133 was earned at
target. Annual incentive plan award will be paid out pursuant to
plan provisions on a pro-rata basis based on actual performance
for death and disability, as described above.
|
(d)
|
GM LTIP performance periods are
currently forecasted to payout as follows:
2004-2006:
0%;
2005-2007:
50%;
2006-2008:
100%; year-end; amounts calculated using December 31, 2006
GM stock price of $30.72. Terminations resulting from death will
be prorated for time worked, will vest immediately, and will be
paid out at forecast performance as soon as possible.
|
(e)
|
Mr. Khattri has 12,618
unvested stock options as of December 31, 2006; stock
options vest immediately upon death; stock options continue
original exercise schedule on disability. Unvested options are
forfeited for all other categories. The calculated stock option
value was determined by the spread between the option grant
price and the stock price on December 31, 2006, which was
$30.72. Only 5,520 of the 12,618 options had
in-the-money
value.
|
(f)
|
Mr. Khattris employment
agreement provides for the continuance of health-care coverage
for 18 months in the event of an involuntary termination or
a voluntary termination with good reason. Health-care continues
for disability period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Muir,
President (a)
|
|
|
Voluntary
|
|
Normal
|
|
Involuntary or
|
|
|
Executive
benefits and
|
|
or
for cause
|
|
retirement
|
|
good
reason
|
|
Death
/
|
payments upon
termination
|
|
termination
|
|
(Age 65)
|
|
termination
|
|
disability
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base salary (b)
|
|
|
$
|
|
|
|
$
|
|
|
|
$1,700,000
|
|
|
|
$
|
|
Annual incentive plan (c)
|
|
|
|
|
|
|
|
|
|
|
2,300,000
|
|
|
|
303,600
|
|
Long-term incentives (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004-2006
GM LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005-2007
GM LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,332
|
|
2006-2008
GM LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,963
|
|
Stock options (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,840
|
|
Restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care (f)
|
|
|
|
|
|
|
|
|
|
|
11,330
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
|
|
|
$
|
|
|
|
$4,011,330
|
|
|
|
$621,735
|
|
|
|
|
|
(a)
|
As of December 31, 2006,
Mr. Muir is not eligible to retire under any qualified or
non-qualified GMAC or GM retirement plan. Upon termination of
employment, he could receive a deferred vested benefit from the
GM Salaried Retirement Program, reduced for age if received
prior to age 65. This benefit is available to any salaried
employee who participants in the plan.
|
(b)
|
Mr. Muirs employment
agreement provides for a severance payment, in the event of an
involuntary or good reason termination, equal to two times base
salary.
|
(c)
|
Mr. Muirs employment
agreement provides for a severance annual incentive payment, in
the event of an involuntary or good reason termination, equal to
the greater of $425,000 or two times his actual annual incentive
earned for the last fiscal year. The table above assumes GMAC
annual incentive as depicted on page 133 was earned at
target. Annual incentive plan award will be paid out pursuant to
plan provisions on a pro-rata basis based on actual performance
for death and disability, as described above.
|
(d)
|
GM LTIP performance periods are
currently forecasted to payout as follows:
2004-2006:
0%;
2005-2007:
50%;
2006-2008:
100%; year-end; amounts calculated using December 31, 2006
GM stock price of $30.72. Terminations resulting from death will
be prorated for time worked, will vest immediately, and will be
paid out at forecast performance as soon as possible.
|
(e)
|
Mr. Muir has 27,728 unvested
stock options as of December 31, 2006; stock options vest
immediately upon death; stock options continue original exercise
schedule on disability. Unvested options are forfeited for all
other categories. The calculated stock option value was
determined by the spread between the option grant price and the
stock price on December 31, 2006, which was $30.72. Only
12,000 of the 27,728 options had
in-the-money
value.
|
(f)
|
Mr. Muirs employment
agreement provides for the continuance of heath-care coverage
for 18 months in the event of an involuntary termination or
a voluntary termination with good reason. Health-care continues
for disability period.
|
148
GMAC
LLC Form
10-K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Paradis,
ResCap Chief Executive Officer (a)
|
|
|
Voluntary
|
|
Normal
|
|
Involuntary or
|
|
|
Executive
benefits and
|
|
or
for cause
|
|
retirement
|
|
good
reason
|
|
Death
/
|
payments upon
termination
|
|
termination
|
|
(Age 65)
|
|
termination
|
|
disability
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base salary (b)
|
|
|
$
|
|
|
|
$
|
|
|
|
$487,500
|
|
|
|
$
|
|
Annual incentive plan (c)
|
|
|
|
|
|
|
|
|
|
|
800,000
|
|
|
|
|
|
Long-term incentives (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002-2004
ResCap LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,031,200
|
|
2003-2005
ResCap LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,797,500
|
|
2004-2006
ResCap LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005-2007
ResCap LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006-2008
ResCap LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care (e)
|
|
|
|
|
|
|
|
|
|
|
11,330
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
|
|
|
$
|
|
|
|
$1,298,830
|
|
|
|
$5,828,700
|
|
|
|
|
|
(a)
|
As of December 31, 2006,
Mr. Paradis is not eligible to retire under any qualified
or non-qualified GMAC or ResCap vested benefit from the ResCap
Salaried Retirement Program, reduced for age if received prior
to age 65. This benefit is available to any salaried
employee participants in the plan.
|
(b)
|
Severance provisions in plan, in
the event of an involuntary or good reason termination, provide
for 125% of base salary plus bonus treatment as described below.
|
(c)
|
Annual incentive plan award will be
paid out pursuant to plan provisions on a pro-rata basis based
on actual performance for certain types of terminations, as
described above. There is no earned payout for 2006. Severance
provisions in plan, in the event of an involuntary or good
reason termination, provide for the greater of 50% target GMAC
annual incentive as depicted on page 133 or actual
performance payout.
|
(d)
|
ResCap LTIP installments for closed
plans are paid out immediately in event of death and paid out
according to plan for retirement or disability. Retirement,
death or disability provide for a pro-rated payout based on time
worked.
|
(e)
|
Health-care coverage continues for
18 months in the event of a CIC termination. Health-care
continues for disability period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Solomon,
General Counsel (a)
|
|
|
Voluntary
|
|
Normal
|
|
Involuntary or
|
|
|
Executive
benefits and
|
|
or
for cause
|
|
retirement
|
|
good
reason
|
|
Death
/
|
payments upon
termination
|
|
termination
|
|
(Age 65)
|
|
termination
|
|
disability
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base salary (b)
|
|
|
$
|
|
|
|
$
|
|
|
|
$750,000
|
|
|
|
$
|
|
Annual incentive plan (c)
|
|
|
|
|
|
|
|
|
|
|
400,000
|
|
|
|
169,700
|
|
Long-term incentives (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004-2006
GM LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005-2007
GM LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,448
|
|
2006-2008
GM LTIP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,837
|
|
Stock options (e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,575
|
|
Restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care (f)
|
|
|
|
|
|
|
|
|
|
|
11,330
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
|
|
|
$
|
|
|
|
$1,161,330
|
|
|
|
$290,560
|
|
|
|
|
|
(a)
|
As of December 31, 2006,
Mr. Solomon is not eligible to retire under any qualified
or non-qualified GMAC or GM retirement plan. Upon termination of
employment, he could receive a deferred vested benefit from the
GM Salaried Retirement Program, reduced for age if received
prior to age 65. This benefit is available to any salaried
employee who participants in the plan.
|
(b)
|
Severance provisions in plan, in
the event of an involuntary or good reason termination, provide
for two times base salary plus bonus treatment as described
below.
|
(c)
|
Severance provisions in plan, in
the event of an involuntary or good reason termination, provide
for the greater of target GMAC annual incentive as depicted on
page 133 or actual performance payout less any paid
retention dollars (retention plan pays in four equal quarterly
payments beginning February 2007). Annual incentive plan award
will be paid out pursuant to plan provisions on a pro-rata basis
based on actual performance for death and disability as
described above.
|
(d)
|
GM LTIP performance periods are
currently forecasted to payout as follows:
2004-2006:
0%;
2005-2007:
50%;
2006-2008:
100%; amounts calculated using December 31, 2006 GM stock
price of $30.72. Terminations resulting from death will be
prorated for time worked, will vest immediately, and will be
paid out at forecasted performance as soon as practicable.
|
(e)
|
Mr. Solomon has 9,479 unvested
stock options as of December 31, 2006; stock options vest
immediately upon death; stock options continue original exercise
schedule on disability. Unvested options are forfeited for all
other categories. The calculated stock option value was
determined by the spread between the option grant price and the
stock price on December 31, 2006, which was $30.72. Only
4,030 of the 9,479 options had
in-the-money
value.
|
(f)
|
Health-care coverage continues for
18 months in the event of a CIC termination. Health-care
continues for disability period.
|
149
GMAC
LLC Form
10-K
Director
Compensation
Prior to the sale of a 51% interest in GMAC as of
November 30, 2006, we operated as a wholly owned subsidiary
of GM, and the GMAC Board of Directors was comprised solely of
GM and GMAC employees who did not receive incremental
compensation associated with their director roles.
Subsequent to the completion of the sale of a 51% interest in
GMAC, the composition of the membership of the Board changed as
outlined below. During 2006, none of the Board received any
compensation for services. Starting in 2007, each independent
board member will receive an annual retainer of $120,000. As
Audit Committee Chairman, Mr. Duggan will receive an
additional retainer of $40,000 annually, and Mr. Hirsch
will receive an additional retainer of $20,000 for his
participation as a member of the Audit Committee.
The Board includes four members from General Motors
(Messrs. Wagoner, Henderson, Borst and LaNeve) as well as
four members of FIM Holdings (Messrs. Neporent, Tessler,
Bruno and Plattus). Given GM and FIM Holdings ownership interest
in GMAC, retainers will not be paid to these individuals in the
capacity as board members.
Directors will be reimbursed for travel expenses incurred in
conjunction with their duties as directors. Furthermore, GMAC
will provide the broadest form of indemnification under Delaware
law under which liabilities may arise as a result of their role
on the GMAC board, as well as payments for reimbursements for
expenses incurred by a Director in defending against claims in
connection with their role, given the Director satisfies the
statutory standard of care.
Item 12.
Security Ownership of Certain
Beneficial Owners and Management and
Related Stockholder Matters
FIM Holdings owns all 51,000 Class A Interests (a 51%
ownership interest in us) and GM, through a wholly-owned
subsidiary of GM, owns all 49,000 Class B Interests (a 49%
ownership interest in us). We have further authorized 2,110,000
Preferred Interests. In connection with the Sale Transactions,
FIM Holdings purchased 555,000 Preferred Interests for a cash
purchase price of $500 million and GM and GM Preferred
Finance Co. Holdings, Inc., a wholly-owned subsidiary of GM,
purchased 1,555,000 Preferred Interests of us for a cash
purchase price of $1.4 billion. Please refer to
Item 5, Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities,
for further details regarding security ownership of the Company.
For details with respect to security ownership of management,
refer to Item 11, Executive Compensation for further
details.
Item 13.
Certain Relationships and Related Transactions
We have provided below a summary of the significant agreements
and transactions with related persons.
Completion of
Sale of 51% of GMAC
On November 30, 2006, GM sold a 51% interest in us for
approximately $7.4 billion to FIM Holdings. FIM Holdings is
an investment consortium led by Cerberus FIM Investors, LLC, the
sole managing member, Citigroup Inc., Aozora Bank Ltd., and a
subsidiary of The PNC Financial Services Group, Inc.
Prior to consummation of the Sale Transactions, (i) we
distributed to GM certain assets with respect to automotive
leases owned by us and our affiliates having a net book value of
$4.0 billion and related deferred tax liabilities of
$1.8 billion. The distribution consisted of
$12.6 billion of U.S. operating lease assets,
$1.5 billion of restricted cash and miscellaneous assets
and a $10.1 billion note payable, (ii) GM assumed or
retained certain of our post-employment welfare benefits,
(iii) we transferred to GM certain entities that hold a fee
interest in certain real properties, (iv) we made
distributions to GM for a portion of our net income from
September 30, 2005 to the date of consummation of the Sale
Transactions, (v) GM and its subsidiaries repaid certain
indebtedness owing to us such that the specified unsecured
obligations owing to us and our subsidiaries from GM and its
U.S. subsidiaries are no greater than $1.5 billion
(actual exposure of $749 million at December 31, 2006)
and (vi) we made a one-time distribution to GM of
approximately $2.7 billion of cash primarily to reflect the
increase in our equity value resulting from the elimination of a
portion of our net deferred tax liabilities arising from our
conversion and certain of our subsidiaries to limited liability
company form. The total value of the cash proceeds and
distributions to GM after repayment of certain inter-company
obligations but before it purchased preferred limited liability
company interests of us is expected to be approximately
$14.1 billion over three years, comprised of the
$7.4 billion purchase price, the $2.7 billion cash
dividend and other transaction-related cash flows including the
monetization of certain retained assets.
In 2006, as part of the Sale Transactions, GMAC was able to
further diversify our funding through the issuance of
$2.1 billion in preferred interests to FIM Holdings, GM and
GM Finance Co. Holdings, Inc. Additionally, as a result of the
Sale Transactions and improved credit ratings, our unsecured
credit spreads tightened.
In connection with the Sale Transactions, each of Eric A.
Feldstein, William F. Muir, Sanjiv Khattri, Barbara J. Stokel
and Mark F. Bole voluntarily resigned from our Board on the
closing date. Following these manager resignations, each of the
following was elected to our Board: Frank W. Bruno, T. K.
Duggan, Douglas A. Hirsch, Michael Klein, Ezra Merkin, Mark A.
Neporent, Seth P. Plattus, Robert W. Scully and Lenard B.
Tessler. Mr. Merkin is Chairman of the Board. In addition,
G. Richard Wagoner, Jr., Frederick A. Henderson, Mark R.
LaNeve and Walter G. Borst remain as members of our Board. The
audit committee of the Board is comprised of T. K. Duggan and
Douglas A. Hirsch. The compensation committee of the Board is
comprised of Mark A. Neporent, Lenard B. Tessler and Frederick
A. Henderson.
Distribution of
Operating Lease Assets
In connection with the sale by GM of a 51% interest in
GMAC, on November 22, 2006, GMAC transferred certain GMAC
U.S. lease
150
GMAC
LLC Form
10-K
assets, along with related secured debt to GM and other assets
as described in Notes 8, 11 and 12,respectively. GMAC
retained an investment in a note ($471 million at
December 31, 2006) secured by the lease assets
distributed to GM as described in Note 5. GMAC will
continue to service the assets and related secured debt on
behalf of GM and will receive a fee for this service. As it does
for other securitization transactions, GMAC is obligated as
servicer to repurchase any lease asset that is in breach of any
of the covenants of the securitization documents. In addition,
in a number of the transactions securitizing the lease assets
transferred to GM, the trusts issued one or more series of
floating rate debt obligations and entered primary derivative
transactions to remove the market risk associated with funding
the fixed payment lease assets with floating interest rate debt.
To facilitate these securitization transactions, GMAC entered
into secondary derivative transactions with the original
derivative counterparties, essentially offsetting the primary
derivatives. As part of the distribution, GM assumed the rights
and obligations of the primary derivative while GMAC retained
the secondary, leaving both companies exposed to market value
movements of their respective derivatives. GMAC and GM have
subsequently entered into derivative transactions with each
other that are intended to offset the exposure each party has to
its component of the primary and secondary derivatives.
Significant
Agreements
Termination of
GMAC Operating Agreement
Concurrently with the Sale Transactions, GM sent us a notice
terminating the Operating Agreement entered into on
October 22, 2001, effective four years from the date
of the notice. This Operating Agreement, which was previously
filed as Exhibit 10 to our Current Report on
Form 8-K
dated as of October 23, 2001 (File
No. 1-3754),
governs certain aspects of the relationship between GM and us.
As a result of the Sale Transaction, the critical terms of this
Operating Agreement have been incorporated into various services
agreements between GM and us, as well as the Amended and
Restated Limited Liability Company Operating Agreement of GMAC.
Therefore, the Operating Agreement is obsolete.
Amended and
Restated Limited Liability Company
Operating Agreement
On November 30, 2006, GMAC and the holders of its Common
Equity Interests (the Members) entered into an Amended and
Restated Limited Liability Company Operating Agreement (the LLC
Agreement). The LLC Agreement is our primary operating document
and contains the understandings and agreements of the Members
regarding our governance and operations.
Pursuant to the LLC Agreement, our Board consists of 13
members six appointed by FIM Holdings, four
appointed by GM, and three independent members, two of whom are
appointed by FIM Holdings and one by GM. Our Chief Executive
Officer and Chief Financial Officer will be appointed by a
majority of the Board members appointed by FIM Holdings
following discussion with the Board members appointed by GM. The
Board members appointed by GM will have the right to object to
the appointment of any individual if such members reasonably
believe that such individual is not properly qualified, in which
case the Board members appointed by FIM Holdings will propose
another individual. The President, Auto Finance of GMAC, will be
jointly appointed by FIM Holdings and GM. All our other officers
will be appointed by the Board.
The LLC Agreement requires us to make certain distributions to
the Members. Unless the Board suspends the payment of the
accrued yield of our Preferred Interests with respect to any one
or more fiscal quarters (either with the consent of GM and FIM
Holdings or because it will result in capital falling below the
required minimum amount), distributions of such accrued yield
for the immediately preceding quarter will be distributed to the
holders of our Preferred Interests on a pro rata basis. In
addition, unless otherwise agreed by GM and FIM Holdings or if
the accrued yield of our Preferred Interests for any fiscal
quarter is not fully paid to the holders of our Preferred
Interests as described in the second sentence of this paragraph,
up to and including December 31, 2008, at least 40%, and,
after December 31, 2008, at least 70%, of the excess of
(A) the net financial book income of us and our
subsidiaries generated in any fiscal quarter, over (B) the
amount of yield distributed to the holders of our Preferred
Interests in such fiscal quarter as described in the second
sentence of this paragraph, will be distributed to the holders
of our Common Equity Interests in accordance with the
distribution priorities set forth in clauses
(iii) and (iv) of the immediately succeeding paragraph.
After December 31, 2008, until December 31, 2011, we
will, subject to certain limitations, issue additional Preferred
Interests to FIM Holdings in lieu of certain cash distributions
to be made pursuant to the immediately preceding sentence with
respect to approximately 47,814 of the Class A Common
Equity Interests beneficially owned by FIM Holdings. However,
any distribution that would reduce our equity capital below a
certain required capital amount (approximately net book value at
November 30, 2006) requires the approval of a majority
of the independent Board members.
Upon the consummation of a sale of us or the dissolution of us,
all available cash resulting from such sale of us or from any
source during the period of winding up of us will be distributed
to (i) first, to the holders of our Preferred Interests in
an amount equal to the quarterly yield amounts for the
immediately preceding quarter that were not paid to the holders
of our Preferred Interests pro rata in accordance with the
number of our Preferred Interests held by each holder,
(ii) second, to the holders of our Preferred Interests in
an amount equal to initial capital amount of our Preferred
Interests pro rata in accordance with the number of our
Preferred Interests held by each holder, (iii) third, to
the holders of our Class A and Class B Common Equity
Interests in an amount up to $14.4 billion (subject to
adjustment) plus a 10% per annum compound rate of return
thereon, pro rata in accordance with the number of our Common
Equity Interests held by each such holder and
(iv) thereafter, to the holders of the Class A and
Class B Common Equity Interests and the Class C Common
Equity Interests, pro rata in accordance with the number of such
equity interests held by each such holder.
The LLC Agreement also provides that certain of our corporate
actions require the consent of GM and FIM Holdings, including,
without limitation, (i) a sale of us, (ii) any
transfer of our equity
151
GMAC
LLC Form
10-K
interests by FIM Holdings prior to November 30, 2011,
(iii) any primary issuance of equity interests that would
dilute GMs ownership below certain levels,
(iv) significant mergers, consolidations, divestitures and
acquisitions and (v) any material new line of business. The
foregoing description of the LLC Agreement is qualified by
reference to the LLC Agreement, a copy of which was filed as
Exhibit 4.1 to our
Form 8-K
dated November 30, 2006, and which is incorporated by
reference herein.
United States
Consumer Financing Services Agreement
On November 30, 2006, in connection with the Sale
Transactions, GM entered into a United States Consumer Financing
Services Agreement (the U.S. Financing Agreement) with us.
We provide, among other services, auto finance services directly
or indirectly to GM-franchised dealers and their customers. The
U.S. Financing Agreement establishes a framework for
negotiating, documenting, administering and enforcing future
transactions and other dealings between GM and GMAC related to
consumer financing for the purchase and lease of GM products in
the United States. Under the U.S. Financing Agreement,
which is designed to preserve the customer loyalty and dealer
support benefits that historically accrued to GM as an
automobile manufacturer with an exclusive financing subsidiary,
GMAC will continue to finance a broad spectrum of consumer
credits, consistent with current and historical practice, and
will receive a negotiated return. GMAC will also continue to
provide full and fair consideration to consumer credit
applications received from GM-franchised dealers and purchase
such contracts in accordance with GMACs usual and
customary standards for creditworthiness, consistent with
current and historical practice. The decision of whether to
approve a particular application
and/or
purchase a particular contract will be made by GMAC in its sole
discretion.
In addition, the U.S. Financing Agreement provides that,
subject to certain conditions and limitations, whenever GM
offers vehicle financing and leasing incentives to customers
(e.g., lower interest rates than market rates), it will do so
exclusively through GMAC, with the exception of Saturn-branded
products. GM will set the terms and conditions and eligibility
of all such incentive programs. So long as such exclusivity
remains in effect in the United States, GMAC will make to GM,
annually in arrears, a payment of $75 million. As of
December 31, 2006, we had accrued $6.3 million related
to these exclusivity payments.
In consideration of GMACs exclusive relationship with GM
for vehicle financing and leasing incentives for consumers, GMAC
has agreed to certain targets, and under certain conditions,
GMACs failure to meet such targets will result in the
imposition of certain fees and other monetary consequences under
the U.S. Financing Agreement. In addition, GM has the right
to revoke GMACs exclusivity in whole or in part if GMAC
fails to meet these targets. In the event such exclusivity is
eliminated or reduced in accordance with the terms of the
U.S. Financing Agreement, the $75 million annual
payment will be reduced.
The U.S. Financing Agreement also provides for certain
residual support payments from GM to GMAC with respect to leased
vehicles and vehicles sold pursuant to balloon retail
installment sale contracts for purposes of increasing a
vehicles contract residual value above certain thresholds.
Under the terms of the U.S. Financing Agreement, GM and
GMAC have created a coordinating committee, composed of members
designated by each of GM and GMAC, to consider joint policies
and programs and coordinate joint activities between the parties
in the United States related to consumer financing.
The initial term of the U.S. Financing Agreement expires on
November 30, 2016, and thereafter will be automatically
renewed for successive periods of one year unless the
U.S. Financing Agreement is terminated by GM or GMAC at the
end of a term, such termination requiring three years
notice, or otherwise in accordance with its terms.
The foregoing description of the material terms of the
U.S. Financing Agreement is qualified by reference to the
U.S. Financing Agreement, a copy of which was filed as
Exhibit 10.1 to our
Form 8-K
dated November 30, 2006, and which is incorporated by
reference herein.
Miscellaneous
Services Agreements
We have entered into various services agreements with GM that
are designed to document and maintain the current and historical
relationship between us. We are required to pay GM fees in
connection with certain of these agreements related to our
financing of GM consumers and dealers in certain parts of the
world. As of December 31, 2006, we had accrued
$1.25 million related to these fees.
Trademark License
Agreement
On November 30, 2006, in connection with the Sale
Transactions, GM entered into an Intellectual Property License
Agreement (the License Agreement) with us. The License Agreement
sets forth the terms of certain licenses granted to GMAC by GM
and to GM by GMAC with respect to their respective trademarks
and other intellectual property. The initial term of the License
Agreement expires on November 30, 2016, and thereafter will
be automatically renewed for successive periods of one year
unless the License Agreement is terminated by GM or GMAC at the
end of a term, such termination requiring three years
notice, or otherwise in accordance with its terms.
Under the License Agreement:
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i.
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a non-exclusive, non-transferable, royalty-free and worldwide
license to use and display certain nameplate
trademarks (e.g., GENERAL MOTORS, GM, BUICK, CADILLAC,
CHEVROLET) for the sole purpose of performing, marketing,
advertising or promoting the services contemplated by the
services agreements entered into in connection with the
Transactions and certain financial services provided in Mexico
to purchasers of GM products,
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ii.
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an exclusive, non-transferable and royalty-bearing license to
use and display certain of GMs trademarks solely in the
United States and solely in connection with the operation,
marketing, advertising or promoting of GMACs GM Protection
Plan and GM Motor Club businesses. As of December 31, 2006,
we have accrued a payable to GM in the amount of
$1.4 million.
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iii.
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an exclusive, non-transferable, royalty-free and worldwide
license to use and display the GMAC name and logo in connection
with the operation, marketing, advertising or promoting of its
current automotive and non-automotive finance, lease, insurance,
banking, mortgage and lending businesses, and
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iv.
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a non-exclusive, non-transferable, royalty-free and worldwide
license to use the GENERAL MOTORS and GM
names as part of its trade names or business names. This license
terminates fifteen months from the effective date of the License
Agreement, except with respect to GMACs use of
GENERAL MOTORS as part of GENERAL MOTORS
ACCEPTANCE CORPORATION in the United States and Canada.
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B.
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GMAC may request a license to use the GMAC name and logo in
connection with any new financial services business or in
connection with providing services to third party motor vehicle
manufacturers. GM will then determine, in its sole discretion,
whether to grant such additional licenses and whether any such
grant will be royalty-bearing.
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C.
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GMAC grants to GM a non-exclusive, non-transferable,
royalty-free and worldwide license to use and display
GMACs trademarks in connection with GMs promotional
activities to reference the services being performed by GMAC
under the United States Consumer Financing Services Agreement
and certain other agreements entered into in connection with the
Transactions.
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D.
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GM and GMAC grant to each other non-exclusive, non-transferable,
royalty-free and worldwide licenses under certain of their
respective patents, copyrights and other intellectual property,
excluding trademark rights, currently used by GM and GMAC in the
conduct of their respective businesses or in connection with the
services being performed by GMAC or GM, respectively, under the
United States Consumer Financing Services Agreement and certain
other agreements entered into in connection with the
Transactions and promotional activities associated with such
services.
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E.
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GMAC may sublicense the GMAC trademark, name and
logo to its subsidiaries and certain categories of third
parties, subject to the terms and conditions of the License
Agreement.
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The foregoing description of the material terms of the License
Agreement is qualified by reference to the License Agreement, a
copy of which was filed as Exhibit 10.2 to our
Form 8-K
filed November 30, 2006, and which is incorporated herein
by reference herein.
Other
Relationships and Transactions
GM
Option
GM retains an option, for 10 years, to repurchase certain
assets from us related to the Automotive Finance operations of
our North American Operations and our International Operations.
GMs exercise of the option is conditional on GMs
credit rating being investment grade, or higher than our credit
rating. The call option price will be calculated as the higher
of (i) fair market value or (ii) 9.5 times the
consolidated net income of our Automotive Finance operations in
either the calendar year the call option is exercised or the
calendar year immediately following the year the call option is
exercised.
Products and
Services Provided to GM
We provide various products and services to GM on terms
comparable to those we provide to third parties. Except as
described below, we expect to continue to provide these services
to GM on an ongoing basis. These products and services include
the following:
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We provide wholesale and term loan financing to dealerships that
are either wholly owned by GM or in which GM has a controlling
interest. The majority of these dealerships are located in the
United States. As of December 31, 2006, finance receivables
and loans to U.S. dealerships owned or majority owned by GM
totaled approximately $1.1 billion.
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We provide wholesale financing for certain GM products. The
terms of these wholesale settlements for certain products are at
shipment date, and we collect interest from GM to the extent
settlements are made prior to the expiration of transit. We
received interest on wholesale settlements of
$183.2 million for the year ended December 31, 2006.
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We provide operating leases to GM affiliated entities including
vehicles, buildings, and other equipment with a net book value
of $290.1 as of December 31, 2006. Lease revenues of
$11.0 million were received during the year ended
December 31, 2006.
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We received interest on notes receivable from GM of
$282.4 million during the year ended December 31, 2006.
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During 2000, we entered into a sixteen-year lease arrangement
with GM, under which we agreed to fund and capitalize
improvements to three Michigan GM leased properties totaling
$1.3 billion over four years. On October 31, 2006, in
connection with the sale, we made a dividend to GM of these
Michigan GM leased properties. Lease revenues of
$78.6 million were received during the year ended
December 31, 2006.
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We have other lease arrangements whereby we lease facilities to
GM whereby we have advanced $28.2 million. We receive
leasing revenues under these arrangements for which we
recognized lease property revenues of $2.9 million for the
year ended December 31, 2006.
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Under the terms of the Purchase and Sale Agreement between GM
and FIM Holdings, the tax sharing agreement between GM
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and ourselves was terminated as of November 30, 2006. Terms
of the sale agreement stipulate that GM will indemnify us for
any tax liabilities related to periods prior to
November 30, 2006, that would be in excess of those
established as of the sale date. Additionally, net tax related
assets consisting of tax deposits, claims and contingencies for
the converting entities have been transferred to GM through
equity totaling $107 million.
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For the eleven months ending November 30, 2006 and years
ending 2004 and 2005, GM had consolidated federal net operating
losses. After GM utilized all prior year federal carryback
potential, the remaining net operating losses were carried
forward. The consolidated federal net operating losses also
created charitable contribution deduction and foreign tax credit
carryforwards. Pursuant to the tax sharing agreement between GM
and us, our consolidated allocation of tax attributes from GM
for this time periods federal net operating losses (due to
certain loss subsidiaries), charitable contributions deduction
and foreign tax credits are carried forward for our subsidiaries
that remain separate U.S. tax paying entities. For the
Company and certain subsidiaries which have converted to limited
liability companies and have elected to be treated as
pass-through entities, tax attributes totaling $1.1 billion
were sent as a dividend to GM. For comparative purposes, at
December 31, 2005, we had an intercompany tax receivable
from GM of $690 million. The receivable was comprised of
federal net operating loss carryforward of $611 million,
charitable contributions carryforward of $12 million and
foreign tax credit carryforward of $67 million.
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In certain states we provide insurance to GM for mechanical
service contracts and for which we have received insurance
premiums of $334.1 million for the year ended
December 31, 2006.
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In connection with the resale of rental car repurchases for GM,
we receive servicing fees. We received service fee income of
$17.5 million for the year ended December 31, 2006.
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GM uses our global relocation services for certain relocations
of their employees. GM paid approximately $8.6 million for
such services during the year ended December 31, 2006. In
addition, GM paid mortgage-related fees for their employees of
$11.0 million during the year ended December 31, 2006.
As of December 31, 2006, we recorded a receivable for these
services from GM in the amount of $10.8 million.
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We participate in a marketing program designed to generate
incremental GM and Saturn vehicle sales. We will accept
incremental risk on these targeted transactions to assist GM and
Saturn dealers in delivering these vehicles. In exchange for
accepting this risk, GM will compensate us at a flat rate for
each contract. As of December 31, 2006 we have recorded a
receivable in the amount of $1.8 million.
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GM may elect to sponsor financing incentive programs for
wholesale dealer financing, primarily in our International
Operations. This is known as wholesale subvention. We received
wholesale subvention and services fees of $206.5 million
for the year ended December 31, 2006.
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Support Services
Provided by GM
GM historically has provided a variety of support services for
our business, and we reimburse GM for the costs of providing
these services to us. In addition, GM supports us by reimbursing
us for certain programs it has with its customers or for
expenses we may experience due to their business operations. The
services GM provides us, including reimbursement arrangements,
include:
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GM may elect to sponsor incentive programs (on both retail
contracts and leases) by supporting financing rates below
standard rates at which we purchase retail contracts. In
addition under residual support programs, GM may upwardly adjust
residual values above the standard lease rates. Out of our total
new retail and lease contracts in North America and
International, 90% and 49%, respectively had rate or residual
incentives for the year ended December 31, 2006.
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GM provides lease residual value support as a marketing
incentive to encourage consumers to lease vehicles. GM
reimburses us for its portion of the increased residual values
to the extent remarketing sale proceeds are less than the
contract residual at termination. GM reimbursed us
$749.3 million in residual support for the year ended
December 31, 2006.
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We paid interest on loans from GM of $49.7 million during
the year ended December 31, 2006.
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GM sponsors lease pull-ahead programs whereby consumers are
encouraged to terminate lease contracts early in conjunction
with the acquisition of a new GM vehicle. Under these programs,
GM waives the customers remaining payment obligation and
compensates us for the waived payments, adjusted based on the
remarketing results associated with the underlying vehicle. We
reported net financing revenue from this compensation program of
$74.4 million for the year ended December 31, 2006.
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GM reimburses us for certain selling expenses we may incur on
certain vehicles sold by us at auction. We received
reimbursements of $29.3 million for the year ended
December 31, 2006.
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GM occasionally provides payment guarantees on certain
commercial and dealer loans and receivables GMAC has
outstanding. The amount of commercial and dealer loans and
receivables covered by a GM guarantee was $94.1 million as
of December 31, 2006.
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Certain arrangements exist whereby GM accounts for the sale of a
vehicle at the time the vehicle is sold to us and delivered to a
dealer on a consignment arrangement from us. GM provides us with
a guaranteed right of return for this inventory. As of
December 31, 2006, we have $150.6 million of vehicles
with this right of return. Similar arrangements exist whereby GM
has provided us with an option to take back the vehicles.
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We provided Delayed Payment Plan financing to dealers for their
acquisition of vehicles from GM. The dealers sold these vehicles
to Alamo
Rent-a-Car,
National Car Rental Systems, Inc., and Vanguard Car Rental USA,
Inc. The dealers assigned to GMAC their rights to payment for
the vehicles purchased by these entities. Therefore, GMAC can
legally compel these entities to pay GMAC for the vehicles
financed by the dealers. GM has
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guarantied these payment obligations of these entities, to the
extent incurred through December 31, 2006. As of
December 31, 2006, these obligations amount to
$121 million.
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General Motors Investment Management Corporation (GMIMCo), an
indirect wholly-owned subsidiary of GM, provides asset
management services to GMAC with respect to the investment of
assets related to premiums and other revenues from our Insurance
operations. The fees paid to GMIMCo for these services are based
on GMIMCos costs associated with managing those assets,
which varies from year to year. With respect to GMIMCos
management of these insurance assets, we incurred expenses of
$2.5 million for the year ended December 31, 2006.
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Certain of our employees were eligible to participate in various
domestic and foreign pension plans of GM. As we were a
participating employer in these plans, GM allocated to us a
portion of their pension expense which is made on a pro-rata
basis and, as such, is impacted by the various assumptions
(discount rate, return on plan assets, etc.) that GM utilized in
determining its pension obligation. On March 7, 2006, GM
announced that, effective immediately, it would freeze accrued
pension benefits for U.S. salaried employees. Effective
November 30, 2006, upon completion of the sale, our
employees were no longer eligible to participate in these
pension plans. Further, pursuant to the purchase and sale
agreement we transferred, froze or terminated a significant
portion of our non-GM sponsored defined benefit plans during
2006.
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We and certain of our subsidiaries participated in various
postretirement medical, dental, vision and life insurance plans
of GM. Effective November 30, 2006, upon completion of the
sale, our employees were no longer eligible to participate in
GMs postretirement plans. Prior to the sale, GM agreed to
assume or retain approximately $801 million of other
liabilities related to U.S. and Canadian based GM sponsored
other postretirement benefit programs, as well as approximately
$302 million of related deferred tax assets, which was
recorded as a capital contribution.
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GM provides us certain other services and facilities services
for which we reimburse them. We made reimbursement payments to
GM of $64.5 million for the period ended December 31,
2006.
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GM provides us certain marketing services for which we reimburse
them. We made reimbursement payments to GM of $38.5 million
for the period ended December 31, 2006.
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GM has provided us certain legal, real estate, and tax services
for which we paid GM $2.6 million during the year ended
December 31, 2006.
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We have accounts payable to GM which include wholesale
settlements payments to GM, subvention receivables due from GM
and notes payable. The net balance outstanding for accounts
payable was ($88.1) million for the year ended
December 31, 2006.
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Credit
Arrangements and Other Amounts Due from or Owed to GM
We have historically entered into various financing arrangements
with GM. Currently such arrangements include:
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GM had a $4 billion revolving line of credit from us that
expired September 15, 2006. Subsequently, this revolving
line of credit was not renewed. This credit line had previously
been used for general operating and seasonal working capital
purposes and to reduce external liquidity requirements.
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Prior to November 2006 GMAC Bank (Germany) was legally owned by
AOAG (a subsidiary of GM). Under the Dividend and Operating
Agreement signed in December 2000, GM was to make payments to us
equal to the dividends paid by GMAC Bank (Germany) to AOAG. We
received $197 million from GM related to an accumulated
amount paid by GMAC Bank Germany to AOAG since 2001.
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In addition, we have other financing arrangements with GM with
outstanding receivables totaling $2.0 billion for the year
ended December 31, 2006. These receivables include certain
of our borrowing arrangements with GM Opel, vehicles consigned
at dealerships, our funding of GM company-owned vehicles, rental
car vehicles awaiting sale at auction, as well as amounts
related to GMs trade supplier finance program, and amounts
related to other arrangements.
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We provide wholesale financing to GM for vehicles in which GM
retains title while the vehicles are consigned to GMAC or
dealers in the United Kingdom and Italy. The financing to GM
remains outstanding until title is transferred to the dealers.
The amount of financing provided to GM by GMAC under this
arrangement varies based on inventory levels. As of
December 31, 2006, the amount of this financing outstanding
was $1.8 billion.
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In April 2006, we provided $1.4 billion in funding to GM so
that GM could make a payment on the residual value of vehicles.
Interest was charged at a rate of 8.55% and was accrued from the
time of funding until the balance was paid in November 2006.
There is no outstanding balance as of December 31, 2006.
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GMAC International Finance provided funding to Opel Eisenach
GmbH (a subsidiary of GM), under a Facility Agreement dated
June, 2003. Similarly, Opel Eisenach GmbH had a series of
Facility Agreements with our subsidiaries in Germany. Under the
terms of these agreements, Opel Eisenach GmbH could lend to our
German subsidiaries. The agreement was terminated in October
2006.
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We were party to a Special Vehicle Financing Loan and Security
Agreement dated March 31, 1998, pursuant to which GM
obtains financing from us for motor vehicles held in inventory
by GM for development, testing, exhibition, evaluation,
promotion, use, sale, and the like. Pursuant to the agreement,
GM may finance up to $1.8 billion under this agreement. The
agreement was terminated in October 2006. We continue to be
parties to similar agreements in Europe with terms substantially
similar to the Special Vehicle Financing Loan and Security
Agreement.
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We were party to a letter agreement (the Rental Fleet
Agreement), dated March 15, 1991, pursuant to which we
agreed to buy from GM on agreed terms reflecting fair value all
vehicles sold by GM to rental car companies that GM had become
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obligated to repurchase. Under the Rental Fleet Agreement,
GMs auction department then would sell the vehicle for us
and remit the proceeds to us. GM was required to pay us a fee in
connection with the arrangement, which was calculated based on
the length of time we held the vehicle and the actual auction
proceeds of the vehicle. The Rental Fleet Agreement provided for
a true-up
mechanism, whereby GM was required to reimburse us to the extent
the revenues we earned from the resale of the vehicles were less
than the amount we paid GM to purchase such vehicles. As a
result of the
true-up
mechanism, under GAAP, we treated the transaction as a loan
rather than a purchase. This agreement was terminated in October
2006. We continue to be parties to similar agreements in various
countries in Europe. As of December 31, 2006 we have a
receivable in the amount of $128.3 million for providing
this service.
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In 2005 we began providing financing to GM under a trade
payables program (the Supplier Early Payment Program) which GM
had previously maintained through General Electric Capital
Corporation (GECC) after GECC notified GM that it would exit the
program at the end of 2005. We had been operating under a term
sheet, dated February 11, 2005, but a formal agreement was
executed in January 2006. The terms of the Supplier Early
Payment Program were substantially similar to the terms of
GMs trade payables program with GECC. Under the Supplier
Early Payment Program, we pay participating GM suppliers the
amount due to them from GM in advance of their original due
dates up to an aggregate total of $650 million. In exchange
for the early payment, the suppliers accept a discounted
payment. On the original due date of the payables, GM pays us
the full amount due under the contract. We share with GM the net
revenue generated by the Supplier Early Payment Program (equal
to the revenue earned by the discount minus a specified interest
rate which was determined by GM and us based on GMs and
our borrowing costs), with GM retaining 65% and us retaining 35%
of all net revenues. During 2006, this agreement was modified so
that GM pays us the full amount due under the contract on a
daily basis at approximately the same time we make advances to
the suppliers. A security deposit has been provided to us by GM
in the amount of $11 million in order to cover one
days activity in the event that GM does not settle with us
that day.
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A current account agreement in Brazil allowed GM Brazil and GM
Factoring (our subsidiary) to borrow or lend money from and to
each other, depending on their cash positions. GM Factoring was
transferred back to GM in September 2006.
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We provide loans to minority-owned dealerships, whereby GM
reimburses us for the full amount and we record a payable until
the dealer has paid the loan balance. We have recorded a payable
to GM in the amount of $1.2 million as of
December 31, 2006.
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We pay 70% of the total wholesale volume to GM in Finland. The
remaining 30% is financed through loans from GM. These loans
have a balance of $29.5 million as of December 31,
2006.
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In 2003 GMAC Germany provided funding facilities for vehicles to
be held at GM owned central warehouses. Title to such vehicles
passes from GM to us in these transactions. Furthermore, we buy
these vehicles from GMODC and receive 100% ownership. The
transaction is similar to consignment stock and contains the
obligation of GM to buy the car after 45 days. The amount
payable to GM as of December 31, 2006 is $29.1 million.
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Dividends
During 2006, we made dividends to GM in the amount of
$9.7 billion. During the fourth quarter of 2006 in
connection with the Sale Transactions, GMAC made
$7.8 billion of dividends to GM which was comprised of the
following (i) a cash dividend of $2.7 billion
representing a one-time distribution to GM primarily to reflect
the increase in GMACs equity resulting from the
elimination of a portion of our net deferred tax liabilities
arising from the conversion of GMAC and certain of our
subsidiaries to a limited liability company, (ii) certain
assets with respect to automotive leases owned by GMAC and its
affiliates having a net book value of approximately
$4.0 billion and related deferred tax liabilities of
$1.8 billion, (iii) certain Michigan properties with a
carrying value of approximately $1.2 billion to GM,
(iv) intercompany receivables from GM related to tax
attributes of $1.1 billion, (v) net contingent tax
assets of $491 million and (vi) other miscellaneous
transactions.
Capital
Contributions Received from GM
During 2006, GM made $951 million in capital contributions.
Amount represents approximately $801 of liabilities related to
U.S. and Canadian based GM sponsored other postretirement
programs and related deferred tax assets of $302 contingent tax
liabilities of $384 assumed by GM and deferred tax assets
transferred from GM of $68.
Preferred
Interests
We have issued non-voting preferred interests, which are not
convertible into any additional equity interest in us. The
interests, which were sold at a discount, provide a quarterly
cash dividend and have a 3% redemption premium if redeemed
within the first five years. The interests have been recorded
outside permanent equity at their redemption value.
Related Party
Transaction Procedures
LLC
Agreement
The LLC Agreement (see Exhibit 3.3) provides for procedures
and approval requirements for transactions with certain related
persons. As previously discussed, our Board consists of 13
members six appointed by FIM Holdings (Class A
Managers) , four appointed by GM (Class B Managers), and
three independent members (Independent Managers), two of whom
are appointed by FIM Holdings LLC and one by GM. Any Related
Party Transaction (as defined below) requires the prior written
consent of (i) at least a majority of the Class A
Managers, (ii) at least a majority of the Class B
Managers, and (iii) at least a majority of the Independent
Managers, unless at least a majority of the Independent Managers
determines that such transaction is entered into in the ordinary
course of business and is on terms no less favorable to GMAC or
its subsidiaries, as applicable, than those that would have been
obtained in a comparable transaction with a person that is not
an affiliate. These procedures are in addition to any additional
internal approvals that may also be required for a particular
transaction.
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Transactions subject to these requirements (Related Party
Transactions) include the entering into, amendment or other
modification of any transaction with any affiliate,
member or any of their affiliates or any
senior executive officer (other than, in the case of
any senior executive officer, any agreement or arrangement
entered into in connection with such persons employment
with us or any of our subsidiaries, including compensation
arrangements), if the value of the consideration provided by
GMAC and/or
any of its subsidiaries to any such affiliate, member or any of
their affiliates or any senior executive officer involves in
excess of $5 million or, if there is no monetary
consideration paid or quantifiable value exchanged, if the
agreement is otherwise material to GMAC
and/or any
of its subsidiaries.
For purposes of the above-described procedures, the following
definitions apply:
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Affiliate means with respect to any person, any
other person that, directly or indirectly, whether through one
or more intermediaries, controls, is controlled by or is under
common control with such person, excluding any employee benefit
plan or related trust;
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Member means GM Finance Co. Holdings LLC, FIM
Holdings, GM Preferred Finance Co. Holdings Inc., GMAC
Management LLC and each other person who is subsequently
admitted as a member of GMAC in accordance with the terms of the
LLC Agreement; and
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Senior Executive Officer means collectively, the
Chief Executive Officer, the Chief Financial Officer, and any
executive of GMAC that holds the title of president.
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The foregoing procedures became effective at November 30,
2006, the closing date of the Sale Transactions.
ResCap Operating
Agreement
As previously discussed, on June 24, 2005, we entered into
an operating agreement with GM and ResCap to contractually
reinforce the independence and separation between GM and
ourselves, on the one hand, and ResCap, on the other. The
operating agreement provides certain operational restrictions
(e.g., requirements for separation of books, records, assets,
bank accounts, etc.) and restrictions on ResCaps ability
to declare dividends or prepay subordinated indebtedness to us.
Refer to Item 1A, Risk Factors Risks Related to
Our Business Our residential mortgage
subsidiarys ability to pay dividends and to prepay
subordinated debt obligations to us is restricted by contractual
arrangements, for further details on these restrictions. In
connection with the Sale Transactions, GM was released as a
party to this operating agreement, but it remains in effect
between ResCap and us.
October 2001
Operating Agreement
On October 22, 2001, we entered into an agreement with GM
(the 2001 Agreement) that establishes general standards for
certain business dealings between us and GM. The 2001 Agreement
requires credit transactions between the companies to be on
arms-length terms. The agreement further precludes GMAC or any
of its subsidiaries from guaranteeing any indebtedness of, or
purchasing any equity securities issued by, or making any other
investment in, GM, and requires GMACs total equity to be
maintained at a commercially reasonable level
appropriate to support the amount, quality, and mix of its
assets. As a result of the Sale Transactions, the critical terms
of the 2001 Agreement have been incorporated into various
services agreements between GM and GMAC, as well as the LLC
Agreement. As a result, the 2001 Agreement is obsolete, and GM
sent us a notice terminating the 2001 Agreement concurrently
with the Sale Transactions. The termination is effective
November 30, 2010, four years from the date of the
termination notice. Refer to the Significant Agreements section
within this Item 13 for additional details with respect to
service agreements between GM and GMAC.
Director
Independence
As a company with only debt securities listed on the New York
Stock Exchange (NYSE), we are not required to have a majority of
our Board consist of independent directors. However, the LLC
Agreement requires our Board to include three Independent
Managers, two of whom are appointed by FIM Holdings and one by
GM. Section 1.1 of the LLC Agreement defines
Independent Manager for purposes of this
requirement. The two FIM Holdings Independent Manager appointees
are Messrs. Duggan and Hirsch, and the GM Independent
Manager appointee is Mr. Scully. The Board has
independently and affirmatively determined that all of them
qualify as Independent Managers under the LLC Agreement.
Members of the GMAC audit committee are Messrs. Duggan and
Hirsch. NYSE rules require members of our audit committee to
meet the SECs definition of independence as
provided by
Rule 10A-3
of the Exchange Act. The GMAC Board has determined that both
members of our audit committee meet this independence
requirement. The Board has independently and affirmatively
determined that both members are qualified as audit
committee financial experts, as defined by the SEC, and
both are financially literate. For further
information regarding Board and committee matters, including
independence requirements, please refer to our LLC Agreement
(Exhibit 3.3 to this
Form 10-K).
The LLC Agreement can also be found at www.gmacfs.com, under
United States, Investor Relations, SEC Filings and Annual
Review, then select SEC
Form 10-K
for 2006.
Other
Matters
Mr. Scully is the Co-President of Morgan Stanley. In the
ordinary course of their businesses, Morgan Stanley and its
affiliates in the past have engaged, and currently are engaged,
in investment banking transactions with and providing other
services to GMAC and its affiliates, including, without
limitation, financing, securitization, underwriting and advisory
services, which transactions and services have been and are on
arms-length terms. Mr. Scully has no material
interest in these transactions and services.
Mr. Klein is the Chief Executive Officer of Global Banking
at Citigroup Inc. In the ordinary course of their businesses,
Citigroup Inc. and its affiliates in the past have engaged, and
currently are engaged, in commercial banking and investment
banking transactions with and providing other services to GMAC
and its affiliates, including, without limitation, financing,
securitization, underwriting and advisory services, which
transactions and services
157
GMAC
LLC Form
10-K
have been and are on arms-length terms. Mr. Klein has not
had, and does not currently have, a material interest in these
transactions and services.
Item 14.
Principal Accountant Fees and Services
We retained Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates
(collectively, Deloitte & Touche) to audit our
Consolidated Financial Statements for the year ended
December 31, 2006. We also retained Deloitte &
Touche, as well as other accounting and consulting firms, to
provide various other services in 2006.
The aggregate fees billed to us for professional services
performed by Deloitte & Touche were as follows:
|
|
|
|
|
|
|
|
|
December 31,
($ in millions)
|
|
2006
|
|
2005
|
|
|
Audit fees (a)
|
|
$
|
30
|
|
|
$
|
29
|
|
Audit-related fees (b)
|
|
|
2
|
|
|
|
1
|
|
Tax fees (c)
|
|
|
4
|
|
|
|
4
|
|
|
|
Total principal accountant fees
|
|
$
|
36
|
|
|
$
|
34
|
|
|
|
|
|
(a)
|
Audit
fees pertain to the
audit of our annual Consolidated Financial Statements, including
reviews of the interim financial statements contained in our
Quarterly Reports on
Form 10-Q
and completion of statutory reports. Also included in this
category are $10 in 2006 and $9 in 2005 of fees for services
such as comfort letters to underwriters in connection with debt
issuances, attest services, consents to the incorporation of the
Deloitte & Touche audit report in publicly filed
documents and assistance with and review of documents filed with
the SEC.
|
(b)
|
Audit-related
fees pertain to
assurance and related services that are traditionally performed
by the principal accountant, including employee benefit plan
audits, due diligence related to mergers and acquisitions,
accounting consultations and audits in connection with proposed
or consummated acquisitions, internal control reviews, attest
services that are not required by statute or regulation and
consultation concerning financial accounting and reporting
standards.
|
(c)
|
Tax
fees pertain to services
performed for tax compliance, tax planning and tax advice,
including preparation of tax returns and claims for refund and
tax payment-planning services. Tax planning and advice also
includes assistance with tax audits and appeals and tax advice
related to specific transactions.
|
The services performed by Deloitte & Touche in 2006
were pre-approved in accordance with the pre-approval policy of
the GM Audit Committee. This policy required that during its
first meeting of the fiscal year, the Audit Committee of our
then parent, General Motors, was presented, for approval, a
description of the Audit-related, Tax and Other services
expected to be performed by the principal accountant during the
fiscal year. Any requests for such services in excess of
$1 million not contemplated during the first meeting were
subsequently submitted to the GM Audit Committee for specific
pre-approval. Requests for services less than $1 million
were pre-approved by the Chairman of the GM Audit Committee and
reported to the full Committee at its next regularly scheduled
meeting.
Effective November 30, 2006, the Initial Class A and B
Members of GMAC LLC provided written consent that all prior
actions of the Companys Board of Directors, Executive
Committee of the Board, and Credit Committee are in all respects
ratified, confirmed and approved as duly authorized acts of the
Company. Accordingly, proposed fees for Audit services will be
presented to the GMAC Audit Committee for approval each year in
a manner similar to 2006.
The GM and GMAC Audit Committees determined that all
services provided by Deloitte & Touche during 2006 were
compatible with maintaining their independence as principal
accountants.
158
Part IV
GMAC
LLC Form 10-K
Item 15.
Exhibits, Financial Statement Schedules
The exhibits listed on the accompanying Index of Exhibits are
filed or incorporated by reference as a part of this report.
Such Index is incorporated herein by reference. Certain
financial statement schedules have been omitted because
prescribed information has been incorporated into our
Consolidated Financial Statements or notes thereto.
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Exhibit
|
|
Description
|
|
Method
of filing
|
|
2.1
|
|
Purchase and Sale Agreement by and
among General Motors Corporation, General Motors Acceptance
Corporation, GM Finance Co. Holdings Inc. and FIM Holdings dated
as of April 2, 2006
|
|
Filed as Exhibit 2.1 to the
Companys Current Report on
Form 8-K
dated as of April 2, 2006 (File No. 1-3754), incorporated
herein by reference.
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|
|
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|
3.1
|
|
Certificate of Formation of GMAC
LLC dated July 20, 2006
|
|
Filed as Exhibit 3.1 to the
Companys Quarterly Report on for the Period Ended
June 30, 2006, on
Form 10-Q
(File
No. 1-3754);
incorporated herein by reference.
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3.2
|
|
Certificate of Conversion to
Limited Liability Company of General Motors Acceptance
Corporation to GMAC LLC dated July 20, 2006
|
|
Filed as Exhibit 3.2 to the
Companys Quarterly Report for the Period Ended
June 30, 2006, on
Form 10-Q
(File No. 1-3754); incorporated herein by reference.
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|
|
3.3
|
|
Amended and Restated Limited
Liability Company Operating Agreement of GMAC LLC dated
November 30, 2006
|
|
Filed as Exhibit 4.1 to the
Companys Current Report on
Form 8-K
dated as of November 30, 2006 (File No. 1-3754),
incorporated herein by reference.
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|
|
|
|
|
|
|
|
4.1
|
|
Form of Indenture dated as of
July 1, 1982 between the Company and Bank of New York
(Successor Trustee to Morgan Guaranty Trust Company of New
York), relating to Debt Securities
|
|
Filed as Exhibit 4(a) to the
Companys Registration Statement No. 2-75115; incorporated
herein by reference.
|
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|
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|
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|
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|
|
4.1.1
|
|
Form of First Supplemental
Indenture dated as of April 1, 1986 supplementing the
Indenture designated as Exhibit 4.1
|
|
Filed as Exhibit 4(g) to the
Companys Registration Statement No.
33-4653;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.1.2
|
|
Form of Second Supplemental
Indenture dated as of June 15, 1987 supplementing the
indenture designated as Exhibit 4.1
|
|
Filed as Exhibit 4(h) to the
Companys Registration Statement No.
33-15236;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.1.3
|
|
Form of Third Supplemental
Indenture dated as of September 30, 1996 supplementing the
indenture designated as Exhibit 4.1
|
|
Filed as Exhibit 4(i) to the
Companys Registration Statement No.
333-33183;
incorporated herein by reference.
|
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|
|
|
|
|
|
|
|
|
4.1.4
|
|
Form of Fourth Supplemental
Indenture dated as of January 1, 1998 supplementing
the Indenture designated as Exhibit 4.1
|
|
Filed as Exhibit 4(j) to the
Companys Registration Statement No.
333-48705;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.1.5
|
|
Form of Fifth Supplemental
Indenture dated as of September 30, 1998 supplementing
the indenture designated as Exhibit 4.1
|
|
Filed as Exhibit 4(k) to the
Companys Registration Statement No.
333-75463;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Form of Indenture dated as of
September 24, 1996 between the Company and The Chase
Manhattan Bank, Trustee, relating to SmartNotes
|
|
Filed as Exhibit 4 to the
Companys Registration Statement
No. 333-12023;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.2.1
|
|
Form of First Supplemental
Indenture dated as of January 1, 1998 supplementing
the Indenture designated as Exhibit 4.2
|
|
Filed as Exhibit 4(a)(1) to the
Companys Registration Statement No.
333-48207;
incorporated herein by reference.
|
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|
|
|
|
|
|
|
|
|
4.2.2
|
|
Form of Second Supplemental
Indenture dated as of June 20, 2006 supplementing the
Indenture designated as Exhibit 4.2
|
|
Filed as Exhibit 4(a)(2) to the
Companys Registration Statement No.
33-136021;
incorporated herein by reference
|
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|
|
|
|
|
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|
|
4.3
|
|
Form of Indenture dated as of
October 15, 1985 between the Company and
U.S. Bank Trust (Successor Trustee to Comerica Bank),
relating to Demand Notes
|
|
Filed as Exhibit 4 to the
Companys Registration Statement No. 2-99057;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.3.1
|
|
Form of First Supplemental
Indenture dated as of April 1, 1986 supplementing the
Indenture designated as Exhibit 4.3
|
|
Filed as Exhibit 4(a) to the
Companys Registration Statement No.
33-4661;
incorporated herein by reference.
|
|
|
|
|
|
159
GMAC
LLC Form 10-K
|
|
|
|
|
Exhibit
|
|
Description
|
|
Method
of filing
|
|
4.3.2
|
|
Form of Second Supplemental
Indenture dated as of June 24, 1986 supplementing the
Indenture designated as Exhibit 4.3
|
|
Filed as Exhibit 4(b) to the
Companys Registration Statement No.
33-6717;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.3.3
|
|
Form of Third Supplemental
Indenture dated as of February 15, 1987 supplementing
the Indenture designated as Exhibit 4.3
|
|
Filed as Exhibit 4(c) to the
Companys Registration Statement No.
33-12059;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.3.4
|
|
Form of Fourth Supplemental
Indenture dated as of December 1, 1988 supplementing
the Indenture designated as Exhibit 4.3
|
|
Filed as Exhibit 4(d) to the
Companys Registration Statement No.
33-26057;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.3.5
|
|
Form of Fifth Supplemental
Indenture dated as of October 2, 1989 supplementing
the Indenture designated as Exhibit 4.3
|
|
Filed as Exhibit 4(e) to the
Companys Registration Statement No.
33-31596;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.3.6
|
|
Form of Sixth Supplemental
Indenture dated as of January 1, 1998 supplementing
the Indenture designated as Exhibit 4.3
|
|
Filed as Exhibit 4(f) to the
Companys Registration Statement No.
333-56431;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.3.7
|
|
Form of Seventh Supplemental
Indenture dated as of June 15, 1998 supplementing the
Indenture designated as Exhibit 4.3
|
|
Filed as Exhibit 4(g) to the
Companys Registration Statement No.
333-56431;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.4
|
|
Form of Indenture dated as of
December 1, 1993 between the Company and Citibank, N.A.,
Trustee, relating to Medium-Term Notes
|
|
Filed as Exhibit 4 to the
Companys Registration Statement
No. 33-51381;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
4.4.1
|
|
Form of First Supplemental
Indenture dated as of January 1, 1998 supplementing
the Indenture designated as Exhibit 4.4
|
|
Filed as Exhibit 4(a)(1) to the
Companys Registration Statement No.
333-59551;
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
10.
|
|
United States Consumer Financing
Services Agreement, dated November 30, 2006, by and between
General Motors Corporation and GMAC LLC
|
|
Filed as Exhibit 10.1 to the
Companys Current Report on
Form 8-K
dated as of November 30, 2006 (File No. 1-3754),
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
10.1
|
|
Intellectual Property License
Agreement, dated November 30, 2006, by and between
General Motors Corporation and GMAC LLC
|
|
Filed as Exhibit 10.2 to the
Companys Current Report on
Form 8-K
dated as of November 30, 2006 (File No. 1-3754),
incorporated herein by reference.
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Employment Agreement, dated
November 30, 2006, between GMAC LLC and Eric Feldstein
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
10.3
|
|
Employment Agreement, dated
November 30, 2006, between GMAC LLC and William Muir
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
10.4
|
|
Employment Agreement, dated
November 30, 2006, between GMAC LLC and Sanjiv Khattri
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
10.5
|
|
GMAC Long-Term Incentive Plan LLC
Long-Term Phantom Interest Plan, effective December 18, 2006
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
10.6
|
|
Form of Award Agreement related to
the GMAC Long-Term Incentive Plan LLC Long-Term Phantom Interest
Plan (applicable to Messrs. Feldstein, Muir and Khattri)
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
10.7
|
|
Form of Award Agreement related to
the GMAC Long-Term Incentive Plan LLC Long-Term Phantom Interest
Plan (applicable to executives other than
Messrs. Feldstein, Muir and Khattri)
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
10.8
|
|
GMAC Management LLC Class C
Membership Interest Plan, effective December 18, 2006
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
10.9
|
|
Form of Award Agreement related to
GMAC Management LLC Class C Membership Interest Plan
(applicable to Messrs. Feldstein, Muir and Khattri)
|
|
Filed herewith.
|
|
|
|
|
|
160
GMAC
LLC Form 10-K
|
|
|
|
|
Exhibit
|
|
Description
|
|
Method
of filing
|
|
10.10
|
|
Form of Award Agreement related to
GMAC Management LLC Class C Membership Interest Plan
(applicable to executives other than Messrs. Feldstein,
Muir and Khattri)
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
10.11
|
|
GMAC LLC Retention Bonus Plan,
effective November 30, 2006
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
10.12
|
|
Plan and Summary Description for
GMAC LLC Senior Leadership Severance Plan
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Computation of Ratio of Earnings to
Fixed Charges
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Subsidiaries of the Registrant as
of December 31, 2006
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
23.1
|
|
Consent of Independent Registered
Public Accounting Firm
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification of Principal
Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a)
|
|
Filed herewith.
|
31.2
|
|
Certification of Principal
Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a)
|
|
Filed herewith.
|
|
|
|
|
|
|
|
|
|
|
|
The following exhibit shall not be
deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the
liability of that Section. In addition, Exhibit No. 32
shall not be deemed incorporated into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Certification of Principal
Executive Officer and Principal Financial Officer pursuant to
18 U.S.C. Section 1350
|
|
Filed herewith.
|
161
Signatures
GMAC
LLC Form 10-K
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, this 13th day of March, 2007.
GMAC LLC
(Registrant)
Eric A. Feldstein
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated,
this 13th day of March, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Eric
A. Feldstein
Eric
A. Feldstein
Chief Executive Officer
|
|
/s/ William
F. Muir
William
F. Muir
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Sanjiv
Khattri
Sanjiv
Khattri
Executive Vice President and Chief Financial Officer
|
|
/s/ Linda
K. Zukauckas
Linda
K. Zukauckas
Vice President and Corporate Controller
|
162
Signatures
GMAC
LLC Form 10-K
|
|
|
/s/ T.
K. Duggan
|
|
/s/ Seth
P. Plattus
|
|
|
|
T. K. Duggan
|
|
Seth P. Plattus
|
Director
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/ Douglas
A. Hirsch
|
|
/s/ Michael
S. Klein
|
|
|
|
Douglas A. Hirsch
|
|
Michael S. Klein
|
Director
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/ Robert
W. Scully
|
|
/s/ G.
Richard Wagoner,
Jr.
|
|
|
|
Robert W. Scully
|
|
Richard Wagoner, Jr.
|
Director
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/ J.
Ezra Merkin
|
|
/s/ Frederick
A. Henderson
|
|
|
|
J. Ezra Merkin
|
|
Frederick A. Henderson
|
Director
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/ Mark
A. Neporent
|
|
/s/ Mark
R. LaNeve
|
|
|
|
Mark A. Neporent
|
|
Mark R. LaNeve
|
Director
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/ Lenard
B. Tessler
|
|
/s/ Walter
G. Borst
|
|
|
|
Lenard B. Tessler
|
|
Walter G. Borst
|
Director
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/ Frank
W. Bruno
Frank
W. Bruno
Director
|
|
|
163