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General Motors Co 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
Form 10-Q
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549-1004

Form 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-34960

GENERAL MOTORS COMPANY

(Exact Name of Registrant as Specified in its Charter)

 

STATE OF DELAWARE   27-0756180

(State or other jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

300 Renaissance Center, Detroit, Michigan   48265-3000
(Address of Principal Executive Offices)   (Zip Code)

(313) 556-5000

Registrant’s telephone number, including area code

Not applicable

(former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨  Accelerated filer   ¨  Non-accelerated filer  x Smaller reporting company ¨

Do not check if smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x

As of July 31, 2011, the number of shares outstanding of common stock was 1,561,766,109 shares.

Website Access to Company’s Reports

General Motors Company’s internet website address is www.gm.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission.

 

 

 


Table of Contents

GENERAL MOTORS COMPANY AND SUBSIDIARIES

INDEX

 

        

Page No.

 
     Part I — Financial Information   

Item 1.

  Condensed Consolidated Financial Statements      1   
  Condensed Consolidated Income Statements (Unaudited)      1   
  Condensed Consolidated Balance Sheets (Unaudited)      2   
  Condensed Consolidated Statements of Equity (Unaudited)      3   
  Condensed Consolidated Statements of Cash Flows (Unaudited)      4   
 

Notes to Condensed Consolidated Financial Statements

     5   
 

Note 1.

   Nature of Operations      5   
 

Note 2.

   Basis of Presentation and Recent Accounting Standards      5   
 

Note 3.

   Acquisition and Disposals of Businesses      8   
 

Note 4.

   Marketable Securities      9   
 

Note 5.

   Finance Receivables, net      10   
 

Note 6.

   Securitizations      12   
 

Note 7.

   Inventories      13   
 

Note 8.

   Equity in Net Assets of Nonconsolidated Affiliates      13   
 

Note 9.

   Goodwill      16   
 

Note 10.

   Intangible Assets, net      17   
 

Note 11.

   Variable Interest Entities      18   
 

Note 12.

   Depreciation and Amortization      21   
 

Note 13.

   Debt      21   
 

Note 14.

   Product Warranty Liability      23   
 

Note 15.

   Pensions and Other Postretirement Benefits      23   
 

Note 16.

   Derivative Financial Instruments and Risk Management      25   
 

Note 17.

   Commitments and Contingencies      29   
 

Note 18.

   Income Taxes      33   
 

Note 19.

   Fair Value Measurements      34   
 

Note 20.

   Restructuring and Other Initiatives      41   
 

Note 21.

   Impairments      45   
 

Note 22.

   Earnings Per Share      46   
 

Note 23.

   Stock Incentive Plans      49   
 

Note 24.

   Transactions with Ally Financial      50   
 

Note 25.

   Segment Reporting      52   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      57   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      96   

Item 4.

  Controls and Procedures      96   
     Part II — Other Information   

Item 1.

  Legal Proceedings      97   

Item 1A.

  Risk Factors      98   

Item 6.

  Exhibits      101   
  Signature      102   


Table of Contents

GENERAL MOTORS COMPANY AND SUBSIDIARIES

PART I

Item 1. Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED INCOME STATEMENTS

(In millions, except per share amounts)

(Unaudited)

 

     Three Months
Ended

June 30,
    Six Months
Ended

June 30,
 
     2011     2010     2011     2010  

Net sales and revenue

        

Automotive sales and revenue

   $ 39,043      $ 33,174      $ 74,942      $ 64,650   

GM Financial revenue

     330               625          
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net sales and revenue

     39,373        33,174        75,567        64,650   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses

        

Automotive cost of sales

     33,793        28,609        65,478        56,163   

GM Financial operating and other expenses

     186               351          

Automotive selling, general and administrative expense

     2,924        2,623        5,918        5,307   

Other automotive expenses, net

     19        39        25        85   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     36,922        31,271        71,772        61,555   

Goodwill impairment charges

                   395          
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     2,451        1,903        3,400        3,095   

Automotive interest expense

     155        250        304        587   

Interest income and other non-operating income (expense), net

     308        (91     912        357   

Loss on extinguishment of debt

     10               10        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes and equity income

     2,594        1,562        3,998        2,864   

Income tax expense (benefit)

     (61     361        76        870   

Equity income, net of tax and gain on disposal of investments

     382        411        2,526        814   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     3,037        1,612        6,448        2,808   

Net income attributable to noncontrolling interests

     (45     (76     (90     (204
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to stockholders

   $ 2,992      $ 1,536      $ 6,358      $ 2,604   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 2,524      $ 1,334      $ 5,387      $ 2,199   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share (Note 22)

        

Basic

        

Basic earnings per common share

   $ 1.68      $ 0.89      $ 3.58      $ 1.47   

Weighted-average common shares outstanding

     1,505        1,500        1,505        1,500   

Diluted

        

Diluted earnings per common share

   $ 1.54      $ 0.85      $ 3.27      $ 1.40   

Weighted-average common shares outstanding

     1,654        1,567        1,661        1,567   

Reference should be made to the notes to the condensed consolidated financial statements.

 

1


Table of Contents

GENERAL MOTORS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share amounts)

(Unaudited)

 

    June 30, 2011     December 31, 2010  
ASSETS    

Automotive Current Assets

   

Cash and cash equivalents

  $ 20,471      $ 21,061   

Marketable securities

    12,298        5,555   

Accounts and notes receivable (net of allowance of $363 and $252)

    11,789        8,699   

Inventories

    14,105        12,125   

Equipment on operating leases, net

    4,180        2,568   

Other current assets and deferred income taxes

    3,141        3,045   
 

 

 

   

 

 

 

Total current assets

    65,984        53,053   

Automotive Non-current Assets

   

Equity in net assets of nonconsolidated affiliates

    7,160        8,529   

Property, net

    20,989        19,235   

Goodwill

    28,767        30,513   

Intangible assets, net

    11,083        11,882   

Other assets and deferred income taxes

    4,323        4,754   
 

 

 

   

 

 

 

Total non-current assets

    72,322        74,913   
 

 

 

   

 

 

 

Total Automotive Assets

    138,306        127,966   

GM Financial Assets

   

Finance receivables, net (including gross finance receivables transferred to SPEs of $8,333 and $7,156)

    8,587        8,197   

Restricted cash

    1,125        1,090   

Goodwill

    1,279        1,265   

Other assets

    1,118        380   
 

 

 

   

 

 

 

Total GM Financial Assets

    12,109        10,932   
 

 

 

   

 

 

 

Total Assets

  $ 150,415      $ 138,898   
 

 

 

   

 

 

 
LIABILITIES AND EQUITY    

Automotive Current Liabilities

   

Accounts payable (principally trade)

  $ 25,412      $ 21,497   

Short-term debt and current portion of long-term debt (including certain debt at
GM Korea of $157 and $70; Note 11)

    2,027        1,616   

Accrued liabilities (including derivative liabilities at GM Korea of $19 and $111; Note 11)

    26,409        24,044   
 

 

 

   

 

 

 

Total current liabilities

    53,848        47,157   

Automotive Non-current Liabilities

   

Long-term debt (including certain debt at GM Korea of $8 and $835; Note 11)

    2,690        3,014   

Postretirement benefits other than pensions

    9,379        9,294   

Pensions

    21,389        21,894   

Other liabilities and deferred income taxes

    12,887        13,021   
 

 

 

   

 

 

 

Total non-current liabilities

    46,345        47,223   
 

 

 

   

 

 

 

Total Automotive Liabilities

    100,193        94,380   

GM Financial Liabilities

   

Securitization notes payable

    6,881        6,128   

Credit facilities

    423        832   

Other liabilities

    886        399   
 

 

 

   

 

 

 

Total GM Financial Liabilities

    8,190        7,359   
 

 

 

   

 

 

 

Total Liabilities

    108,383        101,739   

Commitments and contingencies (Note 17)

   

Equity

   

Preferred stock, $0.01 par value, 2,000,000,000 shares authorized:

   

Series A (276,101,695 shares issued and outstanding (each with a $25.00 liquidation preference) at June 30, 2011 and December 31, 2010)

    5,536        5,536   

Series B (100,000,000 shares issued and outstanding (each with a $50.00 liquidation preference) at June 30, 2011 and December 31, 2010)

    4,855        4,855   

Common stock, $0.01 par value (5,000,000,000 shares authorized, 1,561,450,455 and 1,500,844,394 shares issued and outstanding at June 30, 2011 and 1,500,136,998 shares issued and outstanding at December 31, 2010)

    15        15   

Capital surplus (principally additional paid-in capital)

    24,412        24,257   

Retained earnings

    4,729        266   

Accumulated other comprehensive income

    1,571        1,251   
 

 

 

   

 

 

 

Total stockholders’ equity

    41,118        36,180   

Noncontrolling interests

    914        979   
 

 

 

   

 

 

 

Total Equity

    42,032        37,159   
 

 

 

   

 

 

 

Total Liabilities and Equity

  $ 150,415      $ 138,898   
 

 

 

   

 

 

 

Reference should be made to the notes to the condensed consolidated financial statements.

 

2


Table of Contents

GENERAL MOTORS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In millions)

(Unaudited)

 

    Series A
Preferred
Stock
    Series B
Preferred
Stock
    Common Stockholders’     Noncontrolling
Interests
    Comprehensive
Income
    Total
Equity
 
        Common
Stock
    Capital
Surplus
    Retained
Earnings
(Accumulated
Deficit)
    Accumulated
Other
Comprehensive
Income
       

Balance December 31, 2009

  $      $      $ 15      $ 24,040      $ (4,394   $ 1,588      $ 708        $ 21,957   

Net income

                                2,604               204      $ 2,808        2,808   

Other comprehensive income (loss)

                 

Foreign currency translation adjustments

                                       (189     (27     (216  

Cash flow hedging losses, net

                                       (15            (15  

Unrealized loss on securities

                                       (1            (1  

Defined benefit plans

                 

Net prior service cost

                                       (5            (5  

Net actuarial loss

                                       (225            (225  
           

 

 

   

 

 

   

 

 

   

Other comprehensive loss

                                       (435     (27     (462     (462
               

 

 

   

Comprehensive income

                $ 2,346     
               

 

 

   

Effects of adoption of amendments to
ASC 810-10 regarding variable interest entities

                                              76          76   

Cash dividends paid on Series A Preferred Stock

                                (405                     (405

Dividends declared or paid to noncontrolling interests

                                              (59       (59

Purchase of noncontrolling interest shares

                         2                      (9       (7

Other

                                              (7       (7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Balance June 30, 2010

  $      $      $ 15      $ 24,042      $ (2,195   $ 1,153      $ 886        $ 23,901   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Balance December 31, 2010

  $ 5,536      $ 4,855      $ 15      $ 24,257      $ 266      $ 1,251      $ 979        $ 37,159   

Effect of adoption of amendments in ASU 2010-28 regarding goodwill impairment (Notes 2 and 9)

                                (1,466                     (1,466

Net income

                                6,358               90      $ 6,448        6,448   

Other comprehensive income (loss)

                 

Foreign currency translation adjustments

                                       98        15        113     

Cash flow hedging gains, net

                                       13               13     

Unrealized gain on securities

                                       5               5     

Defined benefit plans

                 

Net prior service credit

                                       18               18     

Net actuarial gain

                                       235               235     

Sale of interest in nonconsolidated affiliate

                                       (42            (42  
           

 

 

   

 

 

   

 

 

   

Other comprehensive income

                                       327        15        342        342   
               

 

 

   

Comprehensive income

                $ 6,790     
               

 

 

   

Purchase of noncontrolling interest shares

                         41               (7     (134       (100

Exercise of common stock warrants

                         7                               7   

Stock based compensation

                         107                               107   

Cash dividends on Series A Preferred Stock and cumulative dividends on Series B Preferred Stock

                                (429                     (429

Dividends declared or paid to noncontrolling interests

                                              (31       (31

Deconsolidation of noncontrolling interest shares

                                              (9       (9

Other

                                              4          4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Balance June 30, 2011

  $ 5,536      $ 4,855      $ 15      $ 24,412      $ 4,729      $ 1,571      $ 914        $ 42,032   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Reference should be made to the notes to the condensed consolidated financial statements.

 

3


Table of Contents

GENERAL MOTORS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Six Months Ended
June 30,
 
     2011     2010  

Net cash provided by operating activities — Automotive

   $ 4,365      $ 5,695   

Net cash provided by operating activities — GM Financial

     322          
  

 

 

   

 

 

 

Net cash provided by operating activities

     4,687        5,695   

Cash flows from investing activities

    

Expenditures for property

     (2,494     (1,851

Available-for-sale marketable securities, acquisitions

     (12,993     (4,621

Trading marketable securities, acquisitions

     (258     (178

Available-for-sale marketable securities, liquidations

     6,288          

Trading marketable securities, liquidations

     269        163   

Acquisition of companies, net of cash acquired

     (8     (50

Operating leases, liquidations

     6        298   

Proceeds from sale of business units/investments, net

     4,778        (104

Increase in restricted cash and marketable securities

     (201     (644

Decrease in restricted cash and marketable securities

     362        13,260   

Other investing activities

     40        137   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities — Automotive

     (4,211     6,410   
  

 

 

   

 

 

 

Purchase of receivables

     (2,444       

Principal collections and recoveries on receivables

     1,880          

Other investing activities

     (412       
  

 

 

   

 

 

 

Net cash used in investing activities — GM Financial

     (976       
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (5,187     6,410   

Cash flows from financing activities

    

Net increase (decrease) in short-term debt

     216        (223

Proceeds from issuance of debt (original maturities greater than three months)

     274        434   

Payments on debt (original maturities greater than three months)

     (866     (7,591

Payments to acquire noncontrolling interest

     (100     (6

Dividends paid

     (435     (405

Other financing activities

     (22       
  

 

 

   

 

 

 

Net cash used in financing activities — Automotive

     (933     (7,791
  

 

 

   

 

 

 

Proceeds from issuance of debt (original maturities greater than three months)

     4,871          

Payments on debt (original maturities greater than three months)

     (3,983       

Other financing activities

     (35       
  

 

 

   

 

 

 

Net cash provided by financing activities — GM Financial

     853          
  

 

 

   

 

 

 

Net cash used in financing activities

     (80     (7,791
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents — GM Financial

     (1       

Net transactions with Automotive

     133          
  

 

 

   

 

 

 

Net increase in cash and cash equivalents — GM Financial

     331          

Cash and cash equivalents at beginning of period — GM Financial

     195          
  

 

 

   

 

 

 

Cash and cash equivalents at end of period — GM Financial

   $ 526      $   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents — Automotive

   $ 322      $ (611

Net transactions with GM Financial

     (133       
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents — Automotive

     (590     3,703   

Cash and cash equivalents reclassified as assets held for sale — Automotive

            391   

Cash and cash equivalents at beginning of period — Automotive

     21,061        22,679   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period — Automotive

   $ 20,471      $ 26,773   
  

 

 

   

 

 

 

Reference should be made to the notes to the condensed consolidated financial statements.

 

4


Table of Contents

GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Operations

General Motors Company is sometimes referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” “ourselves,” the “Company,” “General Motors” or “GM.” General Motors Corporation is sometimes referred to in this Quarterly Report on Form 10-Q, for the periods on or before July 9, 2009, as “Old GM.” On July 10, 2009 in connection with the 363 Sale relating to Old GM’s Chapter 11 bankruptcy proceedings, General Motors Corporation changed its name to Motors Liquidation Company, which is sometimes referred to in this Quarterly Report on Form 10-Q for the periods after July 10, 2009 as “MLC.” MLC continues to exist as a distinct legal entity for the sole purpose of liquidating its remaining assets and liabilities.

We design, build and sell cars, trucks and parts worldwide. We also conduct finance operations through General Motors Financial Company, Inc. (GM Financial). These financing operations consist principally of financing automobile purchases and leases for retail customers.

We analyze the results of our business through our five segments: GM North America (GMNA), GM Europe (GME), GM International Operations (GMIO), GM South America (GMSA) and GM Financial. Nonsegment operations are classified as Corporate. Corporate includes investments in Ally Financial, Inc. (Ally Financial), certain centrally recorded income and costs, such as interest, income taxes and corporate expenditures and certain nonsegment specific revenues and expenses.

We own a 9.9% equity interest in Ally Financial, which is accounted for as a cost method investment because we are not able to exercise significant influence. Ally Financial provides a broad range of financial services, including consumer vehicle financing, automotive dealership and other commercial financing, residential mortgage services and automobile service contracts.

Note 2. Basis of Presentation and Recent Accounting Standards

The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying condensed consolidated financial statements include all adjustments, composed of normal recurring adjustments, considered necessary by management to fairly state our results of operations, financial position and cash flows. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010 (2010 Form 10-K) as filed with the SEC.

Principles of Consolidation

The condensed consolidated financial statements include our accounts and those of our subsidiaries that we control due to ownership of a majority voting interest. We continually evaluate our involvement with variable interest entities (VIEs) to determine whether we have variable interests and are the primary beneficiary of the VIE. When this criteria is met, we are required to consolidate the VIE. Our share of earnings or losses of nonconsolidated affiliates is included in our consolidated operating results using the equity method of accounting when we are able to exercise significant influence over the operating and financial decisions of the nonconsolidated affiliate. We use the cost method of accounting if we are not able to exercise significant influence over the operating and financial decisions of the nonconsolidated affiliate. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of the Financial Statements

The condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the amounts of assets and liabilities at the reporting date and the amounts of revenue and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates actual results could differ from the original estimates, requiring adjustments to these balances in future periods.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

GM Financial

The assets and liabilities of GM Financial, our automotive finance operations, are presented on a non-classified basis. The amounts presented for GM Financial have been adjusted to include the effect of our tax attributes on GM Financial’s deferred tax positions and provision for income taxes since the date of acquisition, which are not applicable to GM Financial on a stand-alone basis, and to eliminate the effect of transactions between GM Financial and the other members of the consolidated group. Accordingly, the amounts presented will differ from those presented by GM Financial on a stand-alone basis.

Prior Period Financial Statements Conformed to Current Period Presentation

In the three and six months ended June 30, 2011 we have recorded foreign currency exchange gains and losses on debt as non-operating items. This is a change from prior period presentations in which foreign currency exchange gains and losses on debt were recorded in Automotive cost of sales. We have reclassified the prior periods to conform to our current presentation. The effects of this reclassification decreased Automotive cost of sales and Interest income and other non-operating income (expense), net by $26 million from July 10, 2009 through December 31, 2009, $150 million and $187 million in the three and six months ended June 30, 2010 and $89 million for the year ended December 31, 2010.

Venezuelan Exchange Regulations

Our Venezuelan subsidiaries changed their functional currency from Bolivar Fuerte (BsF), the local currency, to the U.S. Dollar, our reporting currency, on January 1, 2010 because of the hyperinflationary status of the Venezuelan economy. Pursuant to the official devaluation of the Venezuelan currency and establishment of the dual fixed exchange rates (essential rate of BsF 2.60 to $1.00 and nonessential rate of BsF 4.30 to $1.00) in January 2010, we remeasured the BsF denominated monetary assets and liabilities held by our Venezuelan subsidiaries at the nonessential rate of 4.30 BsF to $1.00. The remeasurement resulted in a charge of $25 million recorded in Automotive cost of sales in the three months ended March 31, 2010.

In June 2010 the Venezuelan government introduced additional foreign currency exchange control regulations, which imposed restrictions on the use of the parallel foreign currency exchange market, thereby making it more difficult to convert BsF to U.S. Dollars. We periodically accessed the parallel exchange market, which historically enabled entities to obtain foreign currency for transactions that could not be processed by the Commission for the Administration of Currency Exchange (CADIVI). The restrictions on the foreign currency exchange market could affect our Venezuelan subsidiaries’ ability to pay non-BsF denominated obligations that do not qualify to be processed by CADIVI at the official exchange rates as well as our ability to benefit from those operations.

In December 2010 another official devaluation of the Venezuelan currency was announced that eliminated the essential rate effective January 1, 2011. The devaluation did not have an effect on the 2010 consolidated financial statements; however, it has affected results of operations in 2011 because our Venezuelan subsidiaries no longer realize gains that result from favorable foreign currency exchanges processed by CADIVI at the essential rate for the requests submitted subsequent to the devaluation date.

The following tables provide financial information for our Venezuelan subsidiaries at June 30, 2011 and December 31, 2010 and for the three and six months ended June 30, 2011 and 2010 which include amounts receivable from and payable to, and transactions with, affiliated entities (dollars in millions):

 

     June 30, 2011      December 31, 2010  

Total automotive assets (a)

   $ 1,388       $ 1,322   

Total automotive liabilities (b)

   $ 1,001       $ 985   

 

     Three Months
Ended

June  30,
     Six Months
Ended

June  30,
 
       2011          2010          2011          2010    

Total net sales and revenue

   $ 433       $ 249       $ 805       $ 494   

Net income attributable to stockholders (c)

   $ 48       $ 109       $ 50       $ 215   

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

(a) Includes BsF denominated and non-BsF denominated monetary assets of $333 million and $613 million at June 30, 2011 and $393 million and $527 million at December 31, 2010.

 

(b) Includes BsF denominated and non-BsF denominated monetary liabilities of $533 million and $468 million at June 30, 2011 and $661 million and $324 million at December 31, 2010.

 

(c) Includes a gain of $119 million related to the devaluation of the BsF in January 2010 and a gain of $125 million due to favorable foreign currency exchanges that were processed by CADIVI in the three months ended June 30, 2010. The $119 million gain on the devaluation was offset by a $144 million loss recorded in the U.S. on BsF denominated assets, which is not included in the Net income attributable to stockholders reported above. Included in the three and six months ended June 30, 2011 are gains of $0 million and $5 million related to favorable foreign currency exchanges that were processed by CADIVI at the essential rate. The gains in the three and six months ended June 30, 2011 are related to requests for foreign currency exchanges submitted to CADIVI prior to the devaluation effective January 1, 2011.

The total amount pending government approval for settlement at June 30, 2011 and December 31, 2010 was BsF 2.2 billion (equivalent to $516 million) and BsF 1.9 billion (equivalent to $432 million), for which some requests have been pending from 2007. The amounts outstanding at June 30, 2011 and December 31, 2010 include payables to affiliated entities of $384 million and $263 million, each of which include dividends payable of $144 million.

Significant Non-Cash Activity — Investing Cash Flows

The following table summarizes the amounts accrued for property expenditures at June 30, 2011 and 2010. These amounts are excluded from Expenditures for property within the investing section of the condensed consolidated statements of cash flows because no cash has been expended (dollars in millions):

 

     June 30,  
     2011      2010  

Accrued expenditures for property

   $ 2,989       $ 1,782   

Correction of Presentation in Condensed Consolidated Financial Statements

We have corrected certain amounts disclosed in Note 8 to our condensed consolidated financial statements included in our Quarterly Report for the period ended June 30, 2010. Although we do not consider the effects of these disclosure errors to be material, we have corrected the amounts in the notes to the condensed consolidated financial statements. Originally reported and corrected amounts are included in the affected notes to the condensed consolidated financial statements which follow.

Recently Adopted Accounting Principles

In September 2009 the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2009-13, “Multiple-Deliverable Revenue Arrangements” (ASU 2009-13). ASU 2009-13 addresses the unit of accounting for multiple-element arrangements. ASU 2009-13 revises the method by which consideration is allocated among the units of accounting. Specifically, the overall consideration is allocated to each deliverable by establishing a selling price for individual deliverables based on a hierarchy of evidence, involving vendor-specific objective evidence, other third party evidence of the selling price or the reporting entity’s best estimate of the selling price of individual deliverables in the arrangement. ASU 2009-13 was effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The adoption of ASU 2009-13 did not have a material effect on the condensed consolidated financial statements.

In December 2010 the FASB issued ASU 2010-28, “Intangibles — Goodwill and Other: When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (ASU 2010-28). The amendments in ASU 2010-28 modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Any resulting goodwill impairment is recorded as a cumulative-effect adjustment to beginning Retained earnings at the date of adoption with future impairments recorded to earnings. Refer to Note 9 for additional information on the adoption of ASU 2010-28 and its effect on the condensed consolidated financial statements.

Accounting Standards Not Yet Adopted

In May 2011 the FASB issued ASU 2011-04, “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU 2011-04). Key provisions of the amendments in ASU 2011-04 include: (1) a prohibition on grouping financial instruments for purposes of determining fair value, except in limited cases; (2) an extension of the prohibition against the use of a blockage factor to all fair value measurements; and (3) a requirement that for recurring Level 3 fair value measurements, entities disclose quantitative information about unobservable inputs, a description of the valuation process used and qualitative details about the sensitivity of the measurements. For items not carried at fair value but for which fair value is disclosed, entities will be required to disclose the level within the fair value hierarchy that applies to the fair value measurement disclosed. This ASU is effective for interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04 is not expected to have a significant effect on our fair value measurements utilized within the condensed consolidated financial statements.

Note 3. Acquisition and Disposals of Businesses

Acquisition of Additional GM Korea Interests

In March 2011 we completed the acquisition of an additional 6.9% interest in GM Korea Company, formerly GM Daewoo Auto & Technology Co. (GM Korea) for a cash purchase price of $100 million. The transaction was accounted for as an equity transaction as we retain the controlling financial interest in GM Korea. As a result of this transaction we reduced our equity attributable to Noncontrolling interests by $134 million and our Accumulated other comprehensive income by $7 million, and increased our Capital surplus by $41 million. After completing this transaction, we now own 77.0% of the outstanding shares of GM Korea.

Saab Sale

In February 2010 we completed the sale of Saab Automobile AB (Saab) and in May 2010 we completed the sale of Saab Automobile GB to Spyker Cars NV. Of the negotiated cash purchase price of $74 million, we received $50 million at closing and received the remaining $24 million in July 2010. We also received preference shares in Saab with a face value of $326 million and an estimated fair value that is insignificant and received $114 million as repayment of the debtor-in-possession financing that we provided to Saab during 2009. In the three months ended March 31, 2010 we recorded a gain of $123 million in Interest income and other non-operating income, net.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Acquisition of GM Financial

In October 2010 we acquired 100% of the outstanding equity interests of GM Financial (formerly AmeriCredit Corp.), an automotive finance company, for cash of $3.5 billion. The results of GM Financial are included in our results beginning October 1, 2010. The following table summarizes the actual amounts of revenue and earnings of GM Financial included in our condensed consolidated financial statements for the three and six months ended June 30, 2011 and the supplemental pro forma revenue and earnings of the combined entity for the three and six months ended June 30, 2010 as if the acquisition had occurred on January 1, 2010 (dollars in millions):

 

     GM Financial Amounts
Included In Results For
     Pro Forma-Combined  
     Three Months Ended
June  30, 2011
     Six Months Ended
June 30, 2011
     Three Months Ended
June  30, 2010
     Six Months Ended
June 30, 2010
 

Total net sales and revenue

   $ 330       $ 625       $ 33,525       $ 65,349   

Net income attributable to stockholders

   $ 161       $ 220       $ 1,696       $ 2,884   

Note 4. Marketable Securities

Automotive

The following table summarizes information regarding marketable securities (dollars in millions):

 

     June 30, 2011      December 31, 2010  
     Cost      Unrealized      Fair
Value
     Cost      Unrealized      Fair
Value
 
        Gains      Losses            Gains      Losses     

Marketable Securities

                       

Available-for-sale securities

                       

United States government and agencies

   $ 6,692       $ 3       $       $ 6,695       $ 2,023       $       $       $ 2,023   

Sovereign debt

     371                         371         773                         773   

Certificates of deposit

     1,083                         1,083         954                         954   

Corporate debt

     4,002         3         1         4,004         1,670         1         2         1,669   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

     12,148         6         1         12,153         5,420         1         2         5,419   

Total trading securities

     141         6         2         145         129         10         3         136   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total marketable securities

   $ 12,289       $ 12       $ 3       $ 12,298       $ 5,549       $ 11       $ 5       $ 5,555   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

We maintained $93 million and $89 million of the above trading securities as compensating balances to support letters of credit of $78 million and $74 million at June 30, 2011 and December 31, 2010. We have access to these securities in the normal course of business; however, the letters of credit may be withdrawn if the minimum collateral balance is not maintained.

The following table summarizes securities classified as Cash and cash equivalents and restricted cash and marketable securities (dollars in millions):

 

     June 30, 2011      December 31, 2010  

Securities classified as cash and cash equivalents

   $ 13,592       $ 12,964   

Securities classified as restricted cash and marketable securities (a)

   $ 1,602       $ 1,474   

 

(a) Securities classified as restricted cash and marketable securities are recorded in Other current assets and deferred income taxes and Other assets and deferred income taxes.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Refer to Note 19 for classes of securities underlying Cash and cash equivalents and restricted cash and marketable securities.

The following table summarizes proceeds from and realized gains and losses on disposals of investments in marketable securities classified as available-for-sale and sold prior to maturity (dollars in millions):

 

     Three Months
Ended

June  30,
     Six Months
Ended

June  30,
 
       2011          2010          2011          2010    

Sales proceeds

   $ 132       $ 1       $ 249       $ 1   

Realized gains

   $       $       $       $   

Realized losses

   $ 1       $       $ 2       $   

The following table summarizes the fair value of investments classified as available-for-sale securities by contractual maturity at June 30, 2011 (dollars in millions):

 

     Amortized Cost      Fair Value  

Due in one year or less

   $ 10,039       $ 10,042   

Due after one year through five years

     2,109         2,111   
  

 

 

    

 

 

 

Total contractual maturities of available-for-sale debt securities

   $ 12,148       $ 12,153   
  

 

 

    

 

 

 

Note 5. Finance Receivables, net

Automotive Financing — GM Financial

The following table summarizes the components of Finance receivables, net (dollars in millions):

 

     June 30, 2011     December 31, 2010  

Pre-acquisition finance receivables

   $ 5,887      $ 7,724   

Post-acquisition finance receivables

     3,223        924   
  

 

 

   

 

 

 

Total finance receivables

     9,110        8,648   

Purchase price premium

     109        423   

Less non-accretable discount on pre-acquisition finance receivables

     (524     (848

Less allowance for loan losses on post-acquisition receivables

     (108     (26
  

 

 

   

 

 

 

Total finance receivables, net

   $ 8,587      $ 8,197   
  

 

 

   

 

 

 

The following table summarizes activity for finance receivables (dollars in millions):

 

     Three Months
Ended
June 30, 2011
    Six Months
Ended
June 30, 2011
 

Balance at beginning of period

   $ 8,750      $ 8,648   

Loans purchased

     1,349        2,487   

Charge-offs

     (130     (314

Principal collections and other

     (859     (1,711
  

 

 

   

 

 

 

Balance at end of period

   $ 9,110      $ 9,110   
  

 

 

   

 

 

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Finance contracts are purchased by GM Financial from automobile dealers without recourse, and accordingly, the dealer has no liability to GM Financial if the consumer defaults on the contract. Finance receivables are collateralized by vehicle titles and GM Financial has the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract.

At June 30, 2011 and December 31, 2010 the accrual of finance charge income has been suspended on delinquent finance receivables of $419 million and $491 million.

GM Financial reviews its pre-acquisition portfolio for differences between contractual cash flows and the cash flows expected to be collected from its initial investment in the pre-acquisition portfolio to determine if the difference is attributable, at least, in part to credit quality. At June 30, 2011 improvement in the performance of the pre-acquisition portfolio indicated that the non-accretable discount exceeded expected future credit losses by $187 million. At June 30, 2011 GM Financial transferred this excess non-accretable discount as an offset to finance receivables premium. GM Financial will recognize this excess as finance charge income over the remaining life of the portfolio.

The following table summarizes activity for purchase price premium (dollars in millions):

 

     Three Months
Ended
June 30, 2011
    Six Months
Ended
June 30, 2011
 

Balance at beginning of period

   $ 355      $ 423   

Amortization of premium

     (59     (127

Transfer from non-accretable discount

     (187     (187
  

 

 

   

 

 

 

Balance at end of period

   $ 109      $ 109   
  

 

 

   

 

 

 

The following table summarizes activity for non-accretable pre-acquisition discount (dollars in millions):

 

     Three Months
Ended
June 30, 2011
    Six Months
Ended
June 30, 2011
 

Balance at beginning of period

   $ 764      $ 848   

Recoveries

     71        169   

Charge-offs

     (124     (306

Transfer to finance receivables premium

     (187     (187
  

 

 

   

 

 

 

Balance at end of period

   $ 524      $ 524   
  

 

 

   

 

 

 

The following table summarizes activity for the allowance for post-acquisition loan losses (dollars in millions):

 

     Three Months
Ended
June 30, 2011
    Six Months
Ended
June 30, 2011
 

Balance at beginning of period

   $ 65      $ 26   

Provision for loan losses

     45        84   

Recoveries

     4        6   

Charge-offs

     (6     (8
  

 

 

   

 

 

 

Balance at end of period

   $ 108      $ 108   
  

 

 

   

 

 

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Credit Quality

Credit bureau scores, generally referred to as FICO scores, are determined during GM Financial’s automotive loan origination process. The following table summarizes the credit risk profile of finance receivables by FICO score band, determined at origination (dollars in millions):

 

     June 30, 2011      December 31, 2010  

FICO score less than 540

   $ 1,705       $ 1,328   

FICO score 540 to 599

     3,794         3,396   

FICO score 600 to 659

     2,672         2,758   

FICO score 660 and greater

     939         1,166   
  

 

 

    

 

 

 

Total finance receivables

   $ 9,110       $ 8,648   
  

 

 

    

 

 

 

Delinquency

The following table summarizes finance receivables more than 30 days delinquent, but not yet in repossession, and in repossession, but not yet charged-off (dollars in millions):

 

     June 30, 2011     December 31, 2010  
     Amount      Percent     Amount      Percent  

Delinquent contracts

          

31 to 60 days

   $ 398         4.4   $ 535         6.2

Greater-than-60 days

     158         1.7     212         2.4
  

 

 

    

 

 

   

 

 

    

 

 

 

Total finance receivables more than 30 days delinquent

     556         6.1     747         8.6

In repossession

     23         0.3     28         0.3
  

 

 

    

 

 

   

 

 

    

 

 

 

Total finance receivables more than 30 days delinquent and in repossession

   $ 579         6.4   $ 775         8.9
  

 

 

    

 

 

   

 

 

    

 

 

 

An account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Delinquencies may vary from period to period based upon the average age of the portfolio, seasonality within the calendar year and economic factors.

Note 6. Securitizations

Automotive Financing — GM Financial

The following table summarizes securitization activity and cash flows from consolidated special purpose entities (SPEs) used for securitizations (dollars in millions):

 

     Three Months
Ended
June 30, 2011
     Six Months
Ended
June 30, 2011
 

Receivables securitized

   $ 2,069       $ 2,918   

Net proceeds from securitization

   $ 1,950       $ 2,750   

Servicing fees

   $ 49       $ 98   

Distributions from trusts

   $ 291       $ 434   

GM Financial retains servicing responsibilities for receivables transferred to certain SPEs. At June 30, 2011 and December 31, 2010 GM Financial serviced finance receivables that have been transferred to certain SPEs of $7.9 billion and $7.2 billion.

At June 30, 2011 a Canadian subsidiary of GM Financial serviced leased assets of $1.2 billion for a third party.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Note 7. Inventories

The following table summarizes the components of our inventories (dollars in millions):

 

     June 30, 2011      December 31, 2010  

Productive material, work in process and supplies

   $ 6,328       $ 5,487   

Finished product, including service parts

     7,777         6,638   
  

 

 

    

 

 

 

Total inventories

   $ 14,105       $ 12,125   
  

 

 

    

 

 

 

Note 8. Equity in Net Assets of Nonconsolidated Affiliates

Automotive

Nonconsolidated affiliates are entities in which an equity ownership interest is maintained and for which the equity method of accounting is used, due to the ability to exert significant influence over decisions relating to their operating and financial affairs.

The following table summarizes the components of Equity income, net of tax and gain on disposal of investments (dollars in millions):

 

     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
       2011          2010         2011         2010    

China JVs

   $ 379       $ 379      $ 829      $ 728   

New Delphi (including gain on disposition)

             39        1,727        74   

Others

     3         (7     (30     12   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total equity income, net of tax and gain on disposal of investments

   $ 382       $ 411      $ 2,526      $ 814   
  

 

 

    

 

 

   

 

 

   

 

 

 

Sale of New Delphi

In March 2011 we sold our Class A Membership Interests in Delphi Automotive LLP (New Delphi) to New Delphi for $3.8 billion. The Class A Membership Interests sold represented 100% of our direct and indirect interests in New Delphi and 100% of New Delphi’s Class A Membership Interests issued and outstanding. The sale terminated any direct and indirect obligation to loan New Delphi up to $500 million under a term loan facility established in October 2009 when New Delphi was created and the Class A Membership Interests were issued. New Delphi had not borrowed under this loan facility. In March 2011 we recorded a gain of $1.6 billion related to the sale in Equity income, net of tax and gain on disposal of investments. Our existing supply contracts with New Delphi were not affected by this transaction.

Impairment of Investment in HKJV

In December 2009 we and SAIC Motor Hong Kong Investment Limited (SAIC-HK) entered into a joint venture, SAIC GM Investment Limited (HKJV) to invest in automotive projects outside of markets in China, initially focusing on markets in India. On February 1, 2010 we sold certain of our operations in India (GM India), part of our GMIO segment to HKJV, in exchange for a promissory note due in 2013. The amount due under the promissory note may be partially reduced, or increased, based on GM India’s cumulative earnings before interest and taxes (EBIT) for the three year period ending December 31, 2012. In connection with the sale we recorded net consideration of $185 million and an insignificant gain. The sale transaction resulted in a loss of control and the deconsolidation of GM India in February 2010. Accordingly, we removed the assets and liabilities of GM India from our consolidated financial statements and recorded an equity interest in HKJV to reflect cash of $50 million we contributed to HKJV and a $123 million commitment to provide additional capital that we are required to make in accordance with the terms of the joint venture agreement. We recorded a corresponding liability to reflect our obligation to provide additional capital.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

In March 2011 there was a change in the local tax regulations which significantly extended the period of time over which GM India will receive certain value added tax based investment incentives. The delay in recovery of these incentives significantly affected GM India’s cash flow and EBIT forecasts, resulting in a decrease in the fair value of HKJV. The fair value of our investment in HKJV at March 31, 2011 was determined to be $112 million compared to a carrying amount of $151 million. The loss in value was considered to be other than temporary and, therefore, we recorded an impairment charge of $39 million in the three months ended March 31, 2011. In addition, we recorded other charges totaling $67 million related to our investment in the HKJV in the three months ended March 31, 2011.

VMM Deconsolidation

In June 2011 we entered into a new shareholder agreement with Fiat Powertrain Technologies SPA related to VM Motori (VMM) in Italy. Prior to the new shareholder agreement, we controlled VMM and consolidated VMM’s assets, liabilities and results of operations. Under the new shareholder agreement, we retain 50% ownership but no longer have control. Accordingly, we removed the assets and liabilities of VMM, which included allocated goodwill of $36 million from our GME reporting unit, from our consolidated financial statements and recorded an equity interest in the amount of $46 million.

Investment in China JVs

The following table summarizes our direct ownership interests in our Chinese joint ventures, collectively referred to as China JVs:

 

     Ownership Interest  
     June 30, 2011      June 30, 2010  

Shanghai General Motors Co. Ltd. (SGM) (a)

     49%         49%   

Shanghai GM (Shenyang) Norsom Motor Co., Ltd. (SGM Norsom)

     25%         25%   

Shanghai GM Dong Yue Motors Co., Ltd. (SGM DY)

     25%         25%   

Shanghai GM Dong Yue Powertrain (SGM DYPT)

     25%         25%   

SAIC-GM-Wuling Automobile Co., Ltd. (SGMW)

     44%         34%   

FAW-GM Light Duty Commercial Vehicle, Ltd. (FAW-GM)

     50%         50%   

Pan Asia Technical Automotive Center Co., Ltd. (PATAC)

     50%         50%   

Shanghai OnStar Telematics Co., Ltd. (Shanghai OnStar)

     40%         40%   

Shanghai Chengxin Used Car Operation and Management Co., Ltd. (Shanghai Chengxin Used Car)

     33%         33%   

 

(a) Ownership interest in SGM was 49% in the period February 1, 2010 through June 30, 2010 and 50% in the month of January 2010.

Sales and income of our China JVs are not consolidated into our financial statements; rather, our proportionate share of the earnings of each joint venture is reflected as Equity income, net of tax and gain on disposal of investments.

SGM is a joint venture established in 1997 by Shanghai Automotive Industry Corporation (SAIC) (51%) and us (49%). SGM has interests in three other joint ventures in China — SGM Norsom, SGM DY and SGM DYPT. These three joint ventures are jointly held by SGM (50%), SAIC (25%) and us (25%). These four joint ventures are engaged in the production, import, and sale of a comprehensive range of products under the brands of Buick, Chevrolet and Cadillac. SGM also has interests in Shanghai OnStar (20%) and Shanghai Chengxin Used Car (33%).

In February 2010 we sold a 1% ownership interest in SGM to SAIC-HK, reducing our ownership interest to 49%. The sale of the 1% ownership interest to SAIC was predicated on our ability to work with SAIC to obtain a $400 million line of credit from a commercial bank to us. We also received a call option to repurchase the 1% which is contingently exercisable based on events which we do not unilaterally control. As part of the loan arrangement SAIC provided a commitment whereby, in the event of default, SAIC will purchase the ownership interest in SGM that we pledged as collateral for the loan. We recorded an insignificant gain on this transaction.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

In November 2010 we purchased an additional 10% interest in SGMW from the Liuzhou Wuling Motors Co., Ltd. and Liuzhou Mini Vehicles Factory, collectively the Wuling Group, for cash of $52 million plus an agreement to provide technical services to the Wuling Group for a period of three years. As a result of this transaction, we own 44%, SAIC owns 50.1% and certain Liuzhou investors own 5.9% of the outstanding stock of SGMW.

Transactions with Nonconsolidated Affiliates

Nonconsolidated affiliates are involved in various aspects of the development, production and marketing of cars, trucks and parts, and we purchase component parts and vehicles from certain nonconsolidated affiliates for resale to dealers. The following tables summarize the effects of transactions with nonconsolidated affiliates, which are not eliminated in consolidation (dollars in millions):

 

     Three Months
Ended

June  30,
    Six Months
Ended

June 30,
 
         2011             2010             2011              2010      

Results of Operations

         

Automotive sales and revenue

   $ 852      $ 740   $ 1,687       $ 1,519 ** 

Automotive purchases, net

   $ 38      $ 712   $ 830       $ 1,327 ** 

Automotive selling, general and administrative expense

   $ (2   $      $ 6       $ (3

Automotive interest expense

   $ 5      $ 4   $ 10       $ 7 ** 

Automotive interest income and other non-operating income (expense), net

   $ 13      $ 10   $ 11       $ 12 ** 

 

* Amounts originally reported as $479, $816, $0 and $0 in our Quarterly Report on Form 10-Q for the period ended June 30, 2010 (June 30, 2010 Form 10-Q). Refer to Note 2.

 

** Amounts originally reported as $909, $1,570, $0 and $0 in our June 30, 2010 Form 10-Q. Refer to Note 2.

 

     June 30, 2011      December 31, 2010  

Financial Position

     

Accounts and notes receivable, net

   $ 836       $ 1,618   

Accounts payable (principally trade)

   $ 276       $ 641   

Deferred revenue and customer deposits

   $ 72       $ 9   

 

     Six Months
Ended

June 30,
 
     2011      2010  

Cash Flows

     

Operating

   $ 1,904       $ (18 )* 

Investing

   $ 1       $ 654   

Financing

   $       $   

 

* Amount originally reported as $701 in our June 30, 2010 Form 10-Q. Refer to Note 2.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Note 9. Goodwill

The following table summarizes the changes in the carrying amount of goodwill (dollars in millions):

 

     GMNA      GME     GMIO      GMSA      Total
Automotive
    GM
Financial
     Total  

Balance at January 1, 2011

   $ 26,394       $ 3,053      $ 901       $ 165       $ 30,513      $ 1,265       $ 31,778   

Effect of adoption of ASU 2010-28

             (1,466                     (1,466             (1,466

Impairment charges

             (395                     (395             (395

Deconsolidation of entity (a)

             (36                     (36             (36

Goodwill acquired

                                           14         14   

Effect of foreign currency translation and other

             95        45         11         151                151   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Balance at June 30, 2011

   $ 26,394       $ 1,251      $ 946       $ 176       $ 28,767      $ 1,279       $ 30,046   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Accumulated impairment charges

   $       $ (1,861   $       $       $ (1,861   $       $ (1,861

 

(a) Refer to Note 8 for additional information concerning the deconsolidation of VMM.

We adopted the provisions of ASU 2010-28 on January 1, 2011. GME had a negative carrying amount and despite the fair value of GME’s equity being greater than its carrying amount, we performed Step 2 of the goodwill impairment testing analysis. The adoption of ASU 2010-28 resulted in the recognition of a cumulative-effect adjustment to beginning Retained earnings of $1.5 billion for our GME reporting unit. GME continued to have a negative carrying amount and because it was more likely than not further goodwill impairment existed at March 31, 2011, an impairment charge of $395 million was recorded in Goodwill impairment charges during the three months ended March 31, 2011. Refer to Note 2 for additional information on ASU 2010-28.

The valuation methodologies utilized to perform our goodwill impairment testing for GME were consistent with those used in our application of fresh-start reporting on July 10, 2009, as discussed in Note 2 to our consolidated financial statements contained in our 2010 Form 10-K, and in our 2010 annual goodwill impairment testing at October 1, 2010. The fair value measures used in our analyses were Level 3 measures. Because the fair value of goodwill can be measured only as a residual amount and cannot be determined directly, we calculated GME’s implied goodwill in the same manner that goodwill is recognized in a business combination pursuant to Accounting Standards Codification (ASC) 805 “Business Combinations.”

In performing our Step 2 analyses, we utilized a discounted cash flow methodology to estimate the fair values of GME at January 1, 2011 and March 31, 2011. These fair value estimates utilized a weighted-average cost of capital of 17.0% and 16.5% at January 1, 2011 and March 31, 2011 that considered various factors including bond yields, risk premiums, and tax rates; a terminal value that was determined using a growth model that applied a long-term growth rate of 0.5% to our projected cash flows beyond 2015; and industry sales of 18.4 million and a market share for GME of 6.56% in 2011 increasing to industry sales of 22.0 million vehicles and a 7.42% market share in 2015. The fair value of property was determined based on its highest and best use utilizing a combination of the market or sales comparison approach, the cost approach and/or the income approach. The fair values of GME’s brands were determined based on a relief from royalty method and the fair value of GME’s dealer network was determined on a cost approach. Based on these fair value measures, we determined GME’s implied goodwill represents only the fair-value-to-U.S. GAAP differences attributable to those assets and liabilities that gave rise to goodwill upon application of fresh-start reporting.

Our Step 2 analyses indicated GME’s implied goodwill was less than its recorded goodwill; therefore, goodwill was adjusted at January 1, 2011 and March 31, 2011. The adjustments to goodwill represent the net decreases, from July 10, 2009 through January 1, 2011 and from January 1, 2011 through March 31, 2011, in the fair-value-to-U.S. GAAP differences attributable to those assets and liabilities that gave rise to goodwill upon our application of fresh-start reporting. The net decreases resulted primarily from: (1) a decrease in our nonperformance risk and an improvement in our incremental borrowing rates since July 10, 2009; (2) an increase in high quality corporate bond rates utilized to measure our employee benefit plan obligations since January 1, 2011; and (3) a decrease in credit spreads between high quality corporate bond rates and market interest rates for companies with similar nonperformance risk.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Future goodwill impairments could occur within GME should the fair-value-to-U.S. GAAP differences decrease, GME continue to have a negative carrying amount, and the fair value of the GME reporting unit does not increase sufficiently to offset such decreases or such increase in fair value results in a corresponding increase in the fair value of other identifiable assets without giving rise to additional implied goodwill. The difference between these fair-value-to-U.S. GAAP differences would decrease upon an improvement in our credit rating or a decrease in credit spreads between high quality corporate bond rates and market interest rates, thus resulting in a decrease in the spread between our employee benefit related obligations under U.S. GAAP and their fair values. The fair-value-to-U.S. GAAP differences that gave rise to goodwill upon our application of fresh-start reporting within GME also included deferred tax asset valuation allowances. Similarly, a decrease would also occur upon reversal of our deferred tax asset valuation allowances within GME. Should the fair-value-to-U.S. GAAP differences decrease for these reasons, without an increase in the fair value of the GME reporting unit sufficient to offset such decreases, the implied goodwill balance will decline and future goodwill impairments would occur and may be material. Any declines would have a negative effect on our earnings and would be included in Goodwill impairment charges. Future goodwill impairments could also occur within our other reporting units, including GMNA, should we first fail Step 1 of the goodwill impairment testing analysis and the fair-value-to-U.S. GAAP differences noted above also decrease.

We believe future goodwill impairment charges could occur in 2011 related to GME because GME has a negative carrying amount and it is possible: (1) a decrease in the credit spreads between high quality corporate bond rates and market interest rates for companies with similar nonperformance risk could occur and/or (2) a decrease in our nonperformance risk or improvement in our credit rating could occur. As these events did not occur during the three months ended June 30, 2011, it was not more likely than not further goodwill impairment existed at June 30, 2011. Therefore, no impairment charge was recorded during the three months ended June 30, 2011.

Note 10. Intangible Assets, net

The following table summarizes the components of intangible assets (dollars in millions):

 

     June 30, 2011      December 31, 2010  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
 

Technology and intellectual property

   $ 7,771       $ 4,441       $ 3,330       $ 7,751       $ 3,650       $ 4,101   

Brands

     5,509         300         5,209         5,439         222         5,217   

Dealer network and customer relationships

     2,256         268         1,988         2,172         199         1,973   

Favorable contracts

     534         160         374         526         120         406   

Other

     19         12         7         19         9         10   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total amortizing intangible assets

     16,089         5,181         10,908         15,907         4,200         11,707   

Non amortizing in-process research and development

     175                 175         175                 175   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total intangible assets

   $ 16,264       $ 5,181       $ 11,083       $ 16,082       $ 4,200       $ 11,882   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes amortization expense related to intangible assets (dollars in millions):

 

     Three Months  Ended
June 30,
     Six Months  Ended
June 30,
 
         2011              2010              2011          2010      

Amortization expense related to intangible assets, net

   $ 461       $ 667       $ 962       $ 1,403   

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table summarizes estimated amortization expense related to intangible assets in each of the next five fiscal years (dollars in millions):

 

     Estimated
Amortization

Expense
 

2012

   $ 1,561   

2013

   $ 1,228   

2014

   $ 611   

2015

   $ 313   

2016

   $ 314   

Note 11. Variable Interest Entities

Consolidated VIEs

Automotive

VIEs that we do not control through a majority voting interest that are consolidated because we are the primary beneficiary primarily include certain vehicles sales and marketing joint ventures, the most significant of which is GM Egypt, and certain other automotive or financial support entities.

Liabilities recognized as a result of consolidating VIEs generally do not represent claims to us and assets recognized generally are for the benefit of the VIE operations and cannot be used to satisfy our obligations. GM Korea, a non-wholly owned consolidated subsidiary that we control through a majority voting interest, is also a VIE because in the future it may require additional subordinated financial support. The creditors of GM Korea’s short-term debt of $157 million and $70 million, current derivative liabilities of $19 million and $111 million and long-term debt of $8 million and $835 million at June 30, 2011 and December 31, 2010 do not have recourse to our general credit. In February 2011 we provided a guarantee to Korea Development Bank (a minority shareholder in GM Korea), as trustee for the holders of GM Korea’s preferred shares, to redeem GM Korea’s preferred shares should GM Korea not redeem the shares. This guarantee decreased the amount of long-term debt which did not have recourse to our general credit in the six months ended June 30, 2011.

The following table summarizes the carrying amount of consolidated VIEs that we do not control through a majority voting interest (dollars in millions):

 

     June 30, 2011      December 31, 2010  

Assets

     

Cash and cash equivalents

   $ 107       $ 145   

Accounts and notes receivable, net

     106         121   

Inventories

     94         108   

Other current assets

     10         14   

Property, net

     56         44   

Other assets

     48         49   
  

 

 

    

 

 

 

Total assets

   $ 421       $ 481   
  

 

 

    

 

 

 

Liabilities

     

Accounts payable (principally trade)

   $ 131       $ 226   

Short-term debt and current portion of long-term debt

     18         5   

Accrued liabilities

     37         34   

Other liabilities

     50         42   
  

 

 

    

 

 

 

Total liabilities

   $ 236       $ 307   
  

 

 

    

 

 

 

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table summarizes the amounts recorded in earnings related to consolidated VIEs we do not control through a majority voting interest (dollars in millions):

 

     Three Months Ended
June  30,
     Six Months Ended
June  30,
 
       2011          2010          2011          2010    

Total net sales and revenue

   $ 227       $ 197       $ 337       $ 370   

Automotive cost of sales

     188         152         287         287   

Automotive selling, general and administrative expense

     8         7         14         17   

Other automotive expenses, net

     7         1         9         2   

Automotive interest expense

     2         1         3         4   

Interest income and other non-operating income, net

     3         2         5         3   

Income tax expense

     4         5         4         8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 21       $ 33       $ 25       $ 55   
  

 

 

    

 

 

    

 

 

    

 

 

 

Automotive Financing – GM Financial

GM Financial finances its loan and lease origination volume through the use of credit facilities and securitization trusts that issue asset-backed securities to investors. GM Financial retains an interest in these credit facilities and securitization trusts which are structured without recourse.

GM Financial’s continuing involvement with the credit facilities and securitization trusts includes servicing loans and leases held by the SPEs and holding a residual interest in the SPE. The SPEs are considered VIEs because they do not have sufficient equity at risk, and are consolidated because GM Financial is the primary beneficiary and has the power over those activities that most significantly affect the economic performance of the SPEs, and has an obligation to absorb losses or the right to receive benefits from the SPEs which are potentially significant.

GM Financial is not required to provide any additional financial support to its sponsored credit facilities and securitization SPEs. The finance receivables, leased assets and other assets held by these subsidiaries are not available to our creditors or creditors of our other subsidiaries.

Refer to Notes 5, 6 and 13 for additional information on GM Financial’s involvement with the SPEs and disclosures related to the amounts held by the consolidated SPEs as of the balance sheet dates.

Nonconsolidated VIEs

Automotive

VIEs that are not consolidated because we are not the primary beneficiary primarily include certain vehicle sales and marketing joint ventures and other automotive or financial support entities, including American Axle and Manufacturing Holdings, Inc. (American Axle), Ally Financial, Saab and HKJV.

Variable interests in nonconsolidated VIEs include guarantees and financial support provided to certain current or previously divested suppliers in order to ensure that supply needs for production are not disrupted due to a supplier’s liquidity concerns or possible shutdowns. The maximum exposure to loss related to these VIEs is not expected to be in excess of the amount of net accounts and notes receivable recorded with the suppliers and any related guarantees and loan commitments. Investments in joint ventures that manufacture, market and sell vehicles in certain markets are typically self-funded and financed with no contractual terms that require us to provide future financial support. The maximum exposure to loss is not expected to be in excess of the carrying amount of the investments recorded in Equity in net assets of nonconsolidated affiliates and in any related capital funding requirements.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table summarizes the amounts recorded for nonconsolidated VIEs and the related off-balance sheet guarantees and maximum exposure to loss, excluding Ally Financial that is disclosed in Note 24 (dollars in millions):

 

     June 30, 2011      December 31, 2010  
     Carrying
Amount
     Maximum
Exposure

to Loss
     Carrying
Amount
     Maximum
Exposure

to Loss
 

Assets

           

Accounts and notes receivable, net

   $ 2       $ 2       $ 108       $ 108   

Equity in net assets of nonconsolidated affiliates

     229         227         274         274   

Other assets

                     60         59   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 231       $ 229       $ 442       $ 441   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Accounts payable (principally trade)

   $ 1       $       $ 1       $   

Other liabilities

     193                 44           
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 194       $       $ 45       $   
  

 

 

    

 

 

    

 

 

    

 

 

 

Off-Balance Sheet

           

Loan commitments (a)

      $ 15          $ 100   

Other guarantees

                   3   

Other liquidity arrangements (b)

        226            223   
     

 

 

       

 

 

 

Total guarantees and liquidity arrangements

      $ 241          $ 326   
     

 

 

       

 

 

 

 

(a) Amounts at December 31, 2010 included undrawn loan commitments related to American Axle. In June 2011 the term loan facility was terminated.

 

(b) Amounts at June 30, 2011 and December 31, 2010 represented additional contingent future capital funding requirement related to HKJV.

Stated contractual voting or similar rights for certain of our joint venture arrangements provide various parties with shared power over the activities that most significantly affect the economic performance of certain nonconsolidated VIEs. Such nonconsolidated VIEs are operating joint ventures located in developing international markets.

American Axle

We concluded that American Axle was a VIE for which we were not the primary beneficiary and we currently lack the power through voting or similar rights to direct those activities of American Axle that most significantly affect its economic performance. Prior to June 2011 our primary variable interest, among others, in American Axle was a second lien term loan facility in which American Axle could borrow up to $100 million. In June 2011 the term loan facility was terminated thereby eliminating our explicit variable interest in American Axle.

Ally Financial

We own 9.9% of Ally Financial’s common stock. Ally Financial is a VIE as it does not have sufficient equity at risk; however, we are not the primary beneficiary and we currently lack the power through voting or similar rights to direct those activities of Ally Financial that most significantly affect its economic performance. Refer to Notes 19 and 24 for additional information on Ally Financial, including our investment, sale of our Ally Financial preferred stock in March 2011 and our maximum exposure under agreements with Ally Financial.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Saab

Our primary variable interest in Saab is the preference shares that we received in connection with the sale, which have a face value of $326 million and were recorded at an estimated fair value that was insignificant. We concluded that Saab is a VIE as it does not have sufficient equity at risk. We also determined that we are not the primary beneficiary because we lack the power to direct those activities that most significantly affect its economic performance. We continue to be obligated to fund certain Saab related liabilities, primarily warranty obligations related to vehicles sold prior to the disposition of Saab. Refer to Note 3 for additional information on the sale of Saab.

HKJV

We determined that HKJV is a VIE because it will require additional subordinated financial support, and we determined that we are not the primary beneficiary because we share the power with SAIC-HK to direct those activities that most significantly affect HKJV’s economic performance. Refer to Note 8 for additional information on our investment in HKJV.

Note 12. Depreciation and Amortization

Automotive

The following table summarizes depreciation and amortization, including asset impairment charges, included in Automotive cost of sales, Automotive selling, general and administrative expense and Other automotive expenses, net (dollars in millions):

 

     Three Months  Ended
June 30,
     Six Months Ended
June 30,
 
       2011          2010          2011          2010    

Depreciation and impairment of plants and equipment

   $ 504       $ 481       $ 1,003       $ 1,010   

Amortization and impairment of special tools

     462         393         915