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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, 1998, OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
- 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission file number 1-3754
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GENERAL MOTORS ACCEPTANCE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 38-0572512
- -------------------------------------- ----------------------
(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:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS
- -------------------
<S> <C>
7 1/8% Notes due June 1, 1999 Floating Rate Notes due April 29, 2002
8 5/8% Notes due June 15, 1999 7.00% Notes due September 15, 2002
8.40% Notes due October 15, 1999 Global Floating Rate Notes due September 25, 2002
7.00% Notes due March 1, 2000 6 5/8% Notes due October 1, 2002
9 3/8% Notes due April 1, 2000 8 1/2% Notes due January 1, 2003
9 5/8% Notes due May 15, 2000 5 7/8% Notes due January 22, 2003
5 5/8% Notes due February 15, 2001 6 3/4% Notes due March 15, 2003
7 1/8% Notes due May 1, 2001 7 1/8% Notes due May 1, 2003
6 7/8% Notes due July 15, 2001 8 3/4% Notes due July 15, 2005
7.00% Notes due August 15, 2001 6 5/8% Notes due October 15, 2005
6 3/8% Notes due December 1, 2001 6 1/8% Notes due January 15, 2008
9 5/8% Notes due December 15, 2001 8 7/8% Notes due June 1, 2010
5 1/2% Debentures due December 15, 2001 6.00% Debentures due April 1, 2011
6.00% Notes due February 1, 2002 10.00% Deferred Interest Debentures due December 1, 2012
6 3/4% Notes due February 7, 2002 10.30% Deferred Interest Debentures due June 15, 2015
</TABLE>
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, 1998, there were outstanding 10 shares of the issuer's common
stock.
Documents incorporated by reference. NONE.
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<PAGE>
CONTENTS
PART I
PAGE NO.
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 22
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 57
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 58
Signatures 59
Exhibit Index 61
Ratio of Earnings to Fixed Charges 62
Independent Auditors' Consent 63
<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 Corporation Law. On January 1, 1998,
the Company merged with its predecessor, which was originally incorporated in
New York in 1919.
In conducting its primary form of business, GMAC and its affiliated companies
have a presence in 35 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
23,619 and 21,417 employees worldwide, as of December 31, 1998 and 1997,
respectively.
The Company operates directly and through its subsidiaries and affiliates
(including joint ventures) in which the Company or GM has equity investments. In
its principal markets, GMAC offers automotive financing and other services as
described below. The Company operates its automotive financing services outside
of the U.S. in a similar manner, subject to local laws or other circumstances
that may cause it to modify its procedures accordingly. The Company's policies
and internal controls are designed to ensure compliance with applicable laws and
regulations.
The automotive financing industry is highly competitive. The Company's principal
competitors for retail financing and leasing are 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.
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, 1998, 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 financial services
to customers through dealers who have established relationships with GMAC.
Retail installment obligations for new and used products that meet GMAC's credit
standards are purchased directly from dealers.
<PAGE>
ITEM 1. BUSINESS (continued)
RETAIL FINANCING (concluded)
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.
General Motors 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 guidebooks 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.
LEASING
In the U.S. and Canada, GMAC offers leasing plans to retail customers as well as
dealers or other companies that rent or lease vehicles to others. GMAC also
offers various lease products in 23 other countries.
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). In the U.S. and Canada, dealers are not responsible for customers'
performances during the lease periods nor for the values of the vehicles at the
time of lease maturities. The SmartLease program encourages shorter customer
trading cycles. General Motors may elect to sponsor retail leasing programs by
supporting special lease rates and/or guaranteeing residual values in excess of
independently published residual value guidebooks 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.
<PAGE>
ITEM 1. BUSINESS (CONTINUED)
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. Approximately one-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 that are repossessed and returned to the selling dealers.
INSURANCE
GMAC Insurance Holdings, Inc. ("GMACI"), a holding company formed in 1997,
conducts insurance operations primarily in the United States, Canada and Europe
through its subsidiaries, Motors Insurance Corporation ("MIC") and Integon
Corporation ("Integon") and their respective subsidiaries. MIC insures and
reinsures extended warranty, personal insurance coverages and selected
commercial insurance coverages. Integon primarily writes non-standard personal
automobile insurance coverages. 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
substantially all of its publicly held long-term debt.
MIC's personal lines coverages, which include automobile, homeowners and
umbrella liability insurance, are offered primarily on a direct response basis.
MIC's 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.
Integon's non-standard automobile insurance is offered by approximately 13,000
independent agents in 32 states. The non-standard auto insurance market offers
insurance to individuals that do not meet the underwriting criteria of most
standard insurance companies.
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").
<PAGE>
ITEM 1. BUSINESS (CONCLUDED)
MORTGAGE BANKING (CONCLUDED)
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 is a custom mortgage service program offered to GM
employees, dealers, and stockholders. 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. Additionally, in June 1998,
GMACM created GMAC Home Services by acquiring two relocation companies and
several real estate broker organizations.
GMACCM is the nation's largest commercial and multifamily mortgage loan servicer
based on dollar volume of commercial and multifamily mortgages serviced for
third party investors as of December 31, 1998. 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. During 1998, GMACCM diversified its operations through
various acquisitions, most notably, an investment banking firm/licensed
broker/dealer which specializes in the financing of real estate related
projects, and two software development companies which specialize in mortgage
banking software.
RFC is engaged in several interrelated business lines including mortgage
securitization, investing, origination and lending operations. RFC is the
number-one issuer of private-label mortgage-backed securities in the United
States based on dollar volume of private-label mortgage-backed securities issued
as of December 31, 1998. RFC 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, a GMACMG subsidiary, offers a variety of first- and second-mortgage
loans to homeowners who do not meet the credit standards normally required for
purchase by the government-sponsored enterprises.
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.
<PAGE>
FINANCIAL INFORMATION
Financial information regarding operating segments and operations by geographic
area is set forth in Note 1 and Note 16 in the Notes to Consolidated Financial
Statements.
ITEM 2. PROPERTIES
The Company and its subsidiaries have 312 financial service offices, 332
mortgage offices and 105 insurance offices. Of the number of financial service
offices, 237 are in the United States and Puerto Rico, 27 in Canada and 48 in
other countries. There are 95 insurance offices in the United States, seven in
Europe, two in Canada and one in Latin America. Of the number of mortgage
offices, 329 are located in the United States, one in Mexico, one in Japan 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.
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 aggregate ultimate liability of GMAC under these claims and
actions was not determinable at December 31, 1998, but, in the opinion of
management, such liability 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 STOCK AND RELATED STOCKHOLDER MATTERS
The Company is a wholly owned subsidiary of General Motors and, accordingly, all
shares of the Company's common stock are owned by General Motors. There is no
market for the Company's common stock.
The Company paid cash dividends to General Motors of $300 million in 1998, $750
million in 1997 and $1,200 million in 1996.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS
<CAPTION>
1998 1997 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
INCOME AND NET INCOME RETAINED FOR USE (in millions of dollars)
IN THE BUSINESS
<S> <C> <C> <C> <C> <C>
Gross revenue and other income $ 17,913.9 $ 16,595.4 $ 15,973.7 $ 14,863.2 $ 12,145.0
-------------- -------------- -------------- -------------- --------------
Interest and discount 5,786.9 5,255.5 4,937.5 4,936.3 4,230.9
Depreciation on operating leases 4,692.4 4,677.5 4,627.0 4,304.8 3,233.8
Operating expenses 3,517.3 2,852.2 2,690.3 2,391.8 2,032.3
Insurance losses and loss adjustment
expenses 1,517.2 1,073.5 972.2 998.3 1,030.9
Provision for credit losses 463.1 522.7 669.0 448.8 177.3
-------------- -------------- -------------- -------------- --------------
Total expenses 15,976.9 14,381.4 13,896.0 13,080.0 10,705.2
-------------- -------------- -------------- -------------- --------------
Income before income taxes 1,937.0 2,214.0 2,077.7 1,783.2 1,439.8
United States, foreign and other
income taxes 611.7 912.9 837.2 752.2 512.7
-------------- -------------- -------------- -------------- --------------
Income before cumulative effect of
accounting change 1,325.3 1,301.1 1,240.5 1,031.0 927.1
Cumulative effect of accounting change -- -- -- -- (7.4)
-------------- -------------- -------------- -------------- --------------
Net income 1,325.3 1,301.1 1,240.5 1,031.0 919.7
Cash dividends 300.0 750.0 1,200.0 950.0 875.0
============== ============== ============== ============== ==============
Net income retained in the year $ 1,025.3 $ 551.1 $ 40.5 $ 81.0 $ 44.7
============== ============== ============== ============== ==============
ASSETS
Cash and cash equivalents $ 618.1 $ 759.2 $ 742.3 $ 1,448.6 $ 1,339.5
Earning assets 125,104.6 104,031.6 95,407.5 91,594.7 82,823.3
Other assets 5,694.8 4,528.5 2,428.2 2,604.2 2,354.5
-------------- -------------- -------------- -------------- --------------
Total assets $131,417.5 $109,319.3 $ 98,578.0 $ 95,647.5 $ 86,517.3
============== ============== ============== ============== ==============
NOTES, LOANS AND DEBENTURES
Payable within one year $ 58,472.3 $ 50,399.5 $ 45,809.9 $ 43,871.8 $ 35,114.8
Payable after one year 45,356.5 36,275.2 32,878.9 31,050.6 31,539.6
-------------- -------------- -------------- -------------- --------------
Total debt $103,828.8 $ 86,674.7 $ 78,688.8 $ 74,922.4 $ 66,654.4
============== ============== ============== ============== ==============
<FN>
Certain amounts for the 1994 through 1997 periods have been reclassified to
conform with 1998 classifications.
</FN>
</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 twelfth time in the Company's history, consolidated net income surpassed
$1.0 billion. Automotive financing earnings predominantly contributed to the
1998 earnings gain, partially offset by lower earnings from mortgage operations.
The following table summarizes the most recent earnings of GMAC's automotive
financing, insurance and mortgage operations on a year-to-year basis:
<TABLE>
<CAPTION>
Net Income
-----------------------------------------------------
1998 1997 1996
---------------- -------------- ----------------
(in millions of dollars)
<S> <C> <C> <C>
Automotive financing operations $ 984.4 $ 909.9 $ 946.4
Insurance operations * 225.9 224.6 192.4
Mortgage operations** 115.0 166.6 101.7
---------------- -------------- ----------------
Consolidated total $ 1,325.3 $ 1,301.1 $ 1,240.5
================ ============== ================
<FN>
* GMAC Insurance Holdings, Inc.
** GMAC Mortgage Group, Inc.
</FN>
</TABLE>
On a consolidated basis, GMAC's return on average equity capital was 14.3% in
1998, compared to 15.3% in 1997, and 14.8% in 1996. Total cash dividends paid to
General Motors in 1998 were $300 million compared with $750 million in 1997 and
$1,200 million in 1996.
In 1998, net income from automotive financing operations totaled $984.4 million,
which is 8% and 4% higher than 1997 and 1996, respectively. Earnings in 1998
were higher primarily as a result of retail asset growth, reduced credit losses
and a lower effective income tax rate, partially offset by lower net interest
margins and lower wholesale volume. The decrease in 1997 from 1996 was primarily
attributable to reduced net financing margins partially offset by lower credit
losses and loss provisions and operating expenses.
Net income from insurance operations totaled $225.9 million in 1998, relatively
unchanged from 1997 results and 17% higher than 1996 earnings. The increase in
1997 over 1996 was primarily the result of favorable underwriting experience and
higher realized capital gains.
Net income from mortgage operations totaled $115.0 million in 1998, 31% lower
and 13% higher than 1997 and 1996 earnings, respectively. The decrease in 1998
earnings was largely the result of reduced mortgage asset values due to higher
prepayment levels. The increase in 1997 earnings over 1996 was primarily
attributable to significant increases in origination/purchase volumes and the
mortgage servicing portfolio.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
UNITED STATES NEW PASSENGER CAR AND TRUCK DELIVERIES
U.S. deliveries of new GM vehicles during 1998 were lower than 1997 levels
primarily the result of a 54-day work stoppage from June 5, 1998 through July
28, 1998 at GM which reduced production by an estimated 545,000 units. 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.
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------
1998 1997 1996
---------- ---------- -----------
(in millions of units)
<S> <C> <C> <C>
Industry 16.0 15.5 15.5
General Motors 4.6 4.7 4.8
U.S. new GM vehicle deliveries financed by GMAC
Retail (installment sale contracts and
operating leases) 41.8% 33.1% 28.4%
Fleet transactions (lease financing) 2.1% 2.9% 5.2%
Total 33.6% 27.1% 24.0%
</TABLE>
FINANCING VOLUME
The number of new vehicle deliveries financed are summarized below:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1998 1997 1996
----------- ---------- ----------
(in thousands of units)
UNITED STATES
<S> <C> <C> <C>
Retail installment sale contracts 929 846 634
Operating leases 598 430 506
Leasing 26 35 63
=========== ========== ==========
New deliveries financed 1,553 1,311 1,203
=========== ========== ==========
OTHER COUNTRIES
Retail installment sale contracts 401 327 327
Operating leases 308 303 225
Leasing 67 82 78
=========== ========== ==========
New deliveries financed 776 712 630
=========== ========== ==========
WORLDWIDE
Retail installment sale contracts 1,330 1,173 961
Operating leases 906 733 731
Leasing 93 117 141
=========== ========== ==========
New deliveries financed 2,329 2,023 1,833
=========== ========== ==========
</TABLE>
The increase in U.S. retail and operating lease contracts during 1998, compared
to 1997, was primarily a result of increased incentive programs sponsored by GM.
Outside of the U.S., Canadian and Latin American retail as well as Canadian
operating lease volume increased as a result of similar incentive plans offered
<PAGE>
by GM during 1998. These increases were partially offset by lower operating
lease volume in Europe. The change in financing volume during 1997, compared to
1996, was primarily the result of a shift from lease incentive programs to
special rate finance programs sponsored by GM in the U.S. and increased leasing
activity in other countries.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCING VOLUME (CONCLUDED)
The average new vehicle retail finance contract purchased by GMAC in the United
States during 1998 was $20,800 compared to $20,100 in 1997 and $21,500 in 1996.
The average term for new vehicle retail finance contracts purchased was 52
months in 1998, compared to 56 months in 1997 and 54 months in 1996, while the
monthly payment on such contracts purchased in 1998 averaged $401, compared to
$359 in 1997 and $380 in 1996. The increases in the average amount of retail
finance contract purchased and the average monthly payment were primarily the
result of a reduction in the average customer downpayment and a shift to
shorter-term special rate contracts.
During 1998, the average capitalized cost for new vehicle retail operating lease
contracts entered into in the United States was $24,400 compared to $25,600 in
1997 and $24,400 in 1996. The average term of such new vehicle retail leases was
34 months in 1998, 33 months in 1997 and 31 months in 1996. The average monthly
retail lease payments on such contracts were $352 in 1998, $379 in 1997 and $374
in 1996. The changes in average cost, term and monthly payment during 1998 were
mainly attributable to changes in the types of vehicles within the leasing
portfolio and increased special rate leasing programs sponsored by GM.
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 2.8 million, 3.3 million and 3.3 million new GM vehicles,
representing 64.1%, 67.2% and 70.3% of all GM sales to U.S. dealers during 1998,
1997 and 1996, respectively. The decline in U.S. market share was principally
the result of continued competitive pressures in this market segment.
ASSETS
Cash and cash equivalents totaled $618.1 million at December 31, 1998, compared
with $759.2 million held at December 31, 1997.
At the end of 1998, the Company owned assets and serviced automotive receivables
totaling $138.7 billion, an increase of $17.5 billion over year-end 1997. Total
consolidated assets of the Company at December 31, 1998 were $131.4 billion,
$22.1 billion above the previous year. The year-to-year increases were primarily
the result of higher net finance receivables, operating lease assets, real
estate mortgage outstandings, mortgage servicing rights and receivables due from
GM. For total owned assets and serviced automotive receivables, these increases
were partially offset by declines in off-balance sheet wholesale and retail
serviced assets.
Earning assets, which comprised $125.1 billion of the total consolidated assets,
increased $21.1 billion from 1997 year-end levels.
Consolidated automotive finance receivables serviced by the Company, including
sold receivables, amounted to $79.9 billion and $72.9 billion at December 31,
1998 and 1997, respectively. On-balance sheet finance receivables were $12.2
billion higher than year-end 1997, primarily a result of increased retail
incentive programs sponsored by GM and higher wholesale receivable outstandings.
Principal balances of active trusts of sold wholesale receivables (including
retained subordinated interests) during 1998 decreased $3.0 billion,
attributable to the scheduled wind down of a revolving wholesale trust and the
effects of the work stoppages mentioned earlier. Additionally, outstanding
principal balances of sold retail automotive receivables (including retained
subordinated interests) declined by $2.0 billion due to the completion of only
one sale during 1998 totaling $1.6 billion compared to three sales totaling $5.4
billion in 1997.
<PAGE>
Operating lease assets, net of depreciation, acquired principally under the GMAC
SmartLease program, totaled $27.9 billion at year-end 1998, an increase of $1.9
billion over year-end 1997. The increase from year-end 1997 was primarily
attributable to additional GM sponsored lease incentive programs in the U.S.
during 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ASSETS (CONCLUDED)
At December 31, 1998, the value of the Company's consolidated investment
securities portfolio was $8.7 billion, an increase of $0.8 billion over 1997
year-end. The increase reflected continued growth at GMACMG.
Due and deferred from receivable sales totaled $0.1 billion and $0.7 billion at
December 31, 1998 and 1997, respectively. The significant decline was primarily
due to the upgrade in GMAC's short-term debt rating by Standard & Poor's Ratings
Group in January 1998, which eliminated the requirement to segregate and hold in
trust the daily collections on sold receivables.
The real estate mortgage inventory held for sale amounted to $8.0 billion at
December 31, 1998, $2.9 billion above the prior year-end level. The higher
year-end balance reflected an 86% increase in loan origination activity.
Other earning assets totaled $3.7 billion at December 31, 1998, $1.9 billion
above the prior year-end, primarily resulting from an increase in mortgage
servicing rights. The higher year-end balance of mortgage servicing rights
reflected a 74% increase in the mortgage servicing portfolio during 1998, which
was primarily due to acquisitions.
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, 1998, GMAC's total borrowings were $103.8 billion compared
with $86.7 billion at December 31, 1997. Approximately 80% of this debt
represented funding for operations in the United States, with the remaining 20%
of borrowings for operations in Canada (8%), Germany (4%) and other countries
(8%). The 1998 year-end ratio of total borrowings to equity capital was 10.6:1
compared to 9.9:1 for year-end 1997. The higher year-to-year debt levels were
principally used to fund increased asset levels. Total short-term notes
outstanding at December 31, 1998, amounted to $38.2 billion compared with $32.1
billion at year-end 1997.
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 $13.1 billion in 1998 compared to $6.6 billion
in 1997. Outstanding medium-term notes for U.S. operations totaled $27.8 billion
at December 31, 1998, an increase of $6.2 billion from the prior-year period.
During 1998, underwritten debt issues totaling $4.6 billion were completed for
use in the U.S., compared with $4.7 billion in 1997. Underwritten debt issues
outstanding in the U.S. at December 31, 1998 totaled $19.0 billion, an increase
of $2.7 billion from year-end 1997. As of December 31, 1998, the Company had
unissued debt securities available under effective shelf registrations with the
U.S. Securities and Exchange Commission totaling $13.5 billion.
<PAGE>
At December 31, 1998, GMAC maintained or had access to $33.2 billion of unused
credit lines with banks worldwide, an increase of $2.8 billion from year-end
1997. 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 a $12.0 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY (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 $18.6 billion at December 31, 1998 of which $10.4 billion
was unused. As of December 31, 1998, the committed and uncommitted portion of
such credit facilities totaled $4.6 billion and $14.0 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 10, 1999, 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 Investor's Service, Inc. A2 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>
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY (CONCLUDED)
Moody's Investors Service, Inc. ("Moody's") has assigned a rating of A2 to the
Company's senior debt, the sixth highest among ten investment grade ratings
available, indicating favorable investment attributes and strong ability to
repay principal plus interest. The Company's commercial paper has received a
rating of Prime-1 from Moody's, 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. The senior debt rating was upgraded from A3 to A2 in April 1998,
whereas the commercial paper rating was 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.
As of March 10, 1999, 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 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.
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 $9.8 billion equity base at December 31, 1998. The
total notional amount of the derivatives portfolio was $107.7 billion and $44.1
billion at December 31, 1998 and 1997, respectively. The increase in 1998
year-end notional outstandings was primarily due to increased use of instruments
that hedge mortgage-related securities and mortgage servicing.
<PAGE>
CASH FLOWS
Cash provided by operating activities during 1998 totaled $6.1 billion, an
increase from the $4.0 billion and $4.1 billion provided during the comparable
1997 and 1996 periods, respectively. The additional operating cash flow was
primarily the result of increased other liabilities related to mortgage
operations, partially offset by increased net purchases of mortgage loans.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CASH FLOWS (CONCLUDED)
Cash used for investing activities during 1998 totaled $23.0 billion, compared
with $12.2 billion and $7.4 billion during the same periods in 1997 and 1996,
respectively. Cash usage increased primarily as a result of greater net finance
receivable acquisitions and a decrease in sales of retail receivables proceeds.
Additionally, increases in receivables due from GM and mortgage servicing rights
acquisitions, partially offset by increased net liquidations of investments in
securities, contributed to the change.
Cash provided by financing activities during 1998 totaled $16.8 billion,
compared with $8.3 billion and $2.6 billion during 1997 and 1996, respectively.
The change is primarily the result of increases in short- and long-term debt and
lower dividends paid to GM.
COLLECTION RESULTS AND ASSET QUALITY
The following statistics, which include owned and sold automotive assets,
summarize the Company's delinquency, repossession and loss experience:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------
1998 1997 1996
----------- ------------ -------------
Retail-Worldwide
- ----------------
<S> <C> <C> <C>
Accounts past due over 30 days (average) 3.0% 3.6% 3.2%
Repossessions of new vehicles 1.5% 1.8% 2.0%
Repossessions of used vehicles 3.4% 3.9% 4.4%
Number of vehicles repossessed 85,000 103,000 130,000
Net retail losses as a percent of
total average serviced receivables 0.78% 1.18% 1.28%
Net retail losses as a percent of liquidations
- ----------------------------------------------
Retail serviced - Worldwide 1.53% 1.90% 2.00%
New retail serviced - United States 1.27% 1.58% 1.55%
Retail sold - United States 0.98% 0.78% 0.58%
Charge-offs - Worldwide (in millions of dollars)
- ----------------------------------------------
Total serviced receivables, net of recoveries $ 351.0 $ 533.4 $ 567.7
Total owned receivables, net of recoveries 307.1 496.9 535.3
Allowance for credit losses as a percent of
total net serviced receivables - Worldwide 1.32% 1.29% 1.38%
Operating lease portfolio - United States
- -----------------------------------------
Accounts past due over 30 days (average) 1.44% 1.64% 1.60%
Number of early terminations by default 14,900 19,900 20,700
</TABLE>
<PAGE>
As a result of tightened credit standards and intensified collection efforts,
repossessions and losses in the retail portfolio and the number of early
terminations by default in the operating lease portfolio have decreased since
1996.
As of December 31, 1998, revenue recognition was suspended on approximately
1.54% of gross retail finance receivables. Revenue recognition was suspended on
approximately 0.04% of gross non-retail finance receivables as of December 31,
1998 and 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
COLLECTION RESULTS AND ASSET QUALITY (CONCLUDED)
Collateral with a net book value of $93.6 million and $98.6 million has been
acquired in satisfaction of retail loans and leases outstanding as of December
31, 1998 and 1997, respectively. For non-retail finance receivables, collateral
with a net book value of $1.4 million and $4.3 million has been acquired in
satisfaction of loans outstanding as of December 31, 1998 and 1997,
respectively.
BORROWING COSTS
The Company's worldwide cost of borrowing, including the effects of derivatives,
for 1998 averaged 5.99%, a decrease of 31 and 58 basis points from the
comparable periods of 1997 and 1996, respectively. Total borrowing costs for
U.S. operations averaged 5.89% for 1998, compared to 6.39% and 6.51% for 1997
and 1996, respectively. The lower average borrowing costs since 1996 were
largely a result of a decrease in U.S. interest rates and a greater proportion
of floating rate debt compared to fixed rate debt.
The benefits of these lower average borrowing cost factors was evident when
comparing the Company's 12% increase in average year-to-year outstanding debt
with an accompanying increase of only 10% in its year-to-year interest and
discount expense.
AUTOMOTIVE FINANCING REVENUES AND OTHER INCOME
Financing revenue totaled $12.7 billion in 1998, compared to $12.6 billion for
both 1997 and 1996. Higher retail financing revenues in 1998 were partially
offset by a decline in wholesale revenues, principally as a result of the
reduction in wholesale receivable balances related to the GM work stoppage.
Retail and lease financing revenue totaled $3,868.8 million for 1998, which was
$298.3 million and $46.6 million above 1997 and 1996, respectively. The increase
in 1998 over 1997 was primarily the result of increased retail finance incentive
programs sponsored by GM. The decrease in 1997 from 1996 was attributed to lower
owned retail and lease financing receivable balances resulting from continued
competitive pressures in these markets.
Wholesale and term loan financing revenue amounted to $1,628.9 million, compared
with $1,745.6 million and $1,607.0 million in 1997 and 1996 respectively. The
decrease in 1998 from 1997 was primarily attributed to the work stoppages
mentioned earlier. The increase in 1997 over 1996 was primarily the result of
higher average wholesale receivable balances resulting from a reduction in the
average amount of sold wholesale receivables during the year.
Operating lease revenue, net of depreciation, totaled $2,540.6 million in 1998,
compared to $2,583.0 million and $2,587.6 million in 1997 and 1996,
respectively.
<PAGE>
Other income, including gains and fees related to sold finance receivables,
totaled $1,294.9 million for 1998, compared to $1,159.7 million and $1,228.2
million during the comparable 1997 and 1996 periods, respectively. The increase
in 1998 over 1997 was primarily the result of higher capital gains and
investment income at GMACI, and increased interest earned on receivables due
from GM, partially offset by lower income and gains from sales of retail finance
receivables. The decrease in 1997 from 1996 was principally attributed to lower
income from sales of retail finance receivables.
Pre-tax gains on sold retail receivables, excluding the related limited recourse
loss provision established at loan origination, totaled $31.0 million during
1998 compared with $84.8 million in 1997 and $35.2 million in 1996. 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
AUTOMOTIVE FINANCING REVENUES AND OTHER INCOME (CONCLUDED)
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
Consolidated salaries and benefits increased in 1998 to $1,167.0 million from
$1,050.4 million and $974.3 million in 1997 and 1996, respectively. The increase
in salaries since 1996 primarily reflected continued growth at GMACMG and the
acquisition of Integon by GMACI in October 1997.
Consolidated other operating expenses totaled $2,350.3 million, $1,801.8 million
and $1,716.0 million at 1998, 1997 and 1996, respectively. The increases since
1996 primarily reflected the continued growth at GMACMG and the acquisition of
Integon by GMACI.
As noted earlier, net retail losses as a percentage of total average serviced
automotive receivables was 0.78%, 1.18% and 1.28% in 1998, 1997 and 1996,
respectively. The decrease since 1996 was primarily the result of a 17% and 21%
decline in the number of new and used vehicles repossessed in 1998 and 1997,
respectively. These decreases in repossessions and losses resulted in the $463.1
million provision for credit losses for 1998, which was $59.6 million and $205.9
million below the 1997 and 1996 provisions, respectively.
INCOME TAXES
Consolidated United States, foreign and other income taxes totaled $611.7
million, $912.9 million and $837.2 million for 1998, 1997 and 1996,
respectively. The effective income tax rate for 1998 was 31.6%, compared to
41.2% in 1997 and 40.3% in 1996. The favorable change in 1998 was primarily
attributable to lower U.S. and foreign taxes assessed on foreign source income
and a favorable change resulting from periodic assessments of state and local
income tax accruals. The unfavorable change in 1997 was primarily attributable
to increases in accruals from prior years based on periodic assessment of the
adequacy of such accruals and higher state and local income taxes.
<PAGE>
INSURANCE OPERATIONS
Gross premiums written by GMACI and its subsidiaries totaled $2,250.4 million,
$1,594.1 million and $1,349.7 million in 1998, 1997 and 1996, respectively. Net
premiums earned totaled $1,858.4 million in 1998, an increase of $498.0 million
above 1997, and $700.4 million over 1996. Pre-tax capital gains at GMACI, which
are included in other income, totaled $165.8 million for 1998, $35.6 million and
$65.6 million above 1997 and 1996, respectively. Insurance losses and loss
adjustment expenses totaled $1,517.2 million for 1998, an increase of $443.7
million and $545.0 million over 1997 and 1996, respectively. The increases since
1996 were primarily the result of the inclusion of Integon's non-standard
automobile coverages since its acquisition in October 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MORTGAGE OPERATIONS
GMACMG continued to maintain its position as a leading real estate financial
service company in the United States. Loan origination, mortgage servicing
acquisitions and correspondent loan volume totaled $152.0 billion, $53.9 billion
and $44.3 billion for the years ended December 31, 1998, 1997 and 1996,
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 and acquisitions, the GMACMG
servicing portfolio at December 31, 1998, excluding $2.5 billion of GMAC term
loans for both 1998 and 1997, was $245.0 billion, 74% above the $141.1 billion
at December 31, 1997. During 1998, GMACMG acquired a $33.5 billion (including a
$6.4 billion subservcing portfolio) and a $37.7 billion servicing portfolio from
Wells Fargo Bank, N.A. and Capstead Mortgage Inc., respectively, which improved
its ranking to among the top five residential mortgage servicers at December 31,
1998.
Mortgage revenue totaled $2,029.9 million, $1,498.7 million and $943.7 million
for the years ended December 31, 1998, 1997 and 1996, respectively. The increase
in 1998 over 1997 is primarily the result of continued growth in investment
revenues as well as revenues generated from new product lines and acquired
businesses, which expanded significantly in 1998. The increase in 1997 over 1996
is primarily attributed to continued growth in fee and investment income.
Net income from mortgage operations totaled $115.0 million, $166.6 million and
$101.7 million for 1998, 1997 and 1996, respectively. The decrease in 1998
earnings was largely the result of reduced mortgage asset values due to higher
prepayment levels. The increase in 1997 earnings over 1996 was primarily
attributable to significant increases in origination/purchase volumes and the
mortgage servicing portfolio.
ACCOUNTING STANDARDS
In October 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 134, Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise, effective for the first fiscal
quarter beginning after December 15, 1998. The new standard requires that after
the securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed security or
other retained interests based on its ability and intent to sell or hold those
investments. The Company will adopt this accounting standard in the first
quarter of 1999, as required. The effect of adopting this new accounting
standard is not expected to have a material impact on the Company's consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for fiscal years beginning after
June 15, 1999. The new standard requires that all companies record derivatives
on the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. Management is currently assessing the impact of SFAS No.
133 on the financial statements of the Company. The Company will adopt this
accounting standard on January 1, 2000, as required.
<PAGE>
In the first quarter of 1998, the American Institute of Certified Public
Accountants' Accounting Standards Executive Committee issued Statement of
Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 provides guidance on the capitalization of
software for internal use. GMAC will adopt SOP 98-1 on January 1, 1999, as
required. Management is currently assessing the impact of this SOP on the
financial statements of the Company.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. SFAS No. 132 requires an entity to
disclose certain information about pensions and other postretirement benefits.
The effect of adopting this new accounting standard at December 31, 1998 was not
material to the Company's consolidated financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000
Many computerized systems and microprocessors that are used by GMAC have the
potential for operational problems if they lack the ability to handle the
transition to the Year 2000. This issue has the potential to cause disruption to
the business of GMAC and its customers. In its capacity as a wholly owned
subsidiary of GM, GMAC is part of GM's comprehensive worldwide Year 2000
program. As part of that program, GMAC is identifying and remediating potential
Year 2000 problems in its business information systems and other equipment in
its operations. GMAC has also initiated communications with its service and
technology providers, landlords, dealers and other third parties in order to
assess and reduce the risk that GMAC's operations could be adversely affected by
the failure of these third parties to adequately address the Year 2000 issue.
GMAC's Year 2000 program teams are responsible for remediating all of GMAC's
information technology. Information technology principally consists of business
information systems (such as mainframe and other shared computers and associated
business application software) and infrastructure (such as personal computers,
operating systems, networks and devices like switches and routers). GMAC's Year
2000 program includes assessment and remediation services provided by Electronic
Data Systems Corporation ("EDS") pursuant to a Master Service Agreement with GM.
The Year 2000 program is being implemented in seven phases, some of which are
being conducted concurrently:
INVENTORY - identification and validation of an inventory of all systems
and infrastructure components that could be affected by the Year 2000
issue. The inventory phase commenced in earnest in 1996 and is
substantially complete. It has identified approximately 2,000 business
information systems/applications.
ASSESSMENT - initial testing, code scanning, and technology provider
contacts to determine whether remediation is needed and to develop a
remediation plan, if applicable. The assessment of business information
systems is substantially complete and included a determination that
approximately one half of such systems should be regarded as "critical"
based on criteria such as the potential for business disruption. The
assessment of infrastructure is also substantially complete.
REMEDIATION - design and execution of a remediation plan, followed by
testing for adherence to the design. GMAC has substantially completed the
remediation of its critical systems. Unimportant systems have been, and
<PAGE>
will continue to be, removed from our Year 2000 inventory and will not be
remediated. While a few critical systems will not be remediated until 1999,
GMAC believes that it has met its target. In the normal course of its
business plans, GMAC is also incrementally implementing enterprise software
and other "common" applications that will replace and thereby eliminate the
need to remediate certain existing systems. Implementation of this software
at several sites is scheduled for completion in the first quarter of 1999,
with a few not expected to be complete until the second quarter of 1999.
SYSTEM TESTING - testing of remediated items to ensure that they function
normally after being placed back in their original operating environment.
This phase is closely related to the remediation phase and follows
essentially the same schedule.
IMPLEMENTATION - return of items to normal operation after satisfactory
performance in system testing. This phase follows essentially the same
schedule as remediation and system testing.
READINESS TESTING - planning for and testing of integrated systems in a
Year 2000 ready environment, including ongoing auditing and follow-up.
Readiness testing was largely completed in 1998, with a few exceptions as
noted above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 (CONTINUED)
CONTINGENCY PLANNING - development and execution of plans that focus on
specific areas of significant concern and concentrate resources to address
them. GMAC currently believes that the most reasonably likely worst case
scenario is that there will be some localized disruptions of systems that
will affect individual business processes, facilities or service and
technology providers for a short time rather than systematic or long-term
problems affecting our business operations as a whole. GMAC contingency
planning will continue to identify systems or other aspects of its business
that it believes would be most likely to experience Year 2000 problems.
GMAC contingency planning will also address those business operations in
which a localized disruption could have the potential for causing a wider
problem by interrupting the flow of data or services to other operations.
Because there is an uncertainty as to which activities may be affected, and
the exact nature of the problems which may arise, contingency planning will
focus on minimizing the scope and duration of any disruption by having
sufficient personnel and other resources in place to permit a flexible,
real-time response to specific problems as they may arise at individual
locations around the world. Some of the actions that may be considered
include the deployment of emergency response teams on a regional or local
basis, the establishment of a Year 2000 Command Center and development of
detailed manual procedures. GMAC is leveraging off its existing Disaster
Recovery and Business Resumption Plans and Processes, while expanding its
scope to encompass Year 2000 concerns. The target for completion of these
plans is the first half of 1999, with subsequent testing and refinement.
GMAC's communication with its service and technology providers is a focused
element of the assessment phase described above. GMAC is a leading participant
in the Financial Services Sub-Group of the Automotive Industry Action Group
("AIAG"), an automotive industry trade association, which has distributed Year
2000 compliance questionnaires to many critical financial service providers that
supply GMAC with services throughout the world. Responses to these
questionnaires have been received from approximately three-quarters of the North
American providers and approximately one-half of the international providers to
which they were sent. In addition, GMAC has initiated its own contact and review
of these providers and other non-financial service providers considered to be
critical to GMAC's operations, including follow-up to the AIAG questionnaire.
GMAC has also initiated contact with the landlords or property managers of its
facilities throughout the world, to assess the ongoing functionality of the
space it rents from others. Responses have been received from more than 90% of
the contacts.
GMAC also has a program to work with some of its largest customers, primarily
automotive dealers and lease/rental companies, on their Year 2000 readiness.
This program, developed in conjunction with GM, includes distributing materials
that assist them in designing and executing their own assessment and remediation
efforts.
<PAGE>
The cost of GMAC's Year 2000 program is being expensed as incurred with the
exception of capitalizable replacement hardware. Total incremental spending by
GMAC is not expected to be material to the Company's operations, liquidity or
capital resources. GMAC incurred approximately $30 million and $5 million of
Year 2000 expense during 1998 and 1997, respectively. GMAC expects its total
Year 2000 expense to be approximately $75 million, with peak spending occurring
in late 1998 and early 1999. This total spending also includes an additional
payment to EDS of approximately $13 million (part of GM's overall additional
payment to EDS of approximately $75 million) at the end of the first quarter of
2000 if systems remediated by EDS under its Master Service Agreement with GM are
capable of continued operation before, on and after January 1, 2000 without
causing a significant business disruption that results in a material financial
loss to GM due to the millennium change.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONCLUDED)
YEAR 2000 (CONCLUDED)
The estimated value of the services EDS is required to provide to GMAC under the
Master Service Agreement with GM that are included in normal fixed price
services and other ongoing payments to EDS that are attributable to work being
performed in connection with GMAC's Year 2000 program is approximately $17
million, (net of the aforementioned potential $13 million payment at the end of
the first quarter of 2000). This does not represent incremental spending to
GMAC. GMAC's Year 2000 program costs do not include information technology
projects that have been delayed due to Year 2000, which are estimated to be
$10-15 million, or information technology projects that have been accelerated
due to Year 2000, which are estimated to be less than $5 million.
In view of the foregoing, GMAC does not currently anticipate that it will
experience a significant disruption of its business as a result of the Year 2000
issue. However, there is still uncertainty about the broader scope of the Year
2000 issue as it may affect GMAC and third parties that are critical to GMAC's
operations. For example, lack of readiness by electrical and water utilities,
financial institutions, governmental agencies or other providers of general
infrastructure could, in some geographic areas, pose significant impediments to
GMAC's ability to carry on its normal operations in the area or areas so
affected. In the event that GMAC is unable to complete its remedial actions as
described above and is unable to implement adequate contingency plans in the
event that problems are encountered, there could be a material adverse effect on
GMAC's business, results of operations or financial condition.
Statements made herein regarding the implementation of various phases of GMAC's
Year 2000 program, the costs expected to be associated with that program and the
results that GMAC expects to achieve constitute forward-looking information. As
noted above, there are many uncertainties involved in the Year 2000 issue,
including the extent to which GMAC will be able to successfully remediate
systems and adequately provide for contingencies that may arise as well as the
broader scope of the Year 2000 issue as it may affect third parties that are not
controlled by GMAC. Accordingly, the costs and results of GMAC's Year 2000
program and the extent of any impact on GMAC's operations could vary materially
from those stated herein.
EURO CONVERSION
On January 1, 1999, eleven of fifteen member countries of the European Monetary
Union established fixed conversion rates between their existing currencies and
adopted the euro as their new common currency. The euro trades on currency
exchanges and the legacy currencies remain legal tender in the participating
countries for a transition period until January 1, 2002. Beginning on January 1,
2002, euro denominated bills and coins will be issued and legacy currencies will
be withdrawn from circulation.
The Company has established plans to assess and address the potential impact to
GMAC that may result from the euro conversion. These issues include, but are not
limited to: 1) the technical challenges to adapt information systems to
accommodate euro transactions; 2) the competitive impact of cross-border price
transparency; 3) the impact on currency exchange rate risks; 4) the impact on
existing contracts; and 5) tax and accounting implications. The Company expects
that the euro conversion will not have a material adverse impact on its
financial condition or results of operations.
In those countries that have adopted the euro currency and in which GMAC has a
presence, the Company offers financial services to dealers and consumers in both
the local currency and the euro.
<PAGE>
FORWARD-LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations contains various forward-looking statements within the
meaning of applicable federal securities laws and are based upon GMAC's current
expectations and assumptions concerning future events, which are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those anticipated.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GMAC is exposed to market risk from changes in interest rates, foreign currency
exchange rates and certain equity security prices. In order to manage the risk
arising from these exposures, GMAC enters into a variety of foreign currency and
interest rate contracts and options.
A discussion of GMAC's accounting policies for derivative instruments is
included in Note 1 to the consolidated financial statements and further
disclosure is provided in Notes 8, 9, 14, and 15 to the consolidated financial
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED)
GMAC maintains risk management control systems to monitor interest rate, foreign
currency exchange rate and equity price risks, and related hedge positions.
Positions are monitored using a variety of analytical techniques including
market value, sensitivity analysis, and value-at-risk models. The following
analyses are based on sensitivity analysis tests that assume instantaneous,
parallel shifts in exchange rates, interest rate yield curves, and equity
prices. For options and instruments with non-linear returns, models appropriate
to the instrument are utilized to determine the impact of sensitivity shifts.
Interest Rate Risk
- ------------------
GMAC is subject to market risk from exposure to changes in interest rates based
on its financing, investing, and cash management activities. GMAC enters into
various financial instrument transactions to maintain the desired level of
exposure to the risk of interest rate fluctuations and to minimize interest
expense. More specifically, GMAC and its affiliates have entered into contracts
to provide automotive financing, retain mortgage servicing rights, and to retain
various assets related to mortgage securitization. Automotive financing
activities are primarily funded by debt obligations. These debt obligations are
frequently hedged to reduce exposure to fluctuations in interest rate risk.
Certain exchange traded future and option contracts, interest rate caps and
floors, along with various investments, have been entered into to reduce the
interest rate risk related to these activities and manage potential prepayment
activity associated with mortgage servicing rights.
GMACMG manages prepayment risk associated with its capitalized mortgage
servicing rights with interest rate caps and floors, futures, options on futures
contract, swaps, swaptions and forwards. Since the derivative instruments do not
have identical characteristics to the underlying mortgage servicing rights, GMAC
is exposed to basis risk. GMACMG mitigates this risk through a historical review
of value changes in various interest rate scenarios when establishing and
maintaining its hedge program. GMACMG manages the interest rate risk associated
with its mortgage loans held for sale with option contracts on U.S. Treasure
instruments and mortgage-backed securities. Additionally, GMACMG uses options
and futures contracts on U.S. Treasury instruments and euros, and interest rate
swap agreements to manage the interest rate risk associated with its
mortgage-related securities.
As of December 31, 1998, the net fair value liability of all financial
instruments held for purposes other than trading with exposure to interest rate
risk was approximately $14.6 billion. The potential loss in fair value resulting
from a hypothetical 10% increase in interest rates would be approximately $407.5
million. The net fair value asset of all financial instruments held for trading
purposes with exposure to interest rate risk was approximately $3.2 billion. The
potential loss in fair value resulting from a hypothetical 10% decrease in
interest rates would be approximately $84.2 million.
There are certain shortcomings inherent to the sensitivity analyses presented.
The model assumes interest rate changes are instantaneous, parallel shifts in
the yield curve. In reality, changes are rarely instantaneous or parallel.
<PAGE>
Although certain assets and liabilities may have similar maturities or periods
to repricing, they may not react correspondingly to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate with changes in market interest rates, while interest rates on other
types of assets may lag behind changes in market rates. Finance receivables are
less susceptible to prepayments when interest rates change, while prepayments on
many mortgage-related instruments are directly affected by a change in interest
rates. As such, GMAC's model does not address prepayment risk for automotive
related finance receivables, but does consider prepayment risk for
mortgage-related instruments that are highly sensitive to prepayment risk.
However, in the event of a change in interest rates, actual loan prepayments may
deviate significantly from assumptions used in the model. Further, certain
assets, such as adjustable rate loans, have features, such as annual and
lifetime caps, that restrict changing the interest rates both on a short-term
basis and over the life of the asset. Finally, the ability of certain borrowers
to make scheduled payments on their adjustable rate loans may decrease in the
event of an interest rate increase.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONCLUDED)
Foreign Currency Exchange Rate Risk
- -----------------------------------
GMAC is exposed to foreign currency risk arising from the possibility that
fluctuations in foreign exchange rates will impact future earnings or assets and
liability values from normal operations in foreign countries and various
financial instruments that are denominated in foreign currencies. GMAC's most
significant foreign currency exposures relate to Canada, Germany, United
Kingdom, and Australia. As of December 31, 1998, the net fair value liability of
financial instruments with exposure to foreign currency risk was approximately
$3.5 billion. The potential loss in fair value for such financial instruments
from a hypothetical 10% increase in quoted foreign currency exchange rates would
be approximately $348.4 million.
The model assumes an instantaneous, parallel shift in the foreign currency
exchange rates. Exchange rates rarely move in the same direction. The assumption
that exchange rates change in an instantaneous or parallel fashion may overstate
the impact of changing exchange rates on assets and liabilities denominated in a
foreign currency.
Equity Price Risk
- -----------------
GMAC holds investments in various available for sale equity securities that are
subject to price risk. The fair value of such investments, as of December 31,
1998, was approximately $1.2 billion. The potential loss in the fair value of
these investments, assuming a 10% decrease in underlying equity prices, would be
approximately $121.0 million.
Overall Limitations and Forward-looking Statements
- --------------------------------------------------
Operating leases are not required to be included in the sensitivity analysis and
as a result, have not been presented as part of this analysis. This limitation
is significant to the analysis presented. While the sensitivity analysis will
show a fair market value change for the debt which funds GMAC's operating lease
portfolio, a corresponding change for GMAC's operating lease portfolio, which
has a book value of $27.9 billion, was not considered by the model. As a result,
the overall impact to the fair market value of financial instruments from
hypothetical changes in interest and foreign currency exchange rates may be
overstated.
The Company has developed the fair value estimates by utilization of available
market information or other appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop
estimates of fair value, so the estimates are not necessarily indicative of the
amounts that could be realized or would be paid in a current market exchange.
The effect of using different market assumptions and/or estimation methodologies
may be material to the estimated fair market value amounts. In addition, the
above discussion and the estimated amounts generated from the sensitivity
analyses referred to above include forward-looking statements of market risk
which assume for analytical purposes that certain adverse market considerations
may occur. Actual future market conditions may differ materially from such
assumptions because the amounts noted previously are the result of analyses used
for the purpose of assessing possible risks and the mitigation thereof.
Accordingly, the forward-looking statements should not be considered projections
by GMAC of future events or losses.
<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.
Management is further responsible for maintaining internal control designed to
provide reasonable assurance that the books and records reflect the transactions
of the companies and that established policies and procedures are carefully
followed. Perhaps the most important feature of internal control is that it is
continually reviewed for effectiveness and is augmented by written policies and
guidelines, the careful selection and training of qualified personnel and a
strong program of internal audit.
Deloitte & Touche LLP, an independent auditing firm, is engaged to audit the
consolidated financial statements of General Motors Acceptance Corporation and
subsidiaries and issue reports thereon. The audit is conducted in accordance
with generally accepted auditing standards that comprehend the consideration of
internal control and tests of transactions to the extent necessary to form an
independent opinion on the financial statements prepared by management. The
Independent Auditors' Report appears on the next page.
The Board of Directors, through the Audit Committee (the "Committee"), is
responsible for assuring that management fulfills its responsibilities in the
preparation of the consolidated financial statements. The Committee selects the
independent auditors annually. In addition, the Committee reviews the scope of
the audits and the accounting principles being applied in financial reporting.
The independent auditors, representatives of management and the internal
auditors meet regularly (separately and jointly) with the Committee to review
the activities of each, to ensure that each is properly discharging its
responsibilities, and to assess the effectiveness of internal control. It is
management's conclusion that internal control at December 31, 1998 provides
reasonable assurance that the books and records reflect the transactions of the
companies and that 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 control and the quality of
the financial reporting.
- --------------------------------------- -------------------------------
John D. Finnegan William F. Muir
President and Chief Executive Officer Executive Vice President and
Principal Financial Officer
<PAGE>
INDEPENDENT AUDITORS' REPORT
General Motors Acceptance Corporation:
We have audited the accompanying Consolidated Balance Sheet of General Motors
Acceptance Corporation and subsidiaries as of December 31, 1998 and 1997 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, 1998. 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 consolidated financial statements present fairly, in all
material respects, the financial position of General Motors Acceptance
Corporation and subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
S\ DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
600 Renaissance Center
Detroit, Michigan
January 20, 1999
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
----------------- ----------------
(in millions of dollars)
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents (Note 1) $ 618.1 $ 759.2
----------------- ----------------
EARNING ASSETS
Investments in securities (Note 5) 8,681.9 7,896.1
Finance receivables, net (Notes 2 and 3) 71,101.2 59,048.9
Investment in operating leases, net (Note 4) 27,925.8 25,981.4
Notes receivable from General Motors Corporation (Note 12) 2,270.5 551.7
Real estate mortgages - held for sale 7,969.7 5,119.5
- held for investment 1,296.7 713.0
- lending receivables 2,063.6 2,222.9
Due and deferred from receivable sales, net (Note 3) 111.5 690.5
Other (Note 12) 3,683.7 1,807.6
----------------- ----------------
Total earning assets 125,104.6 104,031.6
----------------- ----------------
Nonearning assets (Note 6) 5,694.8 4,528.5
================= ================
TOTAL ASSETS $131,417.5 $109,319.3
================= ================
Liabilities and Stockholder's Equity
- ------------------------------------
Notes, loans and debentures payable within one year (Notes 7 and 8) $ 58,472.3 $ 50,399.5
----------------- ----------------
ACCOUNTS PAYABLE AND OTHER LIABILITIES
General Motors Corporation and affiliated companies (Note 12) 929.6 698.9
Interest 1,264.2 1,101.8
Insurance losses and loss expenses (Note 13) 2,062.7 2,125.3
Unearned insurance premiums 1,855.6 1,804.1
Deferred income taxes (Note 10) 2,842.9 2,577.1
United States and foreign income and other taxes payable (Note 10) 570.7 321.2
Other postretirement benefits (Note 11) 685.3 652.6
Other 7,586.1 4,607.5
----------------- ----------------
Total accounts payable and other liabilities 17,797.1 13,888.5
----------------- ----------------
Notes, loans and debentures payable after one year (Note 9) 45,356.5 36,275.2
----------------- ----------------
Commitments and contingencies (Notes 4, 15 and 17)
STOCKHOLDER'S EQUITY
Common stock, $.10 par value (authorized 10,000 shares, outstanding
10 shares) and paid-in capital 2,200.0 2,200.0
Net income retained for use in the business 7,351.6 6,326.3
Net unrealized gains on securities (Note 5) 381.5 368.5
Unrealized accumulated foreign currency translation adjustment (141.5) (138.7)
----------------- ----------------
Accumulated other comprehensive income 240.0 229.8
----------------- ----------------
Total stockholder's equity 9,791.6 8,756.1
----------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $131,417.5 $109,319.3
================= ================
<FN>
Reference should be made to the Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<CAPTION>
For The Years Ended December 31,
--------------------------------------------------
1998 1997 1996
---------------- --------------- ---------------
(in millions of dollars)
FINANCING REVENUE (Note 1)
<S> <C> <C> <C> <C>
Retail and lease financing (Note 2) $ 3,868.8 $ 3,570.5 $ 3,822.2
Operating leases (Note 4) 7,233.0 7,260.5 7,214.6
Wholesale and term loans (Note 2) 1,628.9 1,745.6 1,607.0
---------------- --------------- ---------------
Total automotive financing revenue 12,730.7 12,576.6 12,643.8
Interest and discount (Notes 8 and 9) (5,786.9) (5,255.5) (4,937.5)
Depreciation on operating leases (Note 4) (4,692.4) (4,677.5) (4,627.0)
---------------- --------------- ---------------
Net automotive financing revenue 2,251.4 2,643.6 3,079.3
Insurance premiums earned 1,858.4 1,360.4 1,158.0
Mortgage revenue 2,029.9 1,498.7 943.7
Other income (Notes 3 and 12) 1,294.9 1,159.7 1,228.2
---------------- --------------- ---------------
Net financing revenue and other 7,434.6 6,662.4 6,409.2
---------------- --------------- ---------------
EXPENSES
Salaries and benefits 1,167.0 1,050.4 974.3
Other operating expenses 2,350.3 1,801.8 1,716.0
Insurance losses and loss adjustment expenses (Note 13) 1,517.2 1,073.5 972.2
Provision for credit losses (Note 2) 463.1 522.7 669.0
---------------- --------------- ---------------
Total expenses 5,497.6 4,448.4 4,331.5
---------------- --------------- ---------------
Income before income taxes 1,937.0 2,214.0 2,077.7
United States, foreign and other income taxes (Note 10) 611.7 912.9 837.2
================ =============== ===============
NET INCOME $ 1,325.3 $ 1,301.1 $ 1,240.5
================ =============== ===============
<FN>
Reference should be made to the Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<CAPTION>
For the Year Ended December 31, 1998
--------------------------------------------------------------------------
Accumulated Common
Total Other Stock and
Stockholder's Comprehensive Retained Comprehensive Paid-in
(in millions of dollars) Equity Income Earnings Income Capital
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $ 8,756.1 $ 6,326.3 $ 229.8 $2,200.0
Comprehensive income
Net income 1,325.3 $ 1,325.3 1,325.3
Other comprehensive income, net of tax:
Foreign currency translation
adjustments (net of tax of $2.2) (2.8) (2.8)
Unrealized gains on securities, net of
reclassification adjustment (see 13.0 13.0
disclosure)
-------------
Other comprehensive income 10.2 10.2
-------------
Comprehensive income $ 1,335.5
=============
Dividends paid on common stock (300.0) (300.0)
--------------- ----------- ------------ ---------
Ending balance $ 9,791.6 $ 7,351.6 $ 240.0 $2,200.0
=============== =========== ============ =========
Disclosure of Reclassification Amount
- -------------------------------------
Unrealized holding gains arising during
period (net of tax of $62.9) $ 120.8
Less: reclassification adjustment for gains
included in net income (net of tax of $58.1) (107.8)
-------------
Net unrealized gains on securities $ 13.0
=============
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
--------------------------------------------------------------------------
Accumulated Common
Total Other Stock and
Stockholder's Comprehensive Retained Comprehensive Paid-in
(in millions of dollars) Equity Income Earnings Income Capital
--------------------------------------------------------------------------
<S> <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 91.8 91.8
disclosure)
-----------
Other comprehensive income (62.6) (62.6)
-----------
Comprehensive income $ 1,238.5
===========
Dividends paid 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>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (CONCLUDED)
<CAPTION>
For the Year Ended December 31, 1996
--------------------------------------------------------------------------
Accumulated Common
Total Other Stock and
Stockholder's Comprehensive Retained Comprehensive Paid-in
(in millions of dollars) Equity Income Earnings Income Capital
--------------------------------------------------------------------------
<S> <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 (8.0) (8.0)
disclosure)
-------------
Other comprehensive income (42.2) (42.2)
-------------
Comprehensive income $ 1,198.3
=============
Dividends paid 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)
=============
<FN>
Reference should be made to the Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------
1998 1997 1996
-------------- --------------- --------------
(in millions of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 1,325.3 $ 1,301.1 $ 1,240.5
Depreciation 4,782.0 4,734.2 4,667.5
Provision for credit losses 463.1 522.7 669.0
Gains on sales of finance receivables (31.0) (84.8) (35.2)
Gains on sales of available for sale investment securities (169.7) (130.2) (100.2)
Mortgage loans - originations/purchases (54,432.5) (30,877.8) (19,455.3)
- proceeds on sale 51,582.3 28,543.3 18,157.1
Mortgage-related securities held for trading
- acquisitions (2,237.1) (2,515.8) (970.2)
- liquidations 848.9 1,448.5 757.6
Changes in the following items:
Due to General Motors Corporation and affiliated companies 223.0 3.2 (1,103.0)
Taxes payable and deferred 518.1 511.2 (204.5)
Interest payable 166.4 47.1 17.0
Other assets (253.9) (308.0) (199.9)
Other liabilities 2,957.1 527.9 369.0
Other 333.0 228.3 279.3
-------------- --------------- --------------
Net cash provided by operating activities 6,075.0 3,950.9 4,088.7
-------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Finance receivables - acquisitions (155,213.9) (163,613.6) (155,477.3)
- liquidations 114,420.7 129,614.8 120,322.7
Notes receivable from General Motors Corporation (1,768.7) (361.2) (190.5)
Operating leases - acquisitions (17,128.3) (15,392.8) (14,381.8)
- liquidations 10,388.8 8,715.6 6,725.8
Investments in available for sale securities:
- acquisitions (20,526.1) (17,436.9) (13,088.6)
- maturities 17,682.5 13,775.4 10,827.2
- proceeds from sales 3,636.3 2,684.1 2,336.2
Mortgage servicing rights - acquisitions (1,861.8) (478.5) (409.3)
- liquidations 80.0 23.4 98.6
Proceeds from sales of receivables - wholesale 26,165.1 26,091.9 34,620.0
- retail 1,515.6 5,098.7 2,037.2
Due and deferred from receivable sales 585.9 351.7 192.0
Acquisitions of net assets of businesses, less cash acquired (173.4) (422.4) --
Other (835.0) (860.9) (978.1)
-------------- --------------- --------------
Net cash used in investing activities (23,032.3) (12,210.7) (7,365.9)
-------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 21,097.8 14,690.5 14,009.0
Principal payments on long-term debt (11,376.5) (11,310.8) (11,938.9)
Change in short-term debt, net 7,392.5 5,645.9 1,700.4
Dividends paid (300.0) (750.0) (1,200.0)
-------------- -------------- --------------
Net cash provided by financing activities 16,813.8 8,275.6 2,570.5
-------------- -------------- --------------
Effect of exchange rate changes on cash and cash equivalents 2.4 1.1 0.4
-------------- -------------- --------------
Net increase/(decrease) in cash and cash equivalents (141.1) 16.9 (706.3)
Cash and cash equivalents at the beginning of the year 759.2 742.3 1,448.6
============== ============== ==============
Cash and cash equivalents at the end of the year $ 618.1 $ 759.2 $ 742.3
============== ============== ==============
SUPPLEMENTARY CASH FLOWS INFORMATION
Interest paid $ 5,528.6 $ 5,138.6 $ 4,851.7
Income taxes paid 113.5 338.2 1,003.9
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (CONCLUDED)
During 1998 and 1997, assets acquired, liabilities assumed, and consideration
paid for the acquisitions of businesses were as follows:
1998 1997
-------- ---------
(in millions of dollars)
Fair value of assets acquired $ 211.9 $ 1,850.2
Cash acquired -- (142.6)
Liabilities assumed (38.5) (1,285.2)
--------- ----------
Net acquisitions $ 173.4 $ 422.4
========= ==========
Reference should be made to the Notes to Consolidated Financial Statements.
<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 Corporation Law. On January 1, 1998,
the Company merged with its predecessor, which was originally incorporated in
New York in 1919.
The Company is a financial services organization that principally provides
consumer and dealer vehicle financing. The principal markets for the Company's
automotive financial products and services are North America, Europe, Latin
America and Asia-Pacific. The Company conducts insurance operations primarily in
the United States, Canada and Europe. In addition, the Company's mortgage
banking subsidiaries operate principally in the U.S. and during 1998, expanded
into Mexico, Japan and the United Kingdom.
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 1998
presentation.
Segment Reporting
- -----------------
GMAC's reportable operating segments include GMAC North American Financing
Operations (GMAC-NAO), GMAC International Financing Operations (GMAC-IO),
Insurance Operations (GMACI) and Mortgage Operations (GMACMG). GMAC-NAO consists
of 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.
The accounting policies of the operating segments are the same as those
described in this summary of significant accounting policies. Revenues are
attributed to geographic areas based on the location of the assets producing the
revenues.
Cash Equivalents
- ----------------
Cash equivalents are defined as short-term, highly liquid investments with
original maturities of 90 days or less.
Investments in Securities
- -------------------------
Bonds, equity securities, mortgage-backed securities, notes, retained interests
in securitizations and other investments are carried at fair value.
Mortgage-backed securities held for sale in conjunction with mortgage banking
activities are classified as trading securities. For mortgage-related trading
securities, unrealized gains and losses are included in income. The fair value
of the mortgage-related trading securities is based on estimated market value.
Investments in securities not classified as trading securities and not held to
maturity are classified as available for sale securities. For available for sale
investments, the aggregate excess of market value over cost, net of related
income taxes, is included within a separate component of stockholder's equity.
The Company determines cost on the specific identification basis. The fair value
of the investments, except for the retained interests in securitizations, is
based on quoted market prices. The fair value of the retained interests in
securitizations is based on estimated market value.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
- -------------------
Financing revenue is recorded over the terms of the receivables using the
interest method. Certain loan origination costs are deferred and amortized to
financing revenue over the life of the related loans using the interest method.
Recognition of non-retail finance revenue is generally suspended when a loan
becomes contractually delinquent for 90 days. Beginning in 1998, recognition of
retail finance revenue is generally suspended when a loan becomes contractually
delinquent for 120 days. This change in policy did not have a material impact on
the consolidated financial statements. Finance revenue recognition is resumed
when the loan becomes contractually current, at which time all past due finance
revenue is recognized.
Income from operating lease assets is recognized on a straight-line basis over
the scheduled lease term. Certain operating lease origination costs are deferred
and amortized to financing revenue over the life of the related operating leases
using the straight-line method.
Investments in Operating Leases, Net
- ------------------------------------
The Company has significant investments in the residual values of its leasing
portfolios. The residual values represent the estimate of the values of the
assets at the end of the lease contracts and are initially recorded based on
appraisals and estimates. Realization of the residual values is dependent on the
Company's future ability to market the vehicles under then prevailing market
conditions. Management reviews residual values periodically to determine that
recorded amounts are appropriate.
Allowance for Credit Losses
- ---------------------------
An allowance for credit losses is generally established during the period in
which receivables are acquired and is maintained at a level deemed appropriate
by management based on historical and other factors that affect collectibility.
Losses arising from the sale of repossessed collateral are charged to the
allowance for credit losses. Where repossession has not taken place, receivables
are charged off as soon as it is determined that the collateral cannot be
repossessed, generally not more than 150 days after default.
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 reclassified from finance receivables or
operating leases to nonearning assets with the related adjustments to the
valuation allowance included in other operating expenses.
Non-retail finance receivables are reduced to the lower of book value or the
estimated fair value of collateral when determined to be impaired or
uncollectible. The Company's policy is to recognize interest income related to
impaired loans on a cash basis.
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. The Company continues
to service these receivables for a fee, which is considered to be adequate
compensation and earns other related ongoing income. Normal servicing fees on
sold receivables are earned over the estimated remaining life of the sold
receivables.
Pre-tax gains on sold receivables are recorded in other income. In determining
the gain or loss for each qualifying sale of retail receivables, the investment
in the sold receivable pool is allocated between the portion sold and the
portion retained based on their relative fair values on the date of sale. The
receivables sold are removed from finance receivables and the subordinated
securities retained by the Company are included in investments in securities and
are classified as available for sale.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Sales of Receivables (concluded)
- --------------------------------
Interest-only strip receivables are recorded at estimated fair value. The
difference between market value and cost for interest-only strip receivables is
recorded within comprehensive income, net of related income taxes.
Depreciation
- ------------
The Company and its subsidiaries provide for depreciation of vehicles and other
equipment on operating leases or in company use generally on a straight-line
basis over a period of time consistent with the term of the underlying operating
lease agreement or the estimable useful life for property in company use. The
provision for depreciation is adjusted for the difference between the net book
value and the proceeds of sale or salvage on disposal of the assets. The Company
evaluates its depreciation policy for leased vehicles on a regular basis.
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 ranging from 15 to 40 years.
Foreign Currency Translation
- ----------------------------
All assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at year-end exchange rates. Income and expense items are translated at
average exchange rates prevailing during the year. The resulting translation
adjustments are recorded as a component of stockholder's equity.
Income Taxes
- ------------
The Company and its domestic subsidiaries join with General Motors in filing a
consolidated United States federal income tax return. The portion of the
consolidated tax recorded by the Company and its subsidiaries included in the
consolidated tax return generally is equivalent to the liability that would have
been incurred on a separate return basis.
Derivative Financial Instruments
- --------------------------------
The Company is a party to derivative financial instruments with
off-balance-sheet risk that it uses in the normal course of business to reduce
its exposure to fluctuations in interest and foreign currency rates. The Company
enters into these transactions for purposes other than trading. These financial
exposures are managed in accordance with corporate policy and procedures. The
objectives of the derivative financial instruments portfolio are to manage
interest rate and currency risks by: 1) offsetting a companion asset or funding
obligation; 2) adjusting fixed and floating rate funding levels; and 3)
facilitating securitization transactions.
As part of the approval process, GMAC management identifies the specific
financial risk that 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 with related gains and losses recognized in other income on a current
basis.
The primary classes of derivatives used by the Company in the automotive
financing operations are interest rate and foreign currency 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 interest and foreign currency rate and price
fluctuations. Credit risk is managed through the continual 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 1. SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
Derivative Financial Instruments (Concluded)
- --------------------------------------------
Interest Rate Instruments
- -------------------------
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 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. 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 the time at which the Company issues debt, these swaps will generally be
terminated. Gains and losses from terminated swaps and terminated forward
starting swaps are deferred and amortized over the remaining period of the
original swap or the remaining term of the underlying exposure, whichever is
shorter, as either a reduction or increase of interest expense. Open swap
positions are reviewed regularly to ensure that they remain effective in
managing interest rate risk.
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.
Written options (including related premiums) and interest rate basis swaps are
marked-to-market on a current basis with the related gains or losses included in
other income.
Foreign Currency Instruments
- ----------------------------
Currency swaps are used to hedge foreign exchange exposure on foreign currency
denominated debt by converting the funding currency to the currency of the
assets being financed. Foreign currency swaps are legal agreements between two
parties to purchase and sell a foreign currency, for a price specified at the
contract date, with delivery and settlement at both the effective date and
maturity date of the contract. Foreign currency swap agreements are accounted
for using settlement accounting as it relates to periodic interest payments. The
foreign currency gains and losses associated with these contracts offset the
correlating foreign currency gains and losses related to the designated
liabilities.
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>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. FINANCE RECEIVABLES
The composition of finance receivables outstanding is summarized as follows:
December 31,
------------------------
1998 1997
---------- ----------
(in millions of dollars)
United States
Retail $ 33,320.9 $ 26,570.2
Wholesale 17,721.7 15,212.7
Leasing and lease financing 631.8 716.2
Other 4,990.4 3,188.3
---------- ----------
Total United States 56,664.8 45,687.4
---------- ----------
Europe
Retail 5,282.0 4,944.2
Wholesale 4,422.5 3,828.5
Leasing and lease financing 483.3 578.1
Other 473.6 279.7
---------- ----------
Total Europe 10,661.4 9,630.5
---------- ----------
Canada
Retail 1,747.2 1,088.5
Wholesale 1,935.7 2,245.9
Leasing and lease financing 806.0 962.3
Other 119.1 84.3
---------- ----------
Total Canada 4,608.0 4,381.0
---------- ----------
Other Countries
Retail 2,308.2 2,026.0
Wholesale 1,017.7 1,048.0
Leasing and lease financing 583.3 523.7
Other 258.2 124.2
---------- ----------
Total Other Countries 4,167.4 3,721.9
---------- ----------
Total finance receivables 76,101.6 63,420.8
Deductions
Unearned income 3,979.8 3,468.9
Allowance for credit losses 1,020.6 903.0
---------- ----------
Total deductions 5,000.4 4,371.9
========== ==========
Finance receivables, net $ 71,101.2 $ 59,048.9
========== ==========
The aggregate amount of total finance receivables maturing in each of the five
years following December 31, 1998, is as follows: 1999 - $42,666.4 million; 2000
- - $13,709.2 million; 2001 - $10,740.3 million; 2002- $5,629.7 million; 2003 -
$2,327.7 million; 2004 and thereafter - $1,028.3 million.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. FINANCE RECEIVABLES (CONCLUDED)
The following table presents an analysis of the allowance for credit losses on
finance receivables:
1998 1997 1996
--------- -------- ---------
(in millions of dollars)
Balance at beginning of the year $ 903.0 $ 921.8 $ 807.9
Provisions charged to income 463.1 522.7 669.0
Charge-offs
United States (359.7) (521.9) (601.3)
Other Countries (80.7) (82.2) (69.9)
--------- -------- ---------
Total charge-offs (440.4) (604.1) (671.2)
Recoveries and other
United States 111.3 110.0 125.3
Other Countries 22.0 (2.8) 10.6
--------- -------- --------
Total recoveries and other 133.3 107.2 135.9
Transfers to sold receivables allowance (38.4) (44.6) (19.8)
--------- -------- --------
Balance at end of the year $1,020.6 $ 903.0 $ 921.8
========= ======== =========
The following table presents a summary of the allowance for credit losses on
non-retail automotive impaired loans:
1998 1997 1996
--------- -------- ---------
(in millions of dollars)
Balance at beginning of the year $ 88.5 $ 78.9 $ 118.4
Additions/(subtractions) (11.0) 24.2 (17.1)
Net charge-offs (6.8) (14.6) (22.4)
--------- -------- ---------
Balance at end of the year $ 70.7 $ 88.5 $ 78.9
========= ======== =========
The total investments in these loans were $166.6 million and $211.9 million at
December 31, 1998 and 1997, respectively. The average recorded investments
during 1998 and 1997 were $148.9 million and $192.7 million, respectively.
NOTE 3. SALE OF FINANCE RECEIVABLES
The Company participates in various sales of receivables programs and has sold
retail finance receivables through special purpose subsidiaries with principal
aggregating $1.6 billion in 1998, $5.4 billion in 1997 and $2.2 billion in 1996.
These subsidiaries generally retain a subordinated investment of no greater than
7.0% of the total receivables pool and market the remaining portion. Pre-tax
gains relating to such sales amounted to $31.0 million in 1998, $84.8 million in
1997 and $35.2 million in 1996. The Company's sold retail finance receivable
servicing portfolio amounted to $4.0 billion and $6.0 billion at December 31,
1998 and 1997, respectively.
The Company has sold wholesale receivables on a revolving basis resulting in
decreases in wholesale outstandings of $3.3 billion and $6.3 billion at December
31, 1998 and 1997, respectively. The Company is committed to sell eligible
wholesale receivables arising in certain dealer accounts.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SALE OF FINANCE RECEIVABLES (CONCLUDED)
The Company's interest-only strip receivables cash flows, cash deposits and
other related amounts are generally restricted assets and subject to limited
recourse provisions. The following is a summary of amounts included in due and
deferred from receivable sales, net.
December 31,
----------------------
1998 1997
-------- ----------
(in millions of dollars)
Interest-only strip receivables $ 120.0 $ 215.9
Other restricted amounts:
Cash deposits held for trusts 328.3 433.9
Payable to trusts and other (302.6) 80.4
Allowance for estimated credit losses on
sold receivables (34.2) (39.7)
======== ==========
Total due and deferred from receivable sales $ 111.5 $ 690.5
======== ==========
The following table presents a summary of the allowance for estimated credit
losses on sold receivables:
1998 1997 1996
-------- ------- -------
(in millions of dollars)
Balance at beginning of the year $ 39.7 $ 31.6 $ 44.2
Transfers from allowance for credit losses 38.4 44.6 19.8
Charge-offs (43.9) (36.5) (32.4)
======== ======= =======
Balance at end of the year $ 34.2 $ 39.7 $ 31.6
======== ======= =======
NOTE 4. INVESTMENT IN OPERATING LEASES
Investments in operating leases were as follows:
December 31,
------------------------
1998 1997
----------- -----------
(in millions of dollars)
Vehicles and other equipment, at cost $34,802.1 $32,918.0
Less: accumulated depreciation 6,876.3 6,936.6
=========== ===========
Investment in operating leases, net $27,925.8 $25,981.4
=========== ===========
The lease payments applicable to equipment on operating leases maturing in each
of the five years following December 31, 1998, are as follows: 1999 - $5,918.7
million; 2000 - $3,991.8 million; 2001 - $1,606.2 million; 2002 - $161.4 million
and 2003 - $7.8 million.
NOTE 5. INVESTMENTS IN SECURITIES
The Company's portfolio of securities includes bonds, equity securities,
mortgage-related securities, notes, retained interests in securitizations and
other investments. The fair value of mortgage-related trading securities at
December 31, 1998 and 1997 was $3,172.7 million and $2,062.6 million,
respectively. The unrealized (losses)/gains on trading securities included in
income were $(313.3) million, $16.1 million and $32.6 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INVESTMENTS IN SECURITIES (CONTINUED)
The cost, fair value and unrealized gains and losses on available for sale
securities were as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------
Fair Unrealized Unrealized
Type of Security Cost Value Gains Losses
- ---------------- --------- ---------- --------- -----------
Bonds, notes and other securities: (in millions of dollars)
United States government and
<S> <C> <C> <C> <C>
governmental agencies and authorities $ 445.5 $ 456.5 $ 11.5 $ (0.5)
States, municipalities and
political subdivisions 1,494.7 1,599.5 117.1 (12.3)
Mortgage-related securities 414.9 383.4 6.2 (37.7)
Subordinated interests in trusts 416.9 414.8 0.0 ( 2.1)
Corporate debt securities 1,220.1 1,257.6 58.8 (21.3)
Other 192.1 187.3 6.9 (11.7)
--------- --------- --------- -----------
Total debt securities available for sale 4,184.2 4,299.1 200.5 (85.6)
Equity securities available for sale 778.6 1,210.1 534.3 (102.8)
--------- --------- --------- -----------
Total available for sale securities $4,962.8 $5,509.2 $ 734.8 $ (188.4)
========= ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------
Fair Unrealized Unrealized
Type of Security Cost Value Gains Losses
- ---------------- --------- ---------- --------- ----------
Bonds, notes and other securities: (in millions of dollars)
United States government and
<S> <C> <C> <C> <C>
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 ( 0.0)
Corporate debt securities 1,165.4 1,193.8 35.9 (7.5)
Other 681.0 690.1 11.5 (2.4)
--------- ---------- --------- ----------
Total debt securities available for sale 4,774.9 4,934.5 180.7 (21.1)
Equity securities available for sale 523.1 899.0 415.7 (39.8)
========= ========== ========= ==========
Total available for sale securites $5,298.0 $5,833.5 $ 596.4 $ (60.9)
========= ========== ========= ==========
</TABLE>
The distribution of maturities of available for sale debt securities outstanding
is summarized as follows:
December 31, 1998
-----------------------
Fair
Cost Value
----------- ----------
Maturity (in millions of dollars)
- --------
Due in one year or less $ 251.2 $ 250.5
Due after one year through five years 1,255.0 1,285.9
Due after five years through ten years 1,410.3 1,469.9
Due after ten years 852.8 909.4
Mortgage-related securities 414.9 383.4
=========== ==========
Total available for sale debt secutiries $ 4,184.2 $ 4,299.1
=========== ==========
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INVESTMENTS IN SECURITIES (CONCLUDED)
The following table summarizes proceeds, gains and losses realized from the sale
of available for sale securities:
For the Years Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
Debt Securities: (in millions of dollars)
- ---------------
Sale proceeds $3,272.9 $2,318.7 $2,101.8
Gross realized gains 70.0 54.7 44.6
Gross realized losses 17.7 18.3 18.7
Equity Securities:
- -----------------
Sale proceeds $ 363.4 $ 365.4 $ 234.4
Gross realized gains 148.4 121.1 84.4
Gross realized losses 31.0 27.3 10.1
NOTE 6. NONEARNING ASSETS
Nonearning assets consisted of:
December 31,
-----------------------
1998 1997
--------- ----------
(in millions of dollars)
Property and equipment at cost $ 580.6 $ 410.9
Accumulated depreciation (181.7) (132.6)
--------- ----------
Net property and equipment 398.9 278.3
Nonperforming assets (net of valuation reserves) 324.9 411.5
Ceded loss and LAE reserve/reinsurance receivable 739.6 677.5
Insurance premiums receivable 327.7 358.1
Residential servicing advances 86.1 53.7
Investment in used vehicles held for sale 509.7 540.3
Deferred policy acquisition cost 327.2 317.2
Intangible assets, net of accumulated amortization 854.5 718.4
Other mortgage-related assets 881.9 503.1
Other assets 1,244.3 670.4
========= ==========
Total nonearning assets $5,694.8 $4,528.5
========= ==========
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, 1998, syndicated bank credit facilities in the U.S. included
a $10.0 billion revolving credit facility, which had an original term of five
years and expires in May 2002, and a $12.0 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.
<PAGE>
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 (pound)400 million
revolving credit facility to General Motors Acceptance Corporation (U.K.) plc.
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. LINES OF CREDIT WITH BANKS (CONCLUDED)
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, 1998 and 1997, this ratio
amounted to 10.6:1 and 9.9:1, respectively.
Inclusive of these syndicated agreements, credit facilities maintained worldwide
totaled $42.9 billion at December 31, 1998, compared to $39.8 billion at
December 31, 1997. Facilities available for use as commercial paper back-up in
the United States amounted to $22.0 billion at December 31, 1998 and $21.6
billion at December 31, 1997, all of which were unused. GMAC Mortgage
Corporation had $2.3 billion of bank lines of credit at December 31, 1998,
compared with $1.8 billion at December 31, 1997, which are utilized in the
normal course of business. Of these lines, $0.8 billion and $0.4 billion were
unused at December 31, 1998 and 1997, respectively.
Credit facilities supporting operations in Canada, Europe, Latin America and
Asia-Pacific totaled $18.6 billion at December 31, 1998 and $16.4 billion at
December 31, 1997 of which $10.4 billion and $8.4 billion were unused at
December 31, 1998 and 1997, respectively. As of December 31, 1998, the committed
and uncommitted portion of such credit facilities totaled $4.6 billion and $14.0
billion, respectively. As of December 31, 1997, the committed and uncommitted
portion of such credit facilities totaled $4.5 billion and $11.9 billion,
respectively.
NOTE 8. NOTES, LOANS AND DEBENTURES PAYABLE WITHIN ONE YEAR
December 31,
-------------------------
1998 1997
----------- -----------
Short-term notes (in millions of dollars)
Commercial paper $32,138.8 $27,460.9
Master notes 652.2 248.2
Demand notes 4,101.1 3,709.2
Other 1,437.2 869.3
----------- -----------
Total principal amount 38,329.3 32,287.6
Unamortized discount (127.5) (192.0)
----------- -----------
Total 38,201.8 32,095.6
----------- -----------
Bank loans and overdrafts
United States 1,669.9 1,660.8
Other countries 6,543.1 6,850.1
----------- -----------
Total 8,213.0 8,510.9
----------- -----------
Other notes, loans and debentures
payable within one year
United States 10,518.6 8,869.2
Other countries 1,538.9 923.8
----------- -----------
Total 12,057.5 9,793.0
----------- -----------
Total payable within one year $58,472.3 $50,399.5
=========== ===========
<PAGE>
The weighted average maturities of commercial paper was 28 days at December 31,
1998 and 46 days at December 31, 1997.
Including the effects of derivatives, the weighted average interest rates on
short-term borrowings outstanding (original term of one year or less) at
December 31, 1998 and 1997 were 5.30% and 5.48%, respectively.
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. NOTES, LOANS AND DEBENTURES PAYABLE WITHIN ONE YEAR (CONCLUDED)
After consideration of foreign currency swaps, the above maturities denominated
in currencies other than the U.S. Dollar primarily consist of the Canadian
Dollar ($3,773.4 million), German Mark ($2,383.1 million), United Kingdom Pound
Sterling ($1,491.5 million) and Australian Dollar ($951.4 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.
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 prior to the April
1999 maturity date.
The Company's debt includes $350.0 million in notes with variable rates which
provide investors with the option to cause GMAC to repurchase them at specific
dates through February 1999. Generally, the probability of exercising such
option would increase in the event that one or more of the Company's security
ratings is reduced or an increase in market interest rates occurs and the notes
are subject to fixed interest rates. For purposes of the above maturities, it is
assumed that no repurchase will occur.
In addition, the Company's debt includes $57.9 million in notes with fixed rates
which contain a survivor's option which provides the survivor with the option to
cause GMAC to repurchase them prior to maturity in December 1999.
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:
December 31,
------------------------
1998 1997
----------- ----------
(in millions of dollars)
Debt balances based on contractual terms:
- ----------------------------------------
Fixed amount $45,325.5 $39,582.1
Variable amount 13,276.9 11,015.5
Debt balances after effect of derivatives:
- -----------------------------------------
Fixed amount $44,524.5 $39,448.1
Variable amount 14,077.9 11,149.5
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. NOTES, LOANS AND DEBENTURES PAYABLE AFTER ONE YEAR
Weighted average December 31,
interest rates at ------------------------
December 31, 1998 1998 1997
----------------- ----------- ----------
(in millions of dollars)
United States
1999 -- $ -- $ 8,479.7
2000 6.1% 10,195.4 4,567.7
2001 6.2% 7,795.8 4,534.8
2002 6.1% 7,039.2 6,329.1
2003 5.9% 6,929.3 2,602.8
2004 5.6% 997.2 413.7
2005 - 2009 6.5% 2,673.9 1,673.7
2010 - 2014 9.1% 1,600.0 1,203.5
2015 - 2019 10.3% 373.8 373.8
2020 - 2049 4.9% 75.0 75.0
----------- ----------
Total United States 37,679.6 30,253.8
Other countries
1999 - 2008 5.7% 8,347.6 6,715.2
----------- ----------
Total notes, loans and debentures 46,027.2 36,969.0
Unamortized discount (670.7) (693.8)
=========== ==========
Total notes, loans and debentures
payable after one year $45,356.5 $36,275.2
=========== ==========
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, 1999, are as follows: 2000 - $13,154.2 million; 2001 - $10,322.3 million;
2002 - $8,560.8 million; 2003 - $7,919.0 million; and 2004 and thereafter -
$6,070.9 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 ($4,281.9 million), German Mark ($1,561.3 million), United
Kingdom Pound Sterling ($897.8 million) and Australian Dollar ($782.5 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 $300 million aggregate
principal amount of 6.5% notes due October 15, 2009. The warrants are
exercisable up to and including October 15, 2007.
<PAGE>
Debt issues totaling $1,947.2 million are redeemable, at par or slightly above,
at the Company's option. The debt issues are redeemable anytime prior to their
maturity dates with the latest maturity date in November 2049.
The Company's debt includes $1,100.0 million in notes with fixed rates and
$1,014.0 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 such option would increase in the event
that one or more of the Company's security ratings is reduced or an increase in
market interest rates occurs and the notes are subject to fixed interest rates.
For purposes of the above maturities, it is assumed that no repurchase will
occur.
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. NOTES, LOANS AND DEBENTURES PAYABLE AFTER ONE YEAR (CONCLUDED)
In addition, the Company's debt includes $1,129.7 million in notes with fixed
rates which contain a survivor's option which provides the survivor with the
option to cause GMAC to repurchase them prior to maturity, with the latest
maturity date in December 2013.
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:
December 31,
------------------------
1998 1997
---------- ----------
Debt Balances Based On Contractual Terms: (in millions of dollars)
- -----------------------------------------
Fixed amount $ 32,795.5 $29,192.7
Variable amount 13,231.7 7,776.3
Debt Balances After Effect of Derivatives:
- ----------------------------------------------
Fixed amount $ 27,758.0 $27,278.4
Variable amount 18,269.2 9,690.6
NOTE 10. UNITED STATES, FOREIGN AND OTHER INCOME TAXES
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 $958.6
million at December 31, 1998 and $917.0 million at December 31, 1997.
Quantification of the deferred tax liability, if any, associated with
permanently reinvested earnings is not practicable.
<PAGE>
The temporary differences, which comprise the Company's deferred tax assets and
liabilities, were as follows:
December 31, 1998 December 31, 1997
---------------------- ---------------------
Asset Liability Asset Liability
--------- ----------- --------- ----------
(in millions of dollars)
Lease transactions $ -- $ 3,244.1 $ -- $ 2,711.1
Provisions for credit losses 414.4 -- 368.7 --
Debt transactions -- 338.2 -- 333.1
Unrealized gain on securities -- 226.0 -- 229.3
State and local taxes -- 204.9 -- 135.9
Foreign tax credits 170.3 -- -- --
Insurance loss reserve discount 131.5 -- 134.0 --
Unearned insurance premiums 145.8 -- 136.7 --
Other postretirement benefits 244.4 -- 229.5 --
Foreign net operating losses 128.7 -- 74.3 --
Other 146.5 211.3 152.7 263.6
========= ========= ========= ==========
Total deferred income taxes $ 1,381.6 $ 4,224.5 $ 1,095.9 $ 3,673.0
========= ========= ========= ==========
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. UNITED STATES, FOREIGN AND OTHER INCOME TAXES (CONCLUDED)
The significant components of income tax expense were as follows:
For the Years Ended December 31,
---------------------------------
1998 1997 1996
--------- --------- ----------
Income taxes estimated to be (in millions of dollars)
currently payable:
United States federal $ 216.5 $ 71.0 $ 422.9
Foreign 141.2 279.9 224.9
United States state and local (12.0) 138.6 103.2
--------- --------- ----------
Total income taxes currently
payable 345.7 489.5 751.0
--------- --------- ----------
Deferred income taxes:
United States federal 136.0 553.6 51.4
Foreign 56.9 (77.0) 49.3
United States state and local 73.1 (53.2) (14.5)
--------- --------- ----------
Total deferred income taxes 266.0 423.4 86.2
--------- --------- ----------
Income tax expense $ 611.7 $ 912.9 $ 837.2
========= ========= ==========
Income tax provisions recorded by the Company differ from the computed amounts
developed by applying the statutory United States federal income tax rate to
income before income taxes. The following schedule reconciles the U.S. statutory
income tax rate to the actual income tax rate recorded by the Company:
For the Years Ended December 31,
--------------------------------
1998 1997 1996
--------- --------- ----------
United States federal statutory income
tax rate 35.0% 35.0% 35.0%
Effect of:
State and local income taxes 1.9 3.1 2.9
Tax exempt interest and dividends
received which are not fully taxable (1.4) (1.4) (1.5)
Adjustment to U.S. taxes on foreign income (5.4) 1.8 2.5
Foreign income tax rate differential 0.5 0.8 2.3
Other 1.0 1.9 (0.9)
-------- --------- ----------
Effective tax rate 31.6% 41.2% 40.3%
======== ========= ==========
<PAGE>
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company and certain of its subsidiaries participate in various pension plans
of General Motors and its domestic and foreign subsidiaries, which cover
substantially all of their employees. Benefits under the plans are generally
related to an employee's length of service, salary, and where applicable,
contributions. GMAC Mortgage Group, Inc. ("GMACMG") and certain subsidiaries of
GMAC Insurance Holdings, Inc. ("GMACI") have separate retirement plans which
provide for pension payments to their eligible employees upon retirement.
The Company and certain of its subsidiaries participate in various
postretirement medical, dental, vision and life insurance plans of General
Motors. These benefits are funded as incurred from the general assets of the
Company. The Company accrues postretirement benefit costs over the active
service period of employees to the date of full eligibility for such benefits.
The Company has provided for certain amounts associated with estimated future
postretirement benefits other than pensions and characterized such amounts as
other postretirement benefits. Notwithstanding the recording of such amounts and
the use of these terms, the Company does not admit or otherwise acknowledge that
such amounts or existing postretirement benefit plans of the Company (other than
pensions) represent legally enforceable liabilities of the Company.
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFITS (CONCLUDED)
The total pension and other postretirement benefits expense of the Company
amounted to $65.1 million, $75.3 million and $84.2 million in 1998, 1997 and
1996, respectively.
NOTE 12. 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 1998, 1997 or 1996.
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 80.0%, 78.0% and 51.8% of total retail installment and lease
contracts acquired during 1998, 1997 and 1996, respectively. Rate subvented
programs for GMAC's international operations were not significant during 1998,
1997 and 1996.
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 $643.0 million, $428.0 million and $432.7 million in 1998,
1997 and 1996, respectively.
On occasion, the Company may also extend loans to GM, its subsidiaries and
affiliates. Outstanding loans to GM and affiliates totaled $2,270.5 million and
$551.7 million at December 31, 1998 and December 31, 1997, respectively. Total
interest income from these loans is included in other income and amounted to
$126.3 million, $38.0 million and $22.2 million in 1998, 1997 and 1996,
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 $658.4 million at December 31, 1998, compared with
$437.8 million at December 31, 1997. Included in other income is service fee
income received from GM on these vehicles amounting to $32.2 million, $31.0
million and $23.9 million in 1998, 1997 and 1996, respectively.
<PAGE>
Beginning in 1997, an agreement with GM provides for the reimbursement of
certain selling expenses incurred by GMAC on off-lease vehicles sold by GM at
auction. Included as a reduction of other operating expenses are reimbursements
totaling $48.5 million and $29.8 million for the years ending December 31, 1998
and 1997, respectively.
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 $91.6 million, $70.3 million and $55.0
million in 1998, 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 $36.3 million, $33.8
million and $26.4 million in 1998, 1997 and 1996, respectively.
Insurance premiums earned by GMACI on certain coverages provided to GM totaled
$432.5 million, $387.6 million and $288.7 million in 1998, 1997 and 1996,
respectively.
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. INSURANCE OPERATIONS
GMAC Insurance Holdings, Inc. and its subsidiaries (collectively "GMACI")
perform a wide array of insurance underwriting including personal, mechanical
and commercial coverages. GMACI conducts insurance and reinsurance operations
primarily in the United States, Canada and Europe. GMACI insures selected
personal, commercial and extended warranty coverages for individuals, auto
dealerships, GMAC and GM. In the U.S., property and casualty risks are assumed
from other insurers. Outside the U.S., property, casualty and mechanical risks
are assumed from local insurance companies. GMACI cedes a portion of its
insurance business and retrocedes a portion of its reinsurance business to
outside reinsurers to protect the Company against certain types of loss
activity. 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 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 regulary reviewed and adjustments are included in
income.
<PAGE>
Unpaid Insurance Losses and Loss Adjustment Expenses
- ----------------------------------------------------
Activity in the reserves for losses and loss adjustment expenses ("LAE") is
summarized as follows:
For the Years Ended December 31,
----------------------------------
1998 1997 1996
---------- ----------- -----------
(in millions of dollars)
Balance at beginning of the year $ 2,125.3 $ 1,581.9 $ 1,499.7
Less reinsurance recoverables 552.1 356.9 275.4
Add Integon net reserves at
acquisition date -- 382.5 --
---------- ----------- -----------
Net balance at beginning of the year 1,573.2 1,607.5 1,224.3
Incurred related to:
Current year 1,535.6 1,053.1 982.2
Prior years (18.4) 20.4 (10.0)
---------- ----------- -----------
Total incurred 1,517.2 1,073.5 972.2
Paid related to:
Current year (978.9) (761.5) (603.8)
Prior years (631.3) (346.3) (367.7)
---------- ----------- -----------
Total paid (1,610.2) (1,107.8) (971.5)
Net balance at end of the year 1,480.2 1,573.2 1,225.0
Add reinsurance recoverables 582.5 552.1 356.9
---------- ---------- -----------
Balance at end of the year $ 2,062.7 $ 2,125.3 $ 1,581.9
========== ========== ===========
As a result of changes in estimates of insured events in prior years, the
reserves for losses and LAE decreased in 1998 primarily due to the continued
runoff of the product liability program and a reduction in personal lines
business.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. MORTGAGE BANKING
GMAC Mortgage Group, Inc. and its subsidiaries (collectively "GMACMG") conduct
mortgage banking operations in the United States, Mexico, Japan and the United
Kingdom. GMACMG originates and markets single-family and commercial mortgage
loans, and securities backed by such loans, to investors and services these
loans on behalf of investors. In addition to offering other consumer products
including home equity loans, insurance services and trustee services, GMACMG
packages securities backed by home equity loans and sub-prime mortgages. 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: GMAC Mortgage Corporation ("GMACM"); GMAC Commercial Mortgage
Corporation ("GMACCM"); and Residential Funding Corporation ("RFC").
Loan Originations and Servicing Acquisitions
- --------------------------------------------
The following summarizes GMACMG's originations and purchases of mortgage loans
and the principal balances of acquisitions of mortgage servicing rights:
For the Years Ended
December 31,
-----------------------------
1998 1997
-------------- -------------
(in millions of dollars)
Loans
originated/brokered:
Residential $18,904.0 $ 7,569.7
Commercial 8,654.1 5,554.8
Loan purchases $29,900.5 $17,742.7
Bulk servicing
acquisitions:
Residential $82,546.4 $10,094.9
Commercial 12,038.7 12,946.8
Sales of Loans
- --------------
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.
Allowance for Losses
- --------------------
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.
Mortgage Servicing Rights
- -------------------------
The right to service loans is contracted under primary or master servicing
agreements. Under primary servicing agreements, GMACMG collects monthly
principal, interest and escrow payments from individual mortgagors and performs
certain accounting and reporting functions on behalf of the mortgage investors.
As master servicer, GMACMG collects monthly payments from various sub-servicers
and performs certain accounting and reporting functions on behalf of the
mortgage investors. 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 $2,434.6 million and $1,004.2 million, at
December 31, 1998 and 1997, respectively. The fair value of the mortgage
servicing rights at December 31, 1998 and 1997 was $2,559.7 million and $1,097.8
million, respectively.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. MORTGAGE BANKING (CONTINUED)
Mortgage Servicing Rights (Concluded)
- -------------------------------------
GMACMG has stratified its mortgage servicing rights by predominant risk
characteristics, primarily loan 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, 1998 and
1997, the valuation allowance totaled $52.7 million and $22.8 million,
respectively.
Servicing Portfolio
- -------------------
The following is a summary of GMACMG's servicing portfolios:
December 31,
-------------------------
1998 1997
------------ -----------
Servicing portfolio (in millions of dollars)
Residential $139,873.3 $ 60,553.7
Commercial (1) 52,104.7 40,199.4
Master servicing 58,433.6 46,145.7
GMACMG intercompany servicing (2,918.0) (3,277.3)
------------ -----------
Total $247,493.6 $143,621.5
============ ===========
Number of serviced loans 2,053,091 1,016,964
============ ===========
(1) Includes $2,492.1 million and $2,468.1 million of term loans serviced on
behalf of GMAC in 1998 and 1997, respectively.
Allowance for Loan Losses and Valuation Reserves
- ------------------------------------------------
The following table presents an analysis of the allowance for mortgage loan
losses and valuation reserves:
1998 1997 1996
-------- -------- --------
(in millions of dollars)
Balance at beginning of year $202.0 $138.0 $ 90.0
Provisions charged to income 51.9 107.2 99.1
Net charge-offs and reductions (115.4) (43.2) (51.1)
======== ======== ========
Balance at end of the year $138.5 $202.0 $138.0
======== ======== ========
The allowance for loan losses and valuation reserves includes GMACMG's accrual
for losses on loans sold with recourse totaling $42.5 million, $86.3 million and
$63.0 million as of December 31, 1998, 1997 and 1996, respectively.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. MORTGAGE BANKING (CONTINUED)
Loans Sold With Recourse
- ------------------------
Information regarding GMACMG's loans sold with recourse is as follows
December 31,
-----------------------
1998 1997
---------- ----------
(in millions of dollars)
Loans sold with recourse $ 9,572.8 $12,228.1
========== ==========
Maximum exposure on loans sold
Full recourse $ 177.0 $ 253.6
Limited recourse 949.7 664.3
---------- ----------
Total $ 1,126.7 $ 917.9
========== ==========
The maximum recourse exposure shown above is net of amounts reinsured with third
parties which totaled $135.5 million and $195.7 million at December 31, 1998 and
1997, respectively.
Mortgage Derivative Financial Instruments
- -----------------------------------------
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 utilizes option contracts on U.S. Treasury instruments and
mortgage-backed securities to hedge interest rate and price risk associated with
its mortgage loans held for sale. At December 31, 1998 and 1997, the notional
amount of such instruments totaled $5,011.0 million and $2,031.4 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.
<PAGE>
GMACMG uses options and futures contracts on U.S. Treasury instruments and
euros, and interest rate swap agreements to hedge price and interest rate risk
associated with its mortgage-related securities. At December 31, 1998 and 1997,
the notional amount of such instruments totaled $9,717.6 million and $1,363.0
million, respectively. Realized and unrealized gains and losses associated with
these instruments are recognized in the current period on a mark-to-market
basis.
GMACMG enters into interest rate swap contracts in an effort to stabilize
short-term borrowing costs and maintain a minimum return on certain loans held
for investment. At December 31, 1998 and 1997, the notional amount of these
instruments totaled $638.2 million and $263.7 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, options on futures
contracts, swaps, swaptions, and forwards to manage potential prepayment
activity associated with mortgage servicing rights. At December 31, 1998 and
1997, the notional amount of such instruments totaled $65,177.2 million and
$8,035.1 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.
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. MORTGAGE BANKING (CONCLUDED)
Mortgage Commitments
- --------------------
GMACMG enters into various commitments to purchase or originate mortgage loans
in the normal course of business. Commitments to purchase or originate mortgage
loans totaled $5,165.5 million and $4,100.8 million at December 31, 1998 and
1997, respectively. These commitment obligations are considered in conjunction
with the lower of cost or market valuation of mortgage inventory held for sale.
Commitments to sell mortgage loans totaled $2,380.7 million and $558.9 million
at December 31, 1998 and 1997, respectively. Commitments to sell securities
totaled $3,835.6 million and $3,306.7 million at December 31, 1998 and 1997,
respectively. These commitment obligations are considered in conjunction with
the lower of cost or market valuation of mortgage loans held for sale.
<PAGE>
Warehouse lending involves the extension of short-term secured lines of credit
to mortgage originators to finance mortgage loans until such loans are purchased
by a permanent investor. Advances under the lines of credit are fully secured by
the underlying mortgages and bear interest at a rate that is tied to a
short-term index. At December 31, 1998 and 1997, unused warehouse lending
commitments totaled $2,021.9 million and $2,533.1 million, respectively. GMACMG
enters into foreign currency contracts to hedge foreign exchange risks
associated with overseas lending. At December 31, 1998 and 1997, the notional
amounts of such instruments totaled $206.2 million and $155.3 million,
respectively. Construction lending involves the extension of long-term secured
lines of credit to construction project managers. At December 31, 1998 and 1997,
unused construction lending commitments totaled $1,397.9 million and $930.0
million, respectively. In addition, GMACMG also has outstanding commitments to
lend on available credit lines, primarily home equity lines of credit. At
December 31, 1998 and 1997, unused lending commitments on these lines totaled
$671.2 million and $784.5 million, respectively.
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, 1998 and 1997. 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, 1998 and 1997 may differ significantly
from these amounts.
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair value of financial instruments held by the Company, for which
it is practicable to estimate that value, were as follows:
Balance sheet financial instruments:
December 31, 1998 December 31, 1997
------------------------ ------------------------
Book Estimated Book Estimated
Value Fair Value Value Fair Value
----------- ----------- ----------- -----------
Assets (in millions of dollars)
- ------
Cash and cash equivalents $ 618.1 $ 618.1 $ 759.2 $ 759.2
Investments in securities 8,681.9 8,681.9 7,896.1 7,896.1
Finance receivables, net 71,101.2 71,300.4 59,048.9 59,496.7
Notes receivable from GM 2,270.5 2,261.5 551.7 546.1
Real estate mortgages
-held for sale 7,969.7 7,990.0 5,119.5 5,138.2
-held for investment 1,296.7 1,299.8 713.0 710.7
-lending receivables 2,063.6 2,063.6 2,222.9 2,222.9
Due and deferred from
receivable sales net 111.5 111.5 690.5 690.5
Liabilities
- -----------
Debt $103,828.8 $105,117.8 $86,674.7 $87,489.3
<PAGE>
Off-balance sheet financial instruments:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------------- ------------------------------------
Contract/ (3) Contract/ (3)
Notional Gain Loss Notional Gain Loss
Amount(3) Position Position Amount(3) Position Position
--------- -------- -------- --------- -------- --------
(in millions of dollars)
Commitments to originate/purchase
<S> <C> <C> <C> <C> <C> <C>
mortgages/securities $ 5,165.5 $ 15.1 $ (3.7) $ 4,100.8 $ 9.0 $ (0.7)
Commitments to sell
mortgages/securities 6,216.3 1.6 (4.5) 3,865.6 2.6 (4.9)
Unused mortgage lending
commitments 4,091.0 -- -- 4,247.6 -- --
Unused revolving credit
lines to dealers 291.1 -- -- 445.7 -- --
Interest rate instruments (1) 98,029.0 507.0 (152.1) 35,974.2 126.8 (101.3)
Foreign currency instruments (2) 7,885.0 486.3 (161.3) 6,172.5 140.5 (326.0)
Mortgage-related futures 1,810.6 0.9 (6.0) 1,991.9 8.1 (4.1)
</TABLE>
(1) The 1998 and 1997 notional balances include $84,428.6 million and $17,044.0
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 $290.1 million and $27.9 million at
December 31, 1998 and 1997, respectively. The loss position includes deferred
gains of $36.8 million and $34.0 million for December 31, 1998 and 1997,
respectively.
(2) Includes $3,373.0 million and $2,045.6 million in cross currency interest
rate swaps with unrealized gains of $153.8 million and unrealized losses of
$191.6 million at December 31, 1998 and 1997, respectively. The unrealized gain
or loss in the fair value of the foreign currency instruments in 1998 and 1997
was offset by the unrealized loss or gain in the fair value of the related
underlying debt instruments.
(3) Contract/notional amounts of off-balance sheet financial instruments do not
represent credit risk exposures. Credit risk is limited to the current cost of
replacing instruments in a gain position.
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Cash and Cash Equivalents
- -------------------------
The book value approximates fair value because of the short maturity of these
instruments.
Investments in Securities
- -------------------------
Bonds, equity securities, notes and other available for sale investments in
securities are carried at fair value, which is based on quoted market prices.
The fair value of mortgage-related trading securities is based on market quotes,
discounted using market prepayment assumptions and discount rates. The retained
interests in securitizations are carried at fair value based on discounted
expected cash flows using current market rates.
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.
<PAGE>
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 is determined through a review of published market information
associated with similar instruments. Due to the short-term floating rates on
lending receivables, book values are assumed to approximate fair values.
Due and Deferred From Receivable Sales, Net
- -------------------------------------------
The fair value of interest-only strip receivables is derived by discounting
expected cash flows using current market rates.
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.
Unused Mortgage Lending Commitments
- -----------------------------------
The fair value of these commitments is considered in the overall valuation of
the underlying assets with which they are associated.
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONCLUDED)
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 notional balances of interest rate instruments include interest rate swaps
of $19.0 billion and $19.2 billion; options of $68.1 billion and $9.0 billion;
caps and floors of $10.4 billion and $7.8 billion; and mortgage servicing rights
hedges of $0.5 billion and $0.0 billion, at December 31, 1998 and 1997,
respectively. Included in the December 31, 1997 balance of interest rate swaps
are forward starting interest rate swaps with notional amounts totaling $1.0
billion to hedge anticipated 1998 debt issuances. At December 31, 1998, the
Company did not have any forward starting interest rate swaps outstanding.
<PAGE>
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 broker/dealer quoted market prices. The fair value of mortgage-related
interest rate swaps, caps, and written and purchased options is based upon
broker/dealer quoted market prices.
Foreign Currency Instruments
- ----------------------------
The estimated fair value of the foreign currency swaps is derived by discounting
expected cash flows using market exchange rates over the remaining term of the
agreement.
Mortgage-related Futures
- ------------------------
The fair value of futures contracts is determined based upon quoted market
prices.
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).
In terms of geographic concentrations as of December 31, 1998, 76.7% of GMAC's
consolidated automotive servicing assets were U.S. based; 11.5% were in Europe
(of which 43.8% reside in Germany); 8.2% were in Canada; 1.8% were in Asia
Pacific (of which Australia represents 90.1%); and 1.8% were in Latin America.
The majority of the Company's finance receivables are geographically diversified
throughout the United States.
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision makers in deciding how to allocate resources and in
assessing performance.
<TABLE>
Financial results for GMAC's operating segments are summarized below:
Operating Segments:
- ------------------
(in millions of dollars)
<CAPTION>
Eliminations/
GMAC-NAO GMAC-IO GMACI GMACMG Reclassifications Total
---------- --------- --------- -------- ----------------- ----------
1998
- ----
<S> <C> <C> <C> <C> <C> <C>
Total assets $107,924.0 $17,040.1 $7,265.5 $19,220.9 $ (20,033.0) $131,417.5
Net automotive
financing revenue 1,403.6 824.6 -- -- 23.2 2,251.4
Other revenue 1,396.3 48.0 2,382.1 1,389.0 (32.2) 5,183.2
Tax expense 344.5 117.7 80.1 69.4 -- 611.7
Net income 753.5 230.9 225.9 115.0 -- 1,325.3
1997
- ----
Total assets $ 88,203.0 $15,272.9 $7,088.6 $12,371.1 $(13,616.3) $109,319.3
Net automotive
financing revenue 1,825.6 834.7 -- -- (16.7) 2,643.6
Other revenue 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 -- 912.9
Net income 674.8 235.1 224.6 166.6 -- 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 automotive
financing revenue 2,175.3 913.0 -- -- (9.0) 3,079.3
Other revenue 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 -- 837.2
Net income 715.5 230.9 192.4 101.7 -- 1,240.5
</TABLE>
<PAGE>
GENERAL MOTORS ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. SEGMENT INFORMATION (CONCLUDED)
Information concerning principal geographic areas was as follows:
Geographic Information:
- ----------------------
(in millions of dollars)
All Other
United States Countries Total
------------- --------- ---------
1998
- ----
Net financing revenue and other revenue $ 6,106.2 $ 1,328.4 $ 7,434.6
Long-lived assets 21,904.3 7,217.5 29,121.8
1997
- ----
Net financing revenue and other revenue $ 5,356.4 $ 1,306.0 $ 6,662.4
Long-lived assets 20,533.8 6,442.6 26,976.4
1996
- ----
Net financing revenue and other revenue $ 4,994.7 $ 1,414.5 $ 6,409.2
Long-lived assets 19,704.7 5,625.3 25,330.0
NOTE 17. COMMITMENTS AND CONTINGENT LIABILITIES
Minimum future commitments under operating leases having noncallable lease terms
in excess of one year, primarily for real property, aggregating $197.2 million,
are payable $60.9 million in 1999, $45.7 million in 2000, $29.0 million in 2001,
$21.3 million in 2002, $15.1 million in 2003, and $25.2 million in 2004 and
thereafter. Certain of the leases contain escalation clauses and renewal or
purchase options. Rental expenses under operating leases were $188.1 million,
$181.5 million and $147.8 million in 1998, 1997 and 1996, 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.
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 aggregate ultimate amount of liability on
these claims and actions at December 31, 1998 were not determinable, but in the
opinion of management, such liability should not have a material adverse effect
on the Company's consolidated financial position or results of operations.
<PAGE>
SUPPLEMENTARY FINANCIAL DATA
SUMMARY OF CONSOLIDATED QUARTERLY EARNINGS
1998 Quarters
------------------------------------------
First Second Third Fourth
--------- --------- --------- ----------
(in millions of dollars)
Total financing revenue $3,106.8 $3,204.7 $3,150.2 $3,269.0
Interest and discount expense 1,384.5 1,454.7 1,477.5 1,470.2
Net financing revenue and other 1,763.2 1,906.4 1,819.9 1,945.1
income
Provision for credit losses 107.2 121.5 93.9 140.5
Net income 349.3 364.7 313.1 298.2
1997 Quarters
------------------------------------------
First Second Third Fourth
--------- --------- --------- ----------
(in millions of dollars)
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 1,682.9 1,626.0 1,636.2 1,717.3
income
Provision for credit losses 129.9 127.3 138.7 126.8
Net income 372.0 337.7 312.6 278.8
1996 Quarters
------------------------------------------
First Second Third Fourth
--------- --------- --------- ----------
(in millions of dollars)
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 1,533.4 1,605.5 1,616.8 1,653.5
income
Provision for credit losses 155.2 134.6 143.5 235.7
Net income 309.1 350.0 307.3 274.1
<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 Charges ----
for the years 1998, 1997, 1996, 1995 and 1994. 62
23.1 Consent of Independent Auditors. 63
27 Financial Data Schedule (for SEC electronic filing --
information only).
(b) REPORTS ON FORM 8-K.
The Company filed a Form 8-K on October 13, 1998 reporting matters
under Item 5, Other Events.
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
----------------------------------------
Date: March 10, 1999 (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 10th day of March, 1999, by the following persons
on behalf of the Registrant and in the capacities indicated.
Signature Title
--------- -----
- -------------------------
(J. Michael Losh) Chairman of the Board of Directors
- -------------------------
(John D. Finnegan) President and Director
(Signing as Chief Executive Officer)
- -------------------------
(William F. Muir) Executive Vice President and Director
(Signing as Principal Financial Officer)
- -------------------------
(Gerald E. Gross) Comptroller
(Signing as Principal Accounting Officer)
- -------------------------
(Richard J. S. Clout) Executive Vice President and Director
- -------------------------
(John E. Gibson) Executive Vice President and Director
- -------------------------
(John G. Blahnik) Director
<PAGE>
SIGNATURES (CONCLUDED)
Signature Title
--------- -----
- -------------------------
(Eric A. Feldstein) Director
- -------------------------
(Harry J. Pearce) Director
- -------------------------
(W. Allen Reed) Director
- -------------------------
(John F. Smith, Jr.) Director
- -------------------------
(G. Richard Wagoner, Jr.) Director
- -------------------------
(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>
EXHIBIT 12
<TABLE>
GENERAL MOTORS ACCEPTANCE CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
1998 1997 1996 1995 1994
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Consolidated net income* $ 1,325.3 $ 1,301.1 $ 1,240.5 $ 1,031.0 $ 927.1
Provision for income taxes 611.7 912.9 837.2 752.2 512.7
--------- ---------- ---------- ---------- ----------
Consolidated income before income taxes 1,937.0 2,214.0 2,077.7 1,783.2 1,439.8
--------- ---------- ---------- ---------- ----------
Fixed charges
Interest, debt, discount and expense 5,786.9 5,255.5 4,937.5 4,936.3 4,230.9
Portion of rentals representative of the
interest factor 79.1 69.8 77.8 54.5 51.2
--------- ---------- ---------- ---------- ----------
Total fixed charges 5,866.0 5,325.3 5,015.3 4,990.8 4,282.1
--------- ---------- ---------- ---------- ----------
Earnings available for fixed charges $ 7,803.0 $ 7,539.3 $ 7,093.0 $ 6,774.0 $ 5,721.9
========= ========== ========== ========== ==========
Ratio of earnings to fixed charges 1.33 1.42 1.41 1.36 1.33
========= ========== ========== ========== ==========
<FN>
* Before cumulative effect of accounting change of $(7.4) million in 1994.
</FN>
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
GENERAL MOTORS ACCEPTANCE CORPORATION:
We consent to the incorporation by reference of our report dated January 20,
1999, appearing in this Annual Report on Form 10-K of General Motors Acceptance
Corporation for the year ended December 31, 1998, in the following registration
statements:
Registration
Form Statement No Description
- ------------ -------------- ---------------------------------
S-3 333-56431 $8,000,000,000 General Motors
Acceptance Corporation Variable
Denomination Adjustable Rate
Demand Notes
S-3 333-59551 $10,000,000,000 General Motors
Acceptance Corporation Medium
Term Notes
S-3 333-70661 $1,500,000,000 General Motors
Acceptance Corporation SmartNotes
S-3 333-48705 $10,000,000,000 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 10, 1999
<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, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000040729
<NAME> GMAC
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 618
<SECURITIES> 8682
<RECEIVABLES> 76102
<ALLOWANCES> 1021
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 35383
<DEPRECIATION> 7058
<TOTAL-ASSETS> 131418
<CURRENT-LIABILITIES> 65155
<BONDS> 45357
0
0
<COMMON> 2200
<OTHER-SE> 7592
<TOTAL-LIABILITY-AND-EQUITY> 131418
<SALES> 0
<TOTAL-REVENUES> 17914
<CGS> 0
<TOTAL-COSTS> 6210
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 463
<INTEREST-EXPENSE> 5787
<INCOME-PRETAX> 1937
<INCOME-TAX> 612
<INCOME-CONTINUING> 1325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1325
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
