10-Q 1 d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549-1004

Form 10-Q

 

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

For the quarterly period ended September 30, 2009

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 333-160471

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)

Registrant’s telephone number, including area code

(313) 556-5000

NA

(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  ¨  No  þ

Indicate by check mark whether the registrant has submitted electronically and posted on its company 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  ¨  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  þ  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  þ

As of March 15, 2010, the number of shares outstanding of $0.01 par value common stock was 500,000,000 shares.

Website Access to Company’s Reports

General Motors Company’s internet website address is www.gm.com. Our annual reports 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.

 

 

 


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GENERAL MOTORS COMPANY AND SUBSIDIARIES

 

General Motors Company was formed by the United States Department of the Treasury (UST) in 2009 originally as a Delaware limited liability company, Vehicle Acquisition Holdings LLC, and subsequently converted to a Delaware corporation, NGMCO, Inc. This company, which on July 10, 2009 acquired substantially all of the assets and assumed certain liabilities of General Motors Corporation (363 Sale) and changed its name to General Motors Company, is sometimes referred to in this Quarterly Report on Form 10-Q for the periods on or subsequent to July 10, 2009 as “we,” “our,” “us,” “ourselves,” the “Company,” “General Motors,” or “GM,” and is the successor entity solely for accounting and financial reporting purposes (Successor). 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.” Prior to July 10, 2009 Old GM operated the business of the Company, and pursuant to the agreement with the SEC Staff, the accompanying consolidated financial statements include the financial statements and related information of Old GM as it is our predecessor entity solely for accounting and financial reporting purposes (Predecessor).

On July 10, 2009, in connection with the 363 Sale 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 on or after July 10, 2009, as “MLC.” MLC continues to exist as a distinct legal entity for the sole legal purpose of liquidating its remaining assets and liabilities. Refer to Note 1 to the condensed consolidated financial statements for additional information.

We are a private company and were not previously subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. We are a voluntary filer with the Securities and Exchange Commission. We are filing an Annual Report on Form 10-K for the year ended December 31, 2009, a Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 and a Registration Statement on Form 10 pursuant to an agreement with the SEC Staff, as described in a no — action letter issued to Old GM by the SEC Staff on July 9, 2009 regarding our filing requirements and those of MLC.

The 363 Sale resulted in a new entity, General Motors Company, which is the successor entity solely for accounting and financial reporting purposes. Because we are a new reporting entity, our financial statements are not comparable to the financial statements of Old GM.

Our Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2009 and Old GM’s Annual Report on Form 10-K for the year ended December 31, 2008.


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GENERAL MOTORS COMPANY AND SUBSIDIARIES

INDEX

 

            Page No.
    Part I — Financial Information  

Item 1.

  Condensed Consolidated Financial Statements   1
  Condensed Consolidated Statements of Operations   1
  Condensed Consolidated Balance Sheets   2
  Condensed Consolidated Statements of Equity (Deficit)   3
  Condensed Consolidated Statements of Cash Flows   5
  Notes to Condensed Consolidated Financial Statements   6
 

Note 1.

 

Nature of Operations

  6
 

Note 2.

 

Chapter 11 Proceedings and the 363 Sale

  6
 

Note 3.

 

Basis of Presentation

  24
 

Note 4.

 

Goodwill

  29
 

Note 5.

 

Intangible Assets, net

  30
 

Note 6.

 

Inventories

  31
 

Note 7.

 

Equity in Net Assets of Nonconsolidated Affiliates

  32
 

Note 8.

 

Depreciation and Amortization

  37
 

Note 9.

 

Restricted Cash and Marketable Securities

  37
 

Note 10.

 

Short-Term and Long-Term Debt

  38
 

Note 11.

 

Product Warranty Liability

  46
 

Note 12.

 

Pensions and Other Postretirement Benefits

  47
 

Note 13

 

Derivative Financial Instruments and Risk Management

  56
 

Note 14.

 

Commitments and Contingencies

  62
 

Note 15.

 

Income Taxes

  69
 

Note 16.

 

Fair Value Measurements

  71
 

Note 17.

 

Restructuring and Other Initiatives

  78
 

Note 18.

 

Impairments

  82
 

Note 19.

 

Earnings (Loss) Per Share

  88
 

Note 20.

 

Transactions with GMAC

  89
 

Note 21.

 

Transactions with MLC

  91
 

Note 22.

 

Segment Reporting

  92
 

Note 23.

 

Subsequent Events

  98

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations   104

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk   150

Item 4.

  Controls and Procedures   153
    Part II — Other Information  

Item 1.

  Legal Proceedings   155

Item 1A.

  Risk Factors   155

Item 6.

  Exhibits   156
  Signature   158


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GENERAL MOTORS COMPANY AND SUBSIDIARIES

PART I

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

Item 1.

 

     Successor           Predecessor  
     July 10, 2009
Through
September 30, 2009
          July 1, 2009
Through

July 9, 2009
    January 1, 2009
Through

July 9, 2009
    Three Months
Ended

September 30, 2008
    Nine Months
Ended
September 30, 2008
 

Net sales and revenue

               

Sales

   $ 25,060           $ 1,630      $ 46,787      $ 37,503      $ 117,120   

Other revenue

     87             7        328        305        1,081   
                                             

Total net sales and revenue

     25,147             1,637        47,115        37,808        118,201   
                                             

Costs and expenses

               

Cost of sales

     23,554             1,819        55,814        34,521        116,165   

Selling, general and administrative expense

     2,636             728        6,161        3,251        10,704   

Other expenses (income), net

     (40          81        1,235        919        5,226   
                                             

Total costs and expenses

     26,150             2,628        63,210        38,691        132,095   
                                             

Operating loss

     (1,003          (991     (16,095     (883     (13,894

Equity in income (loss) of and disposition of interest in GMAC

                        1,380        (1,235     (4,777

Interest expense

     (365          (823     (5,428     (595     (2,217

Interest income and other non-operating income, net

     454             19        852        78        165   

Gain (loss) on extinguishment of debt

                        (1,088     43        43   

Reorganization gains, net (Note 2)

                 129,312        128,155                 
                                             

Income (loss) before income taxes and equity income

     (914          127,517        107,776        (2,592     (20,680

Income tax expense (benefit)

     (139          (607     (1,166     68        1,029   

Equity income, net of tax

     204             15        61        50        310   
                                             

Net income (loss)

     (571          128,139        109,003        (2,610     (21,399

Less: Net (income) loss attributable to noncontrolling interests

     (287          (141     115        58        52   
                                             

Net income (loss) attributable to stockholders

     (858          127,998        109,118        (2,552     (21,347

Less: Cumulative dividends on preferred stock

     50                                    
                                             

Net income (loss) attributable to common stockholders

   $ (908        $ 127,998      $ 109,118      $ (2,552   $ (21,347
                                             

Earnings (loss) per share (Note 19)

               

Basic

               

Net income (loss) attributable to common stockholders

   $ (2.20        $ 209.49      $ 178.63      $ (4.47   $ (37.58

Weighted-average common shares outstanding

     413             611        611        571        568   

Diluted

               

Net income (loss) attributable to common stockholders

   $ (2.20        $ 209.38      $ 178.55      $ (4.47   $ (37.58

Weighted-average common shares outstanding

     413             611        611        571        568   

Cash dividends per common share

   $           $      $      $      $ 0.50   

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

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share amounts)

(Unaudited)

 

     Successor          Predecessor  
     September 30,
2009
         December 31,
2008
 
     

ASSETS

       

Current Assets

       

Cash and cash equivalents

  $ 25,092          $ 14,053   

Marketable securities

    137            141   
                   

Total cash, cash equivalents and marketable securities

    25,229            14,194   

Restricted cash and marketable securities

    19,009            672   

Accounts and notes receivable, net

    7,725            7,918   

Inventories

    10,610            13,195   

Assets held for sale

    663              

Equipment on operating leases, net

    3,142            5,142   

Other current assets and deferred income taxes

    1,966            3,146   
                   

Total current assets

    68,344            44,267   

Non-Current Assets

       

Restricted cash and marketable securities

    1,553            1,917   

Equity in net assets of nonconsolidated affiliates

    6,088            2,146   

Equipment on operating leases, net

    5            442   

Property, net

    18,639            39,665   

Goodwill

    30,633              

Intangible assets, net

    15,385            265   

Deferred income taxes

    698            98   

Prepaid pension

    96            109   

Other assets

    2,903            2,130   
                   

Total non-current assets

    76,000            46,772   
                   

Total Assets

  $ 144,344          $ 91,039   
                   

LIABILITIES AND EQUITY (DEFICIT)

       

Current Liabilities

       

Accounts payable (principally trade)

  $ 20,322          $ 22,259   

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

    12,815            16,920   

Liabilities held for sale

    492              

Postretirement benefits other than pensions

    1,339            4,002   

Accrued expenses

    23,812            32,427   
                   

Total current liabilities

    58,780            75,608   

Non-Current Liabilities

       

Long-term debt

    2,659            29,018   

Postretirement benefits other than pensions

    18,640            28,919   

Pensions

    28,915            25,178   

Other liabilities and deferred income taxes

    14,364            17,392   
                   

Total non-current liabilities

    64,578            100,507   
                   

Total Liabilities

    123,358            176,115   

Commitments and contingencies (Note 14)

       

Preferred stock, $0.01 par value (1,000,000,000 shares authorized, 360,000,000 shares issued and 100,000,000 shares outstanding at September 30, 2009) (Notes 2 and 12)

    1,741              

Equity (Deficit)

       

Old GM

       

Preferred stock, no par value (6,000,000 shares authorized, no shares issued and outstanding)

                 

Preference stock, $0.10 par value (100,000,000 shares authorized, no shares issued and outstanding)

                 

Common stock, $1 2/3 par value common stock (2,000,000,000 shares authorized, 800,937,541 shares issued and 610,483,231 shares outstanding at December 31, 2008)

               1,017   

General Motors Company

       

Common stock, $0.01 par value (2,500,000,000 shares authorized, 500,000,000 shares issued and 412,500,000 outstanding at September 30, 2009) (Notes 2 and 12)

    4              

Capital surplus (principally additional paid-in capital)

    18,787            16,489   

Accumulated deficit

    (899         (70,727

Accumulated other comprehensive income (loss)

    677            (32,339
                   

Total stockholders’ equity (deficit)

    18,569            (85,560

Noncontrolling interests

    676            484   
                   

Total equity (deficit)

    19,245            (85,076
                   

Total Liabilities and Equity (Deficit)

  $ 144,344          $ 91,039   
                   

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

 

2


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GENERAL MOTORS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

(In millions)

(Unaudited)

 

    Common Stockholders’                    
    Common
Stock
    Capital
Surplus
    Accumulated
Equity
(Deficit)
    Accumulated
Other
Comprehensive
Income (Loss)
    Noncontrolling
Interests
    Comprehensive
Income (Loss)
    Total
Equity
(Deficit)
 

Balance December 31, 2008, Predecessor

  $ 1,017      $ 16,489      $ (70,727   $ (32,339   $ 484        $ (85,076

Net income

                  109,118               (115   $ 109,003        109,003   

Other comprehensive income (loss)

             

Foreign currency translation adjustments

                         232        (85     147     

Cash flow hedging gains, net

                         99        177        276     

Unrealized gain on securities

                         46               46     

Defined benefit plans

             

Net prior service costs

                         2,828               2,828     

Net actuarial loss

                         (6,237            (6,237  

Net transition asset/obligation

                         1               1     
                               

Other comprehensive income (loss)

                         (3,031     92        (2,939     (2,939
                   

Comprehensive income (loss)

            $ 106,064     
                   

Effects of GMAC adoption of ASC 820-10 and ASC 825-10

                  (1                     (1

Cash dividends paid to noncontrolling interests

                                (26       (26

Other

    1        5                      (27       (21
                                                 

Balance July 9, 2009, Predecessor

    1,018        16,494        38,390        (35,370     408          20,940   

Fresh-start reporting adjustments:

             

Elimination of predecessor common stock, capital surplus and accumulated earnings

    (1,018     (16,494     (38,390                     (55,902

Elimination of predecessor accumulated other comprehensive loss

                         35,370                 35,370   

Issuance of common stock

    4        18,787                               18,791   
                                                 

Balance July 10, 2009, Successor

    4        18,787                      408          19,199   

Net loss

                  (858            287      $ (571     (571

Other comprehensive income (loss)

             

Foreign currency translation adjustments

                         184        (33     151     

Unrealized gain on securities

                         10               10     

Defined benefit plans

             

Net actuarial gain

                         483               483     
                               

Other comprehensive income (loss)

                         677        (33     644        644   
                   

Comprehensive income (loss)

            $ 73     
                   

Cash dividends paid to GM preferred stockholders

                  (41                     (41

Other

                                14          14   
                                                 

Balance September 30, 2009, Successor

  $ 4      $ 18,787      $ (899   $ 677      $ 676        $ 19,245   
                                                 

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

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF DEFICIT

(In millions)

(Unaudited)

 

    Common Stockholders’                    
    Common
Stock
  Capital
Surplus
  Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income (Loss)
    Noncontrolling
Interests
    Comprehensive
Income (Loss)
    Total
Deficit
 

Balance December 31, 2007, Predecessor

  $ 943   $ 16,100   $ (39,426   $ (13,987   $ 1,218        $ (35,152

Net loss

            (21,347            (52   $ (21,399     (21,399

Other comprehensive income (loss)

             

Foreign currency translation

adjustments

                   (388     (14     (402  

Cash flow hedging losses, net

                   (570     (587     (1,157  

Unrealized loss on securities

                   (311            (311  

Defined benefit plans

             

Net prior service costs

                   (4,480            (4,480  

Net actuarial gain

                   4,035               4,035     

Net transition asset / obligation

                   4               4     
                               

Other comprehensive income (loss)

                   (1,710     (601     (2,311     (2,311
                   

Comprehensive income (loss)

            $ (23,710  
                   

Effects of GMAC adoption of ASC 820-10 and ASC 825-10

            (76                     (76

Stock options

        9     1                        10   

Common stock issued for settlement of Series D debentures

    74     357                            431   

Cash dividends paid to Old GM common stockholders

            (283                     (283

Cash dividends paid to noncontrolling interests

                          (17       (17

Other

                          (28       (28
                                             

Balance September 30, 2008, Predecessor

  $ 1,017   $ 16,466   $ (61,131   $ (15,697   $ 520        $ (58,825
                                             

 

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

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Successor     Predecessor  
     July 10, 2009
Through
September 30, 2009
    January 1, 2009
Through
July 9, 2009
    Nine Months
Ended
September 30, 2008
 

Net cash provided by (used in) operating activities

   $ 2,857      $ (18,303   $ (9,661

Cash flows from investing activities

      

Expenditures for property

     (881     (3,517     (5,527

Investment in GMAC

            (884       

Increase in cash due to consolidation of CAMI

            46          

Decrease in cash due to deconsolidation of Saab in February 2009

            (41       

Increase in cash due to consolidation of Saab in August 2009

     222                 

Distributions from GMAC received on GMAC common shares

     72                 

Investments in marketable securities, acquisitions

     (81     (202     (3,209

Investments in marketable securities, liquidations

     94        185        5,139   

Investment in stock warrants

     (25              

Operating leases, liquidations

     346        1,307        3,014   

Change in restricted cash

     (9     (18,043       

Other

     (160     15        28   
                        

Net cash used in investing activities

     (422     (21,134     (555

Cash flows from financing activities

      

Net decrease in short-term debt

     (588     (2,364     (2,730

Proceeds from UST Loan Facility and UST GMAC Loan

            16,645          

Proceeds from funding by EDC

     4,042                 

Proceeds from the Receivables Program

     30        260          

Proceeds from DIP Facility

            33,300          

Proceeds from EDC Loan Facility

            2,407          

Proceeds from issuance of long-term debt

     293        345        5,581   

Proceeds from German Facility

     716        992          

Payments on the UST Loans

     (361              

Payments on other German Facility

     (438              

Payments on long-term debt

     (130     (6,072     (847

Cash, cash equivalents and restricted cash retained by MLC

            (1,216       

Fees paid for debt modification

            (63       

Cash dividends paid to GM preferred stockholders

     (41              

Cash dividends paid to Old GM common stockholders

                   (283

Payments to acquire noncontrolling interest

            (5       
                        

Net cash provided by financing activities

     3,523        44,229        1,721   

Effect of exchange rate changes on cash and cash equivalents

     398        168        (315
                        

Net increase (decrease) in cash and cash equivalents

     6,356        4,960        (8,810

Cash and cash equivalents reclassified to assets held for sale

     (277              

Cash and cash equivalents at beginning of the period

     19,013        14,053        24,817   
                        

Cash and cash equivalents at end of the period

   $ 25,092      $ 19,013      $ 16,007   
                        

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

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Operations

General Motors Company was formed by the United States Department of the Treasury (UST) in 2009 originally as a Delaware limited liability company, Vehicle Acquisition Holdings LLC, and subsequently converted to a Delaware corporation, NGMCO, Inc. This company, which on July 10, 2009 acquired substantially all of the assets and assumed certain liabilities of General Motors Corporation (363 Sale) and changed its name to General Motors Company, is sometimes referred to in this Quarterly Report on Form 10-Q for the periods on or subsequent to July 10, 2009 as “we,” “our,” “us,” “ourselves,” the “Company,” “General Motors,” or “GM,” and is the successor entity solely for accounting and financial reporting purposes (Successor). 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.” Prior to July 10, 2009 Old GM operated the business of the Company, and pursuant to the agreement with the SEC Staff, the accompanying condensed consolidated financial statements include the financial statements and related information of Old GM as it is our predecessor entity solely for accounting and financial reporting purposes (Predecessor). In connection with the 363 Sale, 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 on or 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 develop, produce and market cars, trucks and parts worldwide. We analyze the results of our business through our three segments: General Motors North America (GMNA), General Motors Europe (GME) and General Motors International Operations (GMIO).

Nonsegment operations are classified as Corporate. Corporate includes investments in GMAC Inc. (GMAC), certain centrally recorded income and costs, such as interest, income taxes and corporate expenditures, certain nonsegment specific revenues and expenses, including costs related to the Delphi Benefit Guarantee Agreements (as subsequently defined in Note 12) and a portfolio of automotive retail leases.

Note 2. Chapter 11 Proceedings and the 363 Sale

Background

Over time as Old GM’s market share declined in North America, Old GM needed to continually restructure its business operations to reduce cost and excess capacity. In addition, legacy labor costs and obligations and capacity in its dealer network made Old GM less competitive than new entrants into the U.S. market. These factors continued to strain Old GM’s liquidity. In 2005 Old GM incurred significant losses from operations and from restructuring activities such as providing support to Delphi Corporation (Delphi) and other efforts intended to reduce operating costs. Old GM managed its liquidity during this time through a series of cost reduction initiatives, capital markets transactions and sales of assets. However, the global credit market crisis had a dramatic effect on Old GM and the automotive industry. In the second half of 2008, the increased turmoil in the mortgage and overall credit markets (particularly the lack of financing for buyers or lessees of vehicles), the continued reductions in U.S. housing values, the volatility in the price of oil, recessions in the United States and Western Europe and the slowdown of economic growth in the rest of the world created a substantially more difficult business environment. The ability to execute capital markets transactions or sales of assets was extremely limited, vehicle sales in North America and Western Europe contracted severely, and the pace of vehicle sales in the rest of the world slowed. Old GM’s liquidity position, as well as its operating performance, were negatively affected by these economic and industry conditions and by other financial and business factors, many of which were beyond its control.

As a result of these economic conditions and the rapid decline in sales in the three months ended December 31, 2008 Old GM determined that, despite the actions it had then taken to restructure its U.S. business, it would be unable to pay its obligations in the normal course of business in 2009 or service its debt in a timely fashion, which required the development of a new plan that depended on financial assistance from the U.S. government.

In December 2008 Old GM requested and received financial assistance from the U.S. government and entered into a loan and security agreement with the UST, which was subsequently amended (UST Loan Agreement). In early 2009 Old GM’s business results

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

and liquidity continued to deteriorate, and, as a result, Old GM obtained additional funding from the UST under the UST Loan Agreement. Old GM also received funding from Export Development Canada (EDC), a corporation wholly-owned by the government of Canada, under a loan and security agreement entered into in April 2009 (EDC Loan Facility).

As a condition to obtaining the loans under the UST Loan Agreement, Old GM was required to submit a Viability Plan in February 2009 that included specific actions intended to result in the following:

 

   

Repayment of all loans, interest and expenses under the UST Loan Agreement, and all other funding provided by the U.S. government;

 

   

Compliance with federal fuel efficiency and emissions requirements and commencement of domestic manufacturing of advanced technology vehicles;

 

   

Achievement of a positive net present value, using reasonable assumptions and taking into account all existing and projected future costs;

 

   

Rationalization of costs, capitalization and capacity with respect to its manufacturing workforce, suppliers and dealerships; and

 

   

A product mix and cost structure that is competitive in the U.S. marketplace.

The UST Loan Agreement also required Old GM to, among other things, use its best efforts to achieve the following restructuring targets:

Debt Reduction

 

   

Reduction of its outstanding unsecured public debt by not less than two-thirds through conversion of existing unsecured public debt into equity, debt and/or cash or by other appropriate means.

Labor Modifications

 

   

Reduction of the total amount of compensation paid to its U.S. employees so that, by no later than December 31, 2009, the average of such total amount is competitive with the average total amount of such compensation paid to U.S. employees of certain foreign-owned, U.S. domiciled automakers (transplant automakers);

 

   

Elimination of the payment of any compensation or benefits to U.S. employees who have been fired, laid-off, furloughed or idled, other than customary severance pay; and

 

   

Application of work rules for U.S. employees in a manner that is competitive with the work rules for employees of transplant automakers.

VEBA Modifications

 

   

Modification of its retiree healthcare obligations arising under the 2008 UAW Settlement Agreement as subsequently defined under which responsibility for providing healthcare for International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) retirees, their spouses and dependents would permanently shift from Old GM to the New Plan funded by the UAW Retiree Medical Benefits Trust (New VEBA), such that payment or contribution of not less than one-half of the value of each future payment was to be made in the form of Old GM common stock, subject to certain limitations.

The UST Loan Agreement provided that if, by March 31, 2009 or a later date (not to exceed 30 days after March 31, 2009) as determined by the President’s Designee (Certification Deadline), the President’s Designee had not certified that Old GM had taken all

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

steps necessary to achieve and sustain its long-term viability, international competitiveness and energy efficiency in accordance with the Viability Plan, then the loans and other obligations under the UST Loan Agreement were to become due and payable on the thirtieth day after the Certification Deadline.

On March 30, 2009 the President’s Designee determined that the plan was not viable and required substantial revisions. In conjunction with the March 30, 2009 announcement, the administration announced that it would offer Old GM adequate working capital financing for a period of 60 days while it worked with Old GM to develop and implement a more accelerated and aggressive restructuring that would provide a sound long-term foundation. On March 31, 2009 Old GM and the UST agreed to postpone the Certification Deadline to June 1, 2009.

Old GM made further modifications to its Viability Plan in an attempt to satisfy the President’s Designee’s requirement that it undertake a substantially more accelerated and aggressive restructuring plan (Revised Viability Plan). The following is a summary of significant cost reduction and restructuring actions contemplated by the Revised Viability Plan, the most significant of which included reducing Old GM’s indebtedness and VEBA obligations.

Indebtedness and VEBA obligations

In April 2009 Old GM commenced exchange offers for certain unsecured notes to reduce its unsecured debt in order to comply with the debt reduction condition of the UST Loan Agreement.

Old GM also commenced discussions with the UST regarding the terms of a potential restructuring of its debt obligations under the UST Loan Agreement, the UST GMAC Loan Agreement (as subsequently defined), and any other debt issued or owed to the UST in connection with those loan agreements pursuant to which the UST would exchange at least 50% of the total outstanding debt Old GM owed to it at June 1, 2009 for Old GM common stock.

In addition, Old GM commenced discussions with the UAW and the VEBA-settlement class representative regarding the terms of potential VEBA modifications.

Other cost reduction and restructuring actions

In addition to the efforts to reduce debt and modify the VEBA obligations, the Revised Viability Plan also contemplated the following cost reduction efforts:

 

   

Extended shutdowns of certain North American manufacturing facilities in order to reduce dealer inventory;

 

   

Refocus its resources on four core U.S. brands: Chevrolet, Cadillac, Buick and GMC;

 

   

Acceleration of the resolution for Saab Automobile AB (Saab), HUMMER and Saturn and no planned future investment for Pontiac, which was to be phased out by the end of 2010;

 

   

Acceleration of the reduction in U.S. nameplates to 34 by 2010;

 

   

A reduction in the number of U.S. dealers from 6,246 in 2008 to 3,605 in 2010;

 

   

A reduction in the total number of plants in the U.S. to 34 by the end of 2010 and 31 by 2012; and

 

   

A reduction in the U.S. hourly employment levels from 61,000 in 2008 to 40,000 in 2010 as a result of the nameplate reductions, operational efficiencies and plant capacity reductions.

Old GM had previously announced that it would reduce salaried employment levels on a global basis by 10,000 during 2009 and had instituted several programs to effect reductions in salaried employment levels. Old GM had also negotiated a revised labor

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

agreement with the Canadian Auto Workers Union (CAW) to reduce its hourly labor costs to approximately the level paid to the transplant automakers; however, such agreement was contingent upon receiving longer term financial support for its Canadian operations from the Canadian federal and Ontario provincial governments.

Chapter 11 Proceedings

Old GM was not able to complete the cost reduction and restructuring actions in its Revised Viability Plan, including the debt reductions and VEBA modifications, which resulted in extreme liquidity constraints. As a result, on June 1, 2009 Old GM and certain of its direct and indirect subsidiaries filed voluntary petitions for relief under Chapter 11 (Chapter 11 Proceedings) of the U.S. Bankruptcy Code (Bankruptcy Code) in the U.S. Bankruptcy Court for the Southern District of New York (Bankruptcy Court).

In connection with the Chapter 11 Proceedings, Old GM entered into a secured super priority debtor-in-possession credit agreement with the UST and EDC (DIP Facility) and received additional funding commitments from EDC to support Old GM’s Canadian operations.

The following table summarizes the total funding and funding commitments Old GM received from the U.S. and Canadian governments and the additional notes Old GM issued related thereto in the period December 31, 2008 through July 9, 2009 (dollars in millions):

 

Description of Funding Commitment

   Funding and Funding
Commitments
   Additional
Notes Issued (a)
   Total
Obligation

UST Loan Agreement (b)

   $ 19,761    $ 1,172    $ 20,933

EDC funding (c)

     6,294      161      6,455

DIP Facility

     33,300      2,221      35,521
                    

Total

   $ 59,355    $ 3,554    $ 62,909
                    

 

(a) Old GM did not receive any proceeds from the issuance of these promissory notes, which were issued as additional compensation to the UST and EDC.

 

(b) Includes debt of $361 million, which the UST loaned to Old GM under the warranty program.

 

(c) Includes approximately $2.4 billion from the EDC Loan Facility received in the period January 1, 2009 through July 9, 2009 and funding commitments of CAD $4.5 billion (equivalent to $3.9 billion when entered into) that were immediately converted into our equity. This funding was received on July 15, 2009.

363 Sale

On July 10, 2009 we completed the acquisition of substantially all of the assets and assumed certain liabilities of Old GM and certain of its direct and indirect subsidiaries (collectively, the Sellers). The 363 Sale was consummated in accordance with the Amended and Restated Master Sale and Purchase Agreement, dated June 26, 2009, as amended, (Purchase Agreement) between us and the Sellers, and pursuant to the Bankruptcy Court’s sale order dated July 5, 2009.

In connection with the 363 Sale, the purchase price paid to Old GM was comprised of:

 

   

A credit bid in an amount equal to the total of: (1) debt of $19.8 billion under Old GM’s UST Loan Agreement, plus notes of $1.2 billion issued as additional compensation for the UST Loan Agreement, plus interest on such debt Old GM owed as of the closing date of the 363 Sale; and (2) debt of $33.3 billion under Old GM’s DIP Facility, plus notes of $2.2 billion issued as additional compensation for the DIP Facility, plus interest Old GM owed as of the closing date, less debt of $8.2 billion owed under the DIP Facility;

 

   

The UST’s return of the warrants Old GM previously issued to it;

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

   

The issuance to MLC of 50 million shares (or 10%) of our common stock and warrants to acquire newly issued shares of our common stock initially exercisable for a total of 91 million shares of our common stock (or 15% on a fully diluted basis); and

 

   

Our assumption of certain specified liabilities of Old GM (including debt of $7.1 billion owed under the DIP Facility).

Under the Purchase Agreement, we are obligated to issue additional shares of our common stock to MLC (Adjustment Shares) in the event that allowed general unsecured claims against MLC, as estimated by the Bankruptcy Court, exceed $35.0 billion. The maximum Adjustment Shares equate to 2% (or 10 million shares) of our common stock. The number of Adjustment Shares to be issued is calculated based on the extent to which estimated general unsecured claims exceed $35.0 billion with the maximum number of Adjustment Shares issued if estimated general unsecured claims total $42.0 billion or more. We determined that it is probable that general unsecured claims allowed against MLC will ultimately exceed $35.0 billion by at least $2.0 billion. In that circumstance, we would be required to issue 2.9 million Adjustment Shares to MLC as an adjustment to the purchase price. At July 10, 2009 we accrued $113 million in Other liabilities and deferred income taxes related to this contingent obligation.

Agreements with the UST, UAW Retiree Medical Benefits Trust and Export Development Canada

On July 10, 2009 we entered into the UST Credit Agreement and assumed debt of $7.1 billion that Old GM incurred under its DIP Facility (UST Loans). Immediately after entering into the UST Credit Agreement, we made a partial prepayment, reducing the UST Loans principal balance to $6.7 billion. We also entered into the VEBA Note Agreement and issued a note in the principal amount of $2.5 billion (VEBA Notes) to the New VEBA. Through our wholly-owned subsidiary General Motors of Canada Limited (GMCL), we also entered into the amended and restated Canadian Loan Agreement with EDC, as a result of which GMCL has a CAD $1.5 billion (equivalent to $1.3 billion when entered into) term loan (Canadian Loan).

Refer to Note 10 for additional information on the UST Loans, VEBA Notes and the Canadian Loan.

Issuance of Common Stock, Preferred Stock and Warrants

On July 10, 2009 we issued the following securities to the UST, Canada GEN Investment Corporation (formerly 7176384 Canada Inc.), a corporation organized under the laws of Canada (Canada Holdings), the New VEBA and MLC:

UST

 

   

304.1 million shares of our common stock;

 

   

83.9 million shares of our Series A Fixed Rate Cumulative Perpetual Preferred Stock (Series A Preferred Stock);

Canada Holdings

 

   

58.4 million shares of our common stock;

 

   

16.1 million shares of Series A Preferred Stock;

New VEBA

 

   

87.5 million shares of our common stock;

 

   

260.0 million shares of Series A Preferred Stock;

 

   

Warrant to acquire 15.2 million shares of our common stock;

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

MLC

 

   

50.0 million shares of our common stock; and

 

   

Two warrants, each to acquire 45.5 million shares of our common stock.

Preferred Stock

The shares of Series A Preferred Stock have a liquidation preference of $25.00 per share and accrue cumulative dividends at 9.0% per annum (payable quarterly on March 15, June 15, September 15 and December 15) that are payable if, as and when declared by our Board of Directors. So long as any share of the Series A Preferred Stock remains outstanding, no dividend or distribution may be declared or paid on our common stock unless all accrued and unpaid dividends have been paid on the Series A Preferred Stock, subject to exceptions, such as dividends on our common stock payable solely in shares of our common stock. On or after December 31, 2014 we may redeem, in whole or in part, the shares of Series A Preferred Stock outstanding, at a redemption price per share equal to $25.00 per share plus any accrued and unpaid dividends, subject to limited exceptions.

The Series A Preferred Stock is classified as temporary equity because one of the holders, the UST, controls our Board of Directors and could compel us to call the Preferred Stock for redemption in 2014. We are not accreting the outstanding Preferred Stock to its redemption amount of $2.5 billion because we believe it is not probable that the UST will control our Board of Directors in 2014.

Warrants

The first tranche of warrants issued to MLC is exercisable at any time prior to July 10, 2016, with an exercise price of $30.00 per share. The second tranche of warrants issued to MLC is exercisable at any time prior to July 10, 2019, with an exercise price of $55.00 per share. The warrant issued to the New VEBA is exercisable at any time prior to December 31, 2015, with an exercise price of $126.92 per share. The number of shares of our common stock underlying each of the warrants issued to MLC and the New VEBA and the per share exercise price are subject to adjustment as a result of certain events, including stock splits, reverse stock splits and stock dividends.

Additional Modifications to Pension and Other Postretirement Plans Contingent upon the Emergence from Bankruptcy

We modified the U.S. hourly pension plan, the U.S. executive retirement plan, the U.S. salaried life plan, the non-UAW hourly retiree medical plan and the U.S. hourly life plan. These modifications became effective upon the completion of the 363 Sale. The key modifications were:

 

   

Elimination of the post 65 benefits and capping the pre 65 benefits in the non-UAW hourly retiree medical plan;

 

   

Capping the life benefit for non-UAW retirees and future retirees at $10,000 in the U.S. hourly life plan;

 

   

Capping the life benefit for existing salaried retirees at $10,000, reduced the retiree benefit for future salaried retirees and eliminated the executive benefit for the U.S. salaried life plan;

 

   

Elimination of a portion of nonqualified benefits in the U.S. executive retirement plan; and

 

   

Elimination of the flat monthly special lifetime benefit of $66.70 that was to commence on January 1, 2010 for the U.S. hourly pension plan.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Accounting for the Effects of the Chapter 11 Proceedings and the 363 Sale

Chapter 11 Proceedings

Accounting Standards Codification (ASC) 852, “Reorganizations” (ASC 852) is applicable to entities operating under Chapter 11 of the Bankruptcy Code. ASC 852 generally does not affect the application of U.S. GAAP that we and Old GM followed to prepare the consolidated financial statements, but it does require specific disclosures for transactions and events that were directly related to the Chapter 11 Proceedings and transactions and events that resulted from ongoing operations.

Old GM prepared its consolidated financial statements in accordance with the guidance in ASC 852 in the period June 1, 2009 through July 9, 2009. Revenues, expenses, realized gains and losses, and provisions for losses directly related to the Chapter 11 Proceedings were recorded in Reorganization gains, net. Reorganization gains, net do not constitute an element of operating loss due to their nature and due to the requirement of ASC 852 that they be reported separately. Old GM’s balance sheet prior to the 363 Sale distinguished prepetition liabilities subject to compromise from prepetition liabilities not subject to compromise and from postpetition liabilities. Cash amounts provided by or used in the Chapter 11 Proceedings are separately disclosed in the statement of cash flows.

Application of Fresh-Start Reporting

The Bankruptcy Court did not determine a reorganization value in connection with the 363 Sale. Reorganization value is defined as the value of our assets without liabilities. In order to apply fresh-start reporting, ASC 852 requires that total postpetition liabilities and allowed claims be in excess of reorganization value and prepetition stockholders receive less than 50.0% of our common stock. Based on our estimated reorganization value, we determined that on July 10, 2009 both the criteria of ASC 852 were met and, as a result, we applied fresh-start reporting.

Our reorganization value was determined using the sum of:

 

   

Our discounted forecast of expected future cash flows from our business subsequent to the 363 Sale, discounted at rates reflecting perceived business and financial risks;

 

   

The fair value of operating liabilities;

 

   

The fair value of our non-operating assets, primarily our investments in nonconsolidated affiliates and cost method investments; and

 

   

The amount of cash we maintained at July 10, 2009 that we determined to be in excess of the amount necessary to conduct our normal business activities.

The sum of the first, third and fourth bullet items equals our Enterprise value.

Our discounted forecast of expected future cash flows included:

 

   

Forecasted cash flows for the six months ended December 31, 2009 and the years ending 2010 through 2014, for each of Old GM’s former segments (refer to Note 3 for a discussion of our change in segments) and for certain subsidiaries that incorporated:

 

   

Industry seasonally adjusted annual rate (SAAR) of vehicle sales and our related market share as follows:

 

   

Worldwide — 59.1 million vehicles and market share of 11.9% in 2010 increasing to 81.0 million vehicles and market share of 12.2% in 2014;

 

   

North America — 14.2 million vehicles and market share of 17.8% in 2010 increasing to 19.8 million vehicles and decreasing market share of 17.6% in 2014;

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

   

Europe — 16.8 million vehicles and market share of 9.5% in 2010 increasing to 22.5 million vehicles and 10.3% market share in 2014;

 

   

Latin America/Africa/Middle East — 6.1 million vehicles and market share of 18.0% in 2010 increasing to 7.8 million vehicles and market share of 18.4% in 2014;

 

   

Asia Pacific — 22.0 million vehicles and market share of 8.4% in 2010 increasing to 30.8 million vehicles and market share of 8.6% in 2014;

 

   

Projected product mix, which incorporates the 2010 introductions of the Chevrolet Volt, Chevrolet/Holden Cruze, Cadillac CTS Coupe, Opel/Vauxhall Meriva and Opel/Vauxhall Astra Station Wagon;

 

   

Projected changes in our cost structure due to restructuring initiatives that encompass reduction of hourly and salaried employment levels by approximately 18,000;

 

   

The terms of the 2009 Revised UAW Settlement Agreement (as subsequently defined), which released us from UAW retiree healthcare claims incurred after December 31, 2009;

 

   

Projected capital spending to support existing and future products, which range from $4.9 billion in 2010 to $6.0 billion in 2014; and

 

   

Anticipated changes in global market conditions.

 

   

A terminal value, which was determined using a growth model that applied long-term growth rates ranging from 0.5% to 6.0% and a weighted average long-term growth rate of 2.6% to our projected cash flows beyond 2014. The long-term growth rates were based on our internal projections as well as industry growth prospects; and

 

   

Discount rates that considered various factors including bond yields, risk premiums, and tax rates to determine a weighted-average cost of capital (WACC), which measures a company’s cost of debt and equity weighted by the percentage of debt and equity in a company’s target capital structure. We used discount rates ranging from 16.5% to 23.5% and a weighted-average rate of 22.8%.

To estimate the value of our investment in nonconsolidated affiliates we used multiple valuation techniques, but we primarily used discounted cash flow analyses. Our excess cash of $33.8 billion, including Restricted cash of $21.2 billion, represents cash in excess of the amount necessary to conduct our ongoing day-to-day business activities and to keep them running as a going concern.

Our estimate of reorganization value assumes the achievement of the future financial results contemplated in our forecasted cash flows, and there can be no assurance that we will realize that value. The estimates and assumptions used are subject to significant uncertainties, many of which are beyond our control, and there is no assurance that anticipated financial results will be achieved. Assumptions used in our discounted cash flow analysis that have the most significant effect on our estimated reorganization value include:

 

   

Our estimated WACC;

 

   

Our estimated long-term growth rates; and

 

   

Our estimate of industry sales and our market share in each of Old GM’s former segments.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table reconciles our enterprise value to our estimated reorganization value and the estimated fair value of our Equity (in millions except per share amounts):

 

     Successor  
     July 10, 2009  

Enterprise value

   $ 36,747   

Plus: Fair value of operating liabilities (a)

     80,832   
        

Estimated reorganization value (fair value of assets) (b)

     117,579   

Adjustments to tax and employee benefit-related assets (c)

     (6,074

Goodwill (c)

     30,464   
        

Carrying amount of assets

   $ 141,969   
        

Enterprise value

   $ 36,747   

Less: Fair value of debt

     (15,694

Less: Fair value of warrants issued to MLC (additional paid-in-capital)

     (2,405

Less: Fair value of liability for Adjustment Shares

     (113

Less: Fair value of noncontrolling interests

     (408

Less: Fair value of Series A Preferred Stock (d)

     (1,741
        

Fair value of common equity (common stock and additional paid-in capital)

   $ 16,386   
        

Common shares outstanding (d)

     412.5   

Per share value

   $ 39.72   

 

(a) Operating liabilities are our total liabilities excluding the liabilities listed in the reconciliation above of our enterprise value to the fair value of our common equity.

 

(b) Reorganization value does not include assets with a carrying amount of $1.8 billion and a fair value of $2.0 billion at July 9, 2009 that MLC retained.

 

(c) The application of fresh-start reporting resulted in the recognition of goodwill. When applying fresh-start reporting, certain accounts, primarily employee benefit and income tax related, were recorded at amounts determined under specific U.S. GAAP rather than at fair value and the difference between the U.S. GAAP and fair value amounts gives rise to goodwill, which is a residual. Further, we recorded valuation allowances against certain of our deferred tax assets, which under ASC 852 also resulted in goodwill. Our employee benefit related obligations were recorded in accordance with ASC 712, “Compensation — Nonretirement Postemployment Benefits” and ASC 715, “Compensation — Retirement Benefits,” and deferred income taxes were recorded in accordance with ASC 740, “Income Taxes.” There was no goodwill on an economic basis based on the fair value of our equity, liabilities and identifiable assets.

 

(d) The 260 million shares of Series A Preferred Stock, 88 million shares of our common stock, and warrant to acquire 15.2 million shares of our common stock issued to the New VEBA on July 10, 2009 were not considered outstanding until the UAW retiree medical plan was settled on December 31, 2009. The fair value of these instruments was included in the liability recognized at July 10, 2009 for this plan. The common shares issued to the New VEBA are excluded from common shares outstanding at July 10, 2009. Refer to Note 12 for a discussion of the termination of our UAW hourly retiree medical plan and Mitigation Plan and the resulting payment terms to the New VEBA.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Effect of 363 Sale Transaction and Application of Fresh-Start Reporting

The following table summarizes the adjustments to Old GM’s consolidated balance sheet as a result of the 363 Sale and the application of fresh-start reporting and presents our consolidated balance sheet at July 10, 2009 (dollars in millions):

 

    Predecessor
July 9, 2009
    Reorganization
via 363 Sale
Adjustments
    Fresh-Start
Reporting
Adjustments
    Successor after
Reorganization via
363 Sale and Fresh-
Start Reporting

Adjustments
July 10, 2009

ASSETS

       

Current Assets

       

Cash and cash equivalents

  $ 19,054      $ (41   $      $ 19,013

Marketable securities

    139                      139
                             

Total cash and marketable securities

    19,193        (41            19,152

Restricted cash and marketable securities

    20,290        (1,175            19,115

Accounts and notes receivable, net

    8,396        3,859        (79     12,176

Inventories

    9,802        (140     (66     9,596

Equipment on operating leases, net

    3,754        2        90        3,846

Other current assets and deferred income taxes

    1,874        75        69        2,018
                             

Total current assets

    63,309        2,580        14        65,903

Non-Current Assets

       

Restricted cash and marketable securities

    1,401        (144            1,257

Equity in net assets of nonconsolidated affiliates

    1,972        4        3,822        5,798

Equipment on operating leases, net

    23               3        26

Property, net

    36,216        (137     (17,579     18,500

Goodwill

                  30,464        30,464

Intangible assets, net

    210               15,864        16,074

Deferred income taxes

    79        550        43        672

Prepaid pension

    121               (24     97

Other assets

    1,244        (12     1,946        3,178
                             

Total non-current assets

    41,266        261        34,539        76,066
                             

Total Assets

  $ 104,575      $ 2,841      $ 34,553      $ 141,969
                             

LIABILITIES AND EQUITY (DEFICIT)

       

Current Liabilities

       

Accounts payable (principally trade)

  $ 13,067      $ (42   $ 42      $ 13,067

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

    43,412        (30,179     (56     13,177

Postretirement benefits other than pensions

    187        1,645        124        1,956

Accrued expenses

    25,607        (81     (1,132     24,394
                             

Total current liabilities

    82,273        (28,657     (1,022     52,594

Non-Current Liabilities

       

Long-term debt

    4,982        (977     (1,488     2,517

Postretirement benefits other than pensions

    3,954        14,137        310        18,401

Pensions

    15,434        14,432        2,113        31,979

Liabilities subject to compromise

    92,611        (92,611           

Other liabilities and deferred income taxes

    14,449        278        811        15,538
                             

Total non-current liabilities

    131,430        (64,741     1,746        68,435
                             

Total Liabilities

    213,703        (93,398     724        121,029

Preferred stock

           1,741               1,741

Equity (Deficit)

       

Old GM

       

Preferred stock

                        

Preference stock

                        

Common stock

    1,018               (1,018    

Capital surplus (principally additional paid-in capital)

    16,494               (16,494    

General Motors Company

       

Common stock

           4               4

Capital surplus (principally additional paid-in capital)

           18,787               18,787

Retained earnings (Accumulated deficit)

    (91,602     63,492        28,110       

Accumulated other comprehensive income (loss)

    (35,370     12,295        23,075       
                             

Total stockholders’ equity (deficit)

    (109,460     94,578        33,673        18,791

Noncontrolling interests

    332        (80     156        408
                             

Total equity (deficit)

    (109,128     94,498        33,829        19,199
                             

Total Liabilities and Equity (Deficit)

  $ 104,575      $ 2,841      $ 34,553      $ 141,969
                             

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Reorganization Via 363 Sale Adjustments

The following table summarizes the reorganization adjustments previously discussed including the liabilities that were extinguished or reclassified from Liabilities subject to compromise as part of the 363 Sale (dollars in millions):

 

     UST (a)     Canada
Holdings (b)
    New VEBA (c)     Pension and
OPEB (d)
    MLC (e)     Other (f)     Total  

Assets MLC retained, net

   $      $      $      $      $ 1,797      $      $ 1,797   
                                                        

Accounts payable (principally trade)

                                 (42            (42

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

     (31,294     (5,972                   (1,278            (38,544

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

     7,073        1,292                                    8,365   
                                                        

Net reduction to short-term debt and current portion of long-term debt

     (24,221     (4,680                   (1,278            (30,179

Postretirement benefits other than pensions, current

                   1,409        236                      1,645   

Accrued expenses

     (54                   219        (310     64        (81
                                                        

Total current liabilities

     (24,275     (4,680     1,409        455        (1,630     64        (28,657

Long-term debt extinguished

                                 (977            (977

Postretirement benefits other than pensions, non-current

                   10,547        3,590                      14,137   

Pensions

                          14,432                      14,432   

Liabilities subject to compromise

     (20,824            (19,687     (23,453     (28,553     (94     (92,611

Other liabilities and deferred income taxes

                          391        (184     71        278   
                                                        

Total liabilities

     (45,099     (4,680     (7,731     (4,585     (31,344     41        (93,398
                                                        

Accumulated other comprehensive income balances relating to entities MLC retained

                                 (21            (21

Additional EDC funding

            (3,887                                 (3,887

Fair value of preferred stock issued

     1,462        279                                    1,741   

Fair value of common stock issued

     12,076        2,324                      1,986               16,386   

Fair value of warrants

                                 2,405               2,405   

Release of valuation allowances and other tax adjustments

                                        (751     (751
                                                        

Reorganization gain

     (31,561     (5,964     (7,731     (4,585     (25,177     (710     (75,728
                                                        

Amounts attributable to noncontrolling interests

                                 (80            (80

Amounts recorded in Accumulated other comprehensive income as part of Reorganization via 363 Sale adjustments

                   7,731        4,585                      12,316   
                                                        

Total retained earnings adjustment

   $ (31,561   $ (5,964   $      $      $ (25,257   $ (710   $ (63,492
                                                        

 

(a) Liabilities owed to the UST under the UST Loan Agreement of $20.6 billion, with accrued interest of $251 million, and under the DIP Facility of $30.9 billion with accrued interest of $54 million and borrowings related to the warranty program of $361 million were extinguished in connection with the 363 Sale through the assumption of the UST Loans of $7.1 billion and the issuance of 304 million shares of our common stock with a fair value of $12.1 billion and 84 million shares of Series A Preferred Stock with a fair value of $1.5 billion.

 

(b)

Liabilities owed to Canada Holdings under the EDC Loan Facility of $2.6 billion and under the DIP Facility of $3.4 billion were extinguished in connection with the 363 Sale through the assumption of the Canadian Loan of CAD $1.5 billion (equivalent of

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

$1.3 billion when entered into) and the issuance of 58 million shares of our common stock with a fair value of $2.3 billion and 16 million shares of Series A Preferred Stock with a fair value of $279 million. In addition, we recorded an increase in Accounts and notes receivable, net of $3.9 billion at July 10, 2010 for amounts to be received from the EDC in exchange for the equity Canada Holdings received in connection with the 363 Sale.

 

(c) As a result of modifications to the UAW hourly retiree medical plan that became effective upon the 363 Sale, we recorded a reorganization gain of $7.7 billion that represented the difference between the carrying amount of our $19.7 billion plan obligation at July 9, 2009 and the July 10, 2009 actuarially determined value of $12.0 billion for our modified plan based on the revised terms of the 2009 Revised UAW Settlement Agreement. Our obligation to the UAW hourly retiree medical plan was settled on December 31, 2009. Prior to the December 31, 2009 settlement, the VEBA Notes, Series A Preferred Stock, common stock and warrants contributed to the New VEBA were not considered outstanding. Refer to Note 12 for additional information on the 2009 Revised UAW Settlement Agreement.

 

(d) As a result of modifications to benefit plans that became effective upon the 363 Sale, we recorded a reorganization gain of $4.6 billion, which represented the difference between the carrying amount of our obligations under certain plans at July 9, 2009, and our new actuarially determined obligations at July 10, 2009. Major changes include:

 

   

For the non-UAW hourly retiree health care plan, we recorded a $2.7 billion gain resulting from elimination of post 65 benefits and placing a cap on pre 65 benefits;

 

   

For retiree life insurance we recorded a $923 million gain, resulting from capping benefits at $10,000 for non-UAW hourly retirees and future retirees, capping benefits at $10,000 for existing salaried retirees, reducing benefits for future salaried retirees, and elimination of executive benefits;

 

   

For the U.S. supplemental executive retirement plan, we recorded a $221 million gain from the elimination of a portion of nonqualified benefits; and

 

   

For the U.S. hourly defined benefit pension plan, we recorded a $675 million gain, representing the net of a $3.3 billion obligation decrease resulting from the elimination of the flat monthly special lifetime benefit that was to commence on January 1, 2010, offset by an obligation increase of $2.6 billion from a discount rate decrease from 6.25% to 5.83% and other assumption changes.

 

(e) Represents the net liabilities MLC retained in connection with the 363 Sale, primarily consisting of Old GM’s unsecured debt and amounts owed to the UST under the DIP Facility of $1.2 billion. These net liabilities were settled in exchange for assets retained by MLC with a carrying amount of $1.8 billion and a fair value of $2.0 billion, 50 million shares of our common stock with a fair value of $2.0 billion, warrants to acquire an additional 91 million shares of our common stock with a fair value of $2.4 billion and the right to contingently receive the Adjustment Shares. We increased Other liabilities and deferred income taxes to reflect the estimated fair value of $113 million for our obligation to issue the Adjustment Shares to MLC.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table summarizes the carrying amount of the assets MLC retained (dollars in millions):

 

     Predecessor  
     Carrying amount at
July 9, 2009
 

Cash and cash equivalents

   $ 41   

Restricted cash and marketable securities, current

     1,175   

Accounts and notes receivable, net

     28   

Inventories

     140   

Equipment on operating leases, net

     (2

Other current assets and deferred income taxes

     46   

Restricted cash and marketable securities, non-current

     144   

Equity in net assets of nonconsolidated affiliates

     (4

Property, net

     137   

Deferred income taxes

     80   

Other assets, non-current

     12   
        

Total assets

   $ 1,797   
        

 

(f) We assumed $94 million of certain employee benefit obligations that were included in Liabilities subject to compromise that are now included in Accrued expenses ($64 million) and Other liabilities ($30 million). These primarily relate to postemployment benefits not modified as a part of the 363 Sale. In addition, in connection with the 363 Sale, we concluded that it was more likely than not that certain net deferred tax assets, primarily in Brazil, will be realized. Therefore, we reversed the existing valuation allowances related to such deferred tax assets resulting in an increase of $121 million in Other current assets and an increase of $630 million in Deferred income taxes, non-current. To record other tax effects of the 363 sale, we recorded an increase to Other liabilities of $41 million. We recorded a net reorganization gain of $710 million in Income tax expense (benefit) as a result of these adjustments.

Fresh-Start Reporting Adjustments

In applying fresh-start reporting at July 10, 2009, which generally follows the provisions of ASC 805, “Business Combinations” (ASC 805), we recorded the assets acquired and the liabilities assumed from Old GM at fair value except for deferred income taxes and certain liabilities associated with employee benefits. These adjustments are final and no determinations of fair value are considered provisional. The significant assumptions related to the valuations of our assets and liabilities recorded in connection with fresh-start reporting are subsequently discussed.

Accounts and notes receivable

We recorded Accounts and notes receivable at their fair value of $12.2 billion, which resulted in a decrease of $79 million.

Inventory

We recorded Inventory at its fair value of $9.6 billion, which was determined as follows:

 

   

Finished goods were determined based on the estimated selling price of finished goods on hand less costs to sell including disposal and holding period costs, and a reasonable profit margin on the selling and disposal effort for each specific category of finished goods being evaluated. Finished goods primarily include new vehicles, off-lease and company vehicles and service parts and accessories;

 

   

Work in process was determined based on the estimated selling price once completed less total costs to complete the manufacturing process, costs to sell including disposal and holding period costs, a reasonable profit margin on the remaining manufacturing, selling, and disposal effort; and

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

   

Raw materials were determined based on current replacement cost.

Compared to amounts recorded by Old GM, finished goods increased by $622 million, including elimination of Old GM’s LIFO reserve of $1.1 billion, work in process decreased by $555 million, raw materials decreased by $39 million and sundry items with nominal individual value decreased by $94 million.

Equipment on Operating Leases, current and non-current

We recorded Equipment on operating leases, current and non-current at its fair value of $3.9 billion, which was determined as follows: (1) automotive leases to daily rental car companies were determined based on the market value of comparable vehicles; and (2) automotive retail leases were determined by discounting the expected future cash flows generated by the automotive retail leases including the estimated residual value of the vehicles when sold. Equipment on operating leases, current and non-current increased from that recorded by Old GM by $93 million as a result of our determination of fair value.

Other Current Assets and Deferred Income Taxes

We recorded Other current assets which included prepaid assets and other current assets at their fair value of $1.5 billion and deferred income taxes of $487 million. These amounts are $69 million higher than the amounts recorded by Old GM.

Equity in Net Assets of Nonconsolidated Affiliates

We recorded Equity in net assets of nonconsolidated affiliates at its fair value of $5.8 billion. Fair value of these investments was determined using discounted cash flow analyses, which included the following assumptions and estimates:

 

   

Forecasted cash flows for the seven months ended December 31, 2009 and the years ending 2010 through 2013, which incorporated projected sales volumes, product mixes, projected capital spending to support existing and future products, research and development of new products and technologies and anticipated changes in local market conditions;

 

   

A terminal value, which was calculated by assuming a maintainable level of after-tax debt-free cash flow and multiplying it by a capitalization factor that reflected the investor’s WACC adjusted for the estimated long-term perpetual growth rate;

 

   

A discount rate of 13.4% that considered various factors including risk premiums and tax rates to determine the investor’s WACC given the assumed capital structure of comparable companies; and

 

   

The fair value of investment property and investments in affiliates was determined using market comparables.

Equity in net assets of nonconsolidated affiliates was higher than Old GM’s by $3.8 billion as a result of our determination of fair value.

Property

We recorded Property, which includes land, buildings and land improvements, machinery and equipment, construction in progress and special tools, at its fair value of $18.5 billion. Fair value was based on the highest and best use of specific properties. To determine fair value we considered and applied three approaches:

 

   

The market or sales comparison approach which relies upon recent sales or offerings of similar assets on the market to arrive at a probable selling price. Certain adjustments were made to reconcile differences in attributes between the comparable sales and the appraised assets. This method was utilized for certain assets related to land, buildings and land improvements and information technology.

 

   

The cost approach which considers the amount required to construct or purchase a new asset of equal utility at current prices, with adjustments in value for physical deterioration, functional obsolescence, and economic obsolescence. This method was

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

primarily utilized for certain assets related to land, buildings and land improvements, leasehold interests, and the majority of our machinery and equipment and tooling. Economic obsolescence represents a loss in value due to unfavorable external conditions such as the economics of our industry and was a factor in establishing fair value. Our machinery, equipment and special tools amounts determined under the cost approach were adjusted for economic obsolescence. Due to the downturn in the automotive industry, significant excess capacity exists and the application of the cost approach generally requires the replacement cost of an asset to be adjusted for physical deterioration, and functional and economic obsolescence. We estimated economic obsolescence as the difference between the discounted cash flows expected to be realized from our utilization of the assets as a group, compared to the initial estimate of value from the cost approach method. We did not reduce any fixed asset below its liquidation value as a result of economic obsolescence; however the effects of economic obsolescence caused some of our fixed assets to be recorded at their liquidation value.

 

   

The income approach which considers value in relation to the present worth of future benefits derived from ownership, usually measured through the capitalization of a specific level of income which can be derived from the subject asset. This method assumed fair value could not exceed the present value of the cash flows the assets generate discounted at a risk related rate of return commensurate with the level of risk inherent in the subject asset. This method was used to value certain assets related to buildings and improvements, leasehold interest, machinery and equipment and tooling.

The following table summarizes the components of Property as a result of the application of fresh-start reporting at July 10, 2009 and Property, net at July 9, 2009:

 

     Successor         Predecessor
     July 10,
2009
        July 9,
2009

Land

   $ 2,524        $ 1,040

Buildings and land improvements, net

     3,731          8,490

Machinery and equipment, net

     5,915          13,597

Construction in progress

     1,838          2,307
                 

Real estate, plants, and equipment, net

     14,008          25,434

Special tools, net

     4,492          10,782
                 

Total property, net

   $ 18,500        $ 36,216
                 

Goodwill

We recorded Goodwill of $30.5 billion upon application of fresh-start reporting. When applying fresh-start reporting, certain accounts, primarily employee benefit and income tax related, were recorded at amounts determined under specific U.S. GAAP rather than fair value and the difference between the U.S. GAAP and fair value amounts gives rise to goodwill, which is a residual. Further, we recorded valuation allowances against certain of our deferred tax assets, which under ASC 852 also resulted in goodwill. Our employee benefit related accounts were recorded in accordance with ASC 712 and ASC 715 and deferred income taxes were recorded in accordance with ASC 740. There was no goodwill on an economic basis based on the fair value of our equity, liabilities and identifiable assets. None of the goodwill from this transaction is deductible for tax purposes.

Intangible assets

We recorded Intangible assets of $16.1 billion at their fair values. The following is a summary of the approaches used to determine the fair value of our significant intangible assets:

 

   

We recorded $7.9 billion for the fair value of technology. The relief from royalty method was used to calculate the $7.7 billion fair value of developed technology. The significant assumptions used included:

 

   

Forecasted revenue for each technology category by Old GM’s former segments;

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

   

Royalty rates based on licensing arrangements for similar technologies and obsolescence factors by technology category;

 

   

Discount rates ranging from 24.0% to 26.0% based on our WACC and adjusted for perceived business risks related to these developed technologies; and

 

   

Estimated economic lives, which ranged from 7 to twenty years.

 

   

The excess earnings method was used to determine the fair value of in-process research and development of $175 million. The significant assumptions used in this approach included:

 

   

Forecasted revenue for certain technologies not yet proven to be commercially feasible;

 

   

The probability and cost of obtaining commercial feasibility;

 

   

Discount rates ranging from 4.2% (when the probability of obtaining commercial feasibility was considered elsewhere in the model) to 36.0%; and

 

   

Estimated economic lives ranging from approximately 10 to 20 years.

 

   

The relief from royalty method was also used to calculate the fair value of brand names of $5.5 billion. The significant assumptions used in this method included:

 

   

Forecasted revenue for each brand name by Old GM’s former segments;

 

   

Royalty rates based on licensing arrangements for the use of brands and trademarks in the automotive industry and related industries;

 

   

Discount rates ranging from 22.8% to 27.0% based on our WACC and adjusted for perceived business risks related to these intangible assets; and

 

   

Indefinite economic lives for our ongoing brands.

 

   

Our most significant brands included Buick, Cadillac, Chevrolet, GMC, Opel/Vauxhall and OnStar. We also recorded defensive intangible assets associated with brands we eliminated, which included Pontiac, Saturn and Oldsmobile.

 

   

A cost approach was used to calculate the fair value of our dealer networks and customer relationships of $2.1 billion. The estimated fair value of our dealer networks of $1.6 billion was determined by multiplying our estimated costs to recreate our dealer networks by our estimate of an optimal number of dealers. An income approach was used to calculate the fair value of our customer relationships of $508 million. The significant assumptions used in this approach included:

 

   

Forecasted revenue;

 

   

Customer retention rates;

 

   

Profit margins; and

 

   

A discount rate of 20.8% based on an appropriate WACC and adjusted for perceived business risks related to these customer relationships.

 

   

We recorded other intangible assets of $560 million primarily related to existing contracts, including leasehold improvements, that were favorable relative to available market terms.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table summarizes the components of our intangible assets and their weighted-average amortization periods.

 

     Weighted-Average
Amortization Period

(years)
   Recorded Value

Technology and related intellectual property

   5    $ 7,889

Brands

   38      5,476

Dealer network and customer relationships

   21      2,149

Favorable contracts

   28      543

Other intangible assets

   3      17
         

Total intangible assets

      $ 16,074
         

Deferred Income Taxes, non-current

We recorded Deferred income taxes, non-current of $672 million which was an increase of $43 million compared to that recorded by Old GM.

Other Assets, non-current

We recorded Other assets, non-current of $3.2 billion. Other assets, non-current differed from Old GM’s primarily related to: (1) an increase of $1.3 billion and $629 million in the value of our investments in GMAC common stock and preferred stock; (2) an increase of $175 million in the value of our investment in Saab; partially offset by (3) an elimination of $191 million for certain prepaid rent balances and other adjustments.

We calculated the fair value of our investment in GMAC common stock of $1.3 billion using a market multiple sum-of-the-parts methodology, a market approach. This approach considered the average price/tangible book value multiples of companies deemed comparable to each of GMAC’s Auto Finance, Commercial Finance and Insurance operations in determining the fair value of each of these operations, which were then aggregated to determine GMAC’s overall fair value. The significant inputs used in our fair value analysis were as follows:

 

   

GMAC’s June 30, 2009 financial statements, as well as the financial statements of comparable companies in the Auto Finance, Commercial Finance and Insurance industries;

 

   

Expected performance of GMAC, as well as our view on its ability to access capital markets; and

 

   

The value of GMAC’s mortgage operations, taking into consideration the continuing challenges in the housing markets and mortgage industry, and its need for additional liquidity to maintain business operations.

We calculated the fair value of our investment in GMAC preferred stock of $665 million using a discounted cash flow approach. The present value of the cash flows was determined using assumptions regarding the expected receipt of dividends on GMAC preferred stock and the expected call date. The discount rate of 16.9% was determined based on yields of similar GMAC securities.

Accounts Payable

We recorded Accounts payable at its fair value of $13.1 billion.

Debt

We recorded short-term debt, current portion of long-term debt and long-term debt at their total fair value of $15.7 billion, which was calculated using a discounted cash flow methodology using our implied credit rating of CCC for most of our debt instruments

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

(our credit rating was not observable as a result of the Chapter 11 Proceedings), adjusted where appropriate for any security interests. For the UST Loans and the Canadian Loan, carrying amount was determined to approximate fair value because these loans were fully collateralized by the restricted cash placed in escrow and were entered into on July 10, 2009 at market terms. Short-term debt, current portion of long-term debt and long-term debt decreased $1.5 billion as a result of our calculation of fair value.

Pensions, Postretirement Benefits Other than Pensions, current and non-current, and Prepaid Pensions

We recorded Pensions of $32.0 billion and Prepaid pensions of $97 million, which includes the actuarial measurement of those benefit plans that were not modified in connection with the 363 Sale. As a result of these actuarial measurements, our recorded value was $2.1 billion higher than Old GM’s for Pensions and Prepaid pensions for those plans not modified in connection with the 363 Sale. When the pension plans were measured at July 10, 2009, the weighted-average return on assets was 8.5% and 8.0% for U.S. and Non-U.S. plans. The weighted-average discount rate utilized to measure the plans at July 10, 2009 was 5.9% and 5.8% for U.S. and Non-U.S. plans.

We also recorded Postretirement benefits other than pensions, current and non-current of $20.4 billion, which is an increase of $434 million compared to the amounts recorded by Old GM for those plans not modified in connection with the 363 Sale. When the other non-UAW postretirement benefit plans were measured at July 10, 2009, the weighted average discount rate used was 6.0% and 5.5% for the U.S. and Non-U.S. plans. For the U.S. there are no significant uncapped healthcare plans remaining at December 31, 2009, and therefore, the healthcare cost trend rate does not have a significant effect on our U.S. plans. For Non-U.S. plans the initial healthcare cost trend used was 5.4% and the ultimate healthcare cost trend rate was 3.3% with 8 years to the ultimate trend rate.

Accrued Expenses, Other Liabilities, and Deferred Income Taxes, current and non-current

We recorded Accrued expenses of $24.4 billion and Other liabilities and deferred income taxes of $15.5 billion. Accrued expenses and Other liabilities differed from those of Old GM primarily relating to:

 

   

$1.2 billion less in deferred revenue, the fair value of which was determined based on our remaining performance obligations considering future costs associated with these obligations;

 

   

$349 million decrease in warranty liability, the fair value of which was determined by discounting the forecasted future cash flows based on historical claims experience using rates ranging from 1.4% in 2009 to 4.3% in 2017;

 

   

A decrease of $179 million to lease-related obligations; and

 

   

A decrease of $162 million related to certain customer deposits;

 

   

$582 million increase in deferred income taxes; and

 

   

$980 million of recorded unfavorable contractual obligations, primarily related to the Delphi-GM Settlement Agreements. The fair value of the unfavorable contractual obligations was determined by discounting forecasted cash flows representing the unfavorable portions of contractual obligations at our implied credit rating. Refer to Note 14 for further information on the Delphi-GM Settlement Agreements.

Equity (Deficit) and Preferred Stock

The changes to Equity (Deficit) reflect our recapitalization, the elimination of Old GM’s historical equity, the issuance of our common stock, preferred stock and warrants to the UST, Canada Holdings and MLC at fair value, and the application of fresh-start reporting.

Noncontrolling Interests

We recorded the fair value of our Noncontrolling interests at $408 million which was $156 million higher than Old GM.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

363 Sale and Fresh-Start Reporting Adjustments

The following table summarizes Old GM’s Reorganization gains, net, arising from the 363 Sale and fresh-start reporting that primarily resulted from the adjustments previously discussed (dollars in millions):

 

     Predecessor  
     January 1, 2009
Through
July 9, 2009
 

Change in net assets resulting from the application of fresh-start reporting

   $ 33,829   

Fair value of New GM’s Series A Preferred Stock, common shares and warrants issued in 363 Sale

     20,532   

Gain from the conversion of debt owed to UST to equity

     31,561   

Gain from the conversion of debt owed to EDC to equity

     5,964   

Gain from the modification and measurement of our VEBA obligation

     7,731   

Gain from the modification and measurement of other employee benefit plans

     4,585   

Gain from the settlement of net liabilities retained by MLC via the 363 Sale

     25,177   

Income tax benefit for release of valuation allowances and other tax adjustments

     710   

Other 363 Sale adjustments

     (21
        

Total adjustment from 363 Sale Transaction and fresh-start reporting

     130,068   

Adjustment recorded to Income tax benefit for release of valuation allowances and other tax adjustments

     (710

Other losses, net

     (1,203
        

Total Reorganization gains, net

   $ 128,155   
        

 

Other losses, net of $1.2 billion primarily relate to costs incurred during our Chapter 11 Proceedings, including:

 

   

Losses of $958 million on extinguishments of debt resulting from Old GM’s repayment of its secured revolving credit facility, its U.S. term loan, and its secured credit facility;

 

   

Losses of $398 million on contract rejections, settlements of claims and other lease terminations;

 

   

Professional fees of $38 million; and

 

   

Gain of $247 million related to the release of Accumulated other comprehensive income (loss) associated with previously designated derivative financial instruments.

Note 3. Basis of Presentation

We subsequently filed a Registration Statement on Form 10 pursuant to an agreement with the staff of the Securities and Exchange Commission (SEC), in accordance with a no-action letter issued to Old GM by the SEC Staff in July 2009 regarding our filing requirements and those of MLC. We are now subject to the filing requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934. In accordance with the agreement with the SEC Staff, the accompanying unaudited condensed consolidated financial statements include the financial statements and related information of Old GM, the entity from whom we purchased substantially all of its assets and assumed certain of its liabilities, for the period prior to July 10, 2009.

The 363 Sale resulted in a new entity, General Motors Company, which is the successor entity solely for accounting and financial reporting purposes. Because we are a new reporting entity, our financial statements are not comparable to the financial statements of Old GM.

The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

for complete financial statements. The accompanying condensed consolidated financial statements include all adjustments, comprised 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, 2009 and Old GM’s Annual Report on Form 10-K for the year ended December 31, 2008.

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 reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported 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.

Principles of Consolidation

Our condensed consolidated financial statements include our accounts and those of our subsidiaries that we control due to ownership of a majority voting interest. In addition, we consolidate variable interest entities (VIE) when we are the VIE’s primary beneficiary. 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 their operating and financial decisions. When we are not able to exercise significant influence over such affiliates, we use the cost method of accounting. All intercompany balances and transactions have been eliminated in consolidation. Old GM utilized the same principles of consolidation in its condensed consolidated financial statements.

In February 2009 Saab, part of the GME segment, filed for protection under the reorganization laws of Sweden in order to reorganize itself into a stand-alone entity. Old GM determined that the reorganization proceeding resulted in a loss of the elements of control necessary for consolidation and therefore Old GM deconsolidated Saab in February 2009. Old GM recorded a loss of $824 million in Other expenses, net related to the deconsolidation. The loss reflects the remeasurement of Old GM’s net investment in Saab to its estimated fair value of $0, costs associated with commitments and obligations to suppliers and others, and a commitment to provide up to $150 million of debtor-in-possession (DIP) financing. We acquired Old GM’s investment in Saab in connection with the 363 Sale. In August 2009 Saab exited its reorganization proceeding, and we regained the elements of control and consolidated Saab at an insignificant net book value.

At September 30, 2009 we had obtained approval from our Board of Directors, met other necessary criteria to classify Saab’s assets and liabilities as held for sale and had identified Koenigsegg Group AB as a potential buyer. In November 2009 the proposed sale of Saab was terminated at the discretion of the buyer. Subsequent to the conclusion of negotiations with Koenigsegg Group AB, our Board of Directors received expressions of interest in Saab from potential buyers including Spyker Cars NV.

In February 2010 we completed the sale of Saab to Spyker Cars NV. Refer to Note 23 for additional information. Saab’s assets and liabilities are classified as held for sale. Saab’s total assets of $663 million include cash and cash equivalents, inventory and receivables, and its total liabilities of $492 million include accounts payable, warranty and pension obligations and other liabilities.

Change in Segments

Old GM’s operations included four segments consisting of GMNA, GME, GM Latin America/Africa/Middle-East and GM Asia Pacific. In order to streamline our business and speed our decision making processes and in anticipation of the sale of our Adam Opel GmbH (Adam Opel) operations, we had revised our operational structure, combining Old GM’s Europe, Latin America/Africa/Middle East and Asia Pacific segments into one segment, GMIO. In November 2009 our Board of Directors subsequently elected to retain sole ownership of the Adam Opel operations. We have therefore determined our current operational structure to be GMNA, GME and GMIO. We have revised the segment presentation for all periods presented.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Changes in Accounting Principles

Fair Value Measurements

In January 2009 Old GM adopted ASC 820-10, “Fair Value Measurements and Disclosures” for nonfinancial assets and nonfinancial liabilities that are recorded or disclosed at fair value in the financial statements on a nonrecurring basis. ASC 820-10 provides a consistent definition of fair value that focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over company-specific inputs. The effect of Old GM’s adoption of ASC 820-10 in January 2009 for nonfinancial assets and nonfinancial liabilities was not material and no adjustment to Accumulated deficit was required.

In April 2009 the Financial Accounting Standards Board (FASB) provided additional application and disclosure guidance regarding fair value measurements and impairments of debt securities. ASC 320-10, “Investments – Debt and Equity Securities” was amended and modified the other than temporary impairment guidance for debt securities and the presentation and disclosure requirements for all other than temporary impairments. ASC 820-10 was further amended and provides guidelines for consistently determining fair value measurements when the volume and level of activity for an asset or liability has significantly decreased, and provides guidance on identifying circumstances that indicate that a transaction is not orderly. ASC 825-10 was also amended to expand fair value disclosures to interim reporting periods for certain financial instruments not recorded at fair value in the statement of financial position. Old GM adopted these standards in June 2009. The adoption of these standards did not have a material effect on the consolidated financial statements.

Business Combinations

In January 2009 Old GM adopted the revised ASC 805, “Business Combinations,” which retained the underlying concepts of existing standards that all business combinations be accounted for at fair value under the acquisition method of accounting. However, ASC 805 changed the method of applying the acquisition method in a number of significant aspects. It requires that: (1) for all business combinations, the acquirer record all assets and liabilities of the acquired business, including goodwill, generally at their fair values; (2) certain pre-acquisition contingent assets and liabilities acquired be recorded at their fair values on the acquisition date; (3) contingent consideration be recorded at its fair value on the acquisition date and, for certain arrangements, changes in fair value be recorded in earnings until settled; (4) acquisition-related transaction and restructuring costs be expensed rather than treated as part of the cost of the acquisition and included in the amount recorded for assets acquired; (5) in step acquisitions, previous equity interests in an acquiree held prior to obtaining control be remeasured to their acquisition-date fair values, with any gain or loss recorded in earnings; and (6) when making adjustments to finalize initial accounting, companies revise any previously issued post-acquisition financial information in future financial statements to reflect any adjustments as if they had been recorded on the acquisition date. ASC 805 amended ASC 740, “Income Taxes” such that adjustments made to valuation allowances on deferred tax assets and acquired tax contingencies associated with acquisitions that closed prior to the effective date of ASC 805 should also apply the provisions of this standard. This standard applies to all business combinations entered into on or after January 1, 2009. In connection with our application of fresh-start reporting, we applied the guidance in this standard.

In January 2009 Old GM also adopted other amendments to ASC 805 related to the initial recognition and measurement, subsequent measurement and disclosures for assets and liabilities arising from contingencies in business combinations. In connection with our application of fresh-start reporting, we applied this guidance when measuring contingent assets and liabilities.

In January 2009 Old GM adopted amendments to ASC 350, “Intangibles — Goodwill and Other” and ASC 805 which clarified the accounting for defensive intangible assets. In connection with our application of fresh-start reporting, we applied this guidance when measuring and recording defensive intangible assets (e.g., Pontiac and Saturn brands).

In January 2009 Old GM adopted amendments to ASC 275, “Risks and Uncertainties” and ASC 350 which provided new guidance for the determination of the useful life of intangible assets. The new guidance amended the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset. In connection with our application of fresh-start reporting, we applied this guidance in selecting estimated useful lives for intangible assets.

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Noncontrolling Interests in Consolidated Financial Statements

In January 2009 Old GM adopted certain amendments to ASC 810-10, “Consolidation” that govern the accounting for and reporting of noncontrolling interests in partially-owned consolidated subsidiaries and the loss of control of subsidiaries. Also, this standard requires that: (1) noncontrolling interest, previously referred to as minority interest, be reported as part of equity in the consolidated financial statements; (2) losses be allocated to a noncontrolling interest even when such allocation might result in a deficit balance, reducing the losses attributed to the controlling interest; (3) changes in ownership interests be treated as equity transactions if control is maintained; (4) changes in ownership interests resulting in gain or loss be recorded in earnings if control is gained or lost; and (5) in a business combination, a noncontrolling interest’s share of net assets acquired be recorded at fair value, including its share of goodwill. The provisions of this standard were prospective upon adoption, except for the presentation and disclosure requirements. The presentation and disclosure requirements have been applied retrospectively for all periods presented. Accordingly, prior period amounts have been adjusted to apply the new method of accounting.

Accounting for Convertible Debt Instruments

In January 2009 Old GM adopted ASC 470-20, “Debt with Conversion and Other Options,” which requires issuers of convertible debt securities within its scope to separate these securities into a debt component and an equity component, resulting in the debt component being recorded at fair value without consideration given to the conversion feature. Issuance costs are allocated between the debt and equity components. ASC 470-20 requires that convertible debt within its scope reflect a company’s nonconvertible debt borrowing rate when interest expense is recorded. The provisions of ASC 470-20 were retrospective upon adoption, and prior period amounts have been adjusted to apply the new method of accounting. As a result of the adoption of ASC 470-20, Interest expense increased and Net income attributable to common stockholders decreased by $50 million in the period January 1, 2009 through July 9, 2009. Net income attributable to common stockholders, per share, basic and diluted decreased by $0.08 per share in the period January 1, 2009 through July 9, 2009. Effective July 10, 2009 MLC retained Old GM’s convertible debt. As a result, there was no effect on Interest expense, Net income (loss) attributable to common stockholders, and Net income (loss) attributable to common stockholders, per share, basic and diluted in the periods July 1, 2009 through July 9, 2009 and July 10, 2009 through September 30, 2009 upon adoption of ASC 470-20.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following tables summarize the effect of adopting ASC 810-10 and ASC 470-20 (dollars in millions, except per share amounts):

 

     Condensed Consolidated Statement of Operations for the
Three Months Ended September 30, 2008
 
     As Previously
Reported
    Adoption of
ASC
470-20
    Adoption of
ASC
810-10
    As Adjusted  

Automotive and other interest expense (a)

   $ (561   $ (34   $      $ (595

Gain on extinguishment of debt (a)

   $ 19      $ 24      $      $ 43   

Loss from continuing operations before income taxes, equity income and minority interests (b)

   $ (2,582   $ (10   $      $ (2,592

Minority interests, net of tax

   $ 58      $      $ (58   $   

Net loss

   $ (2,542   $ (10   $ (58   $ (2,610

Net loss attributable to noncontrolling interests

   $      $      $ 58      $ 58   

Net loss attributable to common stockholders

   $      $      $ (2,552   $ (2,552

Net loss attributable to common stockholders per share, basic and diluted

   $ (4.45   $ (0.02   $      $ (4.47

 

     Condensed Consolidated Statement of Operations for the
Nine Months Ended September 30, 2008
 
     As Previously
Reported
    Adoption of
ASC
470-20
    Adoption of
ASC
810-10
    As Adjusted  

Automotive and other interest expense (a)

   $ (2,110   $ (107   $      $ (2,217

Gain on extinguishment of debt (a)

   $ 19      $ 24      $      $ 43   

Loss from continuing operations before income taxes, equity income and minority interests (b)

   $ (20,597   $ (83   $      $ (20,680

Minority interests, net of tax

   $ 52      $      $ (52   $   

Net loss

   $ (21,264   $ (83   $ (52   $ (21,399

Net loss attributable to noncontrolling interests

   $      $      $ 52      $ 52   

Net loss attributable to common stockholders

   $      $      $ (21,347   $ (21,347

Net loss attributable to common stockholders per share, basic and diluted

   $ (37.44   $ (0.14   $      $ (37.58

 

(a) Old GM reclassified $19 million in the three and nine months ended September 30, 2008 from Automotive and other interest expense to Gain on extinguishment of debt in order to conform to the current period presentation. These amounts have been incorporated into the “As Previously Reported” column.

 

(b) Loss before income taxes and equity income as reported.

Accounting Standards Not Yet Adopted

In December 2008 the FASB issued disclosure updates to ASC 715-20, “Employers’ Disclosures about Postretirement Benefit Plan Assets” that require the following additional disclosures about plan assets for a defined benefit or postretirement plan: (1) narrative providing greater insight as to investment policies and strategies; (2) the fair value of pension plan assets by major category; (3) inputs and valuation techniques used to develop fair value measurements; and (4) discussion of concentration of risk. This statement is effective for fiscal years ending after December 15, 2009. The adoption of this standard will not have a material effect on the consolidated financial statements.

In June 2009 the FASB issued certain amendments to ASC 860-10, “Transfers and Servicing.” ASC 860-10 eliminates the concept of a qualifying special-purpose entity, establishes a new definition of participating interest that must be met for transfers of portions of financial assets to be eligible for sale accounting, clarifies and amends the derecognition criteria for a transfer of financial assets to be accounted for as a sale, and changes the amount that can be recorded as a gain or loss on a transfer accounted for as a sale when

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

beneficial interests are received by the transferor. This statement is effective for financial asset transfers occurring after the beginning of a reporting entity’s first annual reporting period that begins after November 15, 2009. Earlier application is prohibited. The adoption of this standard will not have a material effect on the consolidated financial statements.

In June 2009 the FASB issued an amendment to ASC 810-10. This amendment requires an enterprise to qualitatively assess the determination of the primary beneficiary of a VIE based on whether the enterprise: (1) has the power to direct the activities of a VIE that most significantly effect the entity’s economic performance; and (2) has the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. ASC 810-10, as amended, requires an ongoing reconsideration of the primary beneficiary, and amends the events that trigger a reassessment of whether an entity is a VIE. This statement is effective as of the beginning of a reporting entity’s first annual reporting period that begins after November 15, 2009. Earlier application is prohibited and retrospective application is optional. We are currently evaluating the effects, if any, that ASC 810-10 will have on the consolidated financial statements.

In August 2009 the FASB issued Accounting Standards Update (ASU) 2009-5, “Measuring Liabilities at Fair Value.” ASU 2009-5 provides additional guidance for the fair value measurement of liabilities. ASU 2009-5 is effective in the period beginning October 1, 2009. The adoption of this standard will not have a material effect on the consolidated financial statements.

In September 2009 the FASB issued ASU 2009-12, “Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” which permits a reporting entity to utilize, without adjustment, the net asset value provided by a third-party investee as a practical expedient to measure the fair value of certain investments. ASU 2009-12 is effective for the first reporting period, interim or annual, ending after December 15, 2009. The adoption of this standard will not have a material effect on the consolidated financial statements.

In September 2009 the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements.” ASU 2009-13 addresses the unit of accounting for multiple-element arrangements. In addition, 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 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We are currently evaluating the effects, if any, that ASU No. 2009-13 will have on the consolidated financial statements.

Note 4. Goodwill

Goodwill arises principally from the application of fresh-start reporting and other business acquisitions. Goodwill is tested for impairment at least once annually during the fourth quarter for all reporting units utilizing a two-step process. An impairment charge is recorded for the amount, if any, by which the carrying amount of goodwill exceeds its implied fair value. Fair values of reporting units are established using a discounted cash flow method. Goodwill impairment charges are recorded in Other expenses, net.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table summarizes the changes in the carrying amounts of Goodwill (dollars in millions):

 

     Successor  
     GMNA     GME     GMIO    Total  

Balance at July 10, 2009 (a)

   $ 26,348      $ 3,262      $ 854    $ 30,464   

Effect of foreign currency translation on goodwill

            96        73      169   
                               

Balance at September 30, 2009

     26,348        3,358        927      30,633   

Accumulated impairment charges

                          
                               

Goodwill

   $ 26,348      $ 3,358      $ 927    $ 30,633   
                               
     Predecessor  
     GMNA     GME     GMIO    Total  

Balance at January 1, 2008

   $ 173      $ 563      $    $ 736   

Accumulated impairment charges

                          
                               

Goodwill, net

     173        563             736   

Effect of foreign currency translation on goodwill

     (19     (107          (126

Impairment charges (b)

     (154     (456          (610
                               

Balance at December 31, 2008

     154        456             610   

Accumulated impairment charges

     (154     (456          (610
                               

Goodwill

   $      $      $    $   
                               

 

(a) We recorded Goodwill of $30.5 billion upon application of fresh-start reporting. When applying fresh-start reporting, certain accounts, primarily employee benefit and income tax related, were recorded at amounts determined under specific U.S. GAAP rather than fair value and the difference between the U.S. GAAP and fair value amounts gives rise to goodwill, which is a residual. Further, we recorded valuation allowances against certain of our deferred tax assets, which under ASC 852 also resulted in goodwill. Our employee benefit related accounts were recorded in accordance with ASC 712 and ASC 715 and deferred income taxes were recorded in accordance with ASC 740. There was no goodwill on an economic basis based on the fair value of our equity, liabilities and identifiable assets. None of the goodwill from this transaction is deductible for tax purposes.

 

(b) Goodwill impairment charges of $154 million and $456 million were recorded at GMNA and GME in the fourth quarter for the year ended 2008 related to sharply reduced forecasts of automotive sales in the near- and medium-term.

Note 5. Intangible Assets, net

Intangible assets, excluding Goodwill, primarily include brand names (including defensive intangibles associated with discontinued brands), technology and intellectual property, dealer network and customer relationships and favorable contracts.

All intangible assets are amortized on a straight-line basis or on an accelerated method of amortization over their estimated useful life. An accelerated amortization method, reflecting the pattern in which the asset will be consumed, is utilized if that pattern can be reliably determined. If that pattern cannot be reliably determined, the straight-line amortization method is used. In selecting a useful life, we consider the period of expected cash flows and underlying data used to measure the fair value of the intangible assets. Lease-related intangible assets are amortized over the remaining lease term. Old GM carried nominal amounts, at cost, of intangible assets, primarily intellectual property rights.

Amortization of developed technology and intellectual property is recorded to Cost of sales. Amortization of brand names, customer relationships and dealer networks is recorded in Selling, general and administrative expense.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

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

 

     Successor       Predecessor
     September 30, 2009       December 31, 2008
     Weighted-
Average
Remaining
Amortization
Period
(Years)
   Gross
Carrying
Amount
   Accumulated
Amortization
   Net
Carrying
Amount
      Weighted-
Average
Remaining
Amortization
Period
(Years)
   Gross
Carrying
Amount
   Accumulated
Amortization
   Net
Carrying
Amount

Technology and intellectual property (a)

   5    $ 7,910    $ 736    $ 7,174     8    $ 598    $ 333    $ 265

Brands

   38      5,514      34      5,480                   

Dealer network and customer relationships

   21      2,215      34      2,181                   

Favorable contracts

   25      552      18      534                   

Other

   3      17      1      16                   
                                                

Total amortizable intangible assets

   20    $ 16,208    $ 823    $ 15,385     8    $ 598    $ 333    $ 265
                                                

 

(a) Technology and intellectual property includes nonamortizing in-process research and development of $175 million at September 30, 2009.

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

 

     Successor       Predecessor
     July 10, 2009
Through

September 30, 2009
      July 1, 2009
Through

July 9, 2009
   January 1, 2009
Through

July 9, 2009
   Three Months
Ended

September 30, 2008
   Nine Months
Ended
September 30, 2008

Amortization expense related to intangible assets (a)

   $ 775     $ 1    $ 44    $ 21    $ 61

 

(a) Amortization expense in the period July 10, 2009 through September 30, 2009 includes an impairment charge of $21 million related to technology and intellectual property. Refer to Note 18 for additional information related to the impairment charge.

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

 

     Estimated Amortization
Expense

2010

   $ 2,550

2011

   $ 1,785

2012

   $ 1,560

2013

   $ 1,227

2014

   $ 611

Note 6. Inventories

Inventories are valued at the lower of cost or market (LCM). Old GM determined cost using the LIFO method for 21.0% of its inventories at December 31, 2008 and by the FIFO or average cost methods for all other inventories. In connection with our application of fresh-start reporting, we elected to use the FIFO method for all inventories previously using the LIFO method.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

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

 

     Successor         Predecessor  
     September 30,
2009
        December 31,
2008
 

Productive material, work in process and supplies

   $ 4,291       $ 4,849   

Finished product including service parts

     6,319         9,579   
                  

Total inventories

     10,610         14,428   

Less LIFO allowance

             (1,233
                  

Total inventories, net

   $ 10,610       $ 13,195   
                  

The following table summarizes adjustments recorded to inventories as a result of LCM analyses (dollars in millions):

 

     Successor          Predecessor
     July 10, 2009
Through
September 30, 2009
         July 1, 2009
Through

July 9, 2009
   January 1, 2009
Through

July 9, 2009
   Three Months
Ended

September 30, 2008
   Nine Months
Ended
September 30, 2008

LCM adjustments on inventories (a)

   $ 108         $ 3    $ 103    $ 83    $ 164

 

(a) Amounts represent LCM adjustments related to company vehicles and vehicles returned from lease awaiting sale at auction.

Note 7. Equity in Net Assets of Nonconsolidated Affiliates

The following table summarizes information regarding equity in income (loss) of and disposition of interest in nonconsolidated affiliates (dollars in millions):

 

     Successor          Predecessor  
     July 10, 2009
Through
September 30, 2009
         July 1, 2009
Through

July 9, 2009
   January 1, 2009
Through

July 9, 2009
    Three Months
Ended

September 30, 2008
    Nine Months
Ended
September 30, 2008
 

GMAC (a)

   $         $    $ (1,097   $ (1,235   $ (2,741

Gain on conversion of UST GMAC Loan (b)

                    2,477                 

GMAC Common Membership Interest impairment charges (a)

                                  (2,036
                                           

Total equity in income (loss) of and disposition of interest in GMAC (a)

                    1,380        (1,235     (4,777

Shanghai General Motors Co., Ltd. (50%) and SAIC-GM-Wuling Automobile Co., Ltd. (34%)

     195           8      298        50        286   

New United Motor Manufacturing, Inc. (50%) (c)

                    (243     14        (12

Others

     9           7      6        (14     36   
                                           

Total equity in income (loss) of and disposition of interest in nonconsolidated affiliates

   $ 204         $ 15    $ 1,441      $ (1,185   $ (4,467
                                           

 

(a) GMAC converted its status to a C corporation effective June 30, 2009. At that date, Old GM began to account for its investment in GMAC using the cost method rather than the equity method as Old GM no longer exercised significant influence over GMAC. In connection with GMAC’s conversion into a C corporation, each unit of each class of GMAC Membership Interests was converted into shares of capital stock of GMAC with substantially the same rights and preferences as such Membership Interests.

 

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(b) In May 2009 the UST exercised its option to convert the outstanding amounts owed on the UST GMAC Loan (as subsequently defined) into shares of GMAC’s Class B Common Membership Interests.

 

(c) New United Motor Manufacturing, Inc. (NUMMI) was retained by MLC as part of the 363 Sale.

Investment in SGM

On July 10, 2009 our investments in Shanghai General Motors Co., Ltd. (SGM) and its subsidiaries were adjusted to their fair values. Our investment in SGM was increased by fresh-start reporting adjustments of $3.5 billion. This fair value adjustment of $3.5 billion was allocated as follows: (1) goodwill of $2.9 billion; (2) intangible assets of $0.6 billion; and (3) property of $38 million. The increase in basis related to intangible assets is being amortized on a straight-line basis over the remaining useful lives of the assets ranging from seven to 25 years, with amortization expense of $24 million per year. The increase in basis related to property is being depreciated on a straight-line basis over the remaining useful lives of the assets ranging from three to 14 years, with depreciation expense of $5 million per year.

Investment in GMAC

As part of the approval process for GMAC to obtain Bank Holding Company status in December 2008, Old GM agreed to reduce its ownership in GMAC to less than 10% of the voting and total equity of GMAC by December 24, 2011. At September 30, 2009 our equity ownership in GMAC was 24.5% as subsequently described.

In December 2008 Old GM and FIM Holdings, an assignee of Cerberus ResCap Financing LLC, entered into a subscription agreement with GMAC pursuant to which each agreed to purchase additional Common Membership Interests in GMAC, and the UST committed to provide Old GM with additional funding in order to purchase the additional interests. In January 2009 Old GM entered into the UST GMAC Loan Agreement pursuant to which Old GM borrowed $884 million (UST GMAC Loan) and utilized those funds to purchase 190,921 Class B Common Membership Interests in GMAC. The UST GMAC Loan was scheduled to mature in January 2012 and bore interest, payable quarterly, at the same rate of interest as the UST Loans. The UST GMAC Loan Agreement was secured by Old GM’s Common and Preferred Membership Interests in GMAC. As part of this loan agreement, the UST had the option to convert outstanding amounts into a maximum of 190,921 shares of GMAC’s Class B Common Membership Interests on a pro rata basis.

In May 2009 the UST exercised this option, the outstanding principal and interest under the UST GMAC Loan was extinguished, and Old GM recorded a net gain of $483 million. The net gain was comprised of a gain on the disposition of GMAC Common Membership Interests of $2.5 billion recorded in Equity in income (loss) of and disposition of interest in GMAC and, a loss on extinguishment of the UST GMAC Loan of $2.0 billion recorded in Gain (loss) on extinguishment of debt. After the exchange, Old GM’s ownership was reduced to 24.5% of GMAC’s Common Membership Interests.

GMAC converted its status to a C corporation effective June 30, 2009. At that date, Old GM began to account for its investment in GMAC using the cost method rather than the equity method as Old GM no longer exercised significant influence over GMAC. In connection with GMAC’s conversion into a C corporation, each unit of each class of GMAC Membership Interests was converted into shares of capital stock of GMAC with substantially the same rights and preferences as such Membership Interests. On July 10, 2009 we acquired the investment in GMAC’s common and preferred stocks in connection with the 363 Sale.

Of our investment in GMAC common stock, 9.9% is held directly, and pursuant to previous commitments to reduce influence over and ownership in GMAC, 14.6% is held in an independent trust. The trustee, who is independent of us, has the sole authority to vote and is required to dispose of all GMAC common stock held in the trust by December 24, 2011. Refer to Note 23 for additional information on our investment in GMAC common stock.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following tables summarize financial information of GMAC for the periods GMAC was accounted for as an equity method investee (dollars in millions):

 

     Six Months Ended
June 30, 2009
    Nine Months Ended
September 30, 2008
 

Condensed Consolidated Statements of Income

    

Total financing revenue and other interest income

   $ 7,450      $ 15,544   

Interest expense

   $ 4,269      $ 8,880   

Depreciation expense on operating lease assets

   $ 2,409      $ 4,307   

Gain on extinguishment of debt

   $ 657      $ 1,164   

Total other revenue

   $ 2,453      $ 2,401   

Total noninterest expense

   $ 4,809      $ 7,174   

Loss before income tax expense

   $ (3,588   $ (5,569

Income tax expense

   $ 990      $ 72   

Net loss

   $ (4,578   $ (5,594

Net loss available to members

   $ (4,933   $ (5,594

 

     June 30,
2009
   December 31,
2008

Condensed Consolidated Balance Sheets

     

Loans held for sale

   $ 11,440    $ 7,919

Total finance receivables and loans, net

   $ 87,520    $ 98,295

Investment in operating leases, net

   $ 21,597    $ 26,390

Other assets

   $ 22,932    $ 26,922

Total assets

   $ 181,248    $ 189,476

Total debt

   $ 105,175    $ 126,321

Accrued expenses, deposit and other liabilities

   $ 41,363    $ 32,533

Total liabilities

   $ 155,202    $ 167,622

Senior preferred interests

   $ 12,500    $ 5,000

Preferred interests

   $ 1,287    $ 1,287

Total equity

   $ 26,046    $ 21,854

 

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GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

GMAC — Preferred and Common Membership Interests

The following tables summarize the activity with respect to the investment in GMAC Common and Preferred Membership Interests for the periods GMAC was accounted for as an equity method investee (dollars in millions):

 

     Predecessor  
     GMAC Common
Membership Interests
    GMAC Preferred
Membership Interests
 

Balance at January 1, 2009

   $ 491      $ 43   

Old GM’s proportionate share of GMAC’s losses

     (500       

Investment in GMAC Common Membership Interests

     884          

Other, primarily accumulated other comprehensive loss

     (121       
                

Balance at March 31, 2009

     754        43   

Old GM’s proportionate share of GMAC’s losses (a)

     (630     (7

Gain on disposition of GMAC Common Membership Interests (b)

     2,477          

Conversion of GMAC Common Membership Interests (b)

     (2,885       

Other, primarily accumulated other comprehensive loss

     284          
                

Balance at June 30, 2009

   $      $ 36   
                

 

     Predecessor  
     GMAC Common
Membership Interests
    GMAC Preferred
Membership Interests
 

Balance at January 1, 2008

   $ 7,079      $ 1,044   

Old GM’s proportionate share of GMAC’s losses

     (302       

Impairment charges

     (1,310     (142

Other, primarily accumulated other comprehensive loss

     (76       
                

Balance at March 31, 2008

     5,391        902   

Old GM’s proportionate share of GMAC’s losses

     (1,204       

Impairment charges

     (726     (608

Other, primarily accumulated other comprehensive loss

     (7       
                

Balance at June 30, 2008

     3,454        294   

Old GM’s proportionate share of GMAC’s losses

     (1,235       

Impairment charges

            (251

Other, primarily accumulated other comprehensive loss

     (270       
                

Balance at September 30, 2008

   $ 1,949      $ 43   
                

 

(a) Due to impairment charges and Old GM’s proportionate shares of GMAC’s losses, the carrying amount of Old GM’s investments in GMAC Common Membership Interest was reduced to $0. Old GM recorded its proportionate share of GMAC’s remaining losses to its investment in GMAC Preferred Membership Interests.

 

(b) Due to the exercise of the UST’s option to convert the UST GMAC Loan into GMAC Common Membership Interests, in connection with the UST GMAC Loan conversion, Old GM recorded a gain of $2.5 billion on disposition of GMAC Common Membership Interests and a $2.0 billion loss on extinguishment based on the carrying amount of the UST GMAC Loan and accrued interest of $0.9 billion.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table summarizes the impairment charges related to the investment in GMAC Common and Preferred Membership Interests for the periods GMAC was accounted for as an equity method investee (dollars in millions):

 

     Predecessor
     January 1, 2009
Through
June 30, 2009
   Three Months
Ended
September 30, 2008
   Nine Months
Ended
September 30, 2008

GMAC Common Membership Interests

   $    $    $ 2,036

GMAC Preferred Membership Interests

          251      1,001
                    

Total impairment charges

   $    $ 251    $ 3,037
                    

Impairment charges related to the investment in GMAC Common and Preferred Membership Interests were recorded in Equity in income (loss) of and disposition of interest in GMAC and Interest income and other non-operating income, net.

Transactions with Nonconsolidated Affiliates

Nonconsolidated affiliates are involved in various aspects of the development, production and marketing of cars, trucks and parts. The following tables summarize the effects of transactions with nonconsolidated affiliates which are not eliminated in consolidation (dollars in millions):

 

     Successor          Predecessor
     July 10, 2009
Through
September 30, 2009
         July 1, 2009
Through

July 9, 2009
   January 1, 2009
Through

July 9, 2009
    Three Months
Ended

September 30, 2008
    Nine Months
Ended
September 30, 2008

Results of Operations

              

Sales

   $ 289         $ 29    $ 596      $ 115      $ 459

Cost of sales

   $ 276         $ 32    $ 737      $ 156      $ 2,755

Selling, general and administrative expense

   $ (9      $    $ (19   $ (9   $ 14

Interest income and other non-operating income, net

   $ 2         $    $ (9   $ 17      $ 188

 

     Successor         Predecessor
     September 30,
2009
        December 31,
2008

Financial Position

        

Accounts and notes receivable, net

   $ 269       $ 394

Accounts payable (principally trade)

   $ 103       $ 112

 

     Successor          Predecessor  
     July 10, 2009
Through
September 30, 2009
         January 1, 2009
Through
July 9, 2009
   Nine Months
Ended
September 30, 2008
 

Cash Flows

          

Operating

   $ 297         $ 546    $ (950

Investing

   $ (1      $    $ 149   

Financing

   $         $    $   

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Note 8. Depreciation and Amortization

The following table summarizes depreciation, impairment charges and amortization expense related to Property, net and Equipment on operating leases, net, recorded in Cost of sales and Selling, general and administrative expense (dollars in millions):

 

     Successor        Predecessor
     July 10, 2009
Through
September 30, 2009
       July 1, 2009
Through

July 9, 2009
   January 1, 2009
Through

July 9, 2009
   Three Months
Ended

September 30, 2008
   Nine Months
Ended
September 30, 2008

Depreciation and impairment charges of long-lived assets

   $ 816       $ 500    $ 4,690    $ 1,198    $ 4,099

Amortization and impairment charges of special tools

     394         68      2,139      749      2,348
                                     

Total depreciation, amortization and asset impairment charges

   $ 1,210       $ 568    $ 6,829    $ 1,947    $ 6,447
                                     

In connection with our application of fresh-start reporting, we began amortizing all non-powertrain special tools using an accelerated amortization method. All other special tools are amortized over their estimated useful lives using the straight-line method. Old GM amortized all special tools using the straight-line method over their estimated useful lives.

Old GM initiated restructuring plans prior to the 363 Sale to reduce the total number of powertrain, stamping and assembly plants and to eliminate certain brands and nameplates. In addition, MLC retained certain assets that we did not acquire in connection with the 363 Sale and were deemed not to have a useful life beyond July 9, 2009. As a result, Old GM recorded incremental depreciation and amortization on certain of these assets as they were expected to be utilized over a shorter period of time than their previously estimated useful life. We record incremental depreciation and amortization for changes in useful lives subsequent to the initial determination. Old GM recorded incremental depreciation and amortization of approximately $0.3 billion, $2.8 billion, $0.1 billion and $0.2 billion in the periods July 1, 2009 through July 9, 2009, January 1, 2009 through July 9, 2009 and the three and nine months ended September 30, 2008.

Note 9. Restricted Cash and Marketable Securities

Cash and marketable securities subject to contractual restrictions and not readily available are classified as restricted cash and marketable securities. Funds held in the UST Credit Agreement and Canadian Health Care Trust escrow accounts are invested in government securities and money market funds in accordance with the terms of the escrow agreements. The following table summarizes the components of restricted cash and marketable securities (dollars in millions):

 

     Successor        Predecessor
     September 30,
2009
       December 31,
2008

Current

        

UST Credit Agreement (a)

   $ 16,432       $

Canadian Health Care Trust (b)

     918        

Receivables Program (c)

     265        

Securitization Trusts

     1,005         450

Pre-funding disbursements

     254         222

Other (d)

     135        
                

Total current restricted cash and marketable securities

     19,009         672

Non-current

        

Collateral for insurance related activities

     639         679

Other non-current (d)

     914         1,238
                

Total restricted cash and marketable securities

   $ 20,562       $ 2,589
                

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

(a) Under the terms of the UST Credit Agreement, funds are held in escrow and will be distributed to us at our request if certain conditions are met. Any unused amounts in escrow on June 30, 2010 are required to be used to repay the UST Loans and Canadian Loan, unless the UST agrees to an extension, at our request. Refer to Notes 2, 10 and 23 for additional information on the UST Credit Agreement.

 

(b) Under terms of an escrow agreement between GMCL, the EDC and an escrow agent, GMCL established a CAD $1.0 billion (equivalent to $893 million when entered into) escrow to fund its healthcare obligations. The funds are held in Government of Canada treasury bills with maturities of less than one year.

 

(c) In March 2009 the UST announced that it will provide financial assistance to automotive suppliers by guaranteeing or purchasing certain receivables payable by us (Receivables Program). Under the terms of the Receivables Program, the use of funds is limited to purchasing receivables from suppliers that have elected to participate in the program. This program will terminate in accordance with its terms in April, 2010. Refer to Note 10 for additional information on the Receivables Program.

 

(d) Includes amounts related to various letters of credit, deposits, escrows and other cash collateral requirements.

Note 10. Short-Term and Long-Term Debt

The following table summarizes the components of short-term and long-term debt (dollars in millions):

 

     Successor        Predecessor
     September 30,
2009
       December 31,
2008

Short-Term

        

UST Loans

   $ 6,712       $

UST Loan Facility (a)

             3,836

Canadian Loan

     1,374        

German Facility

     1,309        

Short-term debt — third parties

     1,527         2,567

Short-term debt — related parties (b)

     1,098         2,067

Current portion of long-term debt (c)

     795         8,450
                

Total short-term debt and current portion of long-term debt

     12,815         16,920

Long-Term

        

Long-term debt (e)

     2,659         29,018
                

Total debt

   $ 15,474       $ 45,938
                

Available under line of credit agreements (d)

   $ 1,384       $ 643

 

(a) UST Loan Facility (as subsequently defined) is net of a $913 million discount which is comprised of $749 million for the UST Additional Note and $164 million for the fair value of the warrants issued in connection with the loans under the UST Loan Agreement. At May 31, 2009 the carrying amount of the debt was accreted to the full face value of the UST Loan Facility and the UST Additional Note (as subsequently defined) with the discount charged to interest expense.

 

(b) Primarily dealer financing from GMAC for dealerships we own and Old GM owned.

 

(c) Amounts owed at September 30, 2009 include various secured and unsecured debt instruments. Amounts owed at December 31, 2008 include a secured revolving credit facility of $4.5 billion and a U.S. term loan of $1.5 billion.

 

(d) Commitment fees are paid on credit facilities at rates negotiated in each agreement. Amounts paid and expensed for these commitment fees are insignificant.

 

(e) At September 30, 2009 amounts are net of a $1.6 billion discount.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

UST Loans and VEBA Notes

Old GM received total proceeds of $19.4 billion ($15.4 billion subsequent to January 1, 2009) from the UST under the UST Loan Agreement entered into on December 31, 2008. In connection with Old GM and certain of its direct and indirect subsidiaries voluntary petition for relief under the Chapter 11 Proceedings, Old GM obtained additional funding of $33.3 billion from the UST and EDC under its DIP Facility. From these proceeds, $16.4 billion remained deposited in escrow at September 30, 2009.

The $16.4 billion in escrow will be distributed to us at our request upon certain conditions as outlined in the UST Credit Agreement. Any unused amounts in escrow on June 30, 2010 are required to be used to repay the UST Loans and GMCL Canadian Loan with EDC. Unless the UST agrees to an extension, at our request, of up to an additional 12 months to June 30, 2011, any funds remaining in our escrow account after repayment of the loans will be released to us. The UST Loans and Canadian Loan have been classified as short-term debt based on these terms. Under the UST Credit Agreement we can request a distribution of all or part of the escrow balance or an extension of the date the escrow funds must be applied to prepay the loans. If we make such a request and the UST approves it, we may not be required to apply unused amounts in escrow to repay the UST Loans and Canadian Loan within the next 12 months. Refer to Note 23 for additional information on the UST Loans and Canadian Loan after September 30, 2009.

On July 10, 2009 we entered into the UST Credit Agreement and assumed debt of $7.1 billion maturing on July 10, 2015 which Old GM incurred under Old GM’s DIP Facility. Immediately after entering into the UST Credit Agreement, we made a partial repayment due to the termination of the U.S. government sponsored warranty program, reducing the UST Loans principal balance to $6.7 billion.

The UST Loans accrue interest equal to the greater of the three month LIBOR rate or 2.0%, plus 5.0%, per annum, unless the UST determines that reasonable means do not exist to ascertain the LIBOR rate or that the LIBOR rate will not adequately reflect the UST’s cost to maintain the loan. In such a circumstance, the interest rate will be the greatest of: (1) the prime rate plus 4.0%; (2) the federal funds rate plus 4.5%; or (3) the three month LIBOR rate (which will not be less than 2.0%) plus 5.0%. We are required to prepay the UST Loans on a pro rata basis (between the UST Loans, VEBA Notes and Canadian Loan), in an amount equal to the amount of net cash proceeds received from certain asset dispositions, casualty events, extraordinary receipts and the incurrence of certain debt. We may also voluntarily repay the UST Loans in whole or in part at any time. Once repaid, amounts borrowed under the UST Credit Agreement may not be reborrowed. At September 30, 2009 the UST Loans accrued interest at 7.0%.

In connection with the 363 Sale, we entered into the VEBA Note Agreement and issued VEBA Notes of $2.5 billion. The VEBA Notes have an implied interest rate of 9.0% per annum. The VEBA Notes and accrued interest are scheduled to be repaid in three equal installments of $1.4 billion on July 15 of 2013, 2015, and 2017. At September 30, 2009 the $2.5 billion VEBA Notes are not considered outstanding debt for accounting purposes. Upon the settlement of the UAW hourly retiree medical plan pursuant to the 2009 Revised UAW Settlement Agreement on December 31, 2009, the VEBA Notes will be considered outstanding. Refer to Note 12 for additional information on the 2009 Revised UAW Settlement Agreement.

The obligations under the UST Credit Agreement and the VEBA Note Agreement are secured by substantially all of our assets, subject to certain exceptions, including our equity interests in certain of our foreign subsidiaries, limited in most cases to 65% of the equity interests of the pledged foreign subsidiaries due to tax considerations.

The UST Credit Agreement and the VEBA Note Agreement contain various representations and warranties that we made on the effective date and, with respect to the UST Credit Agreement, we will be required to make on certain other dates. The UST Credit Agreement and the VEBA Note Agreement also contain various affirmative covenants requiring us to take certain actions and negative covenants restricting our ability to take certain actions. The affirmative covenants impose obligations on us with respect to, among other things:

 

   

Financial and other reporting to the UST, including periodic confirmation of compliance with certain expense policies;

 

   

Executive privileges and compensation requirements;

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

   

Corporate existence;

 

   

Preservation of the collateral and other property subject to the UST Credit Agreement and VEBA Note Agreement;

 

   

Payment of taxes; and

 

   

Compliance with certain laws.

The affirmative covenants include a vitality commitment, which requires us to use our commercially reasonable best efforts, subject to certain considerations and exceptions, to ensure that the volume of manufacturing conducted in the United States is at least 90% of the level contemplated in our business plan provided to the UST in July 2009. The vitality commitment is in effect until the later of December 31, 2014 or the date the UST Loans are repaid in full. In addition, certain covenants such as periodic confirmation of compliance with certain expense policies, executive privileges and compensation requirements are in effect until the UST ceases to own direct or indirect equity interests in us and the UST Loans are paid in full.

The negative covenants in the UST Credit Agreement and the VEBA Note Agreement restrict us with respect to, among other things, fundamental changes, liens, restricted payments and restrictions on subsidiary distributions, amendments or waivers of certain documents, negative pledge clauses, use of proceeds from sales of assets and indebtedness. However, both the UST Credit Agreement and the VEBA Note Agreement permit us to incur additional indebtedness, including indebtedness secured by a first-priority lien on certain of our assets. If additional indebtedness is in excess of certain amounts of secured and unsecured indebtedness, incurrence of additional indebtedness is subject to meeting a specified maximum consolidated leverage ratio, after giving effect to the incurrence of such indebtedness. If such indebtedness is to be secured by a first-priority lien on certain of our assets, the obligations under the UST Credit Agreement and the VEBA Note Agreement will be restructured to be secured by a second-priority lien on any such assets.

The UST Credit Agreement and the VEBA Note Agreement also contain various events of default (including cross-default provisions) that entitle the UST or the New VEBA to accelerate the repayment of the UST Loans and the VEBA Notes upon the occurrence and continuation of an event of default. In addition, upon the occurrence and continuation of any event of default, interest under the UST Credit Agreement accrues at a rate per annum equal to 2.0% plus the interest rate otherwise applicable to the UST Loans and the implied interest rate on the VEBA Notes increases to a rate equal to 11.0% per annum, compounded annually. The events of default relate to, among other things:

 

   

Our failure to pay principal or interest on the UST Loans or to make payments on the VEBA Notes;

 

   

Certain of our domestic subsidiaries’ failure to pay on their guarantees;

 

   

The failure to pay other amounts due under the loan documents or the secured note documents;

 

   

The failure to perform the covenants in the loan documents or the secured note documents;

 

   

The representations and warranties in the UST Credit Agreement or the VEBA Note Agreement being false or misleading in any material respect;

 

   

Undischarged judgments in excess of $100 million;

 

   

Certain bankruptcy events;

 

   

The termination of any loan documents or secured note documents;

 

   

The invalidity of security interests in our assets;

 

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Table of Contents

GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

   

Certain prohibited transactions under the Employee Retirement Income Security Act of 1974, as amended (ERISA);

 

   

A change of control without the permission of the UST;

 

   

A default under the Canadian Loan Agreement other than the vitality commitment; and

 

   

A default under other indebtedness if the default, including a default of the vitality commitment under the Canadian Loan Agreement, results in the holder accelerating the maturity of indebtedness in excess of $100 million in the aggregate.

The following table summarizes interest expense and interest paid on the UST Loans (dollars in millions):

 

     Successor
     July 10, 2009
Through
September 30, 2009

Interest expense

   $ 108

Interest paid

   $

Canadian Loan Agreement

On July 10, 2009 we entered into the Canadian Loan Agreement and assumed the Canadian Loan of CAD $1.5 billion (equivalent to $1.3 billion when entered into) maturing on July 10, 2015. The Canadian Loan accrues interest at the greater of the three-month Canadian Dealer Offered Rate or 2.0%, plus 5.0% per annum. Accrued interest is payable quarterly. At September 30, 2009 the Canadian Loan accrued interest at 7.0%.

GMCL may voluntarily repay the Canadian Loan in whole or in part at any time. Once repaid, GMCL cannot reborrow under the Canadian Loan Agreement. We and 1908 Holdings Ltd., Parkwood Holdings Ltd., and GM Overseas Funding LLC, each of which is a Subsidiary Guarantor of GMCL, have guaranteed the Canadian Loan. Our guarantee of GMCL’s obligations under the Canadian Loan Agreement is secured by a lien on the equity of GMCL. Because 65% of our ownership interest in GMCL was previously pledged to secure the obligations under the UST Credit Agreement and the VEBA Note Agreement, EDC received a first priority lien on 35% of our equity interest in GMCL and a second priority lien on the remaining 65%. With certain exceptions, GMCL’s obligations under the Canadian Loan Agreement are secured by a first lien on substantially all of its and the Subsidiary Guarantors’ assets, including GMCL’s ownership interests in the Subsidiary Guarantors and a portion of GMCL’s equity interests in General Motors Product Services Inc., a subsidiary of ours.

The Canadian Loan Agreement contains various representations and warranties GMCL and the Subsidiary Guarantors made on the effective date. The Canadian Loan Agreement also contains various affirmative covenants requiring GMCL and the Subsidiary Guarantors to take certain actions and negative covenants restricting the ability of GMCL and the Subsidiary Guarantors to take certain actions. The affirmative covenants impose obligations on GMCL and the Subsidiary Guarantors with respect to, among other things, financial and other reporting to EDC, reporting on and preservation of the collateral pledged in connection with the Canadian Loan Agreement, executive privileges and compensation, restrictions on expenses and compliance with applicable laws. In addition, GMCL has committed, among other things, to meet certain capital and research and development investment levels, and to produce a certain percentage (based on North American and/or total United States and Canada production levels) of vehicles and vehicle components in Canada until the later of the date that the amounts outstanding under the Canadian Loan Agreement are paid in full or December 31, 2016.

The negative covenants and various events of default in the Canadian Loan Agreement are similar to the negative covenants under the UST Credit Agreement and the VEBA Note Agreement, as applicable to GMCL and the Subsidiary Guarantors, and also require GMCL to maintain certain minimum levels of unrestricted cash and cash equivalents and address specific requirements with respect to pension and compensation matters.

 

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Table of Contents

GENERAL MOTORS COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table summarizes interest expense and interest paid on the Canadian Loan (dollars in millions):

 

     Successor
     July 10, 2009
Through
September 30, 2009

Interest expense

   $ 22

Interest paid

   $ 22

German Revolving Bridge Facility

In May 2009 Old GM entered into a revolving bridge facility with the German government and certain German states (German Facility) with a total commitment of up to Euro 1.5 billion (equivalent to $2.1 billion when entered into) and maturing in November 2009. Amounts available under the German Facility accrue interest per annum at the aggregate of the following: (1) Euro Overnight Index Average; (2) 0.64%; and (3) the risk margin which ranges from 4.0% to 10.0% depending on if funds are drawn and if appropriate collateral has been pledged. In the event that the German government determines that the risk margin no longer adequately reflects its cost to maintain the loan it may increase the risk margin. At September 30, 2009 the German Facility accrued interest at a weighted average interest rate of 6.28%. Undrawn amounts were $872 million at September 30, 2009.

We are required to prepay the German Facility in an amount equal to the amount of net cash proceeds received from certain asset dispos