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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1997, OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM TO
Commission file number 1-3754
GENERAL MOTORS ACCEPTANCE CORPORATION
-------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-0572512
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3044 WEST GRAND BOULEVARD, DETROIT, MICHIGAN 48202
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 313-556-5000
------------
The registrant meets the conditions set forth in General Instruction J(1) (a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS
- -------------------
7 3/4% Notes due January 15, 1999 7.00% Notes due September 15, 2002
5 5/8% Notes due February 1, 1999 Global Floating Rate Notes due
7 1/8% Notes due June 1, 1999 September 25, 2002
8 5/8% Notes due June 15, 1999 6 5/8% Notes due October 1, 2002
8.40% Notes due October 15, 1999 8 1/2% Notes due January 1, 2003
7.00% Notes due March 1, 2000 5 7/8% Notes due January 22, 2003
9 3/8% Notes due April 1, 2000 6 3/4% Notes due March 15, 2003
9 5/8% Notes due May 15, 2000 7 1/8% Notes due May 1, 2003
5 5/8% Notes due February 15, 2001 8 3/4% Notes due July 15, 2005
7 1/8% Notes due May 1, 2001 6 5/8% Notes due October 15, 2005
6 7/8% Notes due July 15, 2001 6 1/8% Notes due January 15, 2008
7.00% Notes due August 15, 2001 8 7/8% Notes due June 1, 2010
6 3/8% Notes due December 1, 2001 6.00% Debentures due April 1, 2011
9 5/8% Notes due December 15, 2001 10.00% Deferred Interest Debentures due
5 1/2% Debentures due December 15, 2001 December 1, 2012
6.00% Notes due February 1, 2002 10.30% Deferred Interest Debentures due
6 3/4% Notes due February 7, 2002 June 15, 2015
Floating Rate Notes due April 29, 2002
All of the securities listed above are registered on the New York Stock
Exchange.
Indicate by check mark whether the registrant(1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes X . No ___.
As of December 31, 1997, there were outstanding 22,000,000 shares of the
issuer's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
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<PAGE>
CONTENTS
PAGE NO.
PART I
Item 1. Business .................................... 3
Item 2. Properties .................................. 7
Item 3. Legal Proceedings ........................... 8
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters ............. 8
Item 6. Selected Financial Data ..................... 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data . 24
Management's Responsibilities for
Consolidated Financial Statements ...... 24
Independent Auditors' Report ........... 25
Consolidated Balance Sheet ............. 26
Consolidated Statement of Income ....... 27
Consolidated Statement of Changes in
Stockholder's Equity ................... 28
Consolidated Statement of Cash Flows ... 30
Notes to Consolidated Financial
Statements ............................. 32
Supplementary Financial Data ........... 70
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K ..................... 71
Signatures .................................. 73
Exhibit Index ............................... 75
Ratio of Earnings To Fixed Charges .......... 76
Independent Auditors' Consent ............... 77
<PAGE>
PART I
ITEM 1. BUSINESS
General Motors Acceptance Corporation (the "Company" or "GMAC"), a wholly-owned
subsidiary of General Motors Corporation ("General Motors" or "GM"), was
incorporated in 1997 under Delaware General Corporate Law. On January 1, 1998,
the Company merged with its predecessor, which was originally incorporated in
New York in 1919.
In conducting its primary form of business, GMAC and its affiliated companies
have a presence in 34 countries which offer a wide variety of automotive
financial services to and through franchised General Motors dealers throughout
the world. GMAC also offers financial services to other automobile dealerships
and to the customers of those dealerships. Additionally, GMAC provides
commercial financing for real estate, equipment and working capital to
automobile dealerships, GM suppliers and customers of GM affiliates. GMAC's
other financial services include insurance and mortgage banking. The Company had
21,417 and 17,758 employees worldwide, as of December 31, 1997 and 1996,
respectively.
The Company operates directly and through its subsidiaries and affiliates
(including joint ventures outside the U.S.) in which the Company or GM has
equity investments. In its principal markets, GMAC offers automotive financing
and other services as described below. The Company operates its automotive
financing services outside of the U.S. in a similar manner, subject to local
laws or other circumstances that may cause it to modify its procedures
accordingly. The Company's policies and internal accounting controls are
designed to ensure compliance with applicable laws and regulations.
The automotive financing industry is highly competitive. The Company's principal
competitors for retail financing and leasing are affiliated finance subsidiaries
of other major manufacturers as well as a large number of banks, commercial
finance companies, savings and loan associations and credit unions. Wholesale
and lease financing competitors are primarily comprised of other manufacturers'
affiliated finance companies, independent commercial finance companies and
banks. Neither the Company nor any of its competitors is considered to be a
dominant force in the industry when analyzed individually. The Company's ability
to offer competitive financing rates, the primary basis of competition, is
directly affected by its access to capital markets. The Company applies a
strategy of constantly reviewing funding alternatives to foster continued
success. The quality of service provided to automotive dealerships and their
customers contributes to the Company's competitive advantages.
In the North American automotive business, seasonal retail sales fluctuations
cause production levels to vary from month to month. In addition, the changeover
period related to the annual new model introduction traditionally occurs in the
third quarter of each year, causing an unfavorable impact on the operating
results of automobile manufacturers. These factors produce minor fluctuations in
financing volume, with the second and third quarters of each year generally
experiencing the strongest activity. However, seasonal variations in vehicle
deliveries do not have a material impact on the Company's interim results.
Quarterly financing revenue remains relatively consistent throughout the year,
primarily due to the use of the straight-line method for recognition of
operating lease revenue and the interest method for recognition of income from
retail and lease financing transactions as well as consistent dealer inventory
levels.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
As the financing of GM manufactured vehicles comprises a substantial portion of
the Company's business, any protracted reduction or suspension of GM's
production or sales resulting from a decline in demand, work stoppage,
governmental action, adverse publicity, or other event, could have a substantial
unfavorable effect on the Company's results of operations. Information about
GM's production and sales can be found in GM's Annual Report on Form 10-K for
the year ended December 31, 1997, filed separately with the Securities and
Exchange Commission.
RETAIL FINANCING
GMAC conducts its U.S. and Canadian retail automotive financing business under
the trade name GMAC Financial Services. The Company provides financing services
to customers through dealers who have established relationships with GMAC.
Retail installment obligations for new and used products that meet GMAC's credit
standards are purchased directly from dealers.
Outside the U.S. and Canada, GMAC conducts its retail automotive financing
business under various trade names, such as Opel Bank, Vauxhall Finance, and
Holden Financial Services, primarily depending upon General Motors activity in
the country while also considering local customs and requirements. Retail
automotive financing is provided in a similar manner as in the U.S., but in some
cases, GMAC enters into an installment obligation directly with the customer.
On occasion, General Motors Corporation may elect to sponsor retail finance
programs by supporting special retail finance rates and/or guaranteeing residual
values in excess of independently published residual value guide books used by
GMAC.
Retail obligations are generally secured by lien notation on vehicle titles
and/or other forms of security interest in the vehicles financed. After
satisfying local requirements, GMAC can generally repossess the vehicle if the
installment buyer fails to meet the obligations of the contract. The interests
of both GMAC and the retail buyer are usually protected by automobile physical
damage insurance.
WHOLESALE FINANCING
Using GMAC's wholesale financing, qualifying dealers can finance new and used
vehicles held in inventory pending sale or lease to retail or fleet buyers. When
a dealer uses GMAC's Wholesale Finance Plan to acquire vehicles from a
manufacturer or other vehicle sources, GMAC is ordinarily granted a security
interest in those vehicles. GMAC can generally repossess the vehicle if the
dealer does not pay the amount advanced or fails to comply with other conditions
specified in the security agreement.
TERM LOANS
GMAC provides term loans for real estate, equipment and working capital to
automobile dealerships, GM suppliers and customers of GM affiliates. The Company
generally secures the loans with liens on real estate, other dealership assets
and/or the personal guarantee of the dealer.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
LEASING
GMAC offers leasing plans to retail customers as well as dealers or other
companies that rent or lease vehicles to others.
OPERATING LEASES:
- ----------------
GMAC's most successful leasing program, called SmartLease in the U.S. and
Canada, is a plan in which dealers originate the leases and offer them for
purchase by GMAC. As GMAC assumes ownership of the vehicles from the dealers,
these leases are accounted for as operating leases with the capitalized cost of
the vehicles recorded as depreciable assets (net investment in operating
leases). Dealers are not responsible for the customer's performance during the
lease period nor for the value of the vehicle at the time of lease maturity. The
SmartLease program encourages shorter customer trading cycles. Similar operating
lease programs are offered in 14 other countries. On occasion, General Motors
Corporation may elect to sponsor retail leasing programs by supporting special
lease rates and/or guaranteeing residual values in excess of independently
published residual value guide books used by GMAC. Credit standards for these
programs are similar to those applied to retail financing contracts.
FINANCE LEASES:
- --------------
GMAC also offers other leasing plans directly to individual customers and other
entities. Under these plans, the leases are accounted for as finance leases and
the receivables from the customers are recorded as finance receivables. GMAC
does not assume ownership of the vehicle. These leasing receivables essentially
represent installment sales of vehicles, with the vehicles usually being
acquired by the customers at the end of the lease contracts.
LEASE FINANCING:
- ---------------
Dealers, their affiliates and other companies may obtain GMAC financing to buy
vehicles, which they lease or rent to others. These leases, sometimes referred
to as fleet leases, are categorized as finance receivables. GMAC generally has a
security interest in these vehicles and in the rental payments. However,
competitive factors occasionally result in a limited security interest in this
collateral. More than half of GMAC's fleet financing receivables are covered by
General Motors programs which provide a limited payment guarantee to
participating financing institutions as consideration for extending credit to a
fleet customer. Under these programs, General Motors will reimburse the
financing institution, subject to certain limitations, for losses on the sales
of vehicles which are repossessed and returned to the selling dealers.
INSURANCE
GMAC Insurance Holdings, Inc. ("GMACI"), a holding company formed in 1997 with
initial capitalization of $565 million, conducts insurance operations primarily
in the United States, Canada and Europe through its subsidiaries, Motors
Insurance Corporation ("MIC") and Integon Corporation ("Integon"). MIC insures
and reinsures extended warranty, selected personal and commercial insurance
coverages. Integon primarily writes non-standard personal automobile insurance.
GMACI acquired Integon on October 17, 1997 for $523 million plus the assumption
of $250 million in long-term debt. Integon was subsequently recapitalized in
December 1997 by successfully tendering for substantially all of its publicly
held long-term debt.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
MIC's personal lines coverages, which include automobile, homeowners and
umbrella liability insurance, are offered primarily on a direct response basis.
MIC commercial lines include insurance for dealer vehicle inventories as well as
other dealer property and casualty coverages. MIC also provides collateral
protection coverage to GMAC on certain vehicles securing GMAC retail installment
contracts. Additionally, MIC is a reinsurer of diverse property and casualty
risks, primarily in the U.S. market. As a result of continued unfavorable
industry trends for credit life and disability products, MIC ceased underwriting
such coverages effective November 1, 1995.
Integon's non-standard automobile insurance is offered by approximately 12,000
independent agents in 30 states. The non-standard auto insurance market has
grown at a faster rate than the personal auto insurance market as a whole. In
addition, the independent agent distribution channel has experienced higher
growth than competing distribution channels in the non-standard market.
The property casualty insurance industry is highly competitive. Competition in
the property casualty markets in which GMACI operates consists of large
multi-line companies and smaller specialty carriers, including companies owned
by other automotive companies. None of these companies, including GMACI, holds a
dominant position in these markets.
There are no material seasonal factors that affect the quarterly results of
GMACI.
MORTGAGE BANKING
GMAC Mortgage Group Inc. and its subsidiaries ("GMACMG") perform a wide array of
real estate financial services including the origination, purchase, financing
and servicing of residential, commercial and multifamily mortgage loans as well
as the issuing, purchasing and selling of mortgage-backed securities. In
addition, GMACMG actively pursues the acquisition of mortgage servicing rights
from other mortgage bankers and financial institutions. Operations of GMACMG's
various mortgage banking subsidiaries are conducted through its three primary
businesses: GMAC Mortgage Corporation ("GMACM"); GMAC Commercial Mortgage
Corporation ("GMACCM"); and Residential Funding Corporation ("RFC").
GMACM originates first and second lien residential mortgage loans through a
nationwide retail network and direct lending centers, including its Family First
program. Family First, a custom mortgage services program offered to GM
employees, dealers, and stockholders, is now the country's largest mortgage
program to a single affinity group. In addition to selling its originated loans
in the secondary market while retaining the right to service the loans, GMACM
actively acquires servicing rights from other mortgage bankers and financial
institutions. GMACM has diversified its operations to include trustee services
and mortgage related insurance products.
GMACCM is the nation's largest commercial and multifamily mortgage loan
servicer. It is a direct lender and correspondent for life insurance companies
and pension funds. GMACCM provides a wide range of innovative financial products
and services including long-term, interim and construction financing, appraisal
services and specialized financing and marketing services.
<PAGE>
ITEM 1. BUSINESS (CONCLUDED)
RFC is engaged in several interrelated business lines including mortgage
securitization, investing, origination and lending operations. RFC, the
number-one issuer of private-label mortgage-backed securities in the United
States, purchases non-conforming, single-family residential mortgages from
mortgage lenders throughout the United States, securitizes such mortgages into
mortgage pass-through certificates, sells the certificates to investors and
performs master servicing of these securities on behalf of investors. In
addition to prime residential mortgages, RFC also purchases and securitizes
sub-prime residential mortgages, home equity lines of credit and home
improvement loans. RFC also provides warehouse lending facilities to certain
mortgage banking customers secured principally by mortgage collateral as well as
long-term secured lines of credit to construction lending project managers and
national and regional homebuilders. In addition, Residential Money Centers,
which was acquired in early 1995 by GMACMG, offers a variety of first- and
second-mortgage loans to homeowners who do not meet the credit standards
normally required in the mortgage market.
The mortgage banking business is highly competitive. GMACMG competes with other
mortgage banking companies, commercial banks, savings associations, credit
unions and other financial institutions in every aspect of its business,
including funding and purchasing loans from mortgage brokers, purchasing loans
from correspondents, securitizing and selling loans to investors and acquiring
loan servicing rights and origination capabilities.
Residential mortgage volume is generally subject to seasonal trends. These
trends reflect the general national pattern of sales and resales of homes, which
typically peak during the spring and summer seasons and decline to lower levels
from mid-November through February. However, the seasonal trends do not have a
material impact on GMACMG's interim results. Refinancings tend to be less
seasonal and more closely related to changes in interest rates. In addition to
having an effect on refinancing, changes in interest rates affect the volume of
loan originations and acquisitions, the interest rate spread on mortgage related
investments, loans held for sale, the amount of gain or loss on the sale of
loans and the value of GMACMG's servicing portfolio.
FINANCIAL INFORMATION
Financial information regarding operating segments and operations by geographic
area is set forth in Note 17 in the Notes to Consolidated Financial Statements.
ITEM 2. PROPERTIES
The Company and its subsidiaries have 350 financial service offices, 262
mortgage offices and 118 insurance offices. Of the number of financial service
offices, 271 are in the United States and Puerto Rico, 29 in Canada and 50 in
other countries. There are 109 insurance offices in the United States, six in
Europe, two in Canada and one in Latin America. Of the number of mortgage
offices, 261 are located in the United States, and one in the United Kingdom.
Substantially all premises are occupied under lease. Automobiles, office
equipment and real estate properties owned and in use by the Company are not
significant in relation to the total assets of the Company.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are various claims and actions pending against the Company and its
subsidiaries with respect to commercial and consumer financing and leasing
activities, taxes, insurance and other matters arising out of the conduct of the
business. Certain of these actions are or purport to be class actions, seeking
damages in very large amounts. The probability of adverse verdicts from
individual claims and actions is determined by a periodic review conducted by
management and the Company's General Counsel which involves soliciting input
from staff attorneys as well as outside counsel. Based on these reviews and
examinations, the amounts of liability on these claims and actions at December
31, 1997 were not determinable but, in the opinion of management, the ultimate
liability resulting therefrom should not have a material adverse effect on the
Company's consolidated financial position or results of operations.
-------------
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is a wholly-owned subsidiary of General Motors Corporation and,
accordingly, all shares of the Company's common stock are owned by General
Motors Corporation. There is no market for the Company's common stock.
The Company paid cash dividends to General Motors Corporation of $750 million
in 1997, $1,200 million in 1996 and $950 million in 1995.
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
INCOME AND NET INCOME (in millions of dollars)
RETAINED FOR USE
IN THE BUSINESS
Gross revenue and
<S> <C> <C> <C> <C> <C>
other income ............ $ 16,595.4 $ 15,973.7 $ 14,863.2 $ 12,145.0 $ 12,483.5
---------- ---------- ---------- ---------- ----------
Interest and discount .... 5,255.5 4,937.5 4,936.3 4,230.9 4,721.2
Depreciation on
operating leases ........ 4,677.5 4,627.0 4,304.8 3,233.8 2,702.0
Operating expenses ....... 2,852.2 2,690.3 2,391.8 2,032.3 2,090.1
Insurance losses and loss
adjustment expenses ..... 1,073.5 972.2 998.3 1,030.9 1,096.6
Provision for
credit losses ........... 522.7 669.0 448.8 177.3 300.8
---------- ---------- ---------- ---------- ----------
Total expenses ........ 14,381.4 13,896.0 13,080.0 10,705.2 10,910.7
---------- ---------- ---------- ---------- ----------
Income before income taxes 2,214.0 2,077.7 1,783.2 1,439.8 1,572.8
United States, foreign
and other income taxes .. 912.9 837.2 752.2 512.7 591.7
---------- ---------- ---------- ---------- ----------
Income before cumulative
effect of accounting change 1,301.1 1,240.5 1,031.0 927.1 981.1
Cumulative effect of
accounting change ...... -- -- -- (7.4) --
---------- ---------- ---------- ---------- --------
Net income ............... 1,301.1 1,240.5 1,031.0 919.7 981.1
Cash dividends ........... 750.0 1,200.0 950.0 875.0 1,250.0
---------- ---------- ---------- ---------- ----------
Net income retained
in the year ............. $ 551.1 $ 40.5 $ 81.0 $ 44.7 $ (268.9)
========== ========== ========== ========== ==========
ASSETS
Cash and cash equivalents $ 759.2 $ 742.3 $ 1,448.6 $ 1,339.5 $ 4,028.1
Earning assets ........... 104,481.2 95,669.7 92,014.1 83,271.0 75,709.4
Other assets ............. 4,078.9 2,166.0 2,184.8 1,906.8 1,747.8
---------- ---------- ---------- ---------- ----------
Total ................. $109,319.3 $ 98,578.0 $ 95,647.5 $ 86,517.3 $ 81,485.3
========== ========== ========== ========== ==========
NOTES, LOANS AND DEBENTURES
Payable within one year .. $ 50,399.5 $ 45,809.9 $ 43,871.8 $ 35,114.8 $ 35,084.4
Payable after one year ... 36,275.2 32,878.9 31,050.6 31,539.6 27,688.8
---------- ---------- ---------- ---------- ----------
Total debt............. $ 86,674.7 $ 78,688.8 $ 74,922.4 $ 66,654.4 $ 62,773.2
========== ========== ========== ========== ==========
Certain amounts for the 1993 through 1996 periods have been reclassified to
conform with 1997 classifications.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that management
believes to be relevant to an understanding of the Company's consolidated
results of operations and financial condition. The discussion should be read in
conjunction with the consolidated financial statements and the notes thereto.
RESULTS OF OPERATIONS
For the eleventh time in the Company's history, consolidated net income
surpassed $1.0 billion dollars. The insurance and mortgage operations
contributed to the 1997 earnings gain which was partially offset by lower
automotive financing earnings. The following table summarizes the most recent
earnings of GMAC's financing, insurance and mortgage operations on a
year-to-year basis:
<TABLE>
<CAPTION>
NET INCOME
----------
(in millions of dollars, after tax)
1997
----
<S> <C>
Automotive Financing Operations $ 909.9
Insurance Operations* 224.6
Mortgage Operations** 166.6
----------
Consolidated Total $ 1,301.1
==========
1996
----
Automotive Financing Operations $ 946.4
Insurance Operations* 192.4
Mortgage Operations** 101.7
----------
Consolidated Total $ 1,240.5
==========
1995
----
Automotive Financing Operations $ 808.7
Insurance Operations* 162.6
Mortgage Operations** 59.7
----------
Consolidated Total $ 1,031.0
==========
* GMAC Insurance Holdings, Inc. (GMACI)
** GMAC Mortgage Group (GMACMG)
</TABLE>
On a consolidated basis, GMAC's return on average equity capital was 15.3% in
1997, compared to 14.8% in 1996, and 12.5% in 1995. Total cash dividends paid to
General Motors Corporation in 1997 were $750 million, compared with $1,200
million in 1996 and $950 million in 1995.
In 1997, net income from automotive financing operations totaled $909.9 million
which is 4% below and 13% above 1996 and 1995, respectively. The decrease in
1997 is attributable to reduced net financing margins partially offset by lower
credit losses and loss provisions and operating expenses. The increase from 1995
to 1996 was primarily attributable to higher net financing revenues resulting
from continued improvement in North American net interest margins, principally
in retail finance receivables and operating lease portfolios.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net income from insurance operations totaled $224.6 million in 1997 which is 17%
and 38% higher than 1996 and 1995 earnings, respectively. The increases are
principally attributable to favorable underwriting experience and higher
realized capital gains.
Net income from mortgage operations totaled $166.6 million in 1997, 64% and
179%, higher than 1996 and 1995 earnings, respectively. The increases are
primarily attributable to significant increases in origination/purchase volumes
and the mortgage servicing portfolio.
UNITED STATES NEW PASSENGER CAR AND TRUCK DELIVERIES
U.S. deliveries of new GM vehicles during 1997 were slightly below 1996 and 1995
levels. However, GMAC's special rate financing and lease incentive programs
sponsored by GM, contributed to higher financing penetration of new GM vehicle
retail deliveries amid continued competitive pressures from other providers of
vehicle financing. Participation in U.S. fleet deliveries has declined since
1995, primarily as a result of National Car Rental System's election to use
other vehicle financing sources after it was sold by GM in June 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
(in millions of units)
<S> <C> <C> <C>
Industry....................................... 15.5 15.5 15.1
General Motors................................. 4.7 4.8 4.9
U.S. New GM Vehicle Deliveries Financed by GMAC
Retail (Installment Sale Contracts and
Operating Leases)........................... 33.1% 28.4% 26.4%
Fleet Transactions (Lease Financing)......... 2.9% 5.2% 11.5%
Total.......................................... 27.1% 24.0% 23.6%
</TABLE>
FINANCING VOLUME
The number of new vehicle deliveries financed during the three years ended
December 31, 1997 are summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands of units)
UNITED STATES
<S> <C> <C> <C>
Retail Installment Sale Contracts........... 846 634 672
Operating Leases............................ 430 506 445
Leasing..................................... 35 63 133
----- ----- -----
New Deliveries Financed....................... 1,311 1,203 1,250
===== ===== =====
OTHER COUNTRIES
Retail Installment Sale Contracts........... 381 327 361
Operating Leases............................ 306 225 199
Leasing..................................... 74 78 68
----- ----- -----
New Deliveries Financed....................... 761 630 628
===== ===== =====
WORLDWIDE
Retail Installment Sale Contracts........... 1,227 961 1,033
Operating Leases............................ 736 731 644
Leasing..................................... 109 141 201
----- ----- -----
New Deliveries Financed....................... 2,072 1,833 1,878
===== ===== =====
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The increase in U.S. retail contracts and decrease in operating lease contracts
during 1997, compared to 1996, can be attributed to a shift from lease incentive
programs to special rate finance programs sponsored by GM. As a result of
reestablishing retail incentive programs sponsored by GM in Canada during 1997,
the volume of retail contracts increased by 300% over prior year results.
Additionally, Canadian operating lease volume increased by 46% compared to 1996.
Total volume for all other international operations during 1997 increased 10%
when compared with 1996, primarily from increases in operating leases.
The average new vehicle retail finance contract purchased by GMAC in the United
States during 1997 was $20,300, compared to $21,500 in 1996 and $21,300 in 1995.
The average term for new vehicle retail finance contracts purchased was 56
months in 1997, compared to 54 months in 1996 and 56 months in 1995, while the
monthly payment on such contracts purchased in 1997 averaged $359, compared to
$380 in both 1996 and 1995. The declines in the average amount of retail finance
contract purchased and the average monthly payment are primarily a result of
increased special rate retail finance programs sponsored by GM.
During 1997, the average capitalized cost for new vehicle retail operating lease
contracts entered into in the United States was $25,600 compared to $24,400 in
1996 and $23,500 in 1995. The average term of such new vehicle retail leases was
33 months in 1997, and 31 months in both 1996 and 1995. The average monthly
retail lease payments on such contracts were $379 in 1997, $374 in 1996 and $388
in 1995.
GMAC also provides wholesale financing for GM and other dealers' new and used
vehicle inventories. In the United States, wholesale inventory financing was
provided for 3.3 million, 3.3 million and 3.7 million new GM vehicles,
representing 67.2%, 70.3% and 72.0% of all GM sales to U.S. dealers during 1997,
1996 and 1995, respectively. The decline in U.S. market share is principally the
result of continued competitive pressures in this market segment.
ASSETS
At the end of 1997, the Company owned assets and serviced automotive receivables
for others totaling $120.7 billion, an increase of $12.6 billion over year-end
1996. Total consolidated assets of the Company at December 31, 1997 were $109.3
billion, $10.7 billion above the previous year. Consolidated earning assets,
which comprised $104.5 billion of the total consolidated assets, increased $8.8
billion from 1996 year-end levels. The year-to-year increase is attributable to
an increase in the investments in securities portfolio, higher wholesale and
real estate mortgage outstandings and continued growth of operating leases,
partially offset by a decline in the retail finance receivables portfolio.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Cash and cash equivalents totaled $759.2 million at December 31, 1997, 2%
more than the amount held at December 31, 1996.
At December 31, 1997, the value of the Company's consolidated investment
securities portfolio was $7.9 billion, an increase of $3.3 billion over 1996
year-end. The increase reflects growth in trading securities within the mortgage
operations, the inclusion of Integon's investment securities within the
insurance operations and the reclassification of subordinated interest in trusts
to investments in securities within automotive financing operations. The
reclassification of the subordinated interest in trusts resulted from the
adoption of Statement of Financial Accounting Standard (SFAS) No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, by the Company on January 1, 1997.
Consolidated finance receivables, net of unearned income, amounted to $60.5
billion and $59.3 billion at December 31, 1997 and 1996, respectively. The
higher outstanding balance is primarily attributable to a $2.2 billion increase
in the U.S. and Canadian wholesale finance receivables portfolios, offset by a
$0.9 billion decline in European finance receivables.
At December 31, 1997, outstanding principal balances (including retained
subordinated interests) of sold retail receivables amounted to $6.0 billion, up
40% from $4.3 billion at year-end 1996. The increase in this portfolio primarily
reflects three sales completed during 1997 totaling $5.4 billion partially
offset by amortization of the pools sold. Principal balances of active trusts of
sold wholesale receivables (including retained subordinated interests) totaled
$6.3 billion and $5.4 billion at December 31, 1997 and 1996, respectively. The
first of four revolving wholesale receivables trusts was formed in 1994 and
matured during the first quarter of 1997.
Due and deferred from receivable sales totaled $0.7 billion and $1.2 billion at
December 31, 1997 and 1996, respectively. The decline is mainly attributable to
reclassifying certain amounts to investments in securities as required by SFAS
No. 125.
Consolidated operating lease assets, net of depreciation, acquired principally
under the GMAC SmartLease program, totaled $25.8 billion at year-end 1997, an
increase of $0.9 billion over year-end 1996. Worldwide 1997 operating lease
volume exceeded 1996 volume by approximately 5,000 units, as growth in the
portfolio subsided.
The real estate mortgage inventory held for sale amounted to $5.1 billion at
December 31, 1997, $2.3 billion above the prior year-end level. Similarly, the
mortgage lending receivables portfolio, consisting primarily of short-term
warehouse lines of credit to finance the origination of loans by other mortgage
lenders, increased 58% during the year to total $2.2 billion at December 31,
1997. The higher year-end balances reflect increased loan origination and
acquisition activity, resulting in an increase in inventory balances. The
buildup of mortgage inventory is principally the result of higher loan
originations during 1997.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Other earning assets totaled $1.8 billion at December 31, 1997, $0.2 billion
above the prior year-end, with the increase resulting primarily from higher
mortgage servicing rights.
LIQUIDITY
The Company's liquidity, as well as its ability to profit from ongoing
acquisition activity, is in large part dependent upon its timely access to
capital and the costs associated with raising funds in different segments of the
capital markets. In this regard, GMAC regularly accesses the short-term,
medium-term, and long-term debt markets, principally through commercial paper,
notes and underwritten transactions.
As of December 31, 1997, GMAC's total borrowings were $86.7 billion compared
with $78.7 billion at December 31, 1996. Approximately 78% of this debt
represented funding for operations in the United States, with the remaining 22%
of borrowings for operations in Canada (9%), Germany (5%) and other countries
(8%). The 1997 year-end ratio of total borrowings to equity capital was 9.9:1
compared to 9.5:1 for year-end 1996. The higher year-to-year debt levels were
principally used to fund increased asset levels. Total short-term notes
outstanding at December 31, 1997, amounted to $32.1 billion compared with $27.0
billion at year-end 1996.
Intermediate and long-term funding is provided through the issuance of
underwritten debt and medium-term notes, which are offered by prospectus,
offering circular or private placement worldwide on a continuous basis. GMAC
sells medium-term notes worldwide through dealer agents in book-entry form for
any maturity ranging from nine months to thirty years. Sales of medium-term
notes for U.S. operations totaled $6.6 billion in 1997 compared to $7.4 billion
in 1996. Outstanding medium-term notes for U.S. operations totaled $21.6 billion
at December 31, 1997, a decrease of $1.4 billion from the prior-year period.
During 1997, underwritten debt issues totaling $4.7 billion were completed for
use in the U.S., compared with $2.9 billion in 1996. Underwritten debt issues
outstanding in the U.S. at December 31, 1997 totaled $16.3 billion, an increase
of $3.6 billion from year-end 1996. As of December 31, 1997, the Company had
unissued debt securities available under effective shelf registrations with the
U.S. Securities and Exchange Commission totaling $9.9 billion.
At December 31, 1997, GMAC maintained or had access to $30.4 billion of unused
credit lines with banks worldwide, a decrease of $0.2 billion from year-end
1996. Included in the unused credit lines are a committed U.S. revolving credit
facility of $10.0 billion, which serves primarily as back-up for GMAC's
unsecured U.S. commercial paper program, and an $11.6 billion U.S. asset-backed
commercial paper liquidity and receivables credit facility for New Center Asset
Trust (NCAT), a non-consolidated limited purpose business trust established to
issue asset-backed commercial paper.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Outside the United States, funding needs are met primarily by a combination of
short-term and medium-term loans from banks and other financial institutions.
Where it is cost-effective, the Company also issues commercial paper, as well as
medium-term and long-term debt, in both the Euro and local markets to fund
certain non-U.S. operations.
Credit facilities supporting operations of the Company's international
subsidiaries totaled $16.4 billion at December 31, 1997 of which $8.4 billion
was unused. As of December 31, 1997, the committed and uncommitted portion of
such credit facilities totaled $4.5 billion and $11.9 billion, respectively.
As discussed in Note 3 in the Notes to Consolidated Financial Statements, the
Company's asset securitization program is utilized as an alternative funding
source through which retail and wholesale finance receivables are sold to
special purpose bankruptcy-remote subsidiaries. The Company continues to service
the sold receivables for a fee and earns other related ongoing income.
GMAC's ability to access the capital markets for unsecured debt is linked to
both its term debt and commercial paper ratings. This is particularly true with
respect to the Company's commercial paper ratings. These ratings are intended to
provide guidance to investors in determining the credit risk associated with
particular securities based on current information obtained by the rating
organizations from the Company or other sources that such organizations consider
to be reliable. Lower ratings generally result in higher borrowing costs as well
as reduced access to capital markets. A security rating is not a recommendation
to buy, sell, or hold securities and is subject to revision or withdrawal at any
time by the assigning rating organization. Each rating should be evaluated
independently of any other rating.
Substantially all of the Company's short-term, medium-term, and long-term debt
has been rated by four nationally recognized statistical rating organizations.
As of March 17, 1998, all of the latest ratings assigned were within the
investment grade category.
Senior Commercial
RATING AGENCY DEBT PAPER
- ------------- ------ ----------
Duff & Phelps Credit Rating Co. A- D-1
Fitch Investors Service, Inc. A F-1
Moody's Investors Service, Inc. A3 Prime-1
Standard & Poor's Ratings Services A A-1
Duff & Phelps Credit Rating Co. ("D&P") has assigned a rating of A- to the
senior debt of the Company, the seventh highest among ten investment grade
ratings available, indicating adequate likelihood of timely payment of principal
and interest. The Company's commercial paper has received a rating of D-1 from
D&P, the second highest of five investment grade ratings available, signifying a
very high certainty of timely payment based on excellent liquidity factors and
good fundamental protection factors. D&P reaffirmed these ratings in January
1998.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Fitch Investors Service, Inc. ("Fitch") has assigned ratings of A and F-1 to the
Company's senior debt and commercial paper, the sixth and second highest among
ten and four investment grade ratings available, respectively. The A rating is
assigned by Fitch to bonds considered to be of high credit quality with the
obligor's ability to pay interest and repay principal considered to be strong.
The F-1 rating is assigned to short-term issues which possess a very strong
credit quality based primarily on the existence of liquidity necessary to meet
the obligations in a timely manner. Fitch upgraded the senior debt rating from
A- to A and reaffirmed the F-1 commercial paper rating in June 1997.
Moody's Investors Service, Inc. ("Moody's") has assigned a rating of A3 to the
Company's senior debt, the seventh highest among ten investment grade ratings
available, indicating many favorable investment attributes and security factors
for principal and interest to be adequate. The Company's commercial paper has
received a rating of Prime-1 from Moody's, the highest of three such ratings,
reflecting superior ability for repayment of senior short-term debt obligations
and assured ability to access alternative sources of liquidity. Additional
repayment characteristics of commercial paper issues receiving this premium
rating include leading market position in a well established industry, high
rates of return on funds employed, and broad margins in earnings coverage of
fixed financial charges. Each of these ratings were assigned by Moody's in May
1995.
Standard & Poor's Ratings Services, a division of McGraw-Hill Companies, Inc.
("S&P") has assigned a rating of A to the Company's senior debt, sixth highest
among ten investment grade ratings available. The A rating is assigned to bonds
considered to have a strong capacity to pay interest and repay principal. The
Company's commercial paper has received a rating of A-1, second highest of the
four investment grade ratings available, indicating a strong capacity for timely
payment determined by significant safety characteristics. S&P upgraded these
ratings from A- and A-2 in January 1998. These ratings upgrades, which included
various overseas affiliates of the Company, are not expected to have a
significant impact on consolidated interest expense.
As of March 17, 1998, GMAC is not under review by any of the above rating
agencies.
In managing the interest rate and foreign exchange exposures of a multinational
finance entity, the Company and its subsidiaries utilize a variety of interest
rate and currency derivative financial instruments. As an end-user of such
instruments, GMAC is in a better position to expand its investor base and to
minimize its funding costs, enhancing its ability to offer attractive,
competitive financing rates to its customers. The derivative instruments
utilized by the Company are relatively straightforward and involve little
complexity. The portfolio consists primarily of interest rate swaps, forward
starting interest rate swaps, futures and options; currency swaps which are
matched to offset a companion asset or funding obligation; and hedges related to
mortgage operations.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
These instruments involve, to varying degrees, elements of credit risk in the
event a counterparty should default and market risk as the instruments are
subject to rate and price fluctuations. Credit risk is managed through the
periodic monitoring and approval of financially sound counterparties and
limiting the potential exposure to individual counterparties to predetermined
notional and exposure limits. Market risk is inherently limited by the fact that
the Company holds offsetting asset or liability positions. Market risk is also
managed on an ongoing basis by determining and monitoring the fair value of each
transaction in the portfolio. GMAC employs a variety of internal swap and option
models, using mid-market rates, to calculate mark-to-market values of its
derivative positions and also obtains valuations from its counterparties for
reporting purposes.
The aggregate fair value of the Company's derivatives portfolio represents a
nominal percentage of its $8.8 billion equity base at December 31, 1997. The
total notional amount of off-balance sheet instruments was $44.1 billion and
$48.3 billion at December 31, 1997 and 1996, respectively. The decrease in 1997
year-end notional outstandings is primarily due to decreased purchases of
instruments that hedge mortgage related securities and mortgage servicing,
partially offset by increased purchases of currency swaps. Summary schedules of
outstanding contracts by type and term as well as a reconciliation of the
Company's interest rate and currency swap activities for the years ended
December 31, 1997 and 1996, are included in Note 16 in the Notes to Consolidated
Financial Statements.
CASH FLOWS
Cash provided by 1997 operating and financing activities totaled $4.1 billion
and $8.3 billion, respectively. In comparison, cash provided by 1996 operating
and financing activities totaled $4.2 billion and $2.6 billion, respectively.
Similarly, 1995 operating and financing activities generated cash flows of $5.9
billion and $6.7 billion, respectively. These cash flows were used for investing
activities totaling $12.3 billion in 1997, $7.5 billion in 1996 and $12.5
billion in 1995. In addition to increasing the investment in securities
portfolio, the increased cash usage reflects a reduction in the proceeds
generated from sales of wholesale receivables.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
COLLECTION RESULTS
The following statistics, which include serviced assets, summarize the Company's
delinquency, repossession and loss experience during the three year period ended
December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
RETAIL AND LEASE FINANCING:
- --------------------------
<S> <C> <C> <C>
Accounts past due over 30 days (average) ......... 3.6% 3.2% 2.7%
Repossessions of new vehicles .................... 1.8% 2.0% 1.9%
Repossessions of used vehicles ................... 3.9% 4.4% 3.7%
Number of vehicles repossessed ................... 103,000 130,000 124,000
Net retail losses as a percent of
total average serviced receivables.............. 1.25% 1.37% 0.84%
RETAIL LOSSES AS PERCENT OF LIQUIDATIONS:
- -----------------------------------------
Total serviced - Worldwide ....................... 2.19% 2.20% 1.35%
New serviced - United States ..................... 1.82% 1.75% 1.08%
Retail sold - United States ...................... 0.88% 0.64% 0.45%
CHARGE-OFFS (IN MILLIONS OF DOLLARS):
- -------------------------------------
Serviced receivables, net of recoveries .......... $533.4 $567.7 $352.8
Owned receivables, net of recoveries ............. 496.9 535.3 317.9
Allowance for credit losses as a percent of
net serviced receivables ....................... 1.29% 1.38% 1.18%
OPERATING LEASE PORTFOLIO - UNITED STATES:
- ------------------------------------------
Accounts past due over 30 days (average).......... 1.64% 1.60% 1.32%
Number of early terminations by default .......... 19,900 20,700 12,300
</TABLE>
As a result of tightened credit standards and intensified collection efforts,
repossessions and losses in the retail and lease financing portfolios and the
number of early terminations by default in the operating lease portfolio have
decreased when comparing 1997 to 1996. The increase in delinquencies and losses
during 1996 when compared to 1995 was consistent with trends in the consumer
finance industry during 1996.
BORROWING COSTS
Throughout 1996 and 1997, the Company returned to a more traditional funding mix
in the U.S. by emphasizing more floating rate short-term debt. As the general
level of short-term rates increased during 1997 (e.g., the 1997 U.S. prime
lending rate averaged 17 basis points higher than 1996), GMAC's cost of
short-term debt in the United States increased to an average of 5.49%, 5 basis
points above 1996, but 56 basis points below 1995. However, United States
medium-term and long-term debt costs decreased to an average of 7.02% for 1997,
18 and 33 basis points below 1996 and 1995, respectively.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On average, the Company's composite cost of debt for United States operations
declined to 6.35% in 1997, compared to 6.51% in 1996 and 6.86% in 1995. The
Company's worldwide cost of debt averaged 6.28% in 1997, down 29 and 74 basis
points from 1996 and 1995, respectively. The benefits of these lower average
borrowing cost factors is evident when comparing the Company's 11% increase in
average year-to-year outstanding debt with an accompanying increase of only 6%
in its year-to-year interest and discount expense.
FINANCING REVENUES AND OTHER INCOME
Consolidated financing revenue totaled $12.6 billion in 1997 compared with $12.6
billion and $11.7 billion in 1996 and 1995, respectively. Increased U.S.
wholesale financing and Canadian operating lease revenues were offset by a
decline in U.S. and international retail and lease financing revenues, resulting
in the unchanged level of financing revenues during 1997.
Retail and lease financing revenue, at $3,570.5 million for 1997, was $251.7
million lower and $278.9 million higher than 1996 and 1995, respectively. The
predominant factors in the 1997 decrease were lower average owned retail and
lease financing receivable balances in the U.S. and international portfolios,
resulting from continued competitive pressures in these markets.
As leasing continued to be a popular choice of consumers, operating lease
revenue, net of depreciation, totaled $2,583.0 million in 1997, essentially
unchanged from $2,587.6 million in 1996 and an increase over $1,980.2 million in
1995. A contributing factor to consistent leasing margins was continued positive
performance in the liquidation of off-lease vehicles, including consideration of
residual support received from GM.
Wholesale and term loan financing revenue amounted to $1,745.6 million, compared
with $1,607.0 million in 1996 and $2,087.4 million in 1995. The 1997 increase is
primarily attributable to higher average wholesale receivable balances resulting
from a reduction in the average amount of sold wholesale receivables during the
year.
Other income, including gains and fees related to sold finance receivables,
totaled $1,159.7 million for 1997, compared to $1,228.2 million and $1,455.9
million in 1996 and 1995, respectively. The decrease in 1997 is primarily
attributable to lower ongoing income from sales of retail finance receivables
transactions partially offset by an increase in the gains on 1997 sales of
retail finance receivables.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Pre-tax gains on sold retail receivables, excluding the related limited recourse
loss provision established at loan origination, totaled $84.8 million during
1997 compared with $35.2 million in 1996 and $38.2 million in 1995. Retail
receivables sales generally accelerate the recognition of income on retail
contracts, net of servicing fees and other related deferrals, into the period
the receivables are sold. The amount of such gains is affected by a number of
factors and may create variability in quarterly earnings depending on the type
and amount of receivables sold, the structure used to effect the sale, as well
as the prevailing financial market conditions. This acceleration results in the
pre-tax gains reflected above, and can create variability in annual earnings
depending on the amount, timing and the net margin between the average yield and
all-in-cost of the sold receivables. The acceleration also reduces profit
potential in future periods. Although this acceleration can significantly impact
quarterly or year-to-year comparisons, it should be noted that the Company
generally recognizes approximately 70% of interest and discount revenue in the
first two years of a retail contract (reflecting the term of the underlying
contracts, revenue recognition methods and historical prepayment experience). As
such, depending on the timing of receivables sales in a given year, the net
impact on annual earnings may be substantially less than the gains indicated.
EXPENSES
Salaries and benefits increased in 1997 to $1,050.4 million from $974.3 million
and $892.8 million in 1996 and 1995, respectively. The higher salary costs in
1997 primarily reflect higher employment levels at the mortgage operations
incidental to expanded financing and servicing business activities.
Other operating expenses totaled $1,801.8 million, $1,716.0 million and $1,499.0
at 1997, 1996 and 1995, respectively. The 1997 increase over 1996 reflects
higher general operating costs related to expanded financing business
activities, principally at the mortgage operations, partially offset by
decreases in repossession valuation adjustments and lower branch restructuring
and relocation costs. The 1996 increase over 1995 reflects higher general
operating costs incidental to expanded financing business activities,
principally at the mortgage operations, as well as higher data processing costs,
increased credit losses on operating leases, and higher collection and
repossession costs.
As noted earlier, net retail losses as a percentage of total average serviced
receivables was 1.25%, 1.37% and 0.84% in 1997, 1996 and 1995, respectively. The
decrease in 1997 compared to 1996 was primarily the result of a 21% decline in
the number of new and used vehicles repossessed. This decrease in repossessions
and losses resulted in the $522.7 million provision for credit losses for 1997,
which is $146.3 million below and $73.9 million above the respective 1996 and
1995 periods. The increase in 1996 over 1995 was primarily a result of a
continued rise in vehicle charge-off experience in the U.S. used vehicle
financing portfolio.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
United States, foreign and other income taxes totaled $912.9 million, $837.2
million and $752.2 million for 1997, 1996 and 1995, respectively. The 1997
increase over 1996 primarily reflects a 7% increase in pre-tax income and an
increase in the effective income tax rate on a consolidated basis. The increase
in the 1996 income tax expense over 1995 was attributable to a 17% increase in
pre-tax income partially offset by a decline in the effective income tax rate on
a consolidated basis. The effective income tax rate for 1997 was 41.2%, compared
to 40.3% in 1996 and 42.2% in 1995. The unfavorable change in 1997 was primarily
attributable to increases in accruals from prior years based upon periodic
assessment of the adequacy of such accruals and higher state and local income
taxes. The unusually high effective tax rate in 1995 was attributed almost
entirely to higher U.S. and foreign taxes assessed on foreign sourced income.
INSURANCE OPERATIONS
Gross premiums written by GMACI and its subsidiaries totaled $1,594.1 million,
$1,349.7 million and $1,324.8 million in 1997, 1996 and 1995, respectively. Net
premiums earned totaled $1,360.4 million in 1997, an increase of $202.4 million
above 1996, and $278.0 million over 1995. The increase over 1996 is primarily
due to increased revenues related to extended warranty coverages and the
inclusion of Integon's non-standard automobile premiums since its acquisition in
October 1997.
Pre-tax capital gains at GMACI, which are included in other income, totaled
$130.2 million for 1997, $30.0 million and $43.8 million above 1996 and 1995,
respectively.
Insurance losses and loss adjustment expenses totaled $1,073.5 million for 1997,
an increase of $101.3 million and $75.2 million over 1996 and 1995,
respectively. The increase over 1996 is attributable to the inclusion of losses
and loss adjustment expenses related to Integon's non-standard automobile
coverages since its acquisition in October 1997.
MORTGAGE OPERATIONS
GMACMG continued to maintain its position as a leading real estate financial
service company in the United States. Increased volume for all segments
contributed to the strong earnings growth for GMACMG. Loan origination, mortgage
servicing acquisitions and correspondent loan volume totaled $53.9 billion,
$44.3 billion and $35.9 billion for the years ended December 31, 1997, 1996 and
1995, respectively. The continued growth represents expanded commercial
operations, continued participation in the market for residential and commercial
servicing rights and continued diversification of its mortgage securitization
and lending operations. Reflecting stronger business activities, the GMACMG
servicing portfolio at December 31, 1997, including $2.5 billion of GMAC term
loans, was $143.6 billion, 31% above the $110.0 billion at December 31, 1996.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Mortgage revenue totaled $1,498.7 million, $943.7 million and $660.9 million for
the years ended December 31, 1997, 1996 and 1995, respectively. The increase in
1997 and 1996 is primarily attributable to continued growth in fee and
investment revenues.
ACQUISITIONS AND MERGERS
During 1997, the Company formed GMACI with an initial capitalization of $565
million. On October 17, 1997, GMACI acquired Integon for $523 million and the
assumption of $250 million in long-term debt.
In November 1997, the Company acquired certain operating assets of LSI Holdings,
Inc., a subprime financing and servicing company, and established Nuvell Credit
Corporation and Nuvell Financial Services Corporation as two new subsidiaries to
conduct subprime financing and servicing operations, respectively, in the United
States.
Both transactions will enable GMAC to continue its growth strategy in the
financial services industry.
ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS No. 125 is effective for certain transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996. SFAS No. 125 supersedes SFAS No. 77, Reporting by
Transferors for Transfers of Receivables with Recourse and SFAS No. 122,
Accounting for Mortgage Servicing Rights. The adoption of SFAS No. 125 by
the Company on January 1, 1997, did not have a material impact on its
consolidated financial position or results of operations.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
effective for fiscal years beginning after December 15, 1997. This statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company adopted this accounting standard effective December 31,
1997, and a Consolidated Statement of Changes in Stockholder's Equity is
presented immediately following the Consolidated Statement of Income.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONCLUDED)
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, effective for financial statements for
periods beginning after December 15, 1997. This statement establishes standards
for reporting information about operating segments in annual financial
statements and reporting of selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The Company adopted this accounting standard effective December 31,
1997. Segment information is presented in Note 17 in the Notes to Consolidated
Financial Statements.
YEAR 2000 COMPUTER SYSTEMS ISSUE
GMAC has information systems where there are potential operational problems with
applications that contain a date and/or use a date in a comparative manner as
the date transitions into the Year 2000. GMAC has a comprehensive worldwide
program to identify and remediate potential problems related to the Year 2000 in
its information systems, infrastructure and facilities. In addition, GMAC has
initiated formal communications with all of its significant external interfaces
to determine the extent to which GMAC is vulnerable to third parties' failures
to remediate their own potential problems related to the Year 2000. The
inability of GMAC or significant external interfaces of GMAC to adequately
address Year 2000 issues could cause disruption of GMAC's business operations.
Many of GMAC's systems are Year 2000 compliant, or have been scheduled for
replacement in its ongoing system plans. GMAC has incurred and expensed
approximately $5 million during the year ended December 31, 1997 related to the
assessment of, and preliminary efforts in connection with, its Year 2000 program
and remediation plan. Future spending for software modifications and testing
required for Year 2000 are currently estimated to be approximately $40 million
to $60 million with the majority expected to be incurred in 1998. GMAC's target
date for completing its Year 2000 modifications is December 31, 1998 with
additional testing and refinements to identified systems planned for 1999.
FORWARD LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations contains various forward looking statements within the
meaning of applicable federal securities laws and are based upon GMAC's current
expectations and assumptions concerning future events, which are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those anticipated.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of General Motors Acceptance
Corporation and subsidiaries were prepared by management, which is responsible
for their integrity and objectivity. The statements have been prepared in
conformity with generally accepted accounting principles and, as such, include
amounts based on judgments of management. Financial information elsewhere in
Part II is consistent with that in the consolidated financial statements.
Management is further responsible for maintaining a system of internal
accounting controls, designed to provide reasonable assurance that the books and
records reflect the transactions of the companies and that its established
policies and procedures are carefully followed. Perhaps the most important
feature in the system of control is that it is continually reviewed for its
effectiveness and is augmented by written policies and guidelines, the careful
selection and training of qualified personnel and a strong program of internal
audit.
Deloitte & Touche LLP, an independent auditing firm, is engaged to audit the
consolidated financial statements of General Motors Acceptance Corporation and
its subsidiaries and issue reports thereon. The audit is conducted in accordance
with generally accepted auditing standards which comprehend the consideration of
internal accounting controls and tests of transactions to the extent necessary
to form an independent opinion on the financial statements prepared by
management. The Independent Auditors' Report appears on the next page.
The Board of Directors, through its Audit Committee (the "Committee"), is
responsible for: (1) assuring that management fulfills its responsibilities in
the preparation of the consolidated financial statements; and (2) engaging the
independent auditors. The Committee reviews the scope of the audits and the
accounting principles being applied in financial reporting. The independent
auditors, representatives of management and the internal auditors meet regularly
(separately and jointly) with the Committee to review the activities of each, to
ensure that each is properly discharging its responsibilities and to assess the
effectiveness of the system of internal accounting controls. It is management's
conclusion that the system of internal accounting controls at December 31, 1997,
provides reasonable assurance that the books and records reflect the
transactions of the companies and that its established policies and procedures
are complied with. To ensure complete independence, Deloitte & Touche LLP has
full and free access to meet with the Committee, without management
representatives present, to discuss the results of the audit, the adequacy of
internal accounting controls and the quality of the financial reporting.
S/ J. D. FINNEGAN S/ W. F. MUIR
- --------------------------- --------------------------------
John D. Finnegan, President William F. Muir, Executive Vice
and Chief Executive Officer President and Principal Financial
Officer
<PAGE>
INDEPENDENT AUDITORS' REPORT
General Motors Acceptance Corporation:
We have audited the Consolidated Balance Sheet of General Motors Acceptance
Corporation and subsidiaries as of December 31, 1997 and 1996 and the related
Consolidated Statement of Income, Consolidated Statement of Changes in
Stockholder's Equity and Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements present fairly, in all material
respects, the financial position of General Motors Acceptance Corporation and
subsidiaries at December 31, 1997 and 1996 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.
S\ DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
600 Renaissance Center
Detroit, Michigan
January 26, 1998
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEET
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ---------
(in millions of dollars)
<S> <C> <C>
Cash and cash equivalents (Note 1) ........................... $ 759.2 $ 742.3
---------- ---------
EARNING ASSETS
Investments in securities (Note 5) ........................... 7,896.1 4,556.8
Finance receivables, net (Notes 2 and 3) ..................... 59,630.8 58,380.0
Investment in operating leases, net (Note 4) ................. 25,849.1 24,909.5
Notes receivable from General Motors Corporation (Note 13) ... 551.7 190.5
Real estate mortgages - held for sale ........................ 5,119.5 2,785.0
- held for investment .................. 713.0 611.2
- lending receivables .................. 2,222.9 1,404.6
Due and deferred from receivable sales, net (Note 3) ......... 690.5 1,214.5
Other (Note 13) .............................................. 1,807.6 1,617.6
---------- ---------
Total earning assets ...................................... 104,481.2 95,669.7
---------- ---------
NONEARNING ASSETS (Note 6) ................................... 4,078.9 2,166.0
---------- ---------
TOTAL ASSETS ................................................. $109,319.3 $98,578.0
========== =========
Notes, loans and debentures payable within
one year (Notes 7 and 8) .................................... $ 50,399.5 $45,809.9
---------- ---------
ACCOUNTS PAYABLE AND OTHER LIABILITIES
General Motors Corporation and affiliated companies (Note 13). 698.9 646.6
Interest ..................................................... 1,101.8 1,065.2
Insurance losses and loss expenses ........................... 2,125.3 1,581.9
Unearned insurance premiums .................................. 1,804.1 1,437.5
Deferred income taxes (Note 10) .............................. 2,577.1 2,215.8
United States and foreign income and
other taxes payable (Note 10) ............................... 321.2 35.6
Other postretirement benefits (Note 12) ...................... 652.6 627.0
Other ........................................................ 4,607.5 4,012.0
---------- ---------
Total accounts payable and other liabilities .............. 13,888.5 11,621.6
---------- ---------
Notes, loans and debentures payable after one year (Note 9) .. 36,275.2 32,878.9
---------- ---------
Commitments and contingencies (Notes 4, 16 and 18)
Common stock, $100 par value (authorized 25,000,000 shares,
outstanding 22,000,000 shares) .............................. 2,200.0 2,200.0
Net income retained for use in the business .................. 6,326.3 5,775.2
Net unrealized gains on securities (Note 5) .................. 368.5 276.7
Unrealized accumulated foreign currency translation adjustment (138.7) 15.7
---------- ---------
Accumulated other comprehensive income .................... 229.8 292.4
---------- ---------
Total stockholder's equity ................................ 8,756.1 8,267.6
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ................... $109,319.3 $98,578.0
========== =========
Reference should be made to the Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(in millions of dollars)
FINANCING REVENUE (Note 1)
<S> <C> <C> <C>
Retail and lease financing (Note 2) ...... $ 3,570.5 $ 3,822.2 $ 3,291.6
Operating leases (Note 4) ................ 7,260.5 7,214.6 6,285.0
Wholesale and term loans (Note 2) ........ 1,745.6 1,607.0 2,087.4
---------- ---------- ----------
Total automotive financing revenue .... 12,576.6 12,643.8 11,664.0
Interest and discount (Notes 8 & 9) ...... (5,255.5) (4,937.5) (4,936.3)
Depreciation on operating leases (Note 4). (4,677.5) (4,627.0) (4,304.8)
---------- ---------- ----------
Net automotive financing revenue ...... 2,643.6 3,079.3 2,422.9
Insurance premiums earned ................ 1,360.4 1,158.0 1,082.4
Mortgage revenue ......................... 1,498.7 943.7 660.9
Other income (Notes 3 and 13) ............ 1,159.7 1,228.2 1,455.9
---------- ---------- ----------
Net Financing Revenue and Other ....... 6,662.4 6,409.2 5,622.1
---------- ---------- ----------
EXPENSES
Salaries and benefits .................... 1,050.4 974.3 892.8
Other operating expenses ................. 1,801.8 1,716.0 1,499.0
Insurance losses and loss adjustment
expenses ................................ 1,073.5 972.2 998.3
Provision for credit losses (Note 2) ..... 522.7 669.0 448.8
---------- ---------- ----------
Total expenses ........................ 4,448.4 4,331.5 3,838.9
---------- ---------- ----------
Income before income taxes ............... 2,214.0 2,077.7 1,783.2
United States, foreign and other income
taxes (Note 10) ......................... 912.9 837.2 752.2
---------- ---------- ----------
NET INCOME ............................... $ 1,301.1 $ 1,240.5 $ 1,031.0
========== ========== ==========
Reference should be made to the Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<CAPTION>
For the Year Ended December 31, 1997
--------------------------------------------------------------------------
Accumulated
Total Other
Stockholder's Comprehensive Retained Comprehensive Common
(in millions of dollars) Equity Income Earnings Income Stock
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning balance .............................. $ 8,267.6 $ 5,775.2 $ 292.4 $2,200.0
Comprehensive income
Net income..................................... 1,301.1 $ 1,301.1 1,301.1
Other comprehensive income, net of tax:
Foreign currency translation
adjustments (net of tax of $99.6) ........... (154.4) (154.4)
Unrealized gains on securities, net of
reclassification adjustment (see disclosure). 91.8 91.8
----------------
Other comprehensive income .................... (62.6) (62.6)
----------------
Comprehensive income ........................... $ 1,238.5
================
Dividends declared on common stock ............. (750.0) (750.0)
----------------- -----------------------------------------
Ending balance ................................ $ 8,756.1 $ 6,326.3 $ 229.8 $2,200.0
================= =========================================
DISCLOSURE OF RECLASSIFICATION AMOUNT
- -------------------------------------
Unrealized holding gains arising during
period (net of tax of $94.9) .................. $ 176.5
Less: reclassification adjustment for gains
included in net income (net of tax of $45.5) .. (84.7)
----------------
Net unrealized gains on securities ............. $ 91.8
================
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
--------------------------------------------------------------------------
Accumulated
Total Other
Stockholder's Comprehensive Retained Comprehensive Common
(in millions of dollars) Equity Income Earnings Income Stock
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning balance .............................. $ 8,269.3 $ 5,734.7 $ 334.6 $2,200.0
Comprehensive income
Net income .................................... 1,240.5 $ 1,240.5 1,240.5
Other comprehensive income, net of tax:
Foreign currency translation
adjustments (net of tax of $21.5) ........... (34.2) (34.2)
Unrealized gains on securities, net of
reclassification adjustment (see disclosure). (8.0) (8.0)
----------------
Other comprehensive income .................... (42.2) (42.2)
----------------
Comprehensive income ........................... $ 1,198.3
================
Dividends declared on common stock ............. (1,200.0) (1,200.0)
----------------- -----------------------------------------
Ending balance ................................. $ 8,267.6 $ 5,775.2 $ 292.4 $2,200.0
================= =========================================
DISCLOSURE OF RECLASSIFICATION AMOUNT
- -------------------------------------
Unrealized holding gains arising during
period (net of tax of $30.8) .................. $ 57.1
Less: reclassification adjustment for gains
included in net income (net of tax of $35.1) .. (65.1)
================
Net unrealized gains on securities ............. $ (8.0)
================
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (CONCLUDED)
<CAPTION>
For the Year Ended December 31, 1995
--------------------------------------------------------------------------
Accumulated
Total Other
Stockholder's Comprehensive Retained Comprehensive Common
(in millions of dollars) Equity Income Earnings Income Stock
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning balance .............................. $ 7,893.7 $ 5,653.7 $ 40.0 $2,200.0
Comprehensive income
Net income .................................... 1,031.0 $ 1,031.0 1,031.0
Other comprehensive income, net of tax:
Foreign currency translation
adjustments (net of tax of $39.1) ........... 62.3 62.3
Unrealized gains on securities, net of
reclassification adjustment (see disclosure). 232.3 232.3
----------------
Other comprehensive income .................... 294.6 294.6
----------------
Comprehensive income ........................... $ 1,325.6
================
Dividends declared on common stock ............. (950.0) (950.0)
----------------- -----------------------------------------
Ending balance ................................. $ 8,269.3 $ 5,734.7 $ 334.6 $2,200.0
================= =========================================
DISCLOSURE OF RECLASSIFICATION AMOUNT
- -------------------------------------
Unrealized holding gains arising during
period (net of tax of $155.3) ................. $ 288.5
Less: reclassification adjustment for gains
included in net income (net of tax of $30.2) .. (56.2)
================
Net unrealized gains on securities ............. $ 232.3
================
Reference should be made to the Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(in millions of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ............................................... $ 1,301.1 $ 1,240.5 $ 1,031.0
Depreciation ............................................. 4,734.2 4,667.5 4,342.7
Provision for credit losses .............................. 522.7 669.0 448.8
Gains on sales of finance receivables..................... (84.8) (35.2) (38.2)
Mortgage loans-originations/purchases .................... (30,877.8) (19,455.3) (12,085.6)
-proceeds on sale .......................... 28,543.3 18,157.1 11,613.1
Mortgage-related securities held for trading-acquisitions (2,515.8) (970.2) (515.4)
-liquidations 1,448.5 757.6 532.6
Changes in the following items:
Due to General Motors Corporation and
affiliated companies .................................. 3.2 (1,103.0) (133.6)
Taxes payable and deferred ............................. 511.2 (204.5) 855.8
Interest payable ....................................... 47.1 17.0 86.6
Other assets ........................................... (308.0) (199.9) (212.2)
Other liabilities ...................................... 527.9 369.0 (61.7)
Other .................................................... 228.3 279.3 45.3
---------- --------- ----------
Net cash provided by operating activities ............. 4,081.1 4,188.9 5,909.2
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Finance receivables-acquisitions ......................... (163,613.6) (155,477.3) (163,033.3)
-liquidations ......................... 129,577.1 120,252.6 132,741.7
Notes receivable from General Motors Corporation ......... (361.2) (190.5) 1,080.5
Operating leases-acquisitions ............................ (15,392.8) (14,381.8) (14,034.6)
-liquidations ............................ 8,753.3 6,795.9 5,642.5
Investments in securities-acquisitions ................... (17,436.9) (13,088.6) (12,207.6)
-liquidations ................... 16,329.3 13,063.2 11,864.7
Proceeds from sales of receivables-wholesale ............. 26,091.9 34,620.0 22,010.8
-retail ................ 5,098.7 2,037.2 3,378.1
Due and deferred from receivable sales ................... 351.7 192.0 231.9
Acquisitions of net assets of subsidiaries, ..............
less cash acquired .................................... (422.4) -- --
Other .................................................... (1,316.0) (1,288.8) (219.4)
---------- --------- ----------
Net cash used in investing activities ................. (12,340.9) (7,466.1) (12,544.7)
---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt ................. 14,690.5 14,009.0 10,692.0
Principal payments on long-term debt ..................... (11,310.8) (11,938.9) (7,943.6)
Change in short-term debt, net ........................... 5,645.9 1,700.4 4,946.4
Dividends paid ........................................... (750.0) (1,200.0) (950.0)
---------- --------- ----------
Net cash provided by financing activities ............. 8,275.6 2,570.5 6,744.8
---------- --------- ----------
Effect of exchange rate changes on cash and cash
equivalents ............................................. 1.1 0.4 (0.2)
---------- --------- ----------
Net increase/(decrease) in cash and cash equivalents .. 16.9 (706.3) 109.1
Cash and cash equivalents at the beginning of the year ... 742.3 1,448.6 1,339.5
---------- --------- ----------
Cash and cash equivalents at the end of the year ......... $ 759.2 $ 742.3 $ 1,448.6
========== ========= ==========
SUPPLEMENTARY CASH FLOWS INFORMATION
Interest paid ........................................... $ 5,138.6 $ 4,851.7 $ 4,783.3
Income taxes paid ....................................... 338.2 1,003.9 210.9
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (CONCLUDED)
SUPPLEMENTARY CASH FLOWS INFORMATION (CONCLUDED)
During 1997, assets acquired, liabilities assumed, and consideration paid for
the acquisitions of subsidiaries are as follows:
<CAPTION>
(in millions of dollars)
<S> <C>
Fair value of assets acquired ........................... $ 1,850.2
Cash acquired ........................................... (142.6)
Liabilities assumed ..................................... (1,285.2)
----------
Net acquisitions ..................................... $ 422.4
==========
Reference should be made to the Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS:
- --------------------
General Motors Acceptance Corporation (the "Company" or "GMAC"), a wholly-owned
subsidiary of General Motors Corporation ("General Motors" or "GM"), was
incorporated in 1997 under Delaware General Corporate Law. On January 1, 1998,
the Company merged with its predecessor, which was originally incorporated in
New York in 1919.
The Company is a financial services organization that principally provides
consumer and dealer vehicle financing. The principal markets for the Company's
automotive financial products and services are North America, Europe, Latin
America and Asia-Pacific. The Company's mortgage banking subsidiaries operate
principally in the U.S. In addition, the Company owns subsidiaries which offer
insurance products and services in North America, Europe, Latin America and
Asia-Pacific.
PRINCIPLES OF CONSOLIDATION:
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its domestic and foreign subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation.
Certain prior period amounts have been reclassified to conform with the 1997
presentation.
CASH EQUIVALENTS:
- ----------------
Cash equivalents are defined as short-term, highly liquid investments with
original maturities of 90 days or less.
REVENUE RECOGNITION:
- -------------------
Financing revenue is recorded over the terms of the receivables using the
interest method. Certain loan origination costs are deferred and amortized to
financing revenue over the life of the related loans using the interest method.
Income from operating lease assets is recognized on a straight-line basis over
the scheduled lease term. Certain operating lease origination costs are deferred
and amortized to financing revenue over the life of the related operating leases
using the straight-line method.
ALLOWANCE FOR CREDIT LOSSES:
- ---------------------------
An allowance for credit losses is generally established during the period in
which receivables are acquired and is maintained in amounts considered by
management to be appropriate in relation to receivables outstanding. Losses
arising from the sale of repossessed collateral are charged to the allowance for
credit losses. Where repossession has not been effected, losses are charged off
as soon as it is determined that the collateral cannot be repossessed, generally
not more than 150 days after default.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REPOSSESSED PROPERTY AND IMPAIRED LOANS:
- ---------------------------------------
Losses arising from the repossession of collateral supporting doubtful accounts
and property supporting defaulted operating leases are recognized upon
repossession. Repossessed assets are recorded at the lower of historical cost or
estimated realizable value and are included in nonearning assets with the
related adjustments to the valuation allowance included in other operating
expenses.
Non-retail finance receivables are reduced to the estimated fair value of
collateral when determined to be impaired or uncollectible.
SALES OF RECEIVABLES:
- --------------------
The Company sells retail and wholesale receivables through consolidated special
purpose subsidiaries which absorb all losses related to sold receivables to the
extent of their subordinated investments and certain segregated restricted cash
reserves. Appropriate limited recourse loss allowances associated with sold
receivables are transferred from the allowance for credit losses and are
included in due and deferred from receivable sales, net. Normal servicing fees
on sold receivables are earned over time based on the amount of serviced loans
outstanding.
Pre-tax gains on sold receivables are recorded in other income. In determining
the gain or loss for each qualifying sale of retail receivables, the investment
in the sold receivable pool is allocated between the portion sold and the
portion retained based on their relative fair values on the date of sale. The
receivables sold are removed from finance receivables and the Company's retained
interests in such receivables are included in investments in securities and are
classified as available for sale.
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No.
125 requires securitization transactions to be accounted for as sales when legal
and effective control over transferred receivables is surrendered. SFAS No. 125
is effective for certain transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. The Company
adopted SFAS No. 125 on January 1, 1997.
DEPRECIATION:
- ------------
The Company and its subsidiaries provide for depreciation of vehicles and other
equipment on operating leases or in company use generally on a straight-line
basis. The provision for depreciation is adjusted for the difference between the
net book value and the proceeds of sale or salvage on disposal of the assets.
The Company evaluates its depreciation policy for leased vehicles on a regular
basis.
INTANGIBLE ASSETS:
- -----------------
Intangible assets, principally the excess of cost over the fair value of
identifiable net assets of purchased businesses, are amortized using the
straight-line method over periods not exceeding 40 years.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION:
- ----------------------------
All assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at year-end exchange rates. Income and expense items are translated at
average exchange rates prevailing during the year. The resulting translation
adjustments are recorded as a component of stockholder's equity.
FINANCIAL INSTRUMENTS:
- ---------------------
The Company is party to a variety of interest rate and foreign exchange swap
agreements and options. These financial exposures are managed in accordance with
corporate policies and procedures.
As part of the approval process, GMAC management identifies the specific
financial risk which the derivative transaction will minimize and the
appropriate hedging instrument to be used to reduce the risk. If it is
determined that a high correlation between a specific transaction risk and the
hedging instrument does not exist, the transaction is generally not approved. In
those infrequent instances in which approval is received for a hedging
transaction that does not have a high correlation, the derivative is
marked-to-market for accounting purposes.
The Company accounts for interest rate swap agreements using settlement
accounting as they alter the characteristics of assets or liabilities to which
they are matched. The cash flows from interest rate swaps are accounted for as
adjustments to interest income or expense depending on the underlying exposure.
Gains and losses from terminated contracts are deferred and amortized over the
remaining period of the original swap or the remaining term of the underlying
exposure whichever is shorter. Open swap positions are reviewed regularly to
ensure that they remain effective in managing interest rate risk. Written
options (including related premiums) and interest rate basis swaps are
marked-to-market on a current basis with the related income or expense included
in other income. Portfolio swaps are identified with specific portfolios of
assets or liabilities with any amounts due or payable, and amounts paid or
received, offset against the related interest income or expense.
Foreign exchange swap agreements are entered into in connection with the
Company's management of its foreign currency exposures and are accounted for
using settlement accounting as it relates to periodic interest payments. The
foreign currency gains and losses associated with these contracts offset the
correlating foreign currency gains and losses related to the designated
liabilities.
INSURANCE OPERATIONS:
- --------------------
GMAC Insurance Holdings, Inc. and its subsidiaries (collectively GMACI) perform
a wide array of insurance underwriting including personal, mechanical and
commercial coverages. In addition, property and casualty risks are assumed from
other insurers, primarily in the United States. Premiums are earned on a basis
related to coverage provided over the terms of the policies or reinsurance
assumed contracts. Commissions, premium taxes and other costs that vary with and
are primarily related to acquiring new business are deferred and amortized over
the terms of the related policies on the same basis as premiums are earned. The
liability for losses and loss expenses includes amounts relating to reinsurance
agreements and represents the accumulation of estimates.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
INSURANCE OPERATIONS (CONCLUDED):
- --------------------------------
for reported losses and a provision for losses incurred but not reported.
Estimates for salvage and subrogation recoverable are recognized at the time
losses are incurred. Insurance liabilities are necessarily based on estimates
and the ultimate liability may vary from such estimates. The estimates are
continually reviewed and adjustments are included in income.
USE OF ESTIMATES:
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported therein. Due to the inherent uncertainty involved in
making estimates, actual results reported in future periods may be based upon
amounts which differ from those estimates.
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. FINANCE RECEIVABLES
The composition of finance receivables outstanding at December 31, 1997 and 1996
is summarized as follows:
<CAPTION>
DECEMBER 31,
----------------
1997 1996
---- ----
(in millions of dollars)
<S> <C> <C>
United States
Retail ........................................... $ 26,570.2 $ 26,708.1
Wholesale ........................................ 15,212.7 13,608.6
Leasing and lease financing ...................... 716.2 1,180.0
Term loans to dealers and others ................. 3,506.6 3,377.7
---------- ----------
Total United States ............................... 46,005.7 44,874.4
---------- ----------
Canada
Retail ........................................... 1,088.5 657.8
Wholesale ........................................ 2,245.9 1,615.8
Leasing and lease financing ...................... 962.3 834.1
Term loans to dealers and others ................. 215.6 178.2
---------- ----------
Total Canada ...................................... 4,512.3 3,285.9
---------- ----------
Europe
Retail ........................................... 4,944.2 5,803.5
Wholesale ........................................ 3,828.5 3,951.3
Leasing and lease financing ...................... 578.1 561.9
Term loans to dealers and others ................. 279.7 241.9
---------- ----------
Total Europe ...................................... 9,630.5 10,558.6
---------- ----------
Other Countries
Retail ........................................... 2,026.0 2,283.8
Wholesale ........................................ 1,048.0 1,085.4
Leasing and lease financing ...................... 523.7 619.4
Term loans to dealers and others ................. 124.2 143.6
---------- ----------
Total Other Countries ............................. 3,721.9 4,132.2
---------- ----------
Total finance receivables ......................... 63,870.4 62,851.1
---------- ----------
Deductions
Unearned income .................................. 3,336.6 3,549.3
Allowance for credit losses ...................... 903.0 921.8
---------- ----------
Total deductions .................................. 4,239.6 4,471.1
---------- ----------
Finance receivables, net .......................... $ 59,630.8 $ 58,380.0
========== ==========
The aggregate amount of total finance receivables maturing in each of the five
years following December 31, 1997, is as follows: 1998 - $37,416.3 million; 1999
- - $10,575.1 million; 2000 - $8,125.6 million; 2001 - $4,860.5 million; 2002 -
$2,065.8 million; 2003 and thereafter - $827.1 million.
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. FINANCE RECEIVABLES (CONCLUDED)
The following table presents an analysis of the allowance for automotive credit
losses:
<CAPTION>
DECEMBER 31,
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Allowance for credit losses at
beginning of the year ................. $ 921.8 $ 807.9 $ 693.3
------- ------- -------
Charge-offs
United States ......................... (521.9) (601.3) (372.2)
Other Countries ....................... (82.2) (69.9) (50.2)
------- ------- -------
Total charge-offs ...................... (604.1) (671.2) (422.4)
------- ------- -------
Recoveries and other
United States ......................... 110.0 125.3 102.0
Other Countries ....................... (2.8) 10.6 2.5
------- ------- -------
Total recoveries and other ............. 107.2 135.9 104.5
Transfers to sold receivables
allowance ............................. (44.6) (19.8) (16.3)
Provisions charged to income ........... 522.7 669.0 448.8
------- ------- -------
Allowance for credit losses
at end of the year .................... $ 903.0 $ 921.8 $ 807.9
======= ======= =======
</TABLE>
Impaired loans of the Company are carried at the lower of book value or the fair
value of the collateral. The following table presents a summary of the allowance
for credit losses on impaired loans for the years ended December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
(in millions of dollars)
<S> <C> <C>
Allowance for credit losses at
beginning of the year ....................... $ 78.9 $ 118.4
Additions/(subtractions) ................ 24.2 (17.1)
Net charge-offs ......................... (14.6) (22.4)
---------- ----------
Allowance for credit losses at
end of the year ............................. $ 88.5 $ 78.9
========== ==========
The total investments in these loans were $211.9 million and $163.3 million at
December 31, 1997 and 1996, respectively. The average recorded investments
during 1997 and 1996 were $192.7 million and $207.9 million, respectively. The
Company's policy is to recognize interest income related to impaired loans on a
cash basis.
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SALE OF FINANCE RECEIVABLES
The Company participates in various sales of receivables programs and has sold
retail finance receivables through special purpose subsidiaries with principal
aggregating $5.4 billion in 1997, $2.2 billion in 1996 and $3.6 billion in 1995.
These subsidiaries generally retain a subordinated investment of no greater than
7.5% of the total receivables pool and market the remaining portion. These
subordinated investments absorb losses related to sold receivables to the extent
that such losses are greater than the excess cash flows from those receivables
and cash reserves related to the sale transaction. Pre-tax gains relating to
such sales recorded in other income (excluding limited recourse loss provisions
which generally have been provided at the time the contracts were originally
acquired) amounted to $84.8 million in 1997, $35.2 million in 1996 and $38.2
million in 1995. The Company continues to service these receivables for a fee
which is considered to be adequate compensation and earns other related ongoing
income. The Company's sold retail finance receivable servicing portfolio
amounted to $6.0 billion and $4.3 billion at December 31, 1997 and 1996,
respectively.
The Company has sold wholesale receivables on a revolving basis resulting in
decreases in wholesale outstandings of $6.3 billion and $5.4 billion at December
31, 1997 and 1996, respectively. The Company continues to service these
receivables for a fee which is considered to be adequate compensation and is
committed to sell eligible wholesale receivables arising in certain dealer
accounts.
On January 1, 1997, the Company adopted SFAS No. 125, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, for all
applicable transactions. SFAS No. 125 addresses the accounting for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996 and the accounting for and classification of previously
recognized excess servicing assets. In accordance with the requirements of this
statement, the Company has reclassified amounts previously classified as excess
servicing receivables to interest-only strip receivables and reclassified its
previously recognized subordinated interest in trusts from due and deferred from
receivable sales to investments in securities. In addition, this statement
requires such amounts to be recorded at estimated fair value. The excess of
market value over cost for interest-only strip receivables is recorded within a
separate component of stockholder's equity, net of related income taxes. SFAS
No. 125 did not have a material impact on the Company's calculation of gains
related to the sale of finance receivables. Restatement of prior periods is not
permitted.
The Company's interest-only strip receivables cash flows, subordinated interests
in trusts, cash deposits and other related amounts are generally restricted
assets and subject to limited recourse provisions. The following is a summary of
amounts included in due and deferred from receivable sales, net.
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SALE OF FINANCE RECEIVABLES (CONCLUDED)
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
(in millions of dollars)
<S> <C> <C>
Excess Servicing (1)......................... $ -- $ 122.8
Interest-only strip receivables (1).......... 251.1 --
Other restricted amounts:
Subordinated interests in trusts (2) ....... -- 288.5
Cash deposits held by trusts ............... 433.9 770.8
Other ...................................... 45.2 64.0
Allowance for estimated credit losses on
sold receivables ........................... (39.7) (31.6)
---------- ----------
Total due and deferred from receivable sales $ 690.5 $ 1,214.5
========== ==========
(1) In accordance with SFAS No. 125, amounts previously classified as excess
servicing receivables were reclassified to interest-only strip receivables.
(2) In accordance with SFAS No. 125, amounts were reclassified to investments in
securities.
</TABLE>
The following table presents a summary of the allowance for estimated credit
losses on sold receivables:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996 1995
---- ---- ----
(in millions of dollars)
<S> <C> <C> <C>
Allowance for estimated credit
losses at beginning of the year ..... $ 31.6 $ 44.2 $ 62.8
Transfers from allowance for credit
losses .............................. 44.6 19.8 16.3
Charge-offs .......................... (36.5) (32.4) (34.9)
-------- -------- --------
Allowance for estimated credit
losses at end of the year ........... $ 39.7 $ 31.6 $ 44.2
======== ======== ========
</TABLE>
NOTE 4. INVESTMENT IN OPERATING LEASES
Operating leases at year-end were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- ----------
(in millions of dollars)
<S> <C> <C>
Investment in operating leases
Vehicles and other equipment, at cost ... $ 32,752.7 $ 31,838.9
Less: Accumulated depreciation ........ 6,903.6 6,929.4
---------- ----------
Investment in operating leases, net ........ $ 25,849.1 $ 24,909.5
========== ==========
</TABLE>
The Company's investment in operating leases is based on estimated residual
values of the leased equipment, which are calculated at the lease inception
date. Realization of the residual values is dependent on the Company's future
ability to market the vehicles under then prevailing market conditions. Although
realization is not assured, management believes it is more likely than not that
the estimated residual values will be realized.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INVESTMENT IN OPERATING LEASES (CONCLUDED)
The lease payments applicable to equipment on operating leases maturing in each
of the five years following December 31, 1997, are as follows: 1998 - $5,569.6
million; 1999 - $3,566.2 million; 2000 - $1,560.3 million; 2001 - $139.4 million
and 2002 - $6.7 million.
Each of these assets is depreciated on a straight-line basis over a period of
time which is consistent with the term of the underlying operating lease
agreement.
NOTE 5. INVESTMENTS IN SECURITIES
Bonds, equity securities, notes and other investments are carried at fair value.
For available for sale investments, the aggregate excess of market value over
cost, net of related income taxes, is included within a separate component of
stockholder's equity. For mortgage-related trading securities, the excess of
market value over cost is included in income. The Company determines cost on the
specific identification basis. The fair value of the investments, except for the
mortgage-related trading securities portfolio and retained interests in
securitizations, is based on quoted market prices. The fair value of the
mortgage-related trading securities and retained interests in securitizations is
based on estimated market value.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
Fair Unrealized Unrealized
TYPE OF SECURITY COST VALUE GAINS LOSSES
- ----------------------- ---- ----- ---------- ----------
(in millions of dollars)
<S> <C> <C> <C> <C>
Bonds, notes and other securities:
United States government
and governmental agencies
and authorities ............ $ 687.1 $ 694.2 $ 7.2 $ ( 0.1)
States, municipalities and
political subdivisions ..... 1,575.8 1,685.5 120.7 (11.0)
Mortgage-related securities 110.7 113.3 2.7 ( 0.1)
Subordinated interests in
trusts ..................... 554.9 557.6 2.7 --
Other ....................... 1,846.4 1,883.9 47.4 ( 9.9)
---------- ---------- --------- ----------
Total debt securities
available for sale ......... 4,774.9 4,934.5 180.7 (21.1)
Mortgage-related securities
held for trading purposes .. 2,062.6 2,062.6 -- --
---------- ---------- --------- ----------
Total debt securities ........ 6,837.5 6,997.1 180.7 (21.1)
---------- ---------- --------- ----------
Equity securities
available for sale .......... 523.1 899.0 415.7 (39.8)
---------- ---------- --------- ----------
Total investments in securities $ 7,360.6 $ 7,896.1 $ 596.4 $ (60.9)
========== ========== ========= ==========
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INVESTMENTS IN SECURITIES (CONTINUED)
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------
Fair Unrealized Unrealized
TYPE OF SECURITY COST VALUE GAINS LOSSES
- ---------------- ---- ----- ---------- ----------
(in millions of dollars)
<S> <C> <C> <C> <C>
Bonds, notes and other securities:
United States government
and governmental agencies
and authorities ............ $ 324.9 $ 328.4 $ 3.9 $ (0.4)
States, municipalities and
political subdivisions ..... 1,573.4 1,647.9 84.7 (10.2)
Mortgage-related securities 61.9 63.9 2.1 (0.1)
Other ....................... 1,145.8 1,176.1 35.6 (5.3)
---------- ---------- --------- --------
Total debt securities
available for sale ......... 3,106.0 3,216.3 126.3 (16.0)
Mortgage-related securities
held for trading purposes .. 697.3 697.3 -- --
---------- ---------- --------- --------
Total debt securities ........ 3,803.3 3,913.6 126.3 (16.0)
---------- ---------- --------- --------
Equity securities
available for sale .......... 327.8 643.2 325.9 (10.5)
---------- ---------- --------- --------
Total investments in securities $ 4,131.1 $ 4,556.8 $ 452.2 $ (26.5)
========== ========== ========= ========
</TABLE>
The distribution of maturities of debt securities outstanding at December 31,
1997 is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
Fair
MATURITY COST VALUE
- -------- ---- -----
(in millions of dollars)
<S> <C> <C>
Due in one year or less ................. $ 376.0 $ 361.4
Due after one year through five years ... 2,072.6 2,127.2
Due after five years through ten years .. 1,334.7 1,386.5
Due after ten years ..................... 880.9 946.1
Mortgage-related securities ............. 2,173.3 2,175.9
---------- ----------
Total debt securities ................... $ 6,837.5 $ 6,997.1
========== ==========
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INVESTMENTS IN SECURITIES (CONCLUDED)
<TABLE>
The following table summarizes proceeds, gains and losses realized from the sale
of investment securities during the three year period ended December 31, 1997:
<CAPTION>
1997 1996 1995
---- ---- ----
(in millions of dollars)
DEBT SECURITIES:
<S> <C> <C> <C>
Sale proceeds ............ $2,318.7 $2,101.8 $1,370.9
Gross realized gains ..... 54.7 44.6 21.4
Gross realized losses .... 18.3 18.7 15.5
EQUITY SECURITIES:
Sale proceeds ............ $ 365.4 $ 234.4 $ 202.7
Gross realized gains ..... 121.1 84.4 87.4
Gross realized losses .... 27.3 10.1 6.9
</TABLE>
NOTE 6. NONEARNING ASSETS
Nonearning assets consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
---- ----
(in millions of dollars)
<S> <C> <C>
Property and equipment at cost .................... $ 410.9 $ 276.1
Accumulated depreciation .......................... (132.6) (115.3)
------------ ---------
Net property and equipment ........................ 278.3 160.8
Nonperforming assets (net of valuation reserves)... 411.5 339.7
Ceded loss and LAE reserve/reinsurance receivable . 677.5 424.9
Insurance premiums receivable ..................... 358.1 151.0
Residential servicing advances .................... 53.7 44.2
Deferred policy acquisition cost .................. 317.2 237.7
Intangible assets, net of accumulated amortization 718.4 168.7
Other assets ...................................... 1,264.2 639.0
----------- ----------
Total nonearning assets ........................... $ 4,078.9 $ 2,166.0
=========== ==========
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. LINES OF CREDIT WITH BANKS
The Company maintains four syndicated bank credit facilities in the U.S.
and Europe.
As of December 31, 1997, syndicated bank credit facilities in the U.S. included
a five year, $10.0 billion revolving credit facility, which expires in May 2002,
and an $11.6 billion 364-day asset-backed commercial paper liquidity and
receivables credit facility for New Center Asset Trust (NCAT), a
non-consolidated limited purpose business trust established to issue
asset-backed commercial paper.
In Europe, the syndicated facilities are used as needed to fund GMAC's financing
operations in line with the Company's historical reliance on bank debt outside
the U.S. and Canada. In this regard, these five-year syndicated facilities
expire in May 2002 and are comprised of a $500 million revolving credit facility
to GMAC International Finance, B.V. in the Netherlands and a 400 million United
Kingdom Pound Sterling revolving credit facility to General Motors Acceptance
Corporation (U.K.) plc.
With respect to the $10.0 billion U.S. revolving credit facility, the Company
has agreed to a covenant such that, so long as the commitments remain in effect
or any amount is owing to any lender under such commitments, the ratio of
consolidated debt to total stockholder's equity at the last day of any fiscal
quarter shall not exceed 11.0:1. At December 31, 1997 and 1996, this ratio
amounted to 9.9:1 and 9.5:1, respectively.
Inclusive of these syndicated agreements, credit facilities maintained worldwide
totaled $39.8 billion at December 31, 1997, compared to $40.7 billion at
December 31, 1996. Facilities available for use as commercial paper back-up in
the United States amounted to $21.6 billion at December 31, 1997 and $22.2
billion at December 31, 1996, all of which were unused. GMAC Mortgage
Corporation had $1.8 billion of bank lines of credit at December 31, 1997,
compared with $1.4 billion at December 31, 1996, which are utilized in the
normal course of business. Of these lines, $0.4 billion and $0.3 billion were
unused at December 31, 1997 and 1996, respectively.
Credit facilities supporting operations in Canada, Europe, Latin America and
Asia-Pacific totaled $16.4 billion at December 31, 1997 and $17.1 billion at
December 31, 1996 of which $8.4 billion and $8.1 billion were unused at December
31, 1997 and 1996, respectively. As of December 31, 1997, the committed and
uncommitted portion of such credit facilities totaled $4.5 billion and $11.9
billion, respectively. As of December 31, 1996, the committed and uncommitted
portion of such credit facilities totaled $5.0 billion and $12.1 billion,
respectively.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. NOTES, LOANS AND DEBENTURES PAYABLE WITHIN ONE YEAR
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
---- ----
(in millions of dollars)
<S> <C> <C>
Short-term notes
Commercial paper .......................... $ 27,460.9 $ 22,650.8
Master notes .............................. 248.2 289.3
Demand notes .............................. 3,709.2 3,396.4
Other ..................................... 869.3 894.9
---------- ----------
Total principal amount ..................... 32,287.6 27,231.4
Unamortized discount ....................... (192.0) (189.4)
---------- ----------
Total ...................................... 32,095.6 27,042.0
---------- ----------
Bank loans and overdrafts
United States ............................. 1,660.8 1,068.0
Other Countries ........................... 6,850.1 7,756.4
---------- ----------
Total ...................................... 8,510.9 8,824.4
---------- ----------
Other notes, loans and debentures
payable within one year
United States ............................ 8,869.2 9,180.7
Other countries .......................... 923.8 762.8
---------- ----------
Total ...................................... 9,793.0 9,943.5
---------- ----------
Total payable within one year .............. $ 50,399.5 $ 45,809.9
========== ==========
</TABLE>
The weighted average maturities of commercial paper was 46 days at December 31,
1997 and 54 days at December 31, 1996.
The weighted average interest rates on short-term borrowings outstanding
(original term of one year or less) at December 31, 1997 and 1996 were 5.48% and
5.65%, respectively.
After consideration of foreign currency swaps, the above maturities denominated
in currencies other than the U.S. Dollar primarily consist of the Canadian
Dollar ($4,257.9 million), German Mark ($2,958.1 million), United Kingdom Pound
Sterling ($1,389.9 million) and Australian Dollar ($738.0 million). The Company
and its subsidiaries have entered into foreign currency swap agreements to hedge
exposures related to notes and loans payable in currencies other than the local
currency of the debt issuing entity.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. NOTES, LOANS AND DEBENTURES PAYABLE WITHIN ONE YEAR (CONCLUDED)
One debt issue totaling $100.0 million is redeemable, at par or slightly above,
at the Company's option. The debt issue is redeemable anytime until prior to the
March 1998 maturity date.
The Company's debt includes $1,095.0 million in notes with variable rates which
provide investors with the option to cause GMAC to repurchase them at specific
dates through June 1998. Generally, the probability of exercising an option
would increase in the event that one or more of the Company's security ratings
is reduced or an increase in market interest rates occurs and the notes are
subject to fixed interest rates. For purposes of the above maturities, it is
assumed that no repurchase will occur.
To achieve its desired balance between fixed and variable rate debt, the Company
has entered into interest rate swap, interest rate cap, and forward starting
interest rate swap agreements. The breakdown between the fixed and variable
interest rate amounts based on contractual terms (predominately based on London
Interbank Offering Rate (LIBOR)) and after the effect of interest rate
derivatives is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
---- ----
(in millions of dollars)
DEBT BALANCES BASED ON CONTRACTUAL TERMS:
<S> <C> <C>
Fixed amount ............................. $39,582.1 $39,472.1
Variable amount .......................... 11,015.5 6,538.8
DEBT BALANCES AFTER EFFECT OF DERIVATIVES:
Fixed amount ............................. $39,448.1 $39,756.2
Variable amount .......................... 11,149.5 6,254.7
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. NOTES, LOANS AND DEBENTURES PAYABLE AFTER ONE YEAR
<CAPTION>
Weighted average DECEMBER 31,
interest rates at --------------------
MATURITY DECEMBER 31, 1997 1997 1996
- ---------------------------- ----------------- ---------- -------
(in millions of dollars)
<S> <C> <C> <C> <C>
United States currency
1998 ...................... -- $ - $ 7,922.2
1999 ...................... 6.6% 8,479.7 5,599.7
2000 ...................... 7.1% 4,567.7 3,478.7
2001 ...................... 6.8% 4,534.8 3,083.8
2002 ...................... 6.4% 6,329.1 2,110.2
2003 ...................... 6.9% 2,602.8 2,270.0
2004 - 2008 ............... 6.9% 2,075.5 1,342.5
2009 - 2013 ............... 10.2% 1,215.4 1,203.5
2014 - 2018 ............... 10.3% 373.8 373.8
2019 - 2049 ............... 5.4% 75.0 75.0
---------- ----------
Total United States currency 30,253.8 27,459.4
Other currencies
1999 - 2007 ............... 6.0% 6,715.2 6,157.9
---------- ----------
Total notes, loans and
debentures ................ 36,969.0 33,617.3
Unamortized discount ....... (693.8) (738.4)
---------- ----------
Total notes, loans and
debentures payable after
one year .................. $ 36,275.2 $ 32,878.9
========== ==========
</TABLE>
The aggregate principal amounts of notes, loans and debentures with terms of
more than one year from dates of issue, maturing in the years following December
31, 1998, are as follows: 1999 - $11,315.3 million; 2000 - $6,133.3 million;
2001 - $5,881.5 million; 2002 - $6,978.1 million; and 2003 and thereafter -
$6,660.8 million.
After consideration of foreign currency swaps, the above maturities which are
denominated in currencies other than the U.S. Dollar, primarily consist of the
Canadian Dollar ($3,153.7 million), United Kingdom Pound Sterling ($1,150.6
million), German Mark ($1,133.7 million) and Australian Dollar ($858.0 million).
The Company and its subsidiaries have entered into foreign currency swap
agreements to hedge exposures related to notes and loans payable in currencies
other than the local currency of the debt issuing entity.
The Company has issued warrants to subscribe for up to $50 million aggregate
principal amount of 7.00% notes due August 15, 2002. The warrants are
exercisable up to and including August 15, 2000.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. NOTES, LOANS AND DEBENTURES PAYABLE AFTER ONE YEAR (CONCLUDED)
The Company has issued warrants to subscribe for up to $300 million aggregate
principal amount of 6.50% Notes due October 15, 2009. The warrants are
exercisable up to and including October 15, 2007.
Debt issues totaling $1,652.2 million are redeemable, at par or slightly above,
at the Company's option. The debt issues are redeemable anytime until prior to
their maturity dates with the latest maturity date in November 2049.
The Company's debt includes $1,700.0 million in notes with fixed rates and
$425.0 million in notes with variable rates which provide investors with the
option to cause GMAC to repurchase them at specific dates through November 2049.
Generally, the probability of exercising an option would increase in the event
that one or more of the Company's security ratings is reduced or an increase in
market interest rates occurs and the notes are subject to fixed interest rates.
For purposes of the above maturities, it is assumed that no repurchase will
occur.
To achieve its desired balance between fixed and variable rate debt, the Company
has entered into interest rate swap, interest rate cap, and forward starting
interest rate swap agreements. The breakdown between the fixed and variable
interest rate amounts based on contractual terms (predominately based on LIBOR)
and after the effect of interest rate instruments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
---- ----
(in millions of dollars)
DEBT BALANCES BASED ON CONTRACTUAL TERMS:
<S> <C> <C>
Fixed amount ............................. $29,192.7 $27,146.0
Variable amount .......................... 7,776.3 6,471.3
DEBT BALANCES AFTER EFFECT OF DERIVATIVES:
Fixed amount ............................. $27,278.4 $27,097.6
Variable amount .......................... 9,690.6 6,519.7
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. UNITED STATES, FOREIGN AND OTHER INCOME TAXES
The Company and its domestic subsidiaries join with General Motors Corporation
in filing a consolidated United States federal income tax return. The portion of
the consolidated tax recorded by the Company and its subsidiaries included in
the consolidated tax return generally is equivalent to the liability that would
have been incurred on a separate return basis. Provisions are made for estimated
United States and foreign income taxes, less available tax credits and
deductions, which may be incurred on remittance of the Company's share of its
subsidiaries' undistributed earnings not deemed to be indefinitely reinvested.
Taxes have not been provided on foreign subsidiaries' earnings which are deemed
indefinitely reinvested of approximately $917.0 million at December 31, 1997 and
$836.0 million at December 31, 1996. Quantification of the deferred tax
liability, if any, associated with permanently reinvested earnings is not
practicable.
Deferred income taxes reflect the impact of "temporary differences" between
values recorded for assets and liabilities for financial reporting purposes and
values utilized for measurement in accordance with tax laws.
The tax effects of the primary temporary differences giving rise to the
Company's deferred tax assets and liabilities for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------
ASSET LIABILITY
----- ---------
(in millions of dollars)
<S> <C> <C>
Lease transactions ......................... $ -- $ 2,711.1
Provision for credit losses ................ 368.7 --
Debt transactions .......................... -- 333.1
Unrealized gain on securities .............. -- 229.3
State and local taxes ...................... -- 135.9
Insurance loss reserve discount ............ 134.0 --
Unearned insurance premiums ................ 136.7 --
Other postretirement benefits .............. 229.5 --
Other ...................................... 227.0 263.6
---------- ----------
Total deferred income taxes ................ $ 1,095.9 $ 3,673.0
========== ==========
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. UNITED STATES, FOREIGN AND OTHER INCOME TAXES (CONTINUED)
<CAPTION>
DECEMBER 31, 1996
-------------------
ASSET LIABILITY
----- ---------
(in millions of dollars)
<S> <C> <C>
Lease transactions ......................... $ -- $ 2,220.9
Provision for credit losses ................ 316.8 --
Debt transactions .......................... -- 322.5
Unrealized gain on securities .............. -- 211.0
State and local taxes ...................... -- 172.6
Insurance loss reserve discount ............ 93.7 --
Unearned insurance premiums ................ 92.9 --
Other postretirement benefits .............. 213.7 --
Other ...................................... 281.7 287.6
---------- ----------
Total deferred income taxes ................ $ 998.8 $ 3,214.6
========== ==========
</TABLE>
The significant components of income tax expense are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(in millions of dollars)
Income taxes estimated to be currently payable:
<S> <C> <C> <C>
United States federal ......... $ 71.0 $ 422.9 $ 150.7
Foreign ....................... 279.9 224.9 103.3
United States state and local . 138.6 103.2 27.1
---------- ---------- ---------
Total income taxes currently
payable ....................... 489.5 751.0 281.1
---------- ---------- ---------
Deferred income taxes:
United States federal ......... 553.6 51.4 248.8
Foreign ....................... (77.0) 49.3 185.6
United States state and local . (53.2) (14.5) 36.7
---------- ----------- ---------
Total deferred income taxes .... 423.4 86.2 471.1
---------- ---------- ---------
Income tax expense ............. $ 912.9 $ 837.2 $ 752.2
========== ========== =========
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. UNITED STATES, FOREIGN AND OTHER INCOME TAXES (CONCLUDED)
Income tax provisions recorded by the Company differ from the computed amounts
developed by applying the statutory United States federal income tax rate to
income before income taxes. The following schedule reconciles the U.S. statutory
income tax rate to the actual income tax rate recorded by the Company:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
------ ----- --------
United States federal statutory
<S> <C> <C> <C>
income tax rate.................. 35.0% 35.0% 35.0%
Effect of:
State and local income taxes .... 3.1 2.9 2.4
Tax exempt interest and
dividends received which are
not fully taxable .............. (1.4) (1.5) (1.7)
Adjustment to U.S. taxes on
foreign income ................. 1.8 2.5 3.3
Foreign income tax rate
differential .................. 0.8 2.3 4.4
Other ........................... 1.9 (0.9) (1.2)
---------- ---------- --------
Effective tax rate ............... 41.2% 40.3% 42.2%
========== ========== ========
</TABLE>
NOTE 11. PENSION PROGRAM
The Company and certain of its subsidiaries participate in various pension plans
of General Motors Corporation and its domestic and foreign subsidiaries, which
cover substantially all of their employees. Benefits under the plans are
generally related to an employee's length of service, salary, and where
applicable, contributions. GMACMG and certain subsidiaries of GMACI have
separate retirement plans which provide for pension payments to their eligible
employees upon retirement. Pension expense of the Company and its subsidiaries
amounted to $17.2 million, $28.9 million and $27.9 million in 1997, 1996 and
1995, respectively.
NOTE 12. OTHER POSTRETIREMENT BENEFITS
The Company and certain of its subsidiaries participate in various
postretirement medical, dental, vision and life insurance plans of General
Motors Corporation. These benefits are funded as incurred from the general
assets of the Company.
The Company accrues postretirement benefit costs over the active service period
of employees to the date of full eligibility for such benefits. The Company has
provided for certain amounts associated with estimated future postretirement
benefits other than pensions and characterized such amounts as other
postretirement benefits. Notwithstanding the recording of such amounts and the
use of these terms, the Company does not admit or otherwise acknowledge that
such amounts or existing postretirement benefit plans of the Company (other than
pensions) represent legally enforceable liabilities of the Company.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. OTHER POSTRETIREMENT BENEFITS (CONCLUDED)
The total non-pension postretirement benefits expense of the Company amounted to
$58.1 million, $55.3 million and $57.0 million in 1997, 1996 and 1995
respectively, and was comprised of the components set forth below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------- -------- -----------
(in millions of dollars)
Benefits attributed to
<S> <C> <C> <C>
the current year .............. $ 11.2 $ 11.9 $ 12.7
Interest accrued on benefits
attributed to prior years ..... 46.9 43.4 44.3
----- ------ ------
Total non-pension postretirement
benefits expense .............. $ 58.1 $ 55.3 $ 57.0
====== ====== ======
</TABLE>
NOTE 13. TRANSACTIONS WITH AFFILIATES
The Company is wholly-owned by GM and as such, may receive support from GM if
necessary to maintain competitive leverage levels and its fixed charges coverage
ratio. No such payments were received during 1997, 1996 or 1995.
Retail installment and lease contracts acquired by GMAC in the U.S. and Canada
that included rate subvention from GM, payable directly or indirectly to GM
dealers, were 78.0%, 51.8% and 44.2% of total retail installment and lease
contracts acquired during 1997, 1996 and 1995 respectively. Rate subvented
programs for GMAC's international operations were not significant during 1997,
1996 and 1995.
Agreements with GM provide for payment to the Company for residual value support
on certain retail leasing transactions. Amounts included in income for these
transactions totaled $428.0 million, $432.7 million and $120.7 million in 1997,
1996 and 1995, respectively.
On occasion, the Company may also extend loans to GM, its subsidiaries and
affiliates. Outstanding loans to GM and affiliates totaled $551.7 million and
$190.5 million at December 31, 1997 and December 31, 1996, respectively. Total
interest income from these loans is included in other income and amounted to
$38.0 million, $22.2 million and $73.4 million in 1997, 1996 and 1995,
respectively.
The Company purchases certain vehicles which GM acquired from its fleet and
rental customers. The cost of these vehicles held for resale, which is included
in other earning assets, was $437.8 million at December 31, 1997, compared with
$600.2 million at December 31, 1996. Included in other income is service fee
income received from GM on these vehicles amounting to $31.0 million, $23.9
million and $41.2 million in 1997, 1996 and 1995, respectively.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. TRANSACTIONS WITH AFFILIATES (CONCLUDED)
The amounts due GM and its affiliated companies at the balance sheet dates
relate principally to current wholesale financing of sales of GM products and
nonrecourse transfers for consideration of a portion of future lease revenues.
During the first quarter of 1996, the settlement terms related to the wholesale
financing of certain GM products were accelerated to shipment date. To the
extent that wholesale settlements with GM are made prior to the expiration of
transit, interest is received from GM. Interest received on this arrangement is
included in other income and totaled $70.3 million and $55.0 million in 1997 and
1996, respectively.
The Company receives technical and administrative advice and services from GM
and also occupies office space furnished by GM. Costs of such services, which
are included in other operating expenses, amounted to $33.8 million, $26.4
million and $26.1 million in 1997, 1996 and 1995, respectively.
The Company purchases data processing and communications services from
Electronic Data Systems Corporation, a subsidiary of GM until June 7, 1996.
Insurance premiums earned by GMACI on certain coverages provided to
GM totaled $387.6 million, $288.7 million and $253.0 million in 1997, 1996
and 1995, respectively.
NOTE 14. MORTGAGE BANKING
GMAC Mortgage Group, Inc. and its subsidiaries (collectively GMACMG) perform a
wide array of mortgage banking activities including the origination, purchase,
financing and servicing of residential, commercial and multifamily mortgage
loans and the issuance of private mortgage-backed securities. In addition,
GMACMG actively pursues the acquisition of mortgage servicing rights from other
mortgage bankers and financial institutions. Effective January 1, 1996, the
Company adopted SFAS No. 122, Accounting for Mortgage Servicing Rights. The
impact of adoption was not material to the Company's consolidated financial
position or results of operations. SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was issued in
June 1996, superseding SFAS No. 77, Reporting by Transferors for Transfers of
Receivables with Recourse, and SFAS No. 122. SFAS No. 125 is effective for
certain transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. The adoption of SFAS No. 125 on
January 1, 1997, did not have a material impact on the Company's consolidated
financial position or results of operations.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. MORTGAGE BANKING (CONTINUED)
The following summarizes GMACMG's origination and purchase of mortgage loans and
the principal balances of acquisitions of mortgage servicing rights for the
years ended December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
1997 1996
---- ----
(in millions of dollars)
Loans originated/brokered:
<S> <C> <C>
Residential ............................... $ 7,569.7 $ 5,347.5
Commercial ................................ 5,554.8 3,698.0
Loan purchases ............................. 17,742.7 13,111.5
Bulk servicing acquisitions:
Residential ............................... 10,094.9 14,770.6
Commercial ................................ 12,946.8 7,330.0*
*Includes $2,795.0 million of term loans serviced on behalf of GMAC beginning in
1996.
</TABLE>
GMACMG sells a majority of its originated loans into various governmental agency
(FHLMC, FNMA and GNMA) mortgage-backed securities and whole loans to private
investors while maintaining the right to service such mortgage loans. GMACMG
generally packages its purchased mortgage loans into private mortgage-backed
securities for sale to investment bankers and private mortgage investors.
As part of its conduit mortgage banking activities, GMACMG retains subordinated
and stripped mortgage-backed securities which are classified as trading
securities and held at estimated fair value. On certain transactions, GMACMG
will retain full or limited recourse for credit or other losses incurred by the
purchaser of the loans sold. GMACMG establishes allowances for estimated future
losses related to the outstanding recourse obligations which management
considers adequate. In addition, GMACMG provides appropriate loss allowances on
warehouse lines and other loans held as investments.
The right to service loans is contracted under primary or master servicing
agreements. Under primary servicing agreements, GMACMG collects monthly
principal, interest and escrow payments from individual mortgagors and performs
certain accounting and reporting functions on behalf of the mortgage investors.
As master servicer, GMACMG collects monthly payments from various sub-servicers
and performs certain accounting and reporting functions on behalf of the
mortgage investors. For such servicing activities, the Company earns a servicing
fee which is considered to be adequate compensation. With the exception of
serviced mortgages owned by GMACMG, the servicing portfolio principal amount is
not reflected in the Company's financial statements. Mortgage servicing rights,
net of valuation allowances, totaled $1,004.2 million and $719.1 million, at
December 31, 1997 and 1996, respectively. The fair value of the mortgage
servicing rights at December 31, 1997 and 1996 was $1,097.8 million and $832.1
million, respectively.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. MORTGAGE BANKING (CONCLUDED)
GMACMG has stratified its mortgage servicing rights by predominant risk
characteristics, primarily loan and investor type and interest rate interval for
purposes of recording amortization expense and measuring impairment.
Amortization expense is recorded for each stratum in proportion to and over the
period of the projected net servicing income. Impairment is evaluated for each
stratum by comparing fair value as estimated using projected discounted cash
flows with current market assumptions to the net book value of the related
stratum, adjusted for deferred hedge results. Impairment is recorded through a
valuation allowance and charged to amortization expense in the period it is
determined. At December 31, 1997 and 1996, the valuation allowance totaled $22.8
million and $15.3 million, respectively.
Following are selected financial and statistical information of GMACMG as of
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
(in millions of dollars)
Servicing portfolio
<S> <C> <C>
Residential ............................... $ 60,553.7 $ 55,607.3
Commercial (1)............................. 40,199.4 24,853.1
Master servicing .......................... 46,145.7 34,714.8
GMACMG intercompany servicing ............. (3,277.3) (5,131.6)
---------- ----------
Total ...................................... $143,621.5 $110,043.6
========== ==========
Number of serviced loans ................... 1,016,964 819,511
========= ==========
(1) Includes $2,468.1 million and $2,708.5 million of term loans serviced on
behalf of GMAC in 1997 and 1996, respectively.
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
---- ----
(in millions of dollars)
<S> <C> <C>
Loans sold with recourse ................... $ 12,228.1 $ 12,307.6
---------- ----------
Maximum exposure on loans sold
Full recourse ............................. $ 253.6 $ 350.0
Limited recourse .......................... 664.3 601.2
---------- ----------
Total ...................................... $ 917.9 $ 951.2
========== ==========
Allowance for losses on loans sold
with recourse ............................. $ 86.3 $ 63.0
---------- ----------
The maximum recourse exposure shown above is net of amounts reinsured with third
parties which totaled $195.7 million and $241.3 million at December 31, 1997 and
1996, respectively.
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has developed the following fair value estimates by utilization of
available market information or other appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value, so the estimates are not necessarily indicative
of the amounts that could be realized or would be paid in a current market
exchange. The effect of using different market assumptions and/or estimation
methodologies may be material to the estimated fair value amounts.
Fair value information presented herein is based on information available at
December 31, 1997 and 1996. 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, 1997 and 1996 may differ significantly
from these amounts. The estimated fair value of financial instruments held by
the Company, for which it is practicable to estimate that value, were as
follows:
Balance sheet financial instruments:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
Estimated Estimated
Book Fair Book Fair
VALUE VALUE VALUE VALUE
----- --------- ----- ---------
(in millions of dollars)
ASSETS
Cash and cash
<S> <C> <C> <C> <C>
equivalents ....... $ 759.2 $ 759.2 $ 742.3 $ 742.3
Investments in
securities ........ 7,896.1 7,896.1 4,556.8 4,556.8
Finance receivables,
net ................ 59,630.8 60,078.6 58,380.0 58,419.3
Notes receivable
from GM ............ 551.7 546.1 190.5 189.4
Real estate mortgages
held for sale ..... 5,119.5 5,138.2 2,785.0 2,818.4
held for investment 713.0 710.7 611.2 596.6
lending receivables 2,222.9 2,222.9 1,404.6 1,404.6
excess servicing .. -- -- 322.9 341.1
Due and deferred from
receivable sales,
net ............... 690.5 690.5 1,214.5 1,295.2
LIABILITIES
Debt ................ $ 86,674.7 $ 87,489.3 $ 78,688.8 $ 81,248.2
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Off-balance sheet financial instruments:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- -----------------------
Contract/ Contract/
Notional Unrealized Notional Unrealized
AMOUNT GAIN/(LOSS) AMOUNT GAIN/(LOSS)
--------- ----------- --------- -----------
(in millions of dollars)
Commitments to
originate/purchase
<S> <C> <C> <C> <C>
mortgages/securities.....$ 4,100.8 $ 8.3 $ 2,626.8 $ (2.1)
Commitments to sell
mortgages/securities..... 3,865.6 (2.3) 1,531.3 0.4
Mortgage-related futures .. 1,991.9 4.0 1,453.0 (3.2)
Unused mortgage lending
commitments ............. 4,247.6 -- 2,769.3 --
Unused revolving credit
lines to dealers ........ 445.7 -- 385.1 --
Interest rate
instruments (1) ......... 35,974.2 63.6 42,484.3 3.6
Foreign currency
instruments (2) ......... 6,172.5 (185.5) 4,386.6 (242.5)
(1) The 1997 and 1996 notional balances include $17,044.0 million and $23,725.4
million, respectively, in financial instruments that are recorded at their fair
value on the balance sheet. The related net assets recorded on the balance sheet
for these financial instruments totaled $27.9 million and $9.8 million at
December 31, 1997 and 1996, respectively.
(2) Includes $2,045.6 million and $2,348.1 million in cross currency interest
rate swaps with unrealized losses of $191.6 million and $122.3 million at
December 31, 1997 and 1996, respectively. The unrealized loss in the fair value
of the foreign currency instruments in 1997 and 1996 was offset by the
unrealized gain in the fair value of the related underlying debt instruments.
</TABLE>
CASH AND CASH EQUIVALENTS:
- -------------------------
The book value approximates fair value because of the short maturity of these
instruments.
INVESTMENTS IN SECURITIES:
- -------------------------
Bonds, equity securities, notes and other investments are carried at fair value
which is based on quoted market prices. The fair value of mortgage-related
trading securities is based on market quotes, discounted using market prepayment
assumptions and discount rates. The interest-only strip receivables are carried
at fair value based on discounted expected cash flows using current market
rates.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FINANCE RECEIVABLES, NET:
- ------------------------
The fair value is estimated by discounting the future cash flows using
applicable spreads to approximate current rates applicable to each category of
finance receivables. The carrying value of wholesale receivables and other
receivables whose interest rates adjust on a short-term basis with applicable
market indices (generally the prime rate) are assumed to approximate fair value
either due to their short maturities or due to the interest rate adjustment
feature.
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 earning assets.
REAL ESTATE MORTGAGES:
- ---------------------
The fair value of mortgage loans held for sale is based upon actual prices
received on recent sales of mortgage loans and securities to investors and
projected prices obtained through investor indications considering interest
rates, mortgage loan type and credit quality. The fair values of loans held for
investment and lending receivables is determined through a review of published
market information associated with similar instruments.
DUE AND DEFERRED FROM RECEIVABLE SALES, NET:
- -------------------------------------------
In accordance with SFAS No. 125 adopted on January 1, 1997, the Company
reclassified its previously recognized subordinated interests in trusts from due
and deferred from receivable sales to investments in securities. In addition,
the Company reclassified amounts previously classified as excess servicing
assets to interest-only strip receivables and began carrying such amounts at
their fair value. The fair value of interest-only strip receivables is derived
by discounting expected cash flows using current market rates.
DEBT:
- ----
The fair value of the debt payable within one year is determined by using quoted
market prices, if available, or calculating the estimated value of each bank
loan, note or debenture in the portfolio at the applicable rate in effect.
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 fair value. Debt payable beyond one year has an estimated fair value
based on quoted market prices for the same or similar issues or based on the
current rates offered to the Company for debt with similar remaining maturities.
COMMITMENTS TO ORIGINATE/PURCHASE MORTGAGES/SECURITIES:
- ------------------------------------------------------
The fair value of commitments is estimated using published market information
associated with commitments to sell similar instruments.
COMMITMENTS TO SELL MORTGAGES/SECURITIES:
- ----------------------------------------
The fair value of commitments is estimated using published market information
associated with similar instruments.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONCLUDED)
MORTGAGE-RELATED FUTURES:
- ------------------------
The fair value of futures contracts is determined based upon quoted market
prices.
UNUSED MORTGAGE LENDING COMMITMENTS:
- -----------------------------------
The fair value determination of these commitments is considered in the overall
valuation of the underlying assets with which they are associated.
UNUSED REVOLVING CREDIT LINES TO DEALERS:
- ----------------------------------------
The unused portion of revolving lines of credit extended to dealers will
approximate market value since they reprice at prevailing market rates.
INTEREST RATE INSTRUMENTS:
- -------------------------
The fair value of the existing interest rate swaps and forward starting interest
rate swaps is estimated by discounting expected cash flows using quoted market
interest rates. The fair value of written and purchased options is estimated
using quoted market prices.
FOREIGN CURRENCY INSTRUMENTS:
- ----------------------------
The estimated fair value of the foreign currency swaps is derived by discounting
expected cash flows using market exchange rates over the remaining term of the
agreement.
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company is a party to derivative financial instruments with
off-balance-sheet risk which it uses in the normal course of business to reduce
its exposure to fluctuations in interest and foreign exchange rates. The
objectives of the derivative financial instruments portfolio are to manage
interest rate and currency risks by offsetting a companion asset or funding
obligation; adjusting fixed and floating rate funding levels; and facilitation
of securitization transactions. The primary classes of derivatives used by the
Company are interest rate and foreign exchange swaps and interest rate caps.
Those instruments involve, to varying degrees, elements of credit risk in the
event a counterparty should default and market risk as the instruments are
subject to rate and price fluctuations. Credit risk is managed through the
periodic monitoring and approval of financially sound counterparties. Market
risk is mitigated because the derivatives are generally used to hedge underlying
transactions. The financial instrument transactions include some embedded
options and structured interest rate swaps that are either marked-to-market or
specifically matched, respectively. Cash receipts or payments on these
agreements normally occur at periodic contractually defined intervals.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
INTEREST RATE INSTRUMENTS:
- -------------------------
The Company's financing and cash management activities subject it to market risk
from exposure to changes in interest rates. To manage these exposures, the
Company has entered into various financial instrument transactions. The
Company's objective for entering into these transactions is to minimize interest
expense while maintaining the desired level of exposure to the risk of interest
rate fluctuations. Interest rate swaps are contractual agreements between the
Company and another party to exchange the net difference between a fixed and
floating interest rate, or different floating interest rates, periodically over
the life of the contract without the exchange of the underlying principal
amount. The Company also uses written and purchased options (including interest
rate caps). Interest rate cap agreements provide the holder protection against
interest rate movements above the established rate. In exchange for assuming
this risk, the writer receives a premium at the outset of the agreement.
The Company uses swaps to alter its fixed and floating interest rate exposures.
As such, the majority of swaps are executed as an integral element of a specific
financing transaction. In a limited number of cases, swaps, matched to specific
portfolios of wholesale assets or debt, are executed on a portfolio basis to
achieve specific interest rate management objectives. The differential paid or
received on such swaps is recorded as an adjustment to interest expense or
income over the term of the underlying debt agreement or matched portfolio.
Purchased options, written interest rate caps, and basis swaps are
marked-to-market with related gains and losses recognized in other income on a
current basis.
In the normal course of managing its interest rate liabilities, the Company
occasionally enters into forward starting interest rate swaps in anticipation of
future debt issuances. At December 31, 1997, the Company had entered into
forward starting interest rate swaps with notional amounts totaling $1.0 billion
to hedge anticipated 1998 debt issuances. At the time at which the Company
issues debt, these swaps will generally be terminated and any realized profit or
loss related to such swaps will be amortized over the life of the debt or the
original term of the swap, whichever is shorter, as either a reduction or
increase of interest expense.
Derivative activities resulted in an interest expense increase of $22.5 million,
and interest expense decreases of $7.3 million and $1.4 million for the years
ended December 31, 1997, 1996 and 1995, respectively. The effect of these
transactions on the Company's weighted average borrowing rates was an increase
of three basis points in 1997 and basis point decreases of one and less than one
in 1996 and 1995, respectively.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
Summaries of the Company's interest rate swaps and written and purchased options
by maturity and weighted average interest rate (predominately based on LIBOR) at
December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
INTEREST RATE SWAPS DECEMBER 31, 1997
-----------------------------------------------------------
Year Notional Amount GMAC Receives GMAC Pays
DUE (IN MILLIONS) FLOATING FIXED
---- --------------- ------------- ---------
<S> <C> <C> <C> <C>
1998 $ 534.4 5.88% 7.32%
1999 979.8 5.67% 6.91%
2000 659.4 6.16% 6.67%
2001 550.3 5.86% 6.51%
2002-2003 604.5 5.95% 6.52%
---------
Subtotal $ 3,328.4
---------
GMAC Pays GMAC Receives
FLOATING FIXED
--------- -------------
1998 $ 2,338.6 5.85% 6.43%
1999 2,778.9 5.81% 6.48%
2000 1,119.6 6.21% 6.23%
2001 545.0 5.74% 6.91%
2002 1,828.3 6.19% 6.30%
---------
Subtotal $ 8,610.4(1)
---------
GMAC Pays GMAC Receives
FLOATING FLOATING
--------- -------------
1998 $ 3,588.7 8.67% 8.49%
1999 1,862.2 8.25% 7.96%
2000 579.0 8.43% 8.16%
2001 120.1 8.25% 8.03%
2002 674.0 8.60% 8.25%
---------
Subtotal $ 6,824.0
---------
Total $18,762.8(2)
=========
(1) Includes notional amounts for swaps with amortizing balances. The swap
balances amortize in relation to expected prepayments on the principal balances
of the matched assets.
(2) Excludes GMACMG derivatives that are discussed under Mortgage Contracts.
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
<TABLE>
<CAPTION>
INTEREST RATE SWAPS DECEMBER 31, 1996
-----------------------------------------------------------
Year Notional Amount GMAC Receives GMAC Pays
DUE (IN MILLIONS) FLOATING FIXED
---- --------------- ------------- ---------
<S> <C> <C> <C> <C>
1997 $ 242.7 5.94% 7.91%
1998 604.8 5.95% 7.41%
1999 922.4 5.87% 7.02%
2000 290.3 5.87% 7.27%
2001 1,006.3 5.88% 6.77%
2002-2006 1,600.0 5.93% 6.72%
---------
Subtotal $ 4,666.5
---------
GMAC Pays GMAC Receives
FLOATING FIXED
--------- -------------
1997 $ 1,448.9 5.33% 7.20%
1998 1,563.2 5.66% 6.82%
1999 924.9 5.47% 7.12%
2000 105.2 6.05% 7.05%
2001 231.9 5.35% 7.78%
---------
Subtotal $ 4,274.1(1)
---------
GMAC Pays GMAC Receives
FLOATING FLOATING
--------- -------------
1997 $ 2,241.6 7.28% 8.25%
1998 3,536.2 8.37% 8.24%
1999 583.5 7.83% 7.96%
2001 79.0 8.15% 8.25%
---------
Subtotal $ 6,440.3
---------
Total $15,380.9(2)
=========
(1) Includes notional amounts for swaps with amortizing balances. The swap
balances amortize in relation to expected prepayments on the principal balances
of the matched assets.
(2) Excludes GMACMG derivatives that are discussed under Mortgage Contracts.
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
<CAPTION>
WRITTEN AND PURCHASED OPTIONS
-----------------------------
DECEMBER 31,
------------------------
YEAR DUE 1997 1996
-------- ---------- ----------
Notional Amounts
(in millions of dollars)
Written interest rate caps (1):
<S> <C> <C> <C>
1997 $ -- $ 398.3
1998 600.0 70.2
2000 400.0 --
---------- --------
$ 1,000.0 $ 468.5
---------- ----------
Purchased interest rate caps:
1997 $ -- $ 3,000.0
1998 -- 600.0
1999 10.0 --
---------- ----------
$ 10.0 $ 3,600.0
---------- ----------
Written options:
1999 $ 1,000.0 $ --
Purchased options:
1997 $ -- $ 6,000.0
1998 5,500.0 --
---------- ----------
Total options $ 7,510.0 $ 10,068.5
========== ==========
(1) December 31, 1996 balances include notional amounts for options with
amortizing balances. The notional balances amortize in relation to expected
prepayments on the principal balances of the matched assets.
</TABLE>
FOREIGN CURRENCY INSTRUMENTS:
- ----------------------------
The Company's financing activities subject it to market risk from exposure to
changes in foreign exchange rates. Currency swaps are used to hedge foreign
exchange exposure on foreign currency denominated debt by converting the funding
currency to the currency of the assets being financed. Foreign exchange swaps
are legal agreements between two parties to purchase and sell a foreign
currency, for a price specified at the contract date, with delivery and
settlement at both the effective date and maturity date of the contract.
The notional maturities of currency swaps as of December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
CURRENCY SWAPS
--------------------------------------------
DECEMBER 31,
----------------
1997 1996
---- ----
(in millions of dollars)
Year Due:
--------
<S> <C> <C> <C>
1997 $ -- $ 1,327.1
1998 1,943.6 797.0
1999 1,175.5 1,205.8
2000 315.6 94.0
2001 617.5 538.4
2002 1,492.4 367.2
2003 472.6 --
---------- ----------
Total $ 6,017.2 $ 4,329.5
========== ==========
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
Reconciliations of the Company and its subsidiaries' interest rate and currency
swaps activities for the years ended December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
INTEREST RATE SWAPS CURRENCY SWAPS
------------------- ---------------
DECEMBER 31, DECEMBER 31,
------------------- ---------------
1997 1996 1997 1996
-------- -------- ------ ------
(in millions of dollars)
<S> <C> <C> <C> <C>
Beginning notional amount $15,380.9 $ 9,756.3 $ 4,329.5 $ 2,484.7
Add:
New contracts ........ 9,729.6 9,063.3 6,224.7 3,940.2
Less:
Terminated contracts . 4,541.7 1,700.0 -- --
Expired contracts .... 1,806.0 1,738.7 4,537.0 2,095.4
--------- --------- --------- ---------
Ending notional amount .. $18,762.8 $15,380.9 $ 6,017.2 $ 4,329.5
========= ========= ========= =========
</TABLE>
The following table summarizes the notional amounts of the Company and its
subsidiaries' currency and interest rate swaps by major currency:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
(in millions of dollars)
Currency swaps (by currency paid):
<S> <C> <C>
Australian dollars ................... $ 611.0 $ 873.6
Canadian dollars ..................... 1,260.6 788.9
United Kingdom pounds sterling ....... 1,233.5 1,228.5
United States dollars ................ 2,412.7 492.8
Other ................................ 499.4 945.7
---------- ----------
Total currency swaps ................... $ 6,017.2 $ 4,329.5
---------- ----------
Interest rate swaps:
United States ........................ $ 16,082.4 $ 13,766.9
Australia ............................ 1,032.8 1,047.6
Canada ............................... 673.8 357.5
United Kingdom Pounds Sterling ....... 863.5 150.2
Other ................................ 110.3 58.7
---------- ----------
Total interest rate swaps .............. $ 18,762.8 $ 15,380.9
---------- ----------
Total currency and interest rate swaps . $ 24,780.0 $ 19,710.4
========== ==========
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
MORTGAGE CONTRACTS:
- ------------------
GMACMG uses various off-balance sheet financial instruments in the normal course
of business to manage inherent risk. The derivative financial instruments are
held for purposes other than trading and consist primarily of interest rate
floors and caps, written and purchased option contracts, futures contracts, and
individually tailored swap products.
GMACMG uses derivative financial instruments to hedge price risk associated with
its mortgage loans held for sale. At December 31, 1997 and 1996, the notional
amount of such instruments totaled $2,031.4 million and $2,433.3 million,
respectively. Realized and unrealized gains and losses associated with these
instruments are considered in the lower of cost or market valuation of the
mortgage loans. At December 31, 1997, GMACMG had options contracts outstanding
on U.S. Treasury instruments and mortgage-related securities.
GMACMG uses derivative financial instruments to hedge price and interest rate
risk associated with its mortgage-related securities. At December 31, 1997 and
1996, the notional amount of such instruments totaled $1,363.0 million and
$4,785.5 million, respectively. Realized and unrealized gains and losses
associated with these instruments are recognized in the current period on a
mark-to-market basis. At December 31, 1997, GMACMG had options and futures
contracts outstanding on U.S. Treasury instruments and eurodollars, and had
entered into interest rate swap agreements.
GMACMG enters into interest rate swap contracts in an effort to stabilize
short-term borrowing costs and maintain a minimum return on certain loans held
for investment. At December 31, 1997 and 1996, the notional amount of these
instruments totaled $263.7 million and $326.6 million, respectively. The
contracts involve the delivery of fixed payments to a counterparty in return for
variable payments based upon a published index. The contracts' values fluctuate
inversely to the values of the related loan portfolio. The contracts have
maturities ranging from two to five years. Amounts paid or received under such
contracts are recorded as an adjustment to interest expense.
GMACMG uses interest rate caps and floors, futures, and options on futures
contracts to manage potential prepayment activity associated with mortgage
servicing rights. At December 31, 1997 and 1996, the notional amount of such
instruments totaled $8,035.1 million and $10,960.0 million, respectively. The
maturities of these instruments range between four months and five years. These
instruments are carried at fair value, with adjustments recorded to the basis of
mortgage servicing rights.
GMACMG enters into various commitments to purchase or originate mortgage loans
in the normal course of business. Commitments to purchase or originate mortgage
loans totaled $4,100.8 million and $2,626.8 million at December 31, 1997 and
1996, respectively. These commitment obligations are considered in conjunction
with the lower of cost or market valuation of mortgage inventory held for sale.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
Warehouse lending involves the extension of short-term secured lines of credit
to mortgage originators to finance mortgage loans until such loans are purchased
by a permanent investor. Advances under the lines of credit are fully secured by
the underlying mortgages and bear interest at a rate which is tied to a
short-term index. At December 31, 1997 and 1996, unused warehouse lending
commitments totaled $2,533.1 million and $1,793.7 million, respectively. GMACMG
enters into foreign exchange contracts to hedge foreign exchange risks
associated with overseas lending. At December 31, 1997 and 1996, the notional
amounts of such instruments totaled $155.3 million and $57.1 million,
respectively. Construction lending involves the extension of long-term secured
lines of credit to construction project managers. At December 31, 1997 and 1996,
unused construction lending commitments totaled $930.0 million and $427.0
million, respectively. In addition, GMACMG also has outstanding commitments to
lend on available credit lines, primarily home equity lines of credit. At
December 31, 1997 and 1996, unused lending commitments on these lines totaled
$784.5 million and $548.5 million, respectively.
GMACMG sells a majority of its originated loans into various governmental agency
(FHLMC, FNMA and GNMA) mortgage-backed securities and whole loans to private
investors. GMACMG generally packages its purchased mortgage loans into private
mortgage-backed securities for sale to investment bankers and private mortgage
investors. Commitments to sell mortgage loans totaled $558.9 million and $417.7
million at December 31, 1997 and 1996, respectively. Commitments to sell
securities totaled $3,306.7 million and $1,113.6 million at December 31, 1997
and 1996, respectively.
CREDIT RISK:
- -----------
These aforementioned instruments contain an element of risk in the event the
counterparties are unable to meet the terms of the agreements. However, the
Company minimizes the risk exposure by limiting the counterparties to those
major banks and financial institutions who meet established credit guidelines.
Management also reduces its credit risk for unused lines of credit it extends by
applying the same credit policies in making commitments as it does for extending
loans. Management does not expect any counterparty to default on its obligations
and, therefore, does not expect to incur any cost due to counterparty default.
The Company does not require or place collateral for these financial
instruments, except for the lines of credit it extends.
CONCENTRATIONS OF CREDIT RISK:
- -----------------------------
The Company's primary business is to provide vehicle financing for GM products
to GM dealers and their customers. Wholesale and dealer loan financing relates
primarily to GM dealers, with collateral primarily GM vehicles (for wholesale)
and GM dealership property (for loans). For wholesale financing, GMAC is also
provided further protection by GM factory repurchase programs. Retail contracts
and operating lease assets relate primarily to the secured sale and lease,
respectively, of vehicles (primarily GM).
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONCLUDED)
In terms of geographic concentrations as of December 31, 1997, 75% of GMAC's
consolidated financing assets were U.S. based; 12.3% were in Europe (of which
44.5% reside in Germany); 9.2% were in Canada; 2.0% were in Asia Pacific (of
which Australia represents 88.8%); and 1.5% were in Latin America. Reflecting
general U.S. population patterns and GM sales activities, GMAC's five largest
U.S. state concentrations, which in aggregate total 38.6% of serviced U.S.
automotive financing assets, were as follows: 9.2% in Michigan; 9.0% in
California; 8.8% in Texas; 6.9% in Florida; and 4.7% in Illinois.
NOTE 17. SEGMENT INFORMATION
The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, during the fourth quarter of 1997. SFAS No. 131
establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker(s)
in deciding how to allocate resources and in assessing performance.
GMAC's reportable operating segments include GMAC-North American Financing
Operations (GMAC-NAO), GMAC International Financing Operations (GMAC-IO),
Insurance Operations (GMACI) and Mortgage Operations (GMACMG). GMAC-NAO consists
of the United States and Canada, and GMAC-IO consists of all other countries and
Puerto Rico. GMAC-NAO and GMAC-IO offer a wide variety of automotive financial
services to and through franchised General Motors dealers in many countries
throughout the world. GMAC also offers financial services to other automobile
dealerships and to the customers of those dealerships. The Company operates its
international automotive financing services in a similar manner as in the U.S.,
subject to local laws or other circumstances that may cause it to modify its
procedures accordingly.
GMACI conducts insurance operations primarily in the United States, Canada and
Europe. GMACI insures selected personal, commercial and extended warranty
coverages for individuals, auto dealerships, GMAC, General Motors Corporation
and reinsures other insurers.
GMACMG conducts mortgage banking operations in the United States, Mexico, Canada
and the United Kingdom. GMACMG originates and markets single-family and
commercial mortgage loans to investors and services these loans on behalf of
investors. In addition to offering other consumer products including home equity
loans, insurance services and trustee services, GMACMG packages securities
backed by home equity loans and sub-prime mortgages. GMACMG also actively
pursues the acquisition of mortgage servicing rights from other mortgage bankers
and financial institutions. Operations of GMACMG's various mortgage banking
subsidiaries are conducted through its three primary businesses, GMACM, GMACCM
and RFC.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. SEGMENT INFORMATION (CONTINUED)
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that the
disaggregated financial results for GMAC's automotive financing operations
(GMAC-NAO and GMAC-IO) have been prepared using a management approach, which is
consistent with the basis and manner in which GMAC management internally
disaggregates financial information for the purposes of assisting in making
internal operating decisions. Revenues are attributed to geographic areas based
on the location of the assets producing the revenues.
Financial results for GMAC's operating segments are summarized below:
<TABLE>
<CAPTION>
OPERATING SEGMENTS:
- -------------------
(in millions of dollars)
Eliminations/
GMAC-NAO GMAC-IO GMACI GMACMG RECLASSIFICATIONS TOTAL
1997 -------- ------- ----- ------ ----------------- -----
- ----
<S> <C> <C> <C> <C> <C> <C>
Total assets ......... $88,203.0 $15,272.9 $7,088.6 $12,371.1 $(13,616.3) $109,319.3
Net financing revenue. 1,825.6 834.7 0.0 0.0 (16.7) 2,643.6
Other income ......... 1,168.8 24.0 1,786.6 1,036.5 2.9 4,018.8
Tax expense .......... 616.1 112.7 77.9 106.2 0.0 912.9
Net income ........... 674.8 235.1 224.6 166.6 0.0 1,301.1
1996
- ----
Total assets ......... $77,888.3 $16,461.1 $5,020.3 $7,233.0 $ (8,024.7) $ 98,578.0
Net financing revenue. 2,175.3 913.0 0.0 0.0 (9.0) 3,079.3
Other income ......... 1,001.6 14.5 1,616.8 693.4 3.6 3,329.9
Tax expense .......... 529.7 197.5 48.3 61.7 0.0 837.2
Net income ........... 715.5 230.9 192.4 101.7 0.0 1,240.5
1995
- ----
Total assets ......... $74,957.5 $15,661.3 $4,871.4 $4,569.8 $ (4,412.5) $ 95,647.5
Net financing revenue. 1,541.8 902.0 0.0 0.0 (20.9) 2,422.9
Other income ......... 1,220.6 14.0 1,604.0 449.7 (89.1) 3,199.2
Tax expense .......... 407.5 260.0 45.8 38.9 0.0 752.2
Net income ........... 581.2 227.5 162.6 59.7 0.0 1,031.0
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. SEGMENT INFORMATION (CONCLUDED)
Information concerning principal geographic areas was as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC INFORMATION:
- ----------------------
(in millions of dollars)
All Other
1997 UNITED STATES COUNTRIES TOTAL
---- ------------- --------- ------
Net financing revenue and
<S> <C> <C> <C>
other income .......... $ 5,356.4 $ 1,306.0 $ 6,662.4
Goodwill ................... 701.7 15.0 716.7
1996
----
Net financing revenue and
other income .......... $ 4,994.7 $ 1,414.5 $ 6,409.2
Goodwill ................... 148.7 16.3 165.0
1995
----
Net financing revenue and
other income .......... $ 4,352.2 $ 1,269.9 $ 5,622.1
Goodwill ................... 146.7 15.9 162.6
</TABLE>
NOTE 18. COMMITMENTS AND CONTINGENT LIABILITIES
Minimum future commitments under operating leases having noncallable lease terms
in excess of one year, primarily for real property, aggregating $195.8 million,
are payable $64.2 million in 1998, $50.3 million in 1999, $33.3 million in 2000,
$19.7 million in 2001, $10.6 million in 2002, and $17.7 million in 2003 and
thereafter. Certain of the leases contain escalation clauses and renewal or
purchase options. Rental expenses under operating leases were $181.5 million,
$147.8 million and $129.3 million in 1997, 1996 and 1995, respectively.
The Company and certain subsidiaries of GMACI have entered into an agreement
under which Electronic Data Systems Corporation (EDS), a former subsidiary of
GM, will continue to be the principal provider of information technology
services through 1999. Certain subsidiaries of GMACMG have entered into a
similar agreement through 2000. An additional agreement has been signed for EDS
to provide support for the Company's European information technology related
activities through 2001.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. COMMITMENTS AND CONTINGENT LIABILITIES (CONCLUDED)
There are various claims and pending actions against the Company and its
subsidiaries with respect to commercial and consumer financing and leasing
matters, taxes, insurance and other matters arising out of the conduct of the
business. Certain of these actions are or purport to be class actions, seeking
damages in very large amounts. The amounts of liability on these claims and
actions at December 31, 1997 were not determinable but, in the opinion of
management, the ultimate liability resulting therefrom should not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
-------------------
<PAGE>
<TABLE>
SUPPLEMENTARY FINANCIAL DATA
SUMMARY OF CONSOLIDATED QUARTERLY EARNINGS
<CAPTION>
1997 QUARTERS
-----------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(in millions of dollars)
<S> <C> <C> <C> <C>
Total financing revenue........ $ 3,174.7 $ 3,177.4 $ 3,105.8 $ 3,118.7
Interest and discount
expense ...................... 1,265.8 1,311.9 1,307.9 1,369.9
Net financing revenue and
other income ................. 1,682.9 1,626.0 1,636.2 1,717.3
Provision for credit losses ... 129.9 127.3 138.7 126.8
Net income .................... 372.0 337.7 312.6 278.8
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 QUARTERS
-----------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(in millions of dollars)
<S> <C> <C> <C> <C>
Total financing revenue........ $ 3,179.2 $ 3,124.3 $ 3,163.8 $ 3,176.5
Interest and discount
expense ...................... 1,239.7 1,224.6 1,220.3 1,252.9
Net financing revenue and
other income ................. 1,533.4 1,605.5 1,616.8 1,653.5
Provision for credit losses ... 155.2 134.6 143.5 235.7
Net income .................... 309.1 350.0 307.3 274.1
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995 QUARTERS
-----------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(in millions of dollars)
<S> <C> <C> <C> <C>
Total financing revenue........ $ 2,717.4 $ 2,917.6 $ 2,959.6 $ 3,069.4
Interest and discount
expense ...................... 1,219.8 1,275.3 1,222.9 1,218.3
Net financing revenue and
other income ................. 1,278.2 1,426.9 1,361.3 1,555.7
Provision for credit losses ... 55.0 133.3 118.9 141.6
Net income .................... 254.9 259.2 253.7 263.2
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS.
Included in Part II, Item 8 of Form 10-K.
(a)(2) FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted because they are inapplicable or
because the information called for is shown in the financial
statements or notes thereto.
(a)(3) EXHIBITS (Included in Part IV of this report). PAGE
12 -- Statement of Ratio of Earnings to Fixed 79
Charges for the years 1997, 1996, 1995, 1994 and 1993.
23.1 -- Consent of Independent Auditors. 80
27 -- Financial Data Schedule (for SEC electronic --
filing information only).
(b) REPORTS ON FORM 8-K.
The Company filed a Form 8-K on November 21, 1997 to report the
following information:
Effective November 18, 1997, John Rines resigned as President and
Director of General Motors Acceptance Corporation. Succeeding Mr. Rines
is John Finnegan, former Treasurer of General Motors Corporation.
Eric Feldstein resigned as Executive Vice President and Chief
Financial Officer of General Motors Acceptance Corporation. Mr.
Feldstein succeeded Mr. Finnegan as Treasurer of General Motors
Corporation and remains a Director of General Motors Acceptance
Corporation.
The Company filed a Form 8-K on January 5, 1998 to report the
following information:
Through December 31, 1997, GMAC was organized under Article XII of the
Banking Law of the State of New York. In response to a request
from the New York State Banking Department to Article XII
investment companies that they consider changing their corporate
status, GMAC determined that it did not have significant reasons
to remain organized under Article XII. Accordingly, GMAC merged
on January 1, 1998, with its wholly-owned Delaware subsidiary
GMAC Financial Services Corporation. The surviving corporation,
named General Motors Acceptance Corporation, is incorporated
under the Delaware General Corporation Law and has assumed all
rights and obligations of the predecessor New York corporation.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K. (CONCLUDED)
(b) REPORTS ON FORM 8-K (concluded).
The Company filed a Form 8-K on January 28, 1998 to report the
following information:
On January 27, 1998, Standard & Poor's (S&P), raised the credit
ratings of the Company and its parent, General Motors Corporation
(GM).
The S&P rating of the Company's senior debt was upgraded
from A- to A, sixth highest among ten investment grade ratings
available. The A rating is assigned to bonds considered to have a
strong capacity to pay interest and repay principal.
The Company's commercial paper was upgraded from A-2 to A-1, the
second highest of four ratings, reflecting that the degree of
safety regarding timely payment is very strong for senior
short-term debt obligations and assured ability to access
alternative sources of liquidity. Additional repayment
characteristics of debt issues receiving this premium rating
include leading market position in a well established industry,
high rates of return on funds employed, and broad margins in
earnings coverage of fixed financial charges.
The Company is pleased with the upgraded ratings as it expects to
benefit from increased competitiveness resulting from enhanced
financial flexibility and lower borrowing costs.
At this date, the Company is not under review by any of the
nationally recognized statistical rating agencies. Additional
disclosures regarding credit ratings are provided in Item 7 of this
document.
Items 4, 9, 10, 11, 12 and 13 are inapplicable and have been omitted.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GENERAL MOTORS ACCEPTANCE CORPORATION
-------------------------------------
(Registrant)
By
S/ J. M. LOSH
---------------------------------------
DATE: MARCH 17, 1998 (J. Michael Losh, Chairman of the Board)
Pursuant to the Requirements of the Securities Exchange Act of 1934, this report
has been signed below on the 17th day of March, 1998, by the following persons
on behalf of the Registrant and in the capacities indicated.
SIGNATURE TITLE
--------- -----
S/ J. M. LOSH
- -----------------------
(J. Michael Losh) Chairman of the
Board of Directors
S/ J. D. FINNEGAN
- -----------------------
(John D. Finnegan) President and (Signing as Chief
Director Executive Officer)
S/ W. F. MUIR
- -----------------------
(William F. Muir) Executive Vice (Signing as Principal
President and Director Financial Officer)
S/ G. E. GROSS
- -----------------------
(Gerald E. Gross) Comptroller (Signing as Principal
Accounting Officer)
S/ R. J. S. CLOUT
- -----------------------
(Richard J. S. Clout) Executive Vice
President and Director
S/ J. E. GIBSON
- -----------------------
(John E. Gibson) Executive Vice
President and Director
<PAGE>
SIGNATURES (CONCLUDED)
S/ J. G. BLAHNIK
- -----------------------
(John G. Blahnik) Director
S/ E. A. FELDSTEIN
- -----------------------
(Eric A. Feldstein) Director
S/ H. J. PEARCE
- -----------------------
(Harry J. Pearce) Director
S/ W. A. REED
- -----------------------
(W. Allen Reed) Director
S/ J. F. SMITH, JR.
- -----------------------
(John F. Smith, Jr.) Director
S/ R. L. ZARRELLA
- -----------------------
(Ronald L. Zarrella) Director
<PAGE>
EXHIBIT INDEX
Exhibit
NUMBER EXHIBIT NAME
- ------- ------------
12 Ratio of Earnings to Fixed Charges
23.1 Consent of Independent Auditors,
Deloitte & Touche LLP
27 Financial Data Schedule (for SEC
electronic filing information only)
<PAGE>
<TABLE>
EXHIBIT 12
GENERAL MOTORS ACCEPTANCE CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
For the Years ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in millions of dollars)
Consolidated net
<S> <C> <C> <C> <C> <C>
income* ......... $ 1,301.1 $ 1,240.5 $ 1,031.0 $ 927.1 $ 981.1
Provision for
income taxes .... 912.9 837.2 752.2 512.7 591.7
---------- ---------- ---------- ---------- ----------
Consolidated income
before income
taxes ........... 2,214.0 2,077.7 1,783.2 1,439.8 1,572.8
---------- ---------- ---------- ---------- ----------
Fixed charges
Interest, debt
discount and
expense ........ 5,255.5 4,937.5 4,936.3 4,230.9 4,721.2
Portion of rentals
representative of
the interest
factor ......... 69.8 77.8 54.5 51.2 43.6
---------- ---------- ---------- ---------- ----------
Total fixed charges 5,325.3 5,015.3 4,990.8 4,282.1 4,764.8
---------- ---------- ---------- ---------- ----------
Earnings available
for fixed charges $ 7,539.3 $ 7,093.0 $ 6,774.0 $ 5,721.9 $ 6,337.6
========== ========== ========== ========== ==========
Ratio of earnings
to fixed charges 1.42 1.41 1.36 1.33 1.33
==== ==== ==== ==== ====
* Before cumulative effect of accounting change of ($7.4) million in 1994.
</TABLE>
<PAGE>
EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT
GENERAL MOTORS ACCEPTANCE CORPORATION:
We consent to the incorporation by reference of our report dated January 26,
1998, appearing in this Annual Report on Form 10-K of General Motors Acceptance
Corporation for the year ended December 31, 1997, in the following Registration
Statements:
Registration
FORM STATEMENT NO DESCRIPTION
---- ------------ -----------------------------
S-3 33-31596 $5,000,000,000 General Motors
Acceptance Corporation
Variable Denomination
Adjustable Rate Demand Notes
S-3 333-17943 $10,000,000,000 General Motors
Acceptance Corporation
Medium-Term Notes
S-3 333-12023 $500,000,000 General Motors
Acceptance Corporation
SmartNotes
S-3 333-33183 $5,000,000,000 General Motors
Acceptance Corporation Debt
Securities and Warrants to
Purchase Debt Securities
s/ DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
600 Renaissance Center
Detroit, Michigan
March 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the General
Motors Acceptance Corporation Form 10-K for the period ending December 31, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
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<NAME> GMAC
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