10-Q 1 k46806e10vq.htm FORM 10-Q e10vq
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, 2008
OR
o
  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 1-43
 
 
GENERAL MOTORS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
 
 
     
     
STATE OF DELAWARE
(State or other jurisdiction of
Incorporation or Organization)
  38-0572515
(I.R.S. Employer
Identification No.)
     
300 Renaissance Center, Detroit, Michigan
(Address of Principal Executive Offices)
  48265-3000
(Zip Code)
 
(313) 556-5000
Registrant’s telephone number, including area code
 
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 þ     No o
 
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  þ
  Accelerated filer  o   Non-accelerated filer  o
(Do not check if smaller reporting company)
  Smaller reporting company  o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
 
As of October 31, 2008, the number of shares outstanding of the Registrant’s common stock was 610,463,321 shares.
 
Website Access to Company’s Reports
 
General Motors Corporation’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.
 


 

 
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
INDEX
 
             
        Page No.
 
  Condensed Consolidated Financial Statements (Unaudited)     1  
    Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007     1  
    Condensed Consolidated Balance Sheets at September 30, 2008, December 31, 2007 and September 30, 2007     2  
    Condensed Consolidated Statements of Stockholders’ Deficit for the Nine Months Ended September 30, 2008 and 2007     3  
    Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007     4  
    Notes to Condensed Consolidated Financial Statements     5  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     57  
  Quantitative and Qualitative Disclosures About Market Risk     119  
  Controls and Procedures     119  
 
Part II — Other Information
  Legal Proceedings     121  
  Risk Factors     124  
  Exhibits     134  
    135  
 EXHIBIT 10.A
 EXHIBIT 10.B
 EXHIBIT 10.C
 EXHIBIT 23
 EXHIBIT 31.A
 EXHIBIT 31.B
 EXHIBIT 32.A
 EXHIBIT 32.B


Table of Contents

 
PART I
 
Item 1. Condensed Consolidated Financial Statements
 
GENERAL MOTORS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
(Unaudited)
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
 
Net sales and revenue
                               
Automotive sales
  $ 37,503     $ 43,002     $ 117,120     $ 131,076  
Financial services and insurance revenue
    438       700       1,466       2,530  
                                 
Total net sales and revenue
    37,941       43,702       118,586       133,606  
                                 
Costs and expenses
                               
Automotive cost of sales
    34,521       41,373       116,219       121,768  
Selling, general and administrative expense
    3,251       3,601       10,704       10,205  
Financial services and insurance expense
    400       640       1,475       2,334  
Other expenses
    652       350       4,136       925  
                                 
Total costs and expenses
    38,824       45,964       132,534       135,232  
                                 
Operating loss
    (883 )     (2,262 )     (13,948 )     (1,626 )
Equity in loss of GMAC LLC (Note 6)
    (1,235 )     (809 )     (4,777 )     (874 )
Automotive and other interest expense
    (542 )     (839 )     (2,037 )     (2,319 )
Automotive interest income and other non-operating income, net
    78       572       165       1,775  
                                 
Loss from continuing operations before income taxes, equity income and minority interests
    (2,582 )     (3,338 )     (20,597 )     (3,044 )
Income tax expense
    68       39,186       1,029       38,805  
Equity income, net of tax
    50       114       310       440  
Minority interests, net of tax
    58       (102 )     52       (361 )
                                 
Loss from continuing operations
    (2,542 )     (42,512 )     (21,264 )     (41,770 )
Discontinued operations (Note 3)
                               
Income from discontinued operations, net of tax
          45             256  
Gain on sale of discontinued operations, net of tax
          3,504             3,504  
                                 
Income from discontinued operations
          3,549             3,760  
                                 
Net loss
  $ (2,542 )   $ (38,963 )   $ (21,264 )   $ (38,010 )
                                 
Earnings (loss) per share, basic and diluted:
                               
Continuing operations
  $ (4.45 )   $ (75.12 )   $ (37.44 )   $ (73.82 )
Discontinued operations
          6.27             6.64  
                                 
Total
  $ (4.45 )   $ (68.85 )   $ (37.44 )   $ (67.18 )
                                 
Weighted average common shares outstanding, basic and diluted (millions)
    571       566       568       566  
                                 
Cash dividends per share
  $     $ 0.25     $ 0.50     $ 0.75  
                                 
 
Reference should be made to the notes to the condensed consolidated financial statements.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(Unaudited)
 
                         
    September 30,
    December 31,
    September 30,
 
    2008     2007     2007  
 
ASSETS
Current Assets
                       
Cash and cash equivalents
  $ 15,831     $ 24,549     $ 24,402  
Marketable securities
    67       2,139       1,978  
                         
Total cash and marketable securities
    15,898       26,688       26,380  
Accounts and notes receivable, net
    9,461       9,659       10,728  
Inventories
    16,914       14,939       15,530  
Equipment on operating leases, net
    4,312       5,283       5,572  
Other current assets and deferred income taxes
    3,511       3,566       3,170  
                         
Total current assets
    50,096       60,135       61,380  
Financing and Insurance Operations Assets
                       
Cash and cash equivalents
    176       268       328  
Investments in securities
    273       215       209  
Equipment on operating leases, net
    2,892       6,712       7,856  
Equity in net assets of GMAC LLC
    1,949       7,079       6,852  
Other assets
    2,034       2,715       3,910  
                         
Total Financing and Insurance Operations assets
    7,324       16,989       19,155  
Non-Current Assets
                       
Equity in and advances to nonconsolidated affiliates
    2,351       1,919       2,031  
Property, net
    42,156       43,017       42,264  
Goodwill and intangible assets, net
    949       1,066       1,084  
Deferred income taxes
    907       2,116       975  
Prepaid pension
    3,602       20,175       18,920  
Other assets
    3,040       3,466       3,691  
                         
Total non-current assets
    53,005       71,759       68,965  
                         
Total Assets
  $ 110,425     $ 148,883     $ 149,500  
                         
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
                       
Accounts payable (principally trade)
  $ 27,839     $ 29,439     $ 30,514  
Short-term borrowings and current portion of long-term debt
    7,208       6,047       5,263  
Accrued expenses
    33,959       34,822       33,927  
                         
Total current liabilities
    69,006       70,308       69,704  
Financing and Insurance Operations Liabilities
                       
Debt
    1,890       4,908       5,962  
Other liabilities and deferred income taxes
    768       905       1,666  
                         
Total Financing and Insurance Operations liabilities
    2,658       5,813       7,628  
Non-Current Liabilities
                       
Long-term debt
    36,057       33,384       34,670  
Postretirement benefits other than pensions
    33,714       47,375       48,336  
Pensions
    11,500       11,381       12,214  
Other liabilities and deferred income taxes
    16,484       16,102       17,019  
                         
Total non-current liabilities
    97,755       108,242       112,239  
                         
Total liabilities
    169,419       184,363       189,571  
Commitments and contingencies (Note 11)
                       
Minority interests
    945       1,614       1,700  
Stockholders’ Deficit
                       
Preferred stock, no par value, 6,000,000 shares authorized, no shares issued and outstanding
                 
Common stock, $12/3 par value (2,000,000,000 shares authorized, 800,937,541 and 610,462,606 shares issued and outstanding at September 30, 2008, respectively, 756,637,541 and 566,059,249 shares issued and outstanding at December 31, 2007, respectively, and 756,637,541 and 565,877,391 shares issued and outstanding at September 30, 2007, respectively)
    1,017       943       943  
Capital surplus (principally additional paid-in capital)
    15,732       15,319       15,264  
Accumulated deficit
    (61,014 )     (39,392 )     (38,528 )
Accumulated other comprehensive loss
    (15,674 )     (13,964 )     (19,450 )
                         
Total stockholders’ deficit
    (59,939 )     (37,094 )     (41,771 )
                         
Total Liabilities, Minority Interests and Stockholders’ Deficit
  $ 110,425     $ 148,883     $ 149,500  
                         
 
Reference should be made to the notes to the condensed consolidated financial statements.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Dollars and shares in millions)
(Unaudited)
 
                                                         
                            Retained
    Accumulated
       
    Shares of
                      Earnings
    Other
    Total
 
    Common
    Common
    Capital
    Comprehensive
    (Accumulated
    Comprehensive
    Stockholders’
 
    Stock     Stock     Surplus     Loss     Deficit)     Loss     Deficit  
 
Balance at December 31, 2006
    566     $ 943     $ 15,336             $ 195     $ (22,126 )   $ (5,652 )
Net loss
                    $ (38,010 )     (38,010 )           (38,010 )
Other comprehensive income (loss):
                                                       
Foreign currency translation adjustments
                      563                    
Unrealized gain on derivatives
                      73                    
Unrealized loss on securities
                      (2 )                  
Defined benefit plans:
                                                       
Net prior service costs
                      212                    
Net actuarial gain
                      673                    
Net transition asset / obligation
                      4                    
                                                         
Other comprehensive income
                      1,523             1,523       1,523  
                                                         
Comprehensive loss
                          $ (36,487 )                        
                                                         
Effects of accounting change regarding pension plan and OPEB measurement-dates pursuant to SFAS No. 158, net of tax
                              (425 )     1,153       728  
Cumulative effect of a change in accounting principle — adoption of FIN No. 48
                              137             137  
Stock options
                27                           27  
Cash dividends paid
                              (425 )           (425 )
Purchase of convertible note hedge
                (99 )                         (99 )
                                                         
Balance at September 30, 2007
    566     $ 943     $ 15,264             $ (38,528 )   $ (19,450 )   $ (41,771 )
                                                         
Balance at December 31, 2007
    566     $ 943     $ 15,319             $ (39,392 )   $ (13,964 )   $ (37,094 )
Net loss
                    $ (21,264 )     (21,264 )           (21,264 )
Other comprehensive income (loss):
                                                       
Foreign currency translation adjustments
                      (388 )                  
Unrealized loss on derivatives
                      (570 )                  
Unrealized loss on securities
                      (311 )                  
Defined benefit plans:
                                                       
Net prior service costs
                      (4,480 )                  
Net actuarial gain
                      4,035                    
Net transition asset / obligation
                      4                    
                                                         
Other comprehensive loss
                      (1,710 )           (1,710 )     (1,710 )
                                                         
Comprehensive loss
                          $ (22,974 )                        
                                                         
Effects of GMAC LLC adoption of SFAS No. 157 and No. 159 (Note 6)
                              (76 )           (76 )
Stock options and other
                9               1             10  
Common stock issued for settlement of Series D debentures
    44       74       404                           478  
Cash dividends paid
                              (283 )           (283 )
                                                         
Balance at September 30, 2008
    610     $ 1,017     $ 15,732             $ (61,014 )   $ (15,674 )   $ (59,939 )
                                                         
 
Reference should be made to the notes to the condensed consolidated financial statements.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
 
                 
    Nine Months Ended
 
    September 30,  
    2008     2007  
 
Net cash provided by (used in) continuing operating activities
  $ (9,661 )   $ 3,641  
Cash provided by discontinued operating activities
          221  
                 
Net cash provided by (used in) operating activities
    (9,661 )     3,862  
Cash flows from investing activities
               
Expenditures for property
    (5,527 )     (4,939 )
Investments in marketable securities, acquisitions
    (3,209 )     (8,672 )
Investments in marketable securities, liquidations
    5,139       6,801  
Capital contribution to GMAC LLC
          (1,022 )
Proceeds from sale of business units/equity investments
          5,354  
Operating leases, liquidations
    3,014       2,463  
Other
    28       (23 )
                 
Net cash used in continuing investing activities
    (555 )     (38 )
Cash used in discontinued investing activities
          (22 )
                 
Net cash used in investing activities
    (555 )     (60 )
Cash flows from financing activities
               
Net decrease in short-term borrowings
    (2,730 )     (3,732 )
Borrowings of long-term debt
    5,581       1,919  
Payments made on long-term debt
    (847 )     (1,244 )
Cash dividends paid to stockholders
    (283 )     (425 )
                 
Net cash provided by (used in) continuing financing activities
    1,721       (3,482 )
Cash used in discontinued financing activities
          (5 )
                 
Net cash provided by (used in) financing activities
    1,721       (3,487 )
Effect of exchange rate changes on cash and cash equivalents
    (315 )     292  
                 
Net increase (decrease) in cash and cash equivalents
    (8,810 )     607  
Cash and cash equivalents at beginning of the period
    24,817       24,123  
                 
Cash and cash equivalents at end of the period
  $ 16,007     $ 24,730  
                 
 
Reference should be made to the notes to the condensed consolidated financial statements.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1. Nature of Operations
 
We (also General Motors Corporation, GM, the Corporation, our or us) are primarily engaged in the worldwide production and marketing of cars and trucks. We operate in two businesses consisting of Automotive (GM Automotive or GMA) and Financing and Insurance Operations (FIO). We develop, manufacture and market vehicles worldwide through our four automotive segments which consist of GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM) and GM Asia Pacific (GMAP). Our finance and insurance operations are primarily conducted through our 49% equity interest in GMAC LLC (GMAC), which is accounted for under the equity method of accounting. GMAC provides a broad range of financial services, including consumer vehicle financing, automotive dealership and other commercial financing, residential mortgage services, automobile service contracts, personal automobile insurance coverage and selected commercial insurance coverage.
 
Note 2. Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles (GAAP) for complete financial statements. In our opinion, these condensed consolidated financial statements include all adjustments, consisting of only normal recurring items, considered necessary for a fair presentation of our financial position and results of operations. 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 unaudited 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, 2007 (2007 10-K) as filed with the SEC.
 
The 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 for which we are the primary beneficiary. Our share of earnings or losses of nonconsolidated affiliates are included in our consolidated operating results using the equity method of accounting when we are able to exercise significant influence over the operating and financial decisions of the affiliate. We use the cost method of accounting if we are not able to exercise significant influence over the operating and financial decisions of the affiliate. All intercompany balances and transactions have been eliminated in consolidation.
 
  Liquidity Matters
 
We have had significant losses from 2005 through the nine months ended September 30, 2008, attributable to operations and to restructurings and other charges such as support for Delphi and future cost cutting measures. We have managed our liquidity during this time through a series of cost reduction initiatives, capital markets transactions and sales of assets. However, the global credit market crisis has had a dramatic effect on our industry. In the three months ended September 30, 2008, the turmoil in the mortgage and overall credit markets, continued reductions in U.S. housing values, historically high prices for energy, the high likelihood that the United States and Western Europe have entered into a recession and the slowdown of economic growth in the rest of the world, created a substantially more difficult business environment. Vehicle sales in North America and Western Europe contracted severely and the pace of vehicle sales in the rest of the world slowed. Our liquidity position, as well as our operating performance, were negatively affected by these economic and industry conditions and by other financial business factors, many of which are beyond our control. These conditions have generally worsened during October 2008, with sales of vehicles for the U.S. industry falling to 861,000 units, or a seasonally adjusted rate of 10.9 million units, which was the lowest level for October since 1982. We do not believe it is likely that these adverse economic conditions, and their effect on the automotive industry, will improve significantly in the near term, notwithstanding the unprecedented intervention by the U.S. and other governments in the global banking and financial systems.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
In the nine months ended September 30, 2008, we used $9.7 billion of cash in operations and our liquidity position deteriorated by $11.1 billion. Our cash flow deteriorated primarily due to our significant operating loss, increases in inventory balances of $2.0 billion and a decrease in accounts payable and accruals of $2.5 billion.
 
We have taken far reaching actions to restructure our U.S. business, but the effect of current global economic and credit market conditions on the automotive industry require that we obtain additional near-term liquidity support. Based on our estimated cash requirements through December 31, 2009, we do not expect our operations to generate sufficient cash flow to fund our obligations as they come due, and we do not currently have other traditional sources of liquidity available to fund these obligations.
 
On July 15, 2008, we announced a plan for a combination of operating and related initiatives, as well as asset sales and capital market activities, both to conserve cash and to generate incremental cash flows in a total amount of up to $15 billion. Reflecting the priority of addressing liquidity in the current financial environment, we announced additional operating changes on November 7, 2008. We expect these additional actions to provide an incremental $5 billion of cash savings through December 31, 2009, which combined with the previous initiatives announced on July 15, 2008, would conserve or generate cash of up to $20 billion. These various initiatives are described below, and many of them, particularly asset sales and capital market activities, will be very challenging given the current business and credit market environments. Moreover, the full impact of many of these actions will not be realized until the second half of 2009 or later, even if they are implemented successfully. Our plans also assume that we will not be required to provide additional financial support to Delphi or GMAC beyond the level previously agreed to and that our trade suppliers will continue to conduct business with us on terms consistent with historical practice.
 
Based on our most recently available information (updated after the Form 8-K filed on November 7, 2008), even if we implement the planned operating actions that are substantially within our control, our estimated liquidity during the remainder of 2008 will be at or near the minimum amount necessary to operate our business. Looking into the first two quarters of 2009, even with our planned actions, our estimated liquidity will fall significantly short of the minimum required to operate our business unless economic and automotive industry conditions significantly improve, we receive substantial proceeds from asset sales, we take more aggressive working capital initiatives, we gain access to capital markets and other private sources of funding, we receive government funding under one or more current or future programs, or some combination of the foregoing. We are actively pursuing all of these possible sources of funding, but there can be no assurance that they will supply funds in amounts and timing sufficient to meet our liquidity requirements in the first two quarters of 2009 and perhaps in later periods.
 
Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is substantially dependent on the successful execution of many of the actions referred to above, on the timeline contemplated by our plan. Our interim condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that may be necessary should we be unable to continue as a going concern.
 
  Management Actions and Plans
 
From 2005 through 2007, we took a number of steps to restructure our North American operations for sustainable profitability. These included reducing structural costs by $9 billion per year, with plans to eliminate additional annual structural costs by 2011. In addition, we reached a historic agreement with the UAW in 2007 that provided the basis for a fully competitive manufacturing base in the United States by 2010. The UAW agreement also provided for the funding of retiree health care obligations by an independent VEBA trust, commencing in 2010. We also modified our salaried employee and executive pension plans and health care coverage to reduce our unfunded liability and made significant reductions in North American manufacturing capacity and headcount.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
  July 2008 Initiatives
 
During the period from 2005 to 2007, the U.S. total vehicle market ranged from 16.5 million to 17.5 million units per year, and as recently as May 2008, our operating plans were based on a market assumption of more than 15.5 million units in 2008 in the United States, which was in line with industry analysts’ consensus at that time. As global economic conditions deteriorated during 2008, we revised the assumptions underlying our operating plans and recognized that additional actions would be needed to position our operations for the continuing decline in new vehicle sales. A decline in vehicle sales and production results in outflows of cash greater than collections of accounts receivables, which has a negative impact on our working capital. This working capital impact has the effect of reducing our operating cash flow at a higher rate than the decline in vehicle unit volume.
 
On July 15, 2008, we announced new planning assumptions based on a U.S. total vehicle market of 14.3 million units in 2008 and 2009, which was at or below industry analysts’ consensus, and a U.S. market share of 21% in those years. Accordingly, we undertook a number of initiatives aimed at conserving or generating approximately $15.0 billion of cash on an incremental basis through the end of 2009. These initiatives included approximately $10 billion of operating actions that are substantially within our control, including structural cost reductions, reducing capital spending, improving working capital, reaching agreement to defer approximately $1.7 billion of scheduled payments to the UAW VEBA, and eliminating the dividend paid on our common stock. Further information about these actions follows:
 
  •   Salaried employment savings (estimated $1.5 billion effect) — We are executing salaried headcount reductions in the U.S. and Canada through normal attrition, early retirements, mutual separation programs and other tools. In September 2008, we extended voluntary early retirement offers under our Salaried Retirement Window Program (Salaried Window Program) to certain of our U.S. salaried employees. Employees accepting the Salaried Retirement Window Program were required to do so no later than October 24, 2008, with the majority of retirements taking place on November 1, 2008. As of October 31, 2008, 3,460 employees had irrevocably accepted the Salaried Retirement Window Program, which was in excess of the 3,000 needed to achieve our financial target. In addition, health care coverage for U.S. salaried retirees over 65 has been eliminated, effective January 1, 2009. Furthermore, there will be no new base compensation increases for U.S. and Canadian salaried employees for the remainder of 2008 and 2009. We are also eliminating discretionary cash bonuses for the executive group in 2008.
  •   GMNA structural cost reductions (estimated $2.5 billion effect) — Significant progress has been made towards achieving GMNA’s structural cost reduction target. We have accelerated cessation of production at two assembly facilities in addition to shift and line-rate reductions at other facilities. Truck capacity is expected to be reduced by 300,000 vehicles by the end of 2009. Promotional and advertising spending is being reduced by 25% and 20%, respectively, and engineering spending is being curtailed as well. In addition, we are implementing significant reductions in discretionary spending (e.g., travel, non-core information technology projects and consulting services).
  •   Capital expenditure reductions (estimated $1.5 billion effect) — The major components of this reduction are related to a delay in the next generation large pick-up truck and sport utility vehicle programs, as well as V-8 engine development. There will also be reductions in non-product capital spending. These reductions will be partially offset by increases in powertrain spending related to alternative propulsion, small displacement engines and fuel economy technologies.
  •   Working capital improvements (estimated $2.0 billion effect) — Actions are being taken to improve working capital by approximately $1.5 billion in North America and $0.5 billion in Europe by December 31, 2009, primarily by reducing raw material, work-in-progress and finished goods inventory levels as well as implementing lean inventory practices at parts warehouses. All these initiatives are on track for completion prior to December 31, 2009.
  •   UAW VEBA payment deferrals (estimated $1.7 billion effect) — Approximately $1.7 billion of payments that had been scheduled to be made to a temporary asset account in 2008 and 2009 for the establishment of the New VEBA has been deferred until 2010. The outstanding payable resulting from this deferral will accrue interest at 9% per annum. The UAW and Class Counsel have agreed that this deferral will not constitute a change in or breach of the Settlement Agreement. Within 20 business days of the Implementation Date, approximately $7.0 billion of deferred payments, plus interest plus additional contractual amounts will be due to the New VEBA.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
  •   Dividend suspension (estimated $0.8 billion effect) — Our Board of Directors has suspended dividends on our common stock.
 
The remaining $5 billion of our July liquidity plan included $2 billion to $4 billion of planned asset sales and $2 billion to $3 billion of fundraising in capital markets. We believed that these actions, together with the availability of $4.5 billion under our secured credit line, would provide sufficient liquidity for the balance of 2008 and 2009 as well. The status of these previously-announced activities as of November 7, 2008, is as follows:
 
  •   Asset sales — We are exploring the sale of the HUMMER business, Strasbourg transmission plant and the AC Delco business. We expect to shortly commence providing offering materials to potential buyers for the HUMMER and AC Delco businesses pursuant to appropriate confidentiality agreements and have already commenced providing confidential offering materials for the Strasbourg transmission plant to interested parties. We are also in the process of monetizing idle or excess real estate and several individual transactions are in various stages of execution.
  •   Capital market activities — Our plan targeted at least $2.0 billion to $3.0 billion of financing during 2008 and 2009. However, due to the prevailing global economic conditions and our current financial condition and near-term outlook, we currently do not have access to the capital markets on acceptable terms. In the three months ended September 30, 2008, we executed $0.5 billion of debt-for-equity exchanges of our Series D convertible bonds due in June 2009. In addition, we have gross unencumbered assets of over $20 billion, which could support a secured debt offering, or multiple offerings, in excess of the initially targeted $2.0 billion to $3.0 billion, if market conditions recover. These assets include stock of foreign subsidiaries, brands, our investment in GMAC and real estate.
 
  November 2008 Initiatives
 
Since July, U.S. auto industry sales have continued to erode, with light vehicle sales declining to a seasonally adjusted annual rate of 10.9 million units in October 2008. In addition to the general economic factors discussed above, conditions in the credit markets caused GMAC, like many other lenders, to suspend or severely curtail lease financing and tighten credit standards for traditional retail financing, with the result that consumers find it more difficult to finance purchases of new vehicles. GMAC and other lenders also increasingly restricted dealer financing. In light of the continued deterioration of industry vehicle sales and generally worsening economic conditions, we are now basing our operating plans on what we believe to be a conservative assumption of a 14.0 million unit U.S. total vehicle market in 2008 and 12.0 million for 2009, and we have concluded that our July 2008 initiatives will not be sufficient to ensure adequate liquidity through 2009 without further actions being taken.
 
As noted above, one consequence of the global economic downturn and credit crisis has been that capital markets have for all practical purposes been closed to GM for purposes of implementing the $2 billion to $3 billion of fundraising that was included in our July plan to bolster our liquidity during the remainder of 2008 and the first half of 2009. We explored a number of potential transactions to issue significant debt or equity capital during the three months ended September 30, 2008, but were unable to do so on acceptable terms. In the three months ended September 30, 2008, we exchanged $0.5 billion of principal amount of our outstanding Series D convertible bonds due in June 2009 for newly issued GM common stock. As it is unlikely we will be able to execute an additional capital markets transaction in the near term, our ability to meet our liquidity needs relies on our ability to successfully implement other initiatives in our liquidity plans. The global credit market further deteriorated in September with the failures of several large financial institutions and the merger of others. Accordingly, on September 24, 2008, in order to have certainty of access to funding, we drew down the remaining $3.4 billion of funding available under our secured revolving credit facility. We had previously drawn $1.0 billion on August 1, 2008 to assist in meeting our seasonal working capital needs.
 
Reflecting the priority of addressing liquidity, we announced additional operating changes and other actions on November 7, 2008. Taken together, we expect these actions to provide an incremental $5.0 billion of cash savings through December 31,


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
2009, which combined with previous initiatives announced on July 15, 2008, would conserve or generate cash of up to $20.0 billion. These additional actions include:
 
  •   Salaried employment savings (estimated $0.5 billion effect) — Additional salaried employment savings will be achieved through incremental workforce reductions in U.S. and Canada, including involuntary separation initiatives. In addition, we have announced the suspension of our matching contribution to certain defined contribution plans starting November 1, 2008 as well as suspension of other reimbursement programs for U.S. and Canadian salaried employees. We also expect to realize salaried employment savings in Western Europe in 2009 through a wage/salary freeze and other cost reduction initiatives.
  •   Additional GMNA structural cost reductions (estimated $1.5 billion effect) — We expect to reduce GMNA structural cost by an additional $1.5 billion in 2009. These additional reductions would result from the recently announced acceleration of previously planned capacity actions and other plant operating plan changes, additional efficiencies in engineering resources aligned with further product plan changes, continued marketing spending reductions aligned with expected automotive industry conditions and intensified focus on discretionary spending reductions.
  •   Additional working capital reductions (estimated $0.5 billion effect) — GMNA is targeting approximately $0.5 billion of additional working capital reductions beyond the original 2008 target reduction level of $1.5 billion. This additional target reduction is expected to be achieved by continuing to focus on inventory reductions and initiatives related to accounts payable.
  •   Additional capital expenditure reductions (estimated $2.5 billion effect) — In the absence of federal funding support, 2009 capital spending will be reduced from the revised target of $7.2 billion announced on July 15 to $4.8 billion. This reduction will be achieved primarily through deferrals of selected programs (e.g., the Cadillac CTS coupe and the next generation Chevy Aveo for the global market) and related capacity reduction projects. However, we are still planning to increase global spending for fuel economy improvements, and spending related to the Chevy Volt will continue. Beyond 2009, capital expenditures will stabilize in the $6.5 billion to $7.0 billion range (excluding China, which is self funded with our joint venture partner).
 
These actions are intended to conserve or generate cash of up to $20.0 billion in response to deterioration in the global economy, particularly the automotive industry, so that we can preserve adequate liquidity throughout the period from September 30, 2008 to December 31, 2009. However, the full effect of many of these actions will not be realized until later in 2009, even if they are successfully implemented. We are committed to exploring all of the initiatives discussed above because there is no assurance that industry or capital markets conditions will improve within that time frame. Our ability to continue as a going concern is substantially dependent on the successful execution of many of the actions referred to above, on the timeline contemplated by our plans.
 
  Change in Presentation of Financial Statements
 
We reclassified prior period results for the retroactive effect of discontinued operations. Refer to Note 3. In the nine months ended September 30, 2008, we reclassified immaterial amounts related to a vehicle assembly agreement from Automotive cost of sales to Automotive sales to report the arrangement on a net basis for all periods presented. Certain reclassifications, including inter-segment eliminations between Corporate and FIO, have been made to the 2007 financial information to conform to the current period presentation.
 
Change in Accounting Principles
 
  Fair Value Measurements
 
On January 1, 2008 we adopted Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS No. 157), which 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. SFAS No. 157 requires expanded disclosures about fair value measurements and establishes a three-level hierarchy for fair value measurements based on the


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
observable inputs to the valuation of an asset or liability at the measurement date. The standard also requires that a company consider its own nonperformance risk when measuring liabilities carried at fair value, including derivatives. In February 2008 the Financial Accounting Standards Board (FASB) approved FASB Staff Position (FSP) No. FAS 157-2, “Effective Date of FASB Statement No. 157” (FSP No. FAS 157-2), that permits companies to partially defer the effective date of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. FSP No. FAS 157-2 does not permit companies to defer recognition and disclosure requirements for financial assets and financial liabilities or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually. SFAS No. 157 is effective for financial assets and financial liabilities and for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The provisions of SFAS No. 157 are applied prospectively. We have decided to defer adoption of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The effect of our adoption of SFAS No. 157 on January 1, 2008 was not material and no adjustment to Accumulated deficit was required. Refer to Note 6 for the effect the adoption by GMAC of this standard had on our financial condition. Refer to Note 13 for more information regarding the effect of our adoption of SFAS No. 157 with respect to financial assets and liabilities. We are currently unable to quantify the effect, if any that the adoption of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities will have on our financial condition and results of operations.
 
  The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of SFAS No. 115
 
On January 1, 2008 we adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (SFAS No. 159), which permits a company to measure certain financial assets and financial liabilities at fair value that were not previously required to be measured at fair value. We have not elected to measure any financial assets and financial liabilities at fair value which were not previously required to be measured at fair value. Therefore, the adoption of this standard has had no effect on our results of operations. Refer to Note 6 for the effect the adoption by GMAC of this standard had on our financial condition.
 
  Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active
 
In October 2008 the FASB issued FSP No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (FSP No. 157-3), which clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The effect of applying the guidance in FSP No. 157-3 at September 30, 2008 was not material.
 
  Accounting for Uncertainty in Income Taxes
 
On January 1, 2007 we adopted FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN No. 48), which supplements SFAS No. 109, “Accounting for Income Taxes” (SFAS No. 109), by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. FIN No. 48 requires that the tax effect(s) of a position be recognized only if it is “more likely than not” to be sustained based solely on its technical merits as of the reporting date. The more likely than not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position. If a tax position is not considered more likely than not to be sustained based solely on its technical merits, no benefits of the tax position are to be recognized. The more likely than not threshold must continue to be met in each reporting period to support continued recognition of a benefit. With the adoption of FIN No. 48, companies were required to adjust their financial statements to reflect only those tax positions that are more likely than not to be sustained. We adopted FIN No. 48 at January 1, 2007, and recorded a decrease to Accumulated deficit of $137 million as a cumulative effect of a change in accounting principle with a corresponding decrease to our liability for uncertain tax positions.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Accounting Standards Not Yet Adopted
 
  Business Combinations
 
In December 2007 the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS No. 141(R)), which retained the underlying concepts under existing standards that all business combinations be accounted for at fair value under the acquisition method of accounting. However, SFAS No. 141(R) changes the method of applying the acquisition method in a number of significant aspects. SFAS No. 141(R) will require that: (1) for all business combinations, the acquirer records 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 recognized at their fair values on the acquisition date; (3) contingent consideration be recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value be recognized 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 re-measured to their acquisition-date fair values, with any gain or loss recognized 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. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS No. 141(R) should also apply the provisions of this standard. Once effective, this standard will be applied to all future business combinations.
 
  Noncontrolling Interests in Consolidated Financial Statements
 
In December 2007 the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51” (SFAS No. 160), which amends Accounting Research Bulletin (ARB) No. 51, “Consolidated Financial Statements” (ARB No. 51), to establish new standards that will govern the accounting for and reporting of noncontrolling interests in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Also, SFAS No. 160 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 the 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) upon a loss of control, any gain or loss on the interest sold be recognized in earnings; and (5) the noncontrolling interest’s share be recorded at the fair value of net assets acquired, plus its share of goodwill. SFAS No. 160 is effective on a prospective basis for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which will be applied retrospectively. We are currently evaluating the effects that SFAS No. 160 will have on our financial condition and results of operations.
 
  Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133
 
In March 2008 the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133” (SFAS No. 161), which expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133). SFAS No. 161 requires additional disclosures regarding: (1) how and why a company uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133; and (3) how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. In addition, SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives described in the context of a company’s risk exposures, quantitative disclosures about the location and fair value of derivative instruments and associated gains and losses, and disclosures about credit-risk-related


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
contingent features in derivative instruments. SFAS No. 161 is effective for fiscal years and interim periods within those fiscal years, beginning after November 15, 2008.
 
  Accounting for Convertible Debt Instruments
 
In May 2008 the FASB ratified FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)” (FSP No. APB 14-1), 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 also allocated between the debt and equity components. FSP No. APB 14-1 will require that convertible debt within its scope reflect a company’s nonconvertible debt borrowing rate when interest expense is recognized. FSP No. APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and shall be applied retrospectively to all prior periods. We estimate that upon adoption, interest expense will increase for all periods presented with fiscal year 2009 pre-tax interest expense increasing by approximately $110 million based on our current level of indebtedness.
 
  Participating Share-Based Payment Awards
 
In June 2008 the FASB ratified FSP No EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (FSP No. EITF 03-6-1), which addresses whether instruments granted in share-based payment awards are participating securities prior to vesting and, therefore, must be included in the earnings allocation in calculating earnings per share under the two-class method described in SFAS No. 128, “Earnings per Share” (SFAS No. 128). FSP No. EITF 03-6-1 requires that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend-equivalents be treated as participating securities in calculating earnings per share. FSP No. EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and shall be applied retrospectively to all prior periods. We are currently evaluating the effects, if any, that FSP No. EITF 03-6-1 may have on our earnings per share.
 
  Determination of Whether an Equity-Linked Financial Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock
 
In June 2008 the FASB ratified EITF No. 07-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock” (EITF No. 07-5), which requires that an instrument’s contingent exercise provisions be analyzed first. If this evaluation does not preclude consideration of an instrument as indexed to its own stock, the instrument’s settlement provisions are then analyzed. EITF No. 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, with recognition of a cumulative effect of a change in accounting principle for all instruments existing at the effective date to the balance of retained earnings. We are currently evaluating the effects, if any, that EITF No. 07-5 may have on our financial condition and results of operations.
 
  Accounting for Collaborative Arrangements
 
In December 2007 the FASB ratified EITF No. 07-1, “Accounting for Collaborative Arrangements” (EITF No. 07-1), which requires revenue generated and costs incurred by the parties in the collaborative arrangement be reported in the appropriate line in each company’s financial statements pursuant to the guidance in EITF No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” (EITF No. 99-19), and not account for such arrangements using the equity method of accounting. EITF No. 07-1 also includes enhanced disclosure requirements regarding the nature and purpose of the arrangement, rights and obligations under the arrangement, accounting policy, and the amount and income statement classification of collaboration transactions between the parties. EITF No. 07-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and shall be applied retrospectively (if practicable) to all prior periods presented for all


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
collaborative arrangements existing as of the effective date. We are currently evaluating the effects, if any, that EITF No. 07-1 may have on the presentation and classification of these activities in our consolidated financial statements.
 
  Accounting by Lessees for Nonrefundable Maintenance Deposits
 
In June 2008 the FASB ratified EITF No. 08-3, “Accounting by Lessees for Nonrefundable Maintenance Deposits” (EITF No. 08-3), which specifies that nonrefundable maintenance deposits that are contractually and substantively related to maintenance of leased assets be accounted for as deposit assets. EITF No. 08-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, with recognition of a cumulative effect of a change in accounting principle to the opening balance of retained earnings for the first year presented. We are currently evaluating the effects, if any, that EITF No. 08-3 may have on our financial condition and results of operations.
 
Note 3. Divesture of Business
 
  Sale of Allison Transmission Business
 
In August 2007, we completed the sale of the commercial and military operations of our Allison Transmission (Allison) business. The results of operations and cash flows of Allison have been reported in our condensed consolidated financial statements as discontinued operations in the three and nine months ended September 30, 2007. Historically, Allison was reported within GMNA.
 
The following table summarizes the results of discontinued operations:
 
                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30, 2007     September 30, 2007  
    (Dollars in millions)  
 
Net sales
  $ 164     $ 1,225  
Operating income from discontinued operations
  $ 73     $ 409  
Income tax provision
  $ 25     $ 148  
Income from discontinued operations, net of tax
  $ 45     $ 256  
Gain on sale of discontinued operations, net of tax
  $ 3,504     $ 3,504  
 
As part of the transaction, we entered into an agreement with the buyers of Allison whereby we may provide the new parent company of Allison with contingent financing of up to $100 million. Such financing would be made available if, during a defined period of time, Allison was not in compliance with its financial maintenance covenant under a separate credit agreement. Our financing would be contingent on the stockholders of the new parent company of Allison committing to provide an equivalent amount of funding to Allison, either in the form of equity or a loan, and, if a loan, such loan would be granted on the same terms as our loan to the new parent company of Allison. At September 30, 2008 we have not provided financing pursuant to this agreement. This commitment expires on December 31, 2010. Additionally, both parties have entered into non-compete arrangements for a term of 10 years in the United States and for a term of five years in Europe.
 
Note 4. Finance Receivables and Securitizations
 
We generate receivables from sales of vehicles to our dealer network domestically, as well as from service parts and powertrain sales. In connection with the related trade accounts receivables program, in September 2007 we renewed an agreement to sell undivided interests in eligible trade receivables of up to $600 million directly to banks and to a bank conduit. Under this agreement, the receivables were sold at fair market value and removed from our condensed consolidated balance sheet at the time of sale. This agreement expired in September 2008.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
In September 2008, we entered into a one year revolving securitization borrowing program that provides financing of up to $197 million. The trade receivables, which serve as security under this agreement, are isolated in wholly-owned bankruptcy remote special purpose entities, which in turn pledge the receivables to lending institutions. The pledged receivables are reported in Accounts and notes receivable, net and borrowings are reported as Short-term borrowings on the condensed consolidated balance sheet. At September 30, 2008, $451 million of receivables were pledged and borrowings of $180 million were outstanding under this program.
 
Note 5. Inventories
 
The following table summarizes the components of inventory:
 
                         
    September 30,
    December 31,
    September 30,
 
    2008     2007     2007  
    (Dollars in millions)  
 
Productive material, work in process and supplies
  $ 6,477     $ 6,267     $ 6,434  
Finished product, including service parts
    11,897       10,095       10,550  
                         
Total inventories at FIFO
    18,374       16,362       16,984  
Less LIFO allowance
    (1,460 )     (1,423 )     (1,454 )
                         
Total automotive inventories
    16,914       14,939       15,530  
FIO off-lease vehicles, included in FIO Other assets
    224       254       237  
                         
Total inventories
  $ 17,138     $ 15,193     $ 15,767  
                         
 
Note 6. Investment in Nonconsolidated Affiliates
 
The following table summarizes information regarding our share of net income (loss) of our nonconsolidated affiliates:
 
                                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
          (Dollars in millions)        
 
GMAC
  $ (1,235 )   $ (809 )   $ (2,741 )   $ (874 )
GMAC Common Membership Interests impairments
                (2,036 )      
Shanghai General Motors Co., Ltd and SAIC-GM-Wuling Automobile Co., Ltd. 
    47       73       250       306  
Others
    3       41       60       134  
                                 
Total
  $ (1,185 )   $ (695 )   $ (4,467 )   $ (434 )
                                 


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following tables summarize financial information of GMAC:
 
                                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
    (Dollars in millions)  
 
Condensed Consolidated Statements of Operations:
                               
Total financing revenue
  $ 4,641     $ 5,381     $ 14,395     $ 15,994  
Depreciation expense on operating lease assets
  $ 1,412     $ 1,276     $ 4,209     $ 3,530  
Interest expense
  $ 2,906     $ 3,715     $ 8,953     $ 11,122  
Loss before income tax expense
  $ (2,621 )   $ (1,664 )   $ (5,500 )   $ (1,367 )
Income tax expense (benefit)
  $ (98 )   $ (68 )   $ 94     $ 241  
Net loss
  $ (2,523 )   $ (1,596 )   $ (5,594 )   $ (1,608 )
Net loss available to members
  $ (2,523 )   $ (1,649 )   $ (5,594 )   $ (1,765 )
 
                         
    September 30,
    December 31,
    September 30,
 
    2008     2007     2007  
    (Dollars in millions)  
 
Condensed Consolidated Balance Sheets:
                       
Loans held for sale
  $ 11,979     $ 20,559     $ 23,992  
Finance receivables and loans, net
  $ 109,290     $ 124,759     $ 143,612  
Investment in operating leases, net
  $ 30,628     $ 32,348     $ 31,300  
Other assets
  $ 26,152     $ 28,255     $ 27,570  
Total assets
  $ 211,327     $ 248,939     $ 278,778  
Total debt
  $ 160,631     $ 193,148     $ 221,100  
Accrued expenses, deposit and other liabilities
  $ 30,525     $ 28,713     $ 29,971  
Total liabilities
  $ 202,079     $ 233,374     $ 262,514  
Redeemable preferred membership interests
  $     $     $ 2,226  
Preferred interests
  $ 1,052     $ 1,052     $  
Total equity
  $ 9,248     $ 15,565     $ 14,038  
 
The following table summarizes information related to our Preferred and Common Membership Interests in GMAC:
 
                         
    September 30,
    December 31,
    September 30,
 
    2008     2007     2007  
    (Dollars in millions)  
 
Preferred Membership Interests (shares)
    1,021,764       1,021,764       1,555,000  
Percentage ownership of Preferred Membership Interests issued and outstanding
    100 %     100 %     74 %
Carrying value of Preferred Membership Interests
  $ 43     $ 1,044     $ 1,594  
Carrying value of Common Membership Interests
  $ 1,949     $ 7,079     $ 6,852  
 
In the three month periods ended March 31 and June 30, 2008, we determined that our investment in GMAC Common Membership Interests was impaired and in the three month periods ended March 31, June 30 and September 30, 2008 that our investment in GMAC Preferred Membership Interests was impaired and that such impairments were other than temporary.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table summarizes the impairment charges we have recorded against our investment in GMAC Common and Preferred Membership Interests:
 
                 
    Three Months
    Nine Months
 
    Ended September 30,
    Ended September 30,
 
    2008     2008  
    (Dollars in millions)  
 
GMAC Common Membership Interests
  $     $ 2,036  
GMAC Preferred Membership Interests
    251       1,001  
                 
Total
  $ 251     $ 3,037  
                 
 
Impairment charges are recorded in Equity in loss of GMAC LLC and Automotive interest income and other non-operating income, net for our investment in GMAC Common and Preferred Membership Interests, respectively.
 
Our measurements of fair value were determined in accordance with SFAS No. 157 utilizing Level 3 inputs of the fair value hierarchy established in SFAS No. 157. Refer to Note 13 for further information on the specific valuation methodology.
 
In the nine months ended September 30, 2008, GMAC was not required under the terms of the Preferred Membership Interests to, and elected not to, pay a dividend on our Preferred Membership Interests. We accrued dividends of $39 million and $116 million in the three and nine months ended September 30, 2007, respectively, related to our Preferred Membership Interests and such dividends were subsequently paid to us by GMAC.
 
On January 1, 2008 GMAC adopted SFAS No. 157 and No. 159. As a result of its adoption of SFAS No. 157, GMAC recorded an adjustment to retained earnings related to the recognition of day-one gains on purchased mortgage servicing rights and certain residential loan commitments. As a result of its adoption of SFAS No. 159, GMAC elected to measure, at fair value, certain financial assets and liabilities including certain collateralized debt obligations and certain mortgage loans held for investment in financing securitization structures. As a result, we reduced our Equity in net assets of GMAC LLC and increased our Accumulated deficit by $76 million in the nine months ended September 30, 2008 reflecting our proportionate share of the cumulative effect of GMAC’s adoption of SFAS No. 157 and No. 159.
 
Refer to Note 18 for a description of the related party transactions with GMAC.
 
  Electro-Motive Diesel, Inc.
 
In April 2008 we converted a note receivable with a basis of $37 million, which resulted from the sale of our Electro-Motive Division in April 2005, into a 30% common equity interest in Electro-Motive Diesel, Inc. the successor company (EMD). We subsequently sold our common equity interest in EMD for $80 million in cash and a note receivable of $7 million, due in December 2008. In the nine months ended September 30, 2008, we recognized a gain on the sale of our common equity interest of $50 million, which is recorded in Automotive interest income and other non-operating income, net.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 7. Depreciation and Amortization
 
The following table summarizes depreciation and amortization, including asset impairment charges, included in Automotive cost of sales, Selling, general and administrative expense, and Financial services and insurance expense:
 
                                 
    Three Months
    Nine Months
 
    Ended
    Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
    (Dollars in millions)  
 
Automotive
                               
Depreciation and impairment
  $ 1,175     $ 1,237     $ 3,580     $ 3,725  
Amortization and impairment of special tools
    749       744       2,348       2,327  
Amortization of intangible assets
    21       16       61       51  
                                 
Total
    1,945       1,997       5,989       6,103  
                                 
Financing and Insurance Operations
                               
Depreciation and impairment
    23       297       519       1,010  
                                 
Total consolidated depreciation and amortization
  $ 1,968     $ 2,294     $ 6,508     $ 7,113  
                                 
 
Note 8. Long-Term Debt and Revolving Credit Agreements
 
  Convertible Debt
 
In September 2008, we entered into agreements with a qualified institutional holder of our 1.50% Series D convertible senior debentures due in 2009 (Series D debentures). Pursuant to these agreements, we issued an aggregate of 44 million shares of our common stock in exchange for $498 million principal amount of our Series D debentures. In accordance with the agreements, the amount of our common stock exchanged for the Series D debentures was based on the daily volume weighted average price of our common stock on the New York Stock Exchange (NYSE) in the contractual three- and four-day pricing periods.
 
We entered into the agreements, in part, to reduce our debt and interest costs, increase our equity, and thereby improve our liquidity. We did not receive any cash proceeds from the exchange of our common stock for the Series D debentures, which have been retired and cancelled. As a result of this exchange, we recorded a settlement gain of $19 million in Automotive interest income and other non-operating income, net in the three and nine months ended September 30, 2008.
 
On March 6, 2007, Series A convertible debentures in the amount of $1.1 billion were put to us and settled entirely in cash. At September 30, 2008 and 2007, the principal amount of outstanding Series A convertible debentures was $39 million.
 
  Borrowings Under Revolving Credit Agreements
 
On August 1, 2008 and September 24, 2008, we borrowed $1.0 billion and $3.4 billion, respectively, against our $4.5 billion standby revolving credit facility, which terminates in 2011. Under the secured facility, borrowings are limited to an amount based on the value of the underlying collateral. At September 30, 2008, $4.4 billion was outstanding under this facility, with no further availability.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 9. Product Warranty Liability
 
The following table summarizes activity for policy, product warranty, recall campaigns and certified used vehicle warranty liabilities:
 
                         
    Nine Months
    Year
    Nine Months
 
    Ended
    Ended
    Ended
 
    September 30,
    December 31,
    September 30,
 
    2008     2007     2007  
    (Dollars in millions)  
 
Beginning balance
  $ 9,615     $ 9,064     $ 9,064  
Warranties issued during period
    3,351       5,135       3,742  
Payments
    (3,938 )     (4,539 )     (3,395 )
Adjustments to pre-existing warranties
    203       (165 )     (97 )
Effect of foreign currency translation
    (190 )     223       301  
Liabilities transferred in the sale of Allison (Note 3)
          (103 )     (103 )
                         
Ending balance
  $ 9,041     $ 9,615     $ 9,512  
                         
 
We review and adjust these estimates on a regular basis based on the differences between actual experience and historical estimates or other available information.
 
Note 10. Pensions and Other Postretirement Benefits
 
The following tables summarize the components of Net periodic pension and other postretirement benefits (OPEB) (income) expense from continuing operations:
 
                                                                 
    U.S. Plans
    Non-U.S. Plans
    U.S. Other
    Non-U.S.
 
    Pension Benefits     Pension Benefits     Benefits     Other Benefits  
    Three Months Ended
    Three Months Ended
    Three Months Ended
    Three Months Ended
 
    September 30,     September 30,     September 30,     September 30,  
    2008     2007     2008     2007     2008     2007     2008     2007  
    (Dollars in millions)  
Components of (income) expense
                                                               
Service cost
  $ 122     $ 155     $ 113     $ 134     $ 54     $ 92     $ 7     $ 11  
Interest cost
    1,398       1,216       310       279       845       901       57       51  
Expected return on plan assets
    (2,006 )     (1,986 )     (234 )     (240 )     (325 )     (350 )            
Amortization of prior service cost (credit)
    207       1,686       29       7       (494 )     (455 )     (27 )     (22 )
Amortization of transition obligation
                2       2                          
Recognized net actuarial loss
    73       208       71       82       116       337       35       31  
Curtailments, settlements and other
    47       23       15       12       (3,192 )     (214 )            
Divestiture of Allison
          (20 )                       216              
                                                                 
Net periodic pension and OPEB (income) expense from continuing operations
  $ (159 )   $ 1,282     $ 306     $ 276     $ (2,996 )   $ 527     $ 72     $ 71  
                                                                 
 


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
                                                                 
    U.S. Plans
    Non-U.S. Plans
    U.S. Other
    Non-U.S.
 
    Pension Benefits     Pension Benefits     Benefits     Other Benefits  
    Nine Months Ended
    Nine Months Ended
    Nine Months Ended
    Nine Months Ended
 
    September 30,     September 30,     September 30,     September 30,  
    2008     2007     2008     2007     2008     2007     2008     2007  
    (Dollars in millions)  
 
Components of (income) expense
                                                               
Service cost
  $ 412     $ 475     $ 315     $ 363     $ 199     $ 278     $ 26     $ 33  
Interest cost
    3,993       3,648       943       800       2,678       2,704       175       144  
Expected return on plan assets
    (6,120 )     (5,958 )     (730 )     (688 )     (1,010 )     (1,050 )            
Amortization of prior service cost (credit)
    615       1,946       388       21       (1,424 )     (1,378 )     (77 )     (63 )
Amortization of transition obligation
                5       5                          
Recognized net actuarial loss
    201       630       210       250       490       1,016       92       89  
Curtailments, settlements and other
    3,313       25       237       51       (3,225 )     (213 )            
Divestiture of Allison
          (30 )                       211              
                                                                 
Net periodic pension and OPEB (income) expense from continuing operations
  $ 2,414     $ 736     $ 1,368     $ 802     $ (2,292 )   $ 1,568     $ 216     $ 203  
                                                                 
 
  Adoption of SFAS No. 158
 
We recognize the funded status of our defined benefit plans in accordance with the provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (SFAS No. 158). Additionally, we elected to early adopt the measurement date provisions of SFAS No. 158 at January 1, 2007. Those provisions require the measurement date for plan assets and obligations to coincide with the sponsor’s year end. Using the “two-measurement” approach for those defined benefit plans where the measurement date was not historically consistent with our year end, we recorded an increase to Accumulated deficit of $728 million, $425 million after-tax, representing the net periodic benefit expense for the period between the measurement date utilized in 2006 and the beginning of 2007, which previously would have been recorded in the three months ended March 31, 2007 on a delayed basis. We also performed a measurement at January 1, 2007 for those benefit plans whose previous measurement dates were not historically consistent with our year end. As a result of the January 1, 2007 measurement, we recorded a decrease to Accumulated other comprehensive loss of $2.3 billion, $1.5 billion after-tax, representing other changes in the fair value of the plan assets and the benefit obligations for the period between the measurement date utilized in 2006 and January 1, 2007. These amounts are offset partially by an immaterial adjustment of $390 million, $250 million after-tax, to correct certain demographic information used in determining the amount of the cumulative effect of a change in accounting principle reported at December 31, 2006 to adopt the recognition provisions of SFAS No. 158.
 
  Divestiture of Allison
 
As a result of the Allison divestiture discussed in Note 3, we recorded an adjustment to the unamortized prior service cost of our U.S. hourly and salaried pension plans of $18 million and our U.S. hourly and salaried OPEB plans of $223 million in the three and nine months ended September 30, 2007. Those adjustments were included in the determination of the gain recognized on the sale of Allison. The net periodic pension and OPEB (income) expenses related to Allison were reported as a component of Discontinued operations. All such amounts related to Allison are reflected in the tables above, and the effects of those amounts are shown as an adjustment to arrive at Net periodic pension and OPEB (income) expense from continuing operations.

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
  Significant Plan Amendments, Benefit Modifications and Related Events
 
In the nine months ended September 30, 2008 a number of significant events related to our benefit plans occurred, many of which required remeasurements of our various pension and OPEB plans. The more significant events included:
 
  •   The Settlement Agreement became effective, which transfers to the UAW our obligation to provide retiree health care coverage for GM-UAW retirees effective January 1, 2010. In conjunction with the Settlement Agreement, we remeasured our UAW hourly medical plan, our Mitigation Plan and our U.S. hourly pension plan at September 1, 2008.
  •   We implemented special attrition programs to further reduce the number of hourly employees. These programs required that we remeasure our U.S. hourly pension plan and UAW hourly medical plan at May 31, 2008.
  •   We amended our U.S. salaried retiree medical and pension plans to eliminate health care coverage for U.S. salaried retirees over age 65. These amendments required that we remeasure our U.S. salaried retiree medical and U.S. salaried pension plans at July 1, 2008.
  •   We assumed certain pension and OPEB obligations for Delphi employees, which required that we remeasure certain OPEB plans and our U.S. hourly pension plan at September 30, 2008.
  •   An agreement to increase pension benefits to certain Canadian hourly workers and certain facility idlings required that we remeasure our Canadian hourly and salaried pension plans and the Canadian hourly retiree plan at May 31, 2008.
  •   In the intervening time period, from May 31, 2008 to September 30, 2008 we experienced actual plan asset losses of $6.0 billion in our U.S. hourly pension plan based on the foregoing remeasurements.
 
  2008 GM-UAW Settlement Agreement
 
In October 2007, we signed a Memorandum of Understanding — Post-Retirement Medical Care (Retiree MOU) with the International Union, United Automotive, Aerospace and Agricultural Implement Workers of America (UAW), now superseded by the settlement agreement entered into in February 2008 (Settlement Agreement). The Settlement Agreement provides that responsibility for providing retiree healthcare will permanently shift from us to a new retiree plan (New Plan) funded by a new independent Voluntary Employee Beneficiary Association (New VEBA). The United States District Court for the Eastern District of Michigan (Court) certified the class and granted preliminary approval of the Settlement Agreement and we mailed notices to the class in March 2008. The fairness hearing was held on June 3, 2008 and on July 31, 2008 the Court approved the Settlement Agreement. Before it could become effective, the Settlement Agreement was subject to the exhaustion of any appeals of the July 31, 2008 Court approval and the completion of discussions between us and the staff of the SEC regarding the accounting treatment for the transactions contemplated by the Settlement Agreement on a basis we believe to be reasonably satisfactory.
 
On September 2, 2008 (Final Effective Date), the judgment became final as the period to file appeals related to the Court’s order expired, with no appeals filed. In September 2008, we determined that discussions between us and the staff of the SEC regarding the accounting treatment for the transaction contemplated by the Settlement Agreement were completed on a basis we believe to be reasonably satisfactory. Therefore, the Settlement Agreement is now effective and under the terms of the Settlement Agreement, on January 1, 2010 (Implementation Date), our obligation to provide retiree healthcare coverage for GM-UAW retirees and beneficiaries will terminate. The obligation for retiree medical claims incurred on or after such date will be the responsibility of the New Plan and New VEBA.
 
As a result of the Settlement Agreement becoming effective, we remeasured the obligations and plan assets of our UAW hourly medical plan and Mitigation Plan (as defined in the 2007 10-K) using updated assumptions at September 1, 2008. The remeasured accumulated postretirement benefit obligation (APBO) included: (1) the expected benefit payments from the Final Effective Date to the Implementation Date, discounted at a rate of 5.1%; (2) the expected payments to the New VEBA, on or after the Implementation Date, as agreed to in the Settlement Agreement, discounted at the contractual discount rate of 9.0%; and (3) a $450 million payment to the New VEBA which is contingent upon substantial consummation of a plan of reorganization (POR) by Delphi Corporation (Delphi). The discount rate of 5.1% was determined based on the yield of an optimized hypothetical portfolio of high-quality bonds rated AA or higher by a recognized rating agency with maturities


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
through December 31, 2009 sufficient to fully defease the obligation for expected benefit payments before the Implementation Date. Additionally, the expected payments to the New VEBA after the Implementation Date assume that we will: (1) be required to make all twenty annual shortfall payments of $165 million to the New VEBA (discussed below); (2) not elect to prepay any contributions to the New VEBA; and (3) contribute the $450 million payment to the New VEBA which is contingent upon Delphi’s POR. The remeasurement of the UAW hourly medical plan resulted in a reduction of our APBO of $13.1 billion from the May 31, 2008 plan remeasurement, substantially all of which was recorded as an actuarial gain in Other comprehensive loss that will be amortized with other net actuarial gains and losses over the remaining life expectancy of plan participants. The decrease in APBO includes $1.7 billion of reduced retiree healthcare benefits that were offset by a flat monthly special lifetime benefit of $66.70 commencing January 1, 2010 to be paid to plan participants out of the U.S. hourly pension plan (discussed below). This has been recorded as an actuarial gain in Other comprehensive loss and will be recognized as a component of the settlement gain or loss for the UAW hourly medical plan recorded at the Implementation Date. Additionally, we recorded a $622 million benefit in the three and nine months ended September 30, 2008 pursuant to the Settlement Agreement for the reduction of our post-Implementation Date liability related to our assumption of the Delphi healthcare obligation for certain active and retired Delphi-UAW employees. The remeasurement of the Mitigation Plan resulted in a $200 million reduction of that plan’s APBO, which we recorded as an actuarial gain in Other comprehensive loss that will be subject to amortization with other net actuarial gains and losses over the expected period of economic benefit for that plan. Refer to Note 11 for additional information regarding Delphi.
 
Also, as part of the September 1, 2008 plan remeasurements, we recorded a net curtailment gain of $4.9 billion in the three and nine months ended September 30, 2008, included in Automotive cost of sales, representing the accelerated recognition of the portion of net prior service credits which had previously been scheduled for amortization after the Implementation Date. The net curtailment gain was comprised of a curtailment gain of $6.3 billion related to the UAW hourly medical plan partially offset by a $1.4 billion curtailment loss related to the Mitigation Plan.
 
From the Final Effective Date to the Implementation Date we will record net periodic postretirement healthcare cost, including service cost for UAW hourly medical plan participants working toward eligibility and the amortization of remaining net prior service credits. After the Implementation Date, no service cost will be recorded for active UAW participants who continue to work toward eligibility in the New Plan.
 
At the Implementation Date, we will account for the establishment and funding of the New VEBA as a termination of our UAW hourly medical plan and Mitigation Plan in accordance with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (SFAS No. 106). The settlement gain or loss to be recognized on the Implementation Date will include: (1) the difference between fair value of the consideration to be provided to the New VEBA and the carrying value of the UAW hourly medical plan and Mitigation Plan obligations; (2) the unamortized actuarial gains or losses remaining in Accumulated other comprehensive loss at that date; and (3) the cost of the increased pension benefit described below.
 
The U.S. hourly pension plan was amended as part of the Settlement Agreement to reflect a flat monthly special lifetime benefit of $66.70 commencing January 1, 2010 to be paid to plan participants to help offset the costs of monthly contributions required under the terms of the New VEBA. As a result, we remeasured our U.S. hourly pension plan at September 1, 2008 to reflect this change in benefits using a discount rate of 6.70%, which reflects a 25 basis point increase from the May 31, 2008 plan remeasurement. The remeasurement resulted in an increase to the projected benefit obligation (PBO) of $563 million. The cost of the flat monthly benefit, which was $2.7 billion at September 1, 2008, has been recorded as a component of net actuarial loss and will be recognized as a component of the settlement gain or loss for the UAW hourly medical plan recorded at the Implementation Date. We also experienced actual plan asset losses of $2.1 billion at the September 1, 2008 remeasurement date since the previous measurement date of May 31, 2008.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
In exchange for the transfer of our UAW hourly medical plan and Mitigation Plan obligations to the New Plan, the terms of the Settlement Agreement, as amended and agreed to by Class Counsel, require us to make contributions to the New VEBA as described below:
 
  •   We may contribute $5.6 billion on the Implementation Date or we may elect to make annual payments in varying amounts between $421 million and $3.3 billion through 2020. At any time after the Implementation Date we will have the option to prepay all remaining payments at a discount rate of 9%.
  •   In February 2008, we issued a $4.0 billion short-term note (Short-Term Note) to LBK, LLC, a Delaware limited liability company of which we are the sole member (LBK). The Short-Term Note pays interest at a rate of 9.0% and matures on or before the 20th business day after the Implementation Date. LBK will hold the Short-Term Note until maturity at which point the proceeds will be transferred to the New VEBA (or any other holder of the Convertible Note).
  •   In February 2008, we issued $4.4 billion principal amount of our 6.75% Series U Convertible Senior Debentures due December 31, 2012 (Convertible Note) to LBK. LBK will hold the Convertible Note until it is transferred to the New VEBA. The Convertible Note is convertible into 109 million shares of our common stock. Interest on the Convertible Note is payable semiannually. Interest payments of $296 million due in 2010, 2011 and 2012, after the Convertible Note is contributed to the New VEBA, will be made directly to the New VEBA (or any other holder of the Convertible Note).
  •   In conjunction with the issuance of the Convertible Note, we entered into certain cash-settled derivative instruments maturing on June 30, 2011 with LBK that will have the economic effect of reducing the conversion price of the Convertible Note from $40 to $36 per share. These derivative instruments will also entitle us to partially recover the additional economic value provided if our common stock price appreciates to between $63.48 and $70.53 per share by June 30, 2011 and to fully recover the additional economic value provided if our common stock price reaches $70.53 per share or above by June 30, 2011. LBK will transfer its interests in the derivatives to the New VEBA when the Convertible Note is transferred from LBK to the New VEBA following the Implementation Date.
  •   Because LBK is a wholly-owned consolidated subsidiary, the Short-Term Note, Convertible Note, derivatives and related interest income and expense have been and will continue to be eliminated in our condensed consolidated financial statements until the Implementation Date.
  •   Existing assets of the Mitigation Plan and a remaining $1.0 billion contribution due in 2011.
  •   Approximately $285 million of other payments to be made on the Implementation Date.
  •   We may be required to contribute $165 million per year (Shortfall Payments), limited to a maximum of 20 payments, to the New VEBA if annual cash flow projections show that the New VEBA will become insolvent on a rolling 25-year basis. When measuring our obligation at September 1, 2008, we assumed we will be required to make all 20 payments. At any time after the Implementation Date we will have the option to prepay all remaining payments at a discount rate of 9%.
  •   Effective January 1, 2008, we divided the existing internal VEBA into two bookkeeping accounts. One account consists of the percentage of the existing internal VEBA’s assets that is equal to the estimated percentage of our hourly OPEB obligation covered by the existing internal VEBA attributable to non-UAW represented employees and retirees, their eligible spouses, surviving spouses and dependents (Non-UAW Related Account). The second account consists of the remaining percentage of the assets in the existing internal VEBA (UAW Related Account). No amounts will be withdrawn from the UAW Related Account, including its investment returns, until the transfer of assets to the New VEBA. The UAW Related Account had a balance of $13.4 billion at September 1, 2008.
 
The foregoing description of the required timing of the payments reflects the deferral of $1.7 billion of payments which were originally required to be contributed in 2008 and 2009, as allowed by the Settlement Agreement and consented to by the Class Counsel. This includes interest on the Convertible Note, the Shortfall Payment of $165 million due in 2008 and other of the required annual payments. These payments are deferred until the Implementation Date and will be increased by an annual interest rate factor of 9.0%.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
  2008 Special Attrition Programs
 
In February 2008, we entered into agreements with the UAW and the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers of America — Communication Workers of America (IUE-CWA) regarding special attrition programs which were intended to further reduce the number of hourly employees. The UAW attrition program (2008 UAW Special Attrition Program) offered to our 74,000 UAW-represented employees consists of wage and benefit packages for normal and voluntary retirements, buyouts or pre-retirement leaves for employees with 26 to 29 years of service. In addition to their vested pension benefits, those employees that are retirement eligible will receive a lump sum payment, depending upon job classification, that will be funded from our U.S. hourly pension plan. For those employees not retirement eligible, other buyout options were offered. The terms offered to the 2,300 IUE-CWA-represented employees (2008 IUE-CWA Special Attrition Program) are similar to those offered through the 2008 UAW Special Attrition Program. As a result of the 2008 UAW Special Attrition Program and 2008 IUE-CWA Special Attrition Program (2008 Special Attrition Programs), in the nine months ended September 30, 2008 we recognized a curtailment loss on the U.S. hourly pension plan in accordance with SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” (SFAS No. 88), of $2.4 billion (measured at May 31, 2008) due to the significant reduction in the expected aggregate years of future service as a result of the employees accepting the voluntary program. In addition, we recorded special termination benefits of $800 million for irrevocable employee acceptances in the nine months ended September 30, 2008. The combined curtailment loss and other special termination benefit charges of $3.2 billion were recorded in Automotive cost of sales in the nine months ended September 30, 2008.
 
In addition to the expenses discussed above, the remeasurement of the U.S. hourly pension plan at May 31, 2008 generated an immaterial increase in net periodic pension income in the nine months ended September 30, 2008, as compared to the amount determined in connection with the December 31, 2007 remeasurement. The U.S. hourly pension plan remeasurement resulted in an increase to the PBO of $842 million at May 31, 2008, which includes the effect of other previously announced facility idlings in the U.S. as well as changes in certain actuarial assumptions. The discount rate used to determine the PBO at May 31, 2008 was 6.45%. This represents a 15 basis point increase from the 6.30% used at December 31, 2007. The effect of this change is reflected in Net periodic pension and OPEB (income) expense from continuing operations.
 
In anticipation of the possibility of a curtailment as a result of the 2008 UAW Special Attrition Program, we remeasured the UAW hourly medical plan at May 31, 2008. Subsequent to the remeasurement we determined that a curtailment did not occur; however, as required by SFAS No. 106, we have recorded the effects of the May 31, 2008 remeasurement of the UAW hourly medical plan in our condensed consolidated financial statements. This remeasurement resulted in an immaterial adjustment to the APBO and Net periodic pension and OPEB (income) expense from continuing operations. As a result of the 2008 Special Attrition Programs a number of smaller OPEB plans were curtailed in accordance with SFAS No. 106. The remeasurements of these plans in the nine months ended September 30, 2008 resulted in a $104 million curtailment gain. In addition, we recorded special termination benefits and other costs of $68 million in the nine months ended September 30, 2008 related to OPEB plans.
 
  Salaried Retiree Benefit Plan Changes
 
In July 2008, we amended our U.S. salaried retiree medical and pension plans, effective January 1, 2009, to eliminate healthcare coverage for U.S. salaried retirees over age 65. Upon reaching age 65, affected retirees and surviving spouses will receive a pension increase of $300 per month to partially offset the cost of Medicare and supplemental healthcare coverage. As a result of these plan changes, we remeasured our U.S. salaried retiree medical and U.S. salaried pension plans at July 1, 2008. For participants who are age 65 or over on January 1, 2009, the elimination of medical benefits, after considering the cost of the increased pension benefits provided, resulted in a settlement loss of $1.7 billion, which is substantially comprised of the recognition of $1.8 billion of actuarial losses. The $1.7 billion settlement loss was recorded in Automotive cost of sales in the three and nine months ended September 30, 2008. For participants who are under the age of 65, the future elimination of healthcare benefits upon their turning age 65, and the increased pension benefits provided, resulted in a negative plan amendment to the U.S. salaried retiree medical plan and a positive plan amendment to the U.S. salaried pension plan. The U.S.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
salaried retiree medical plan APBO was reduced by a net $4.0 billion at the July 1, 2008 remeasurement date from December 31, 2007, which included a $2.8 billion reduction attributable to the settlement and a $900 million reduction due to the negative plan amendment. The negative plan amendment for the U.S. salaried retiree medical plan and the positive plan amendment for the U.S. salaried pension plan will both be amortized over seven years, which represents the average remaining years to full eligibility for U.S. salaried retiree medical plan participants. The U.S. salaried retiree medical plan was remeasured using a discount rate of 6.75%, which represents a 35 basis point increase from December 31, 2007. The U.S. salaried pension plan PBO increased by a net $3.2 billion at the July 1, 2008 remeasurement date from December 31, 2007, which included a $2.6 billion increase attributable to the settlement and a $956 million increase due to the positive plan amendment. We also experienced actual plan asset losses of $700 million at the July 1, 2008 remeasurement date since the previous measurement. The pension plan was remeasured using a discount rate of 6.60% which represents a 15 basis point increase from December 31, 2007. As a result of the elimination of healthcare benefits for participants age 65 and over in the U.S. salaried retiree medical plan, all or almost all of the participants in the plan are no longer inactive. Accordingly, we have changed the U.S. salaried retiree medical plan’s amortization period for plan amendments and actuarial gains and losses effective with the July 1, 2008 remeasurement. Plan amendments on or after July 1, 2008 will now be amortized over the period to full eligibility and actuarial gains and losses amortized over the average years of future service.
 
  Salaried Retirement Window Program
 
In September 2008, we extended voluntary early retirement offers under our Salaried Retirement Window Program (Salaried Window Program) to certain of our U.S. salaried employees as part of our July 15, 2008 plan to reduce salary related costs. Employees accepting the Salaried Window Program were originally required to do so by October 24, 2008, however, the acceptance period was subsequently extended to November 7, 2008, with the majority of retirements taking place on November 1, 2008 and December 1, 2008. At September 30, 2008, 600 employees irrevocably accepted the Salaried Window Program, and as such, we recorded special termination benefit charges of $47 million in Automotive cost of sales in the three and nine months ended September 30, 2008 in accordance with SFAS No. 88 and SFAS No. 106. Because the offer period for the Salaried Window Program extended into November 2008, additional acceptances were received in the three months ending December 31, 2008 and accordingly, additional amounts will be expensed in those three months. Such amounts are expected to be at least $231 million.
 
  Delphi-GM Settlement Agreements
 
As discussed in Note 11, we and Delphi reached agreements in the three months ended September 30, 2008 with each of Delphi’s unions regarding the plan to freeze the benefits related to the Delphi Hourly-Rate Employee Pension Plan (Delphi HRP); the cessation by Delphi of OPEB for Delphi hourly union-represented employees and retirees; and transfers pursuant to Internal Revenue Service (IRS) Code Section 414(l) of certain assets and obligations from the Delphi HRP to our U.S. hourly pension plan. As a result of assuming Delphi OPEB obligations, we transferred liabilities from our Delphi related accrual of $2.7 billion. We remeasured certain of our OPEB plans at September 30, 2008 to include Delphi hourly employees, the effects of other announced facility idlings in the U.S., as well as changes in certain actuarial assumptions that increased our APBO by $1.2 billion. These plans were remeasured at September 30, 2008 using a weighted average discount rate of 6.85%, which reflects a 45 basis point increase from December 31, 2007.
 
The transfer of certain assets and obligations from the Delphi HRP to our U.S. hourly pension plan pursuant to IRS Code Section 414(l) resulted in a decrease in our Delphi related accrual and an offsetting increase in the PBO of $2.8 billion, which includes $100 million for our obligation to provide for up to seven years of credited service to certain Delphi employees. Accordingly, we remeasured our U.S. hourly pension plan at September 30, 2008 to include assets and liabilities of certain employees transferred in accordance with the Settlement Agreement, our obligation under the Benefit Guarantee to provide up to seven years of credited service to Covered Employees, and the effects of other announced facility idlings in the U.S., as well as changes in certain actuarial assumptions including a discount rate of 7.10%, which reflects a 40 basis point increase from September 1, 2008. The remeasurement including the above transfer of certain obligations resulted in a net increase in the PBO


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
of $1.1 billion from September 1, 2008. We also experienced actual plan asset losses of $3.9 billion at the September 30, 2008 remeasurement date since the previous measurement date of September 1, 2008.
 
  Canada Facility Idlings and Canadian Auto Workers Union Negotiations
 
In the three months ended June 30, 2008, we reached an agreement with the Canadian Auto Workers Union (CAW) (2008 CAW Agreement) which resulted in increased pension benefits. Additionally, subsequent to reaching an agreement with the CAW, we announced our plan to cease production at the Oshawa Truck Facility (Oshawa) in Canada due to a decrease in consumer demand for fullsize trucks which triggered a curtailment of the Canadian hourly and salaried pension plans (Canadian Pension Plans). Accordingly, we remeasured the Canadian Pension Plans at May 31, 2008 using a discount rate of 6.0%, which reflects a 25 basis point increase from December 31, 2007. Also included in the remeasurement were the effects of other previously announced facility idlings as well as changes in certain other actuarial assumptions. In the nine months ended September 30, 2008, the remeasurements resulted in a curtailment loss of $177 million in accordance with SFAS No. 88 related to the Canadian Pension Plans and, before foreign exchange effects, an increase to the PBO of $262 million. In addition, we recorded $37 million of contractual termination benefits in the nine months ended September 30, 2008 in Automotive cost of sales.
 
Prior to the 2008 CAW Agreement, we amortized prior service cost related to our Canadian hourly defined benefit pension plan in Canada over the remaining service period for active employees at the time of the amendment, previously estimated to be 10 years. In conjunction with entering into the 2008 CAW Agreement, we evaluated the 2008 CAW Agreement and the relationship with the CAW and determined that the contractual life of the labor agreements is a more appropriate reflection of the period of future economic benefit received from pension plan amendments negotiated as part of our collectively bargained agreement. Therefore, we are amortizing these amounts over three years. We recorded additional net periodic pension expense of $334 million in the nine months ended September 30, 2008 related to the accelerated recognition of previously unamortized prior service costs related to pension increases in Canada from prior collectively bargained agreements. This additional expense is primarily related to a change in the amortization period of existing prior service costs at the time of the 2008 CAW Agreement. The combined pension related charges of $548 million were recorded in Automotive cost of sales in the nine months ended September 30, 2008.
 
Additionally, we remeasured the Canadian hourly retiree medical plan at May 31, 2008. The remeasurement reflected the plan amendment in the 2008 CAW Agreement as well as the announced capacity reductions and utilized updated actuarial assumptions, including the discount rate. The discount rate used to determine the APBO at May 31, 2008 was 6.0%. This reflects a 25 basis point increase from the discount rate used at December 31, 2007. The remeasurement resulted in an immaterial adjustment to the APBO and to Net periodic pension and OPEB (income) expense from continuing operations in the nine months ended September 30, 2008.
 
Note 11. Commitments and Contingencies
 
  Commitments
 
We have provided guarantees related to the residual value of certain operating leases. At September 30, 2008, the maximum potential amount of future undiscounted payments that we could be required to pay under these guarantees was $127 million. These guarantees terminate during years ranging from 2008 to 2035. Certain leases contain renewal options. In May 2008, we purchased our headquarters building in Detroit. Prior to the purchase, we leased the building under an operating lease and had guaranteed $626 million related to its residual value. We performed on the guarantee in conjunction with the acquisition.
 
We have agreements with third parties that guarantee the fulfillment of certain suppliers’ commitments and related obligations. At September 30, 2008, the maximum potential future undiscounted payments that we could be required to pay under these guarantees was $559 million. Included in this amount is $513 million which relates to a guarantee provided to


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
GMAC in Brazil in connection with dealer floor plan financing. This guarantee is secured by a $565 million certificate of deposit purchased from GMAC to which we have title. These guarantees expire during years ranging from 2008 to 2017, or upon the occurrence of specific events, such as a company’s cessation of business. At September 30, 2008 we have recorded liabilities of $22 million related to these guarantees.
 
In some instances, certain assets of the party whose debt or performance we have guaranteed may offset, to some degree, the cost of the guarantee. The offset of certain of our payables to guaranteed parties may also offset certain guarantees, if triggered.
 
We also provide payment guarantees on commercial loans made by GMAC and outstanding with certain third parties, such as dealers or rental car companies. At September 30, 2008, the maximum commercial obligations we guaranteed related to these loans was $110 million, and expire during years ranging from 2008 to 2012. We determined the value ascribed to the guarantees to be insignificant based on the credit worthiness of the third parties.
 
In connection with certain divestitures of assets or operating businesses, we have entered into agreements indemnifying certain buyers and other parties with respect to environmental conditions pertaining to real property we owned. Also, in connection with such divestitures, we have provided guarantees with respect to benefits to be paid to former employees relating to pensions, postretirement health care and life insurance. Aside from indemnifications and guarantees related to Delphi or a specific divested unit, both of which are discussed below, it is not possible to estimate our maximum exposure under these indemnifications or guarantees due to the conditional nature of these obligations. No amounts have been recorded for such obligations as they are not probable and estimable at this time.
 
In addition to the guarantees and indemnifying agreements mentioned above, we periodically enter into agreements that incorporate indemnification provisions in the normal course of business. Due to the nature of these agreements, the maximum potential amount of future undiscounted payments to which we may be exposed cannot be estimated. No amounts have been recorded for such indemnities as our obligations under them are not probable and estimable at this time.
 
Refer to Note 18 for additional information on guarantees that we provide to GMAC.
 
  Environmental
 
Our operations, like operations of other companies engaged in similar businesses, are subject to a wide range of environmental protection laws, including laws regulating air emissions, water discharges, waste management and environmental cleanup. We are in various stages of investigation or remediation for sites where contamination has been alleged. We are involved in a number of remediation actions to clean up hazardous wastes as required by federal and state laws. Such statutes require that responsible parties fund remediation actions regardless of fault, legality of original disposal or ownership of a disposal site.
 
The future effect of environmental matters, including potential liabilities, is often difficult to estimate. We record an environmental reserve when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. This practice is followed whether the claims are asserted or unasserted. We expect that the amounts reserved will be paid over the periods of remediation for the applicable sites, which typically range from five to 30 years.
 
For many sites, the remediation costs and other damages for which we ultimately may be responsible cannot be reasonably estimated because of uncertainties with respect to factors such as our connection to the site or to materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies and remediation to be undertaken (including the technologies to be required and the extent, duration and success of remediation). As a result, we are unable to determine or reasonably estimate the amount of costs or other damages for which we are potentially responsible in connection with these sites, although that total could be substantial.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
While the final outcome of environmental matters cannot be predicted with certainty, it is our opinion that none of these items, when finally resolved, is expected to have a material adverse effect on our financial position. However, it is possible that the resolution of one or more environmental matters could exceed the amounts accrued in an amount that could be material to our results of operations in any particular reporting period.
 
  Asbestos Claims
 
Like most automobile manufacturers, we have been subject to asbestos-related claims in recent years. We have seen these claims primarily arise from three circumstances:
 
  •   A majority of these claims seek damages for illnesses alleged to have resulted from asbestos used in brake components;
  •   Limited numbers of claims have arisen from asbestos contained in the insulation and brakes used in the manufacturing of locomotives; and
  •   Claims brought by contractors who allege exposure to asbestos-containing products while working on premises we owned.
 
While we have resolved many of the asbestos-related cases over the years and continue to do so for strategic litigation reasons such as avoiding defense costs and possible exposure to excessive verdicts, we believe that only a small proportion of the claimants has or will develop any asbestos-related physical impairment. Only a small percentage of the claims pending against us allege causation of a disease associated with asbestos exposure. The amount expended on asbestos-related matters in any year depends on the number of claims filed, the amount of pretrial proceedings and the number of trials and settlements during the period.
 
We record the estimated liability associated with asbestos personal injury claims where the expected loss is both probable and can reasonably be estimated. In the three months ended December 31, 2007, we retained Hamilton, Rabinovitz & Associates, Inc. (HRA), a firm specializing in estimating asbestos claims to assist us in determining our potential liability for pending and unasserted future asbestos personal injury claims. The analysis relies on and includes the following information and factors:
 
  •   A third party forecast of the projected incidence of malignant asbestos-related disease likely to occur in the general population of individuals occupationally exposed to asbestos;
  •   Data concerning claims filed against us and resolved, amounts paid, and the nature of the asbestos-related disease or condition asserted during approximately the last four years (Asbestos Claims Experience);
  •   The estimated rate of asbestos-related claims likely to be asserted against us in the future based on our Asbestos Claims Experience and the projected incidence of asbestos-related disease in the general population of individuals occupationally exposed to asbestos;
  •   The estimated rate of dismissal of claims by disease type based on our Asbestos Claims Experience; and
  •   The estimated indemnity value of the projected claims based on our Asbestos Claims Experience, adjusted for inflation.
 
We reviewed a number of factors, including the analysis provided by HRA and increased our reserve by $349 million in the three months ended December 31, 2007 to record a reasonable estimate of our probable liability for pending and future asbestos-related claims projected to be asserted over the next ten years, including legal defense costs. We will monitor our actual claims experience for consistency with this estimate and make periodic adjustments as appropriate.
 
We believe that our analysis was based on the most relevant information available combined with reasonable assumptions, and that we may prudently rely on its conclusions to determine the estimated liability for asbestos-related claims. We note, however, that the analysis is inherently subject to significant uncertainties. The data sources and assumptions used in connection with the analysis may not prove to be reliable predictors with respect to claims asserted against us. Our experience in the recent past includes substantial variation in relevant factors, and a change in any of these assumptions — which include the source of the claiming population, the filing rate and the value of claims — could significantly increase or decrease the estimate. In


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
addition, other external factors such as legislation affecting the format or timing of litigation, the actions of other entities sued in asbestos personal injury actions, the distribution of assets from various trusts established to pay asbestos claims and the outcome of cases litigated to a final verdict could affect the estimate.
 
At September 30, 2008, December 31, 2007 and September 30, 2007, our liability recorded for asbestos-related matters was $660 million, $637 million and $531 million, respectively. The reserve balance between September 30, 2007 and December 31, 2007 increased primarily as a result of a $349 million increase in the reserve for probable pending and future asbestos claims, which was partially offset by a reduction in the reserve for existing claims of $251 million resulting from fewer claims and lower expenses than previously estimated.
 
  Contingent Matters — Litigation
 
Various legal actions, governmental investigations, claims and proceedings are pending against us, including a number of shareholder class actions, bondholder class actions, shareholder derivative suits and class actions under the U.S. Employee Retirement Income Security Act of 1974, as amended (ERISA), and other matters arising out of alleged product defects, including asbestos-related claims; employment-related matters; governmental regulations relating to safety, emissions, and fuel economy; product warranties; financial services; dealer, supplier and other contractual relationships and environmental matters. In certain cases we are the plaintiff or appellant related to these types of matters.
 
With regard to the litigation matters discussed in the previous paragraph, we have established reserves for matters in which we believe that losses are probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive or other treble damage claims or demands for recall campaigns, incurred but not reported asbestos-related claims, environmental remediation programs or sanctions, that if granted, could require us to pay damages or make other expenditures in amounts that could not be reasonably estimated at September 30, 2008. We believe that we have appropriately accrued for such matters in accordance with SFAS No. 5, “Accounting for Contingencies” (SFAS No. 5), or, for matters not requiring accrual, that such matters will not have a material adverse effect on our results of operations or financial position based on information currently available to us. Litigation is inherently unpredictable, however, and unfavorable resolutions could occur. Accordingly, it is possible that an adverse outcome from such proceedings could exceed the amounts accrued in an amount that could be material to us with respect to our results of operations in any particular reporting period.
 
In July 2008 we reached a tentative settlement of the General Motors Securities Litigation suit and recorded a charge of $277 million in the nine months ended September 30, 2008. In the three and nine months ended September 30, 2008, we recorded $215 million as a reduction to Selling, general and administrative expense associated with insurance-related indemnification proceeds for previously recorded litigation related costs, including the cost incurred to settle the General Motors Securities Litigation suit.
 
  Delphi Corporation
 
Benefit Guarantee
 
In 1999, we spun-off Delphi Automotive Systems Corporation (DASC), which became Delphi. Delphi is our largest supplier of automotive systems, components and parts, and we are Delphi’s largest customer. At the time of the spin-off, employees of DASC became employees of Delphi. As part of the separation agreements, Delphi assumed the pension and other postretirement benefit obligations for these transferred U.S. hourly employees who retired after October 1, 2000 and we retained pension and other postretirement obligations for U.S. hourly employees who retired on or before October 1, 2000. Additionally at the time of the spin-off, we entered into separate agreements with the UAW, the IUE-CWA and the United Steel Workers (USW) (individually, the UAW, IUE-CWA and USW Benefit Guarantee Agreements and, collectively, the Benefit Guarantee Agreements) providing contingent benefit guarantees whereby we would make payments for certain pension benefits and OPEB to certain former U.S. hourly employees that became employees of Delphi (Covered Employees). Each Benefit


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Guarantee Agreement contains separate benefit guarantees relating to pension and OPEB obligations, with different triggering events. The UAW, IUE-CWA and USW required through the Benefit Guarantee Agreements that in the event that Delphi or its successor companies ceases doing business or becomes subject to financial distress we could be liable if Delphi fails to provide the corresponding benefits at the required level. The Benefit Guarantee Agreements do not obligate us to guarantee any benefits for Delphi retirees in excess of the corresponding benefits we provide at the time to our own hourly retirees. Accordingly, any reduction in the benefits we provide our hourly retirees reduces our obligation under the corresponding benefit guarantee. In turn, Delphi entered into an agreement (Indemnification Agreement) with us that required Delphi to indemnify us if we are required to perform under the UAW Benefit Guarantee Agreement. In addition, with respect to pension benefits, our guarantee arises only to the extent that the pension benefits provided by Delphi and the Pension Benefit Guaranty Corporation fall short of the guaranteed amount.
 
We received notice from Delphi, dated October 8, 2005, that it was more likely than not that we would become obligated to provide benefits pursuant to the Benefit Guarantee Agreements, in connection with its commencement on that date of Chapter 11 proceedings under the U.S. Bankruptcy Code. The notice stated that Delphi was unable to estimate the timing and scope of any benefits we might be required to provide under the Benefit Guarantee Agreements but did not trigger the Benefit Guarantee Agreements; however, in 2005, we believed it was probable that we had incurred a liability under the Benefit Guarantee Agreements.
 
In June 2007 we entered into a Memorandum of Understanding with Delphi and the UAW (Delphi UAW MOU) that included terms relating to the consensual triggering of the UAW Benefit Guarantee Agreement as well as additional terms relating to Delphi’s restructuring. Under the Delphi UAW MOU we also agreed to pay for certain healthcare costs of Delphi retirees and their beneficiaries in order to provide a level of benefits consistent with those provided to our retirees and their beneficiaries from the Mitigation Plan. We also committed to pay $450 million to settle a UAW claim asserted against Delphi, which the UAW has directed us to pay directly to either the Mitigation Plan or New VEBA, depending upon the timing of the payment. This amount is to be paid upon substantial consummation of a Delphi POR consistent with the Delphi UAW MOU and the Delphi-GM Settlement Agreements, as defined below. In August 2007, we entered into a Memorandum of Understanding with Delphi and the IUE-CWA (Delphi IUE-CWA MOU), and we entered into two separate Memoranda of Understanding with Delphi and the USW (collectively the USW MOUs). The terms of the Delphi IUE-CWA MOU and the USW MOUs are similar to the Delphi UAW MOU with regard to the consensual triggering of the Benefit Guarantee Agreements.
 
Delphi-GM Settlement Agreements
 
In September 2007, as amended in October and December, 2007, we entered into comprehensive settlement agreements with Delphi (Delphi-GM Settlement Agreements) consisting of a Global Settlement Agreement, as amended (GSA) and a Master Restructuring Agreement, as amended (MRA). The GSA was intended to resolve outstanding issues between Delphi and us that have arisen or may arise before Delphi’s emergence from Chapter 11. The MRA was intended to govern certain aspects of our ongoing commercial relationship with Delphi. The memoranda of understanding discussed in the preceding paragraph were incorporated into these agreements.
 
On September 12, 2008 we amended the terms of the GSA (Amended GSA) and MRA (Amended MRA) (collectively, Amended Delphi-GM Settlement Agreements). On September 26, 2008, the United States District Court for the Southern District of New York entered an order approving the implementation of the Amended Delphi-GM Settlement Agreements which then became effective on September 29, 2008. In connection with the Amended GSA, we and Delphi reached agreements with each of Delphi’s unions regarding the plan to freeze benefits related to the Delphi HRP, the cessation by Delphi of OPEB for Delphi hourly union represented employees and retirees, transfers pursuant to IRS Code Section 414(l) of net liabilities from the Delphi HRP to our U.S. hourly pension plan, and the release by the unions, their members and their retirees of Delphi and us from claims related to such matters.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
In addition, the more significant items contained in the Amended Delphi-GM Settlement Agreements include our commitment to:
 
  •   Reimburse Delphi for its costs to provide OPEB to certain of Delphi’s hourly retirees from December 31, 2006 through the date that Delphi ceases to provide such benefits and will assume responsibility for OPEB going forward;
  •   Reimburse Delphi for the “normal cost” of credited service in Delphi’s pension plan between January 1, 2007 and the date its pension plans are frozen;
  •   Transfer, under IRS Code Section 414(l), $2.1 billion of net liabilities from the Delphi HRP to our U.S. hourly pension plan on September 29, 2008 (First Hourly Pension Transfer) and the remaining net liabilities, which are estimated to be $1.3 billion at September 30, 2008, upon Delphi’s substantial consummation of its POR consistent with the Amended Delphi-GM Settlement Agreements (Second Hourly Pension Transfer). Actual amounts of the Second Hourly Pension Transfer will depend on, among other factors, the valuation of the pension liability at transfer date and performance of pension plan assets;
  •   Reimburse Delphi for all retirement incentives and half of the buyout payments made pursuant to the various attrition program provisions and to reimburse certain U.S. hourly buydown payments made to certain hourly employees of Delphi;
  •   Award certain future product programs to Delphi, provide Delphi with ongoing preferential sourcing for other product programs, eliminate certain previously agreed upon price reductions, and restrict our ability to re-source certain production to alternative suppliers;
  •   Reimburse certain U.S. hourly labor costs incurred to produce systems, components and parts for us from October 1, 2006 through September 14, 2015 at certain U.S. facilities owned or to be divested by Delphi (Labor Cost Subsidy);
  •   Reimburse Delphi’s cash flow deficiency attributable to production at certain U.S. facilities that continue to produce systems, components and parts for us until the facilities are either closed or sold by Delphi (Production Cash Burn Support);
  •   Pay Delphi $110 million in both 2009 and 2010 in quarterly installments in connection with certain U.S. facilities owned by Delphi (Facilitation Support);
  •   Temporarily accelerate payment terms for Delphi’s North American sales to us upon substantial consummation of its POR, until 2012;
  •   Beginning January 1, 2009, reimburse Delphi for actual cash payments related to workers compensation, disability, supplemental employment benefits and severance obligations for all current and former UAW-represented hourly active and inactive employees; and
  •   Guarantee a minimum recovery of the net working capital that Delphi has invested in certain businesses held for sale.
 
Delphi agreed to provide us or our designee with an option to purchase all or any of certain Delphi businesses for one dollar if such businesses have not been sold by certain specified deadlines. If such a business is not sold either to a third party or to us or any affiliate pursuant to the option by the applicable deadline, we (or at our option, an affiliate) will be deemed to have exercised the purchase option, and the unsold business, including materially all of its assets and liabilities, will automatically transfer to the GM “buyer.” Similarly, under the Delphi UAW MOU if such a transfer has not occurred by the applicable deadline, responsibility for the affected UAW hourly employees of such an unsold business would automatically transfer to us or our designated affiliate. Upon emergence, Delphi also agreed to provide us with the right to access and operate four Delphi U.S. manufacturing facilities under certain circumstances.
 
The Amended GSA also resolves all claims in existence as of the effective date of the Amended Delphi-GM Settlement Agreements (with certain limited exceptions) that either Delphi or we have or may have against the other, including Delphi’s motion in March 2006 under the U.S. Bankruptcy Code to reject certain supply contracts with us. The Amended GSA and related agreements with Delphi’s unions releases us and our related parties, as defined, from any claims of Delphi and its related parties, as defined, as well as any employee benefit related claims of Delphi’s unions and hourly employees. Also pursuant to the Amended GSA, we have released Delphi and its related parties, as defined, from claims by us or our related parties, as defined.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Additionally, the Amended GSA provides that we will receive:
 
  •   An administrative claim regarding the First Hourly Pension Transfer of $1.6 billion, of which we will share equally with the general unsecured creditors up to only the first $600 million in recoveries in the event Delphi does not emerge from bankruptcy;
  •   An administrative claim for $2.1 billion for the total Delphi HRP transfer (inclusive of the administrative claim for the First Hourly Pension Transfer) to be paid in preferred stock upon substantial consummation of Delphi’s POR in which Delphi emerges with: (1) its principal core businesses; (2) exit financing that does not exceed $3.0 billion (plus a revolving credit facility); and (3) equity securities that are not senior to or pari passu with the preferred stock issued to us; and
  •   A general unsecured claim in the amount of $2.5 billion that is subordinated until general unsecured creditors receive recoveries equal to 20% of their general unsecured claims after which we will receive 20% of our general unsecured claim in preferred stock, with any further recovery shared ratably between us and general unsecured creditors.
 
The ultimate value of any consideration that we may receive is contingent on the fair market value of Delphi’s assets in the event Delphi fails to emerge from bankruptcy or upon the fair market value of Delphi’s securities if Delphi emerges from bankruptcy.
 
As a result of the implementation of the Amended Delphi-GM Settlement Agreements, we paid $1.2 billion to Delphi in the three and nine months ended September 30, 2008 in settlement of the amounts accrued to date against our commitments.
 
Delphi POR
 
The Bankruptcy Court entered an order on January 25, 2008 confirming Delphi’s POR. On April 4, 2008, Delphi announced that although it had met the conditions required to substantially consummate its POR, including obtaining $6.1 billion in exit financing, Delphi’s plan investors refused to participate in the closing of the transaction contemplated by the POR, which was commenced but not completed because of the plan investors’ position. We continued to work with Delphi and its stakeholders to facilitate Delphi’s efforts to emerge from bankruptcy, including the implementation of the Amended Delphi-GM Settlement Agreements. On October 3, 2008 Delphi filed a modified POR, which contemplates Delphi obtaining $3.8 billion in exit financing to consummate its modified POR. Given the current credit markets and the challenges facing the automotive industry, there can be no assurance that Delphi will be successful in obtaining $3.8 billion in exit financing to emerge from bankruptcy.
 
In May 2008, we agreed to advance up to $650 million to Delphi in 2008, which is within the amounts we would have owed under the Delphi-GM Settlement Agreements had Delphi emerged from bankruptcy in April 2008. In August 2008 we entered into a new agreement to advance up to an additional $300 million. This increased the amount we could advance to $950 million in 2008, which is within the amounts we would owe under the Delphi-GM Settlement Agreements if Delphi was to emerge from bankruptcy in December 2008. Upon the effectiveness of the Amended Delphi-GM Settlement Agreements, the original $650 million advance agreement matured, leaving a $300 million advance agreement. At September 30, 2008, no amounts were outstanding under our advance agreement with Delphi. Further, in October 2008, subject to Delphi obtaining an extension or other accommodation of its Debtor-in-Possession (DIP) financing through June 30, 2009, we agreed to extend the $300 million advance agreement through June 30, 2009 and to temporarily accelerate our North American payables to Delphi in the three months ending June 30, 2009, which is expected to result in additional liquidity to Delphi of $100 million in each of April, May and June of 2009. The potential temporary acceleration of payment terms, which was to occur upon substantial consummation of Delphi’s POR under the Amended Delphi-GM Settlement Agreements, is also subject to Delphi’s actual liquidity requirements.
 
In the three and nine months ended September 30, 2008, we recorded charges in Other expenses of $652 million and $4.1 billion, respectively, and charges in Automotive cost of sales of $105 million and $444 million, respectively. In the three and nine months ended September 30, 2007, we recorded charges in Other expenses of $350 million and $925 million, respectively. These charges reflect our best estimate of our obligations associated with the Benefit Guarantee Agreements and


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
other amounts due under the Amended Delphi-GM Settlement Agreements. The charge recorded in the three months ended September 30, 2008 reflects our estimated obligations under the Amended Delphi-GM Settlement Agreements, net of estimated recoveries, updated to reflect current conditions related to the credit markets and challenges in the auto industry. In addition, the charge reflects a benefit of $622 million due to a reduction in our estimated liability associated with Delphi OPEB related costs for Delphi active employees and retirees, based on the terms of the New VEBA as discussed in Note 10, who were not previously participants in our plans. Changes in the estimated OPEB liability for these individuals were recognized in earnings. The terms of the New VEBA also reduced our $3.6 billion OPEB obligation for Delphi employees who flowed back to us and became participants in the UAW hourly medical plan primarily in 2006, however, that benefit is included in the actuarial gain recorded in our UAW hourly medical plan as discussed in Note 10.
 
Since 2005, we have recorded total charges of $11.7 billion in Other expenses in connection with the Benefit Guarantee Agreements and Amended Delphi-GM Settlement Agreements which, at September 30, 2008, reflects an estimate of no recovery for our unsecured bankruptcy claims. Our commitments under the Amended Delphi-GM Settlement Agreements for workers compensation, disability, and supplemental employment benefits are included in the amounts recorded in Other expenses. In addition, our commitment for the Labor Cost Subsidy, Production Cash Burn Support and Facilitation Support in the three and nine months ended September 30, 2008 are included in the amounts recorded in Automotive cost of sales and are expected to result in additional expense of between $250 million and $400 million annually in 2009 through 2015, which will be treated as a period cost and expensed as incurred. Due to the uncertainties surrounding Delphi’s ability to emerge from bankruptcy it is reasonably possible that additional losses, which may be substantial, could arise in the future, but we currently are unable to estimate the amount or range of such losses, if any.
 
  Benefit Guarantees Related to Divested Facilities
 
We have entered into various guarantees regarding benefits for our former employees at two previously divested facilities that manufacture component parts whose results continue to be included in our consolidated financial statements in accordance with FIN No. 46(R), “Consolidation of Variable Interest Entities — an interpretation of ARB No. 51” (FIN No. 46(R)). For these divested facilities, we entered into agreements with both of the purchasers to indemnify, defend and hold each purchaser harmless for any liabilities arising out of the divested facilities and with the UAW guaranteeing certain postretirement health care benefits and payment of postemployment benefits.
 
In 2007, we recognized favorable adjustments of $44 million related to these facility idlings, in addition to a $38 million curtailment gain with respect to OPEB.
 
Note 12. Income Taxes
 
     Effective Tax Rate
 
In accordance with Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” (APB No. 28), we adjust our effective tax rate each quarter to be consistent with the estimated annual effective tax rate. We also record the tax effect of unusual or infrequently occurring discrete items including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year to date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The effect of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.
 
     Deferred Tax Assets
 
We have established valuation allowances for deferred tax assets based on a “more likely than not” threshold. Our ability to realize our deferred tax assets depends on our ability to generate sufficient taxable income within the carryback or carryforward


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
periods provided for in the tax law for each applicable tax jurisdiction. We consider the following possible sources of taxable income when assessing the realization of our deferred tax assets:
 
  •   Future reversals of existing taxable temporary differences;
  •   Future taxable income exclusive of reversing temporary differences and carryforwards;
  •   Taxable income in prior carryback years; and
  •   Tax-planning strategies.
 
Concluding that a valuation allowance is not required is difficult when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling three years of actual and current year anticipated results as our primary measure of our cumulative losses in recent years. However, because a substantial portion of those cumulative losses relate to various non-recurring matters and the implementation of our North American Turnaround Plan, we adjust those three-year cumulative results for the effect of these items. The analysis performed in the three months ended September 30, 2007 and March 31, 2008 indicated that in Canada, Germany, the United Kingdom and the United States, we had cumulative three-year losses on an adjusted basis. In Spain, we anticipated being in a cumulative three-year loss position in the near-term. This was considered significant negative evidence that is objective and verifiable and therefore, difficult to overcome. In addition our near-term financial outlook in these jurisdictions had deteriorated. Furthermore, as it relates to our assessment in the United States, many factors in our evaluation are not within our control, particularly:
 
  •   The possibility for continued or increasing price competition in the highly competitive U.S. market;
  •   Volatile fuel prices and the effect that may have on consumer preferences related to our most profitable products, fullsize pick-up trucks and sport utility vehicles;
  •   Uncertainty over the effect on our cost structure from more stringent U.S. fuel economy and global emissions standards which may require us to sell a significant volume of alternative fuel vehicles across our portfolio;
  •   Uncertainty as to the future operating results of GMAC; and
  •   Turmoil in the mortgage and credit markets and continued reductions in housing values.
 
Accordingly, in the three months ended September 30, 2007, we concluded that the objectively verifiable negative evidence of our historical losses combined with our challenging near-term outlook out-weighed other factors and that it was more likely than not that we would not generate sufficient taxable income to realize our net deferred tax assets, in whole or in part in Canada, Germany and the United States. As such, we recorded full valuation allowances against our net deferred tax assets in Canada, Germany and the United States of $39.0 billion in the three and nine months ended September 30, 2007.
 
In the three months ended March 31, 2008, we determined that it was more likely than not that we would not realize our net deferred tax assets, in whole or in part, in Spain and the United Kingdom and recorded full valuation allowances of $379 million against our net deferred tax assets in these tax jurisdictions. The following summarizes the significant changes occurring in the three months ended March 31, 2008, which resulted in our decision to record these full valuation allowances.
 
In the United Kingdom, we were in a three-year adjusted cumulative loss position and our near-term and mid-term financial outlook for automotive market conditions was more challenging than we believed in the three months ended December 31, 2007. Our outlook deteriorated based on our projections of the combined effects of the challenging foreign exchange environment and unfavorable commodity prices. Additionally, we increased our estimate of the potential costs that may arise from the regulatory and tax environment relating to carbon dioxide (CO2) emissions in the European Union, including legislation enacted or announced in 2008.
 
In Spain, although we were not in a three-year adjusted cumulative loss position our near-term and mid-term financial outlook deteriorated significantly in the three months ended March 31, 2008 such that we anticipated being in a three-year adjusted cumulative loss position in the near- and mid-term. In Spain, as in the United Kingdom, our outlook deteriorated based on our projections of the combined effects of the foreign exchange environment and commodity prices, including our estimate of the potential costs that may arise from the regulatory and tax environment relating to CO2 emissions.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
We currently have recorded full valuation allowances against our net deferred tax assets in Brazil. Such valuation allowances were initially recorded in 2005. In 2006, 2007 and in the nine months ended September 30, 2008, we generated taxable income in Brazil and accordingly, had reversed a portion of that valuation allowance to offset the tax provision for income earned in those periods. It is reasonably possible that our Brazilian operations will generate taxable income in 2008 and may show a forecast of future taxable income at that time, which may result in a change in our judgment regarding the need for a full valuation allowance in Brazil. However, global economic conditions have become increasingly unstable and it is not possible to objectively verify this information at September 30, 2008. Accordingly, we have continued to conclude that it is more likely than not that we will not realize our net deferred tax assets in Brazil.
 
If, in the future, we generate taxable income in Brazil, Canada, Germany, Spain, the United Kingdom, the United States or other tax jurisdictions where we have recorded full valuation allowances on a sustained basis, our conclusion regarding the need for valuation allowances in these tax jurisdictions could change, resulting in the reversal of some or all of such valuation allowances. If our Canadian, German, Spanish, United Kingdom, U.S. or operations in other tax jurisdictions generate taxable income prior to reaching profitability on a sustained basis, we would reverse a portion of the valuation allowance related to the corresponding realized tax benefit for that period, without changing our conclusions on the need for a full valuation allowance against the remaining net deferred tax assets.
 
In the three and nine months ended September 30, 2008 we recognized income tax expense on Loss from continuing operations before income taxes, equity income and minority interests due to the effect of no longer recording tax benefits for losses incurred in Canada, Germany, Spain, the United Kingdom and the United States, unless offset by pretax income from other than continuing operations, based on the valuation allowances established in the three months ended September 30, 2007 and March 31, 2008, as disclosed in our 2007 Form 10-K and Quarterly Report on Form 10-Q for the three months ended March 31, 2008, respectively.
 
     Tax Examinations and Uncertain Tax Positions
 
At September 30, 2008 and December 31, 2007, the amount of consolidated gross unrecognized tax benefits before valuation allowances was $3.1 billion and $2.8 billion, respectively, and the amounts that would favorably affect the effective income tax rate in future periods after valuation allowances were $265 million and $68 million, respectively. The increase in the amounts that would favorably affect the effective tax rate is primarily related to adjustments resulting from our annual review of intercompany transfer pricing arrangements. At September 30, 2007, the amounts of gross unrecognized tax benefits before valuation allowances and the amount that would favorably affect the effective income tax rate in future periods after valuation allowances were $2.5 billion and $50 million, respectively. These amounts consider the guidance in FSP No. FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48” (FSP No. FIN 48-1). At September 30, 2008, $2.2 billion of the liability for uncertain tax positions is netted against deferred tax assets relating to the same tax jurisdictions. The remainder of the liability for uncertain tax positions is classified as a non-current liability.
 
We file income tax returns in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. In the U.S., our federal income tax returns for 2001 through 2003 have been reviewed by the IRS, and except for one transfer pricing matter, this examination is expected to conclude in 2008. We have submitted requests for Competent Authority assistance on the transfer pricing matter. Competent authorities interpret the implementation of treaties to achieve the effect of eliminating double taxation. The IRS is currently reviewing our 2004 through 2006 federal income tax returns. In addition, our previously filed tax returns are currently under review in Argentina, Australia, Belgium, Canada, Ecuador, France, Germany, Hungary, India, Indonesia, Italy, Korea, Mexico, New Zealand, Russia, Spain, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and Venezuela. It is reasonably possible that the reviews of our previously filed tax returns in Korea will conclude in the three months ended December 31, 2008 and it is possible that we will be required to make cash payments as part of this settlement. Tax audits in Greece, Mexico, the United Kingdom and certain U.S. states concluded in 2008. The conclusion of these audits resulted in the release of amounts accrued for interest and penalties of $62 million and $23 million, respectively, in the nine months ended September 30, 2008. At September 30, 2008 it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits over the next twelve months.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
We have open tax years from 1999 to 2007 with various significant taxing jurisdictions including the U.S., Australia, Canada, Mexico, Germany, the United Kingdom, Korea and Brazil. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. We have recorded a tax benefit only for those positions that meet the more likely than not standard.
 
Note 13. Fair Value Measurements
 
In September 2006 the FASB issued SFAS No. 157 and in February 2007 issued SFAS No. 159. Both standards address aspects of the expanding application of fair value accounting. Effective January 1, 2008, we adopted SFAS No. 157 and SFAS No. 159. In accordance with the provisions of FSP No. FAS 157-2, we have decided to defer adoption of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. There was no adjustment to Accumulated deficit as a result of our adoption of SFAS No. 157. SFAS No. 159 permits a company to measure certain financial assets and financial liabilities at fair value that were not previously required to be measured at fair value. We have not elected to measure any financial assets or financial liabilities at fair value which were not previously required to be measured at fair value.
 
SFAS No. 157 provides for the following:
 
  •   Defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework for measuring fair value;
  •   Establishes a three-level hierarchy for fair value measurements based upon the observable inputs to the valuation of an asset or liability at the measurement date;
  •   Requires consideration of our nonperformance risk when valuing liabilities; and
  •   Expands disclosures about instruments measured at fair value.
 
SFAS No. 157 also establishes a three-level valuation hierarchy for fair value measurements. These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs create the following fair value hierarchy:
 
  •   Level 1—Quoted prices for identical instruments in active markets;
  •   Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable: and
  •   Level 3—Instruments whose significant inputs are unobservable.
 
Following is a description of the valuation methodologies we used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
 
  Securities
 
We classify our securities within Level 1 of the valuation hierarchy where quoted prices are available in an active market. Level 1 securities include exchange-traded equities. We generally classify our securities within Level 2 of the valuation hierarchy where quoted market prices are not available. If quoted market prices are not available, we determine the fair values of our securities using pricing models, quoted prices of securities with similar characteristics or discounted cash flow models. These models are primarily industry-standard models that consider various assumptions, including time value and yield curve as well as other relevant economic measures. Examples of such securities include U. S. government and agency securities, certificates of deposit, commercial paper, and corporate debt securities. We classify our securities within Level 3 of the valuation hierarchy in certain cases where there is limited activity or less observable inputs to the valuation. Inputs to the Level 3 security fair value measurements consider various assumptions, including time value, yield curve, prepayment speeds, default rates, loss severity, current market and contractual prices for underlying financial instruments as well as other relevant economic measures. Securities classified within Level 3 include certain mortgage-backed securities and other securities.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
  Derivatives
 
The majority of our derivatives are valued using internal models that use as their basis readily observable market inputs, such as time value, forward interest rates, volatility factors, and current and forward market prices for commodities and foreign exchange rates. We generally classify these instruments within Level 2 of the valuation hierarchy. Such derivatives include interest rate swaps, cross currency swaps, foreign currency derivatives and commodity derivatives. We classify derivative contracts that are valued based upon models with significant unobservable market inputs as Level 3 of the valuation hierarchy. Examples include certain long-dated commodity derivatives and interest rate swaps with notional amounts that fluctuate over time. Models for these fair value measurements include unobservable inputs based on estimated forward rates and prepayment speeds.
 
SFAS No. 157 requires that the valuation of derivative liabilities must take into account the company’s own nonperformance risk. Effective January 1, 2008, we updated our derivative liability valuation methodology to consider our own nonperformance risk as observed through the credit default swap market and bond market and based on prices for recent trades. Subsequent to September 30, 2008, credit market volatility increased significantly, creating broad credit market concerns. If this condition persists, it will affect our ability to manage risks related to market changes in foreign currency exchange rates, interest rates and commodity prices to which we are exposed in the ordinary course of our business as some derivative counterparties have been and may be unwilling to enter into transactions with us due to our credit rating.
 
The following table summarizes the financial instruments measured at fair value on a recurring basis:
 
                                 
    Fair Value Measurements on a Recurring Basis at September 30, 2008  
    Level 1     Level 2     Level 3     Total  
          (Dollars in millions)        
 
Assets
                               
Securities
                               
Equity
  $ 317     $ 21     $     $ 338  
United States government and agency
          401             401  
Mortgage-backed
                79       79  
Certificates of deposit
          4,507             4,507  
Commercial paper
          6,490             6,490  
Corporate debt
          42             42  
Other
          53       20       73  
Derivatives
                               
Cross currency swaps
                       
Interest rate swaps
          98       3       101  
Foreign currency derivatives
          566             566  
Commodity derivatives
          125       21       146  
                                 
Total Assets
  $ 317     $ 12,303     $ 123     $ 12,743  
                                 
Liabilities
                               
Derivatives
                               
Cross currency swaps
  $     $ 155     $     $ 155  
Interest rate swaps
          43       3       46  
Foreign currency derivatives
          2,448             2,448  
Commodity derivatives
          757       34       791  
                                 
Total Liabilities
  $     $ 3,403     $ 37     $ 3,440  
                                 


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The tables below summarize the activity in our balance sheet accounts for financial instruments classified within Level 3 of the valuation hierarchy. When a determination is made to classify a financial instrument within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components which are validated to external sources.
 
                                                 
          Level 3 Financial Assets and Liabilities
       
          Three Months Ended September 30, 2008        
                Commodity
                   
    Mortgage-backed
    Interest Rate
    Derivatives,
    Corporate Debt
    Other
    Total Net
 
    Securities(a)     Swaps, Net     Net(b)     Securities     Securities(a)     Assets  
                (Dollars in millions)              
 
Beginning balance
  $ 248     $     $ 341     $     $ 234     $ 823  
Total realized/unrealized gains (losses):
                                               
Included in earnings
    (22 )           (103 )           (41 )     (166 )
Included in other comprehensive income
    (1 )                             (1 )
Purchases, issuances, and settlements
    (146 )           (251 )           (173 )     (570 )
Transfer in and/or out of Level 3
                                   
                                                 
Ending balance
  $ 79     $     $ (13 )   $     $ 20     $ 86  
                                                 
Amount of total gains and (losses) for the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date
  $     $     $ (103 )   $     $     $ (103 )
                                                 
(a) Realized gains (losses) on marketable securities are recorded in Automotive interest and other non-operating income, net.
(b) Realized and unrealized gains (losses) on commodity derivatives are recorded in Automotive cost of sales and changes in fair value are attributable to changes in base metal and precious metal prices.
 
                                                 
          Level 3 Financial Assets and Liabilities
       
          Nine Months Ended September 30, 2008        
                Commodity
                   
    Mortgage-backed
    Interest Rate
    Derivatives,
    Corporate Debt
    Other
    Total Net
 
    Securities(a)     Swaps, Net(b)     Net(c)     Securities(a)     Securities(a)     Assets  
                (Dollars in millions)              
 
Beginning balance
  $ 283     $ 2     $ 257     $ 28     $ 258     $ 828  
Total realized/unrealized gains (losses):
                                               
Included in earnings
    (31 )           31       23       (65 )     (42 )
Included in other comprehensive income
                            8       8  
Purchases, issuances, and settlements
    (173 )     (2 )     (301 )     (51 )     (181 )     (708 )
Transfer in and/or out of Level 3
                                   
                                                 
Ending balance
  $ 79     $     $ (13 )   $     $ 20     $ 86  
                                                 
Amount of total gains and (losses) for the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets still held at the reporting date
  $ (2 )   $     $ 31     $     $ 4     $ 33  
                                                 


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
(a) Realized gains (losses) and other than temporary impairments on marketable securities are recorded in Automotive interest and other non-operating income, net.
(b) Reflects fair value of interest rate swap assets, net of liabilities.
(c) Realized and unrealized gains (losses) on commodity derivatives are recorded in Automotive cost of sales. Changes in fair value are attributable to changes in base metal and precious metal prices.
 
Unrealized securities holding gains and losses are excluded from earnings and reported in Other comprehensive income until realized. Gains and losses are not realized until an instrument is settled or sold. On a monthly basis, we evaluate whether unrealized losses related to investments in debt and equity securities are other than temporary. Factors considered in determining whether a loss is other than temporary include the length of time and extent to which the fair value has been below cost, the financial condition and near-term prospects of the issuer and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. If losses are determined to be other than temporary, the loss is recognized and the investment carrying amount is adjusted to a revised fair value. Other than temporary impairment losses of $29 million were recorded in the nine months ended September 30, 2008. There were no other than temporary impairment losses recorded in the three months ended September 30, 2008.
 
The following table summarizes the financial instruments measured at fair value on a nonrecurring basis in periods subsequent to initial recognition:
 
                                                 
          Fair Value Measurements Using              
          Quoted Prices in
                Three Months
       
          Active Markets
    Significant Other
    Significant
    Ended
    Nine Months Ended
 
          for Identical
    Observable
    Unobservable
    September 30,
    September 30,
 
    September 30,
    Assets
    Inputs
    Inputs
    2008
    2008
 
    2008     (Level 1)     (Level 2)     (Level 3)     Total Losses     Total Losses  
    (Dollars in millions)  
 
Assets
                                               
Investment in GMAC Common Membership Interests
  $ 1,949     $     $     $ 1,949     $     $ (2,036 )
Investment in GMAC Preferred Membership Interests
    43                   43       (251 )     (1,001 )
                                                 
Total
  $ 1,992     $     $     $ 1,992     $ (251 )   $ (3,037 )
                                                 
 
In accordance with the provisions of APB No. 18, “The Equity Method of Accounting for Investments in Common Stock” (APB No. 18), we review the carrying values of our investments when events and circumstances warrant. This review requires the comparison of the fair values of our investments to their respective carrying values. The fair value of our investments is determined based on valuation techniques using the best information that is available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge would be recorded whenever a decline in fair value below the carrying value is determined to be other than temporary.
 
At December 31, 2007 we disclosed that we did not believe our investment in GMAC was impaired; however, there were many economic factors which were unstable at that time. Such factors included the instability of the global credit and mortgage markets, deteriorating conditions in the residential and home building markets, and credit downgrades of GMAC and GMAC’s subsidiary, Residential Capital, LLC (ResCap).
 
Through June 30, 2008 the economic factors mentioned above deteriorated beyond our previous expectations. The instability in the global credit and mortgage markets increased in North America and spread throughout Europe, and the


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
residential and home building markets continued to deteriorate in both continents. These factors were exacerbated by the volatility in the cost of fuel, which led to a decline in consumer demand for automobiles, particularly fullsize pick-up trucks and sport utility vehicles. This negatively affected GMAC’s North American automotive business, as the decline in certain residual values resulted in an impairment of vehicles on operating leases, and an overall decline in automotive sales resulted in a decline in the leasing and financing of vehicles.
 
In the three months ended September 30, 2008 the instability of the financial and credit markets intensified in North America and Europe and resulted in an extreme lack of liquidity in the global credit markets resulting in prominent North American financial institutions declaring bankruptcy, being seized by the Federal Deposit Insurance Corporation (FDIC), or being sold at distressed valuations.
 
These economic factors negatively affected GMAC’s North American automotive business as well as ResCap’s residential mortgage business, which resulted in significant losses for both GMAC’s North American automotive operations and ResCap. Additionally, it was necessary for GMAC to continue to provide support to ResCap, and GMAC’s and ResCap’s credit ratings were each further downgraded several times.
 
In the three month periods ended March 31 and June 30, 2008, we determined that our investment in GMAC Common Membership Interests was impaired and in the three month periods ended March 31, June 30 and September 30, 2008 that our investment in GMAC Preferred Membership Interests was impaired and that such impairments were other than temporary.
 
The following table summarizes the impairment charges we have recorded against our investment in GMAC Common and Preferred Membership Interests:
 
                 
    Three Months Ended
    Nine Months Ended
 
    September 30,
    September 30,
 
    2008     2008  
    (Dollars in millions)  
 
GMAC Common Membership Interests
  $     $ 2,036  
GMAC Preferred Membership Interests
    251       1,001  
                 
Total
  $ 251     $ 3,037  
                 


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following table summarizes the activity with respect to our investment in GMAC Common and Preferred Membership Interests:
 
                 
    GMAC Common
    GMAC Preferred
 
    Membership Interests     Membership Interests  
    (Dollars in millions)  
 
Balance at January 1, 2008
  $ 7,079     $ 1,044  
Our proportionate share of GMAC’s losses
    (302 )      
Impairment charges
    (1,310 )     (142 )
Other, primarily Accumulated other comprehensive income (loss)
    (76 )      
                 
Balance at March 31, 2008
    5,391       902  
Our proportionate share of GMAC’s losses
    (1,204 )      
Impairment charges
    (726 )     (608 )
Other, primarily Accumulated other comprehensive income (loss)
    (7 )      
                 
Balance at June 30, 2008
    3,454       294  
Our proportionate share of GMAC’s losses
    (1,235 )      
Impairment charges
          (251 )
Other, primarily Accumulated other comprehensive income (loss)
    (270 )      
                 
Balance at September 30, 2008
  $ 1,949     $ 43  
                 
 
Impairment charges are recorded in Equity in loss of GMAC LLC and Automotive interest income and other non-operating income, net for our investment in GMAC Common and Preferred Membership Interests, respectively.
 
Continued low or decreased demand for automobiles, continued or increased instability of the global credit and mortgage markets, the lack of available credit, or a recession in North America, Europe, South America or Asia could further negatively affect GMAC’s lines of business, and result in future impairments of our investment in GMAC Common and Preferred Membership Interests. Additionally, as GMAC provides financing to our dealers as well as retail purchasers of our vehicles, further deterioration in these economic factors could cause our vehicle sales to decline.
 
In order to determine the fair value of our investment in GMAC Common Membership Interests, we first determined a fair value of GMAC by applying various valuation techniques to its significant business units, and then applied our 49% equity interest to the resulting fair value. Our determination of the fair value of GMAC encompassed applying valuation techniques, which included Level 3 inputs, to GMAC’s significant business units as follows:
 
  •   Auto Finance — We obtained industry data, such as equity and earnings ratios for other industry participants, and developed average multiples for these companies based upon a comparison of their businesses to Auto Finance.
  •   Insurance — We developed a peer group, based upon such factors as equity and earnings ratios and developed average multiples for these companies.
  •   ResCap — We previously obtained industry data for an industry participant who we believe to be comparable, and also utilized the implied valuation based on an acquisition of an industry participant who we believe to be comparable. Due to prevailing market conditions at September 30, 2008 we do not believe that comparable industry participants exist; however, we believe that previous data used, in conjunction with certain publicly available information incorporated into our analysis, results in an appropriate valuation at September 30, 2008.
  •   Commercial Finance Group — We obtained industry data, such as price and earnings ratios, for other industry participants, and developed average multiples for these companies based upon a comparison of their businesses to the Commercial Finance Group.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
In order to determine the fair value of our investment in GMAC Preferred Membership Interests, we applied valuation techniques, which included Level 3 inputs, to various characteristics of the GMAC Preferred Membership Interests as follows:
 
  •   Utilizing information as to the pricing on similar investments and changes in yields of other GMAC securities, we developed a discount rate for the valuation.
  •   Utilizing assumptions as to the receipt of dividends on the GMAC Preferred Membership Interests, the expected call date and a discounted cash flow model, we developed a present value of the related cash flows.
 
At June 30 and September 30, 2008 we adjusted our assumptions as to the appropriate discount rate to utilize in the valuation due to the changes in the market conditions which occurred in these periods. Additionally, we adjusted our assumptions as to the likelihood of payments of dividends and expected call date of the Preferred Membership Interests.
 
Note 14. GMNA Postemployment Benefit Costs
 
As previously discussed in our 2007 10-K, the majority of our hourly employees working within GMNA are represented by various labor unions. We have specific labor contracts with each union, some of which require us to pay idled employees certain wage and benefit costs. Costs to idle, consolidate or close facilities and provide postemployment benefits to employees idled on an other than temporary basis are accrued based on our best estimate of the wage and benefit costs to be incurred. Costs related to the idling of employees that are expected to be temporary are expensed as incurred. We review the adequacy and continuing need for these liabilities on a quarterly basis in conjunction with our quarterly production and labor forecasts. In the three and nine months ended September 30, 2008 we recorded $516 million and $1.8 billion, respectively, of additional postemployment benefit costs in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits — an amendment of FASB Statements No. 5 and 43” (SFAS No. 112). In the three and nine months ended September 30, 2008, we recorded $470 million and $1.4 billion, respectively, related to previously announced capacity actions while the remaining $46 million and $407 million, respectively, resulted from the 2008 Special Attrition Programs. Refer to Note 10.
 
The following table summarizes activity for postemployment benefit costs:
 
                         
    Nine Months Ended
    Year Ended
    Nine Months Ended
 
    September 30,
    December 31,
    September 30,
 
    2008     2007     2007  
    (Dollars in millions)  
 
Beginning balance
  $ 858     $ 1,269     $ 1,269  
Additions
    1,840       364       294  
Interest accretion
    26       21       14  
Payments
    (611 )     (792 )     (655 )
Adjustments
    5       (4 )     (2 )
                         
Ending balance
  $ 2,118     $ 858     $ 920  
                         
 
The following table summarizes the number of employees included in the idled or to be idled facilities and subject to special attrition programs:
 
                         
    September 30,
    December 31,
    September 30,
 
    2008     2007     2007  
 
Employees at idled or to be idled facilities
    15,700       8,900       8,200  
Employees subject to various attrition programs
    3,200       3,800       4,400  


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 15. Restructuring and Other Initiatives
 
We have executed various restructuring and other initiatives and may execute additional initiatives in the future to align manufacturing capacity to prevailing global automotive production and to improve the utilization of remaining facilities. Such initiatives may include facility idlings, consolidation of operations and functions, production relocations or reductions and voluntary and involuntary employee separation programs. Estimates of restructuring and other initiative charges are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved, actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, we may revise previous estimates.
 
The following table summarizes our restructuring and other initiative charges:
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
    (Dollars in millions)  
 
Automotive Operations:
                               
GMNA
  $ 1     $ 2     $ 3     $ 7  
GME
    29       262       231       349  
GMLAAM
    23             29       18  
GMAP
    9       1       70       42  
                                 
Total Automotive Operations
  $ 62     $ 265     $ 333     $ 416  
                                 
 
Refer to Note 14 for further discussion of postemployment benefits costs related to hourly employees of GMNA, and Note 10 for pension and other postretirement benefit charges related to our hourly employee separation initiatives.
 
  2008 Activities
 
The following table summarizes the components of our restructuring charges by segment in the three months ended September 30, 2008:
 
                                                 
    GMNA     GME     GMLAAM     GMAP     Total        
    (Dollars in millions)  
 
Separation costs
  $ 1     $ 29     $ 23     $ 9     $ 62          
Other
                                     
                                                 
Total restructuring charges
  $ 1     $ 29     $ 23     $ 9     $ 62          
                                                 
 
The following table summarizes the components of our restructuring charges by segment in the nine months ended September 30, 2008:
 
                                                 
    GMNA     GME     GMLAAM     GMAP     Total        
    (Dollars in millions)  
 
Separation costs
  $ 3     $ 252     $ 29     $ 70     $ 354          
Other
          (21 )                 (21 )        
                                                 
Total restructuring charges
  $ 3     $ 231     $ 29     $ 70     $ 333          
                                                 
 
GMNA recorded restructuring charges of $1 million and $3 million in the three and nine months ended September 30, 2008, respectively. These charges related to a U.S. salaried severance program, which allows involuntarily terminated employees to receive ongoing wages and benefits for no longer than 12 months.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
GME recorded net restructuring charges of $29 million and $231 million in the three and nine months ended September 30, 2008, respectively. These charges were related to the following restructuring initiatives:
 
  •   In the three and nine months ended September 30, 2008, GME recorded restructuring charges in Germany of $22 million and $122 million, respectively, for retirement programs, along with additional minor separations under other current programs. Approximately 4,600 employees will leave under early retirement programs in Germany through 2013. The total remaining cost for the early retirements will be recognized over the remaining required service period of the employees.
  •   In the three months ended June 30, 2007, GME announced additional separation programs affecting 1,900 employees at the Antwerp, Belgium facility. GME recorded $2 million and $82 million for these programs in the three and nine months ended September 30, 2008, respectively, having previously recorded $353 million in 2007.
  •   In the nine months ended September 30, 2008, GME recorded restructuring charges of $16 million related to separation programs at the Strasbourg, France facility, which were announced in the three months ended June 30, 2008.
  •   The remaining $5 million and $32 million in separation charges reported in the three and nine months ended September 30, 2008, respectively, relate to the cost of initiatives previously announced. These include voluntary separations in Sweden and the United Kingdom.
  •   Additionally, GME reversed accruals of $21 million in the nine months ended September 30, 2008 associated with the favorable resolution of claims by the government of Portugal filed in conjunction with the facility closure in Azambuja in 2006.
 
GMLAAM recorded restructuring charges of $23 million and $29 million in the three months and nine months ended September 30, 2008, respectively. These charges related to separation programs in South Africa and Chile.
 
GMAP recorded net restructuring charges of $9 million and $70 million in the three and nine months ended September 30, 2008, respectively. These charges were related to the following restructuring initiatives:
 
  •   In the three and nine months ended September 30, 2008, GMAP recorded restructuring charges in Australia of $2 million and $63 million, respectively, related to a facility idling at GM Holden, Ltd. (GM Holden), which manufactures FAM II 4 cylinder engines. The program will affect 650 employees, who will leave through December 2009, and has total estimated costs of $67 million. The remaining cost of this program will be recognized over the remaining required service period of the employees.
  •   In the three and nine months ended September 30, 2008, GMAP recorded restructuring charges in Australia of $7 million, which were related to GM Holden implementing an early separation program offered to salaried employees. The program was announced in September 2008, will continue through December 2008 and has a total estimated cost of $10 million.
 
  2007 Activities
 
The following table summarizes the components of our restructuring charges by segment in the three months ended September 30, 2007:
 
                                         
    GMNA     GME     GMLAAM     GMAP     Total  
    (Dollars in millions)  
 
Separation costs
  $ 2     $ 262     $     $ 1     $ 265  
Other
                             
                                         
Total restructuring charges
  $ 2     $ 262     $     $ 1     $ 265  
                                         


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
The following summarizes the components of our restructuring charges by segment in the nine months ended September 30, 2007:
 
                                         
    GMNA     GME     GMLAAM     GMAP     Total  
    (Dollars in millions)  
 
Separation costs
  $ 7     $ 349     $ 18     $ 42     $ 416  
Other
                             
                                         
Total restructuring charges
  $ 7     $ 349     $ 18     $ 42     $ 416  
                                         
 
GMNA recorded restructuring charges of $2 million and $7 million in the three and nine months ended September 30, 2007, respectively. The charges were related to a U.S. salaried severance program as described in more detail above.
 
GME recorded restructuring charges relating to separation programs of $262 million and $349 million in the three and nine months ended September 30, 2007, respectively. These charges were related to the following restructuring initiatives:
 
  •   In the three and nine months ended September 30, 2007, GME recorded charges in Germany of $33 million and $103 million, respectively. These charges primarily related to early retirement programs, along with additional minor separations under other programs in Germany as described in more detail above.
  •   In the three and nine months ended September 30, 2007, GME recorded charges of $226 million and $229 million, respectively, related to initiatives in Belgium.
  •   The remaining $3 million and $17 million in separation charges reported in the three and nine months ended September 30, 2007, respectively, relate to initiatives announced in Sweden and the United Kingdom.
 
GMLAAM recorded restructuring charges of $18 million in the nine months ended September 30, 2007 for employee separations at General Motors do Brasil Ltd. (GM do Brasil). These initiatives were announced and completed in the three months ended June 30, 2007 and resulted in the separation of 600 employees.
 
GMAP recorded restructuring charges of $1 million and $42 million in the three and nine months ended September 30, 2007, respectively. The charges were related to a voluntary employee separation program at GM Holden, which was announced in the three months ended March 31, 2007. This initiative reduced the facility’s workforce by 650 employees as a result of increased plant operational efficiency.
 
Note 16. Impairments
 
We periodically review the carrying value of our long-lived assets to be held and used when events and circumstances warrant and in conjunction with the annual business planning cycle. If the carrying value of a long-lived asset or asset group is considered impaired, an impairment charge is recorded for the amount by which the carrying amount exceeds fair value. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Product-specific assets may become impaired as a result of declines in profitability due to changes in volume, pricing or costs. Impairment charges related to automotive assets are recorded in Automotive cost of sales. Refer to Note 15 for additional detail on restructuring and other initiatives.
 
Due to the current unstable global economy and credit markets, it is reasonably possible that these conditions could deteriorate further and negatively affect our anticipated cash flows to such an extent that we could be required to record impairment charges against our long-lived assets.
 
We periodically review the carrying value of our portfolio of equipment on operating leases for impairment when events and circumstances warrant and in conjunction with our quarterly review of residual values and associated depreciation rates. If the carrying value is considered impaired, an impairment charge is recorded for the amount by which the carrying value exceeds the


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
fair value. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.
 
Our Automotive segment’s portfolio of equipment on operating leases is primarily comprised of vehicles leased to rental car companies, with lease terms of 11 months or less. Our FIO segment’s portfolio of equipment on operating leases is primarily comprised of vehicle leases to retail customers with lease terms of up to 48 months. Impairment charges are recorded in Automotive cost of sales by our Automotive segment and in Financial services and insurance expense by our FIO segment.
 
In addition, we test our goodwill for impairment annually and when an event occurs or circumstances change such that it is reasonably possible that impairment may exist. The annual impairment test requires the identification of our reporting units and a comparison of the fair value of each of our reporting units to the respective carrying value. The fair value of our reporting units is determined based on valuation techniques using the best information that is available, primarily discounted cash flow projections. If the carrying value of a reporting unit is greater than the fair value of the reporting unit then impairment may exist.
 
The following table summarizes our impairment charges:
 
                                 
    Three Months
       
    Ended
       
    September 30,     Nine Months Ended September 30,  
    2008     2007     2008     2007  
    (Dollars in millions)  
 
Long-lived asset impairments related to restructuring initiatives
  $ 1     $     $ 29     $  
Other long-lived asset impairments
                      84  
FIO Equipment on operating leases, net
                105        
                                 
Total
  $ 1     $     $ 134     $ 84  
                                 
 
  2008 Impairments
 
GMLAAM recorded long-lived asset impairment charges of $1 million in the three and nine months ended September 30, 2008 related to restructuring initiatives at our Arica City facility in Chile.
 
GMAP recorded long-lived asset impairment charges of $28 million related to restructuring initiatives at GM Holden in the nine months ended September 30, 2008.
 
FIO recorded impairment charges of $105 million related to our portfolio of equipment on operating leases in the nine months ended September 30, 2008. The impairment charge was the result of our regular review of residual values related to these leased assets. In the three months ended June 30, 2008, residual values of sport utility vehicles and fullsize pick-up trucks experienced a sudden and significant decline as a result of a shift in customer preference to passenger cars and crossover vehicles and away from sport utility vehicles and fullsize pick-up trucks. This decline in residual values was the primary reason for the impairment charges.
 
  2007 Impairments
 
GMNA recorded long-lived asset impairment charges of $70 million in the nine months ended September 30, 2007, for product-specific tooling assets.
 
GMAP recorded long-lived asset impairment charges of $14 million in the nine months ended September 30, 2007, related to the cessation of production of VZ Commodore passenger car derivatives at GM Holden.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 17. Loss Per Share
 
Basic and diluted loss per share have been computed by dividing Loss from continuing operations by the weighted average number of shares outstanding in the period.
 
The following table summarizes the amounts used in the basic and diluted loss per share computations:
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
    (In millions, except per share amounts)  
 
Loss from continuing operations
  $ (2,542 )   $ (42,512 )   $ (21,264 )   $ (41,770 )
Weighted average number of shares outstanding
    571       566       568       566  
Basic and diluted loss per share from continuing operations
  $ (4.45 )   $ (75.12 )   $ (37.44 )   $ (73.82 )
 
Due to net losses from continuing operations for all periods presented, the assumed exercise of stock options had an antidilutive effect and therefore was excluded from the computation of diluted loss per share. The number of such options not included in the computation of diluted loss per share was 101 million and 107 million at September 30, 2008 and 2007, respectively.
 
No shares potentially issuable to satisfy the in-the-money amount of our convertible debentures have been included in the computation of diluted loss per share for the three and nine months ended September 30, 2008 and 2007 as our various series of convertible debentures were not in-the-money.
 
Note 18. Transactions with GMAC
 
We have entered into various operating and financing arrangements with GMAC as more fully described in our 2007 10-K. The following tables summarize the financial statement effects of our transactions with GMAC:
 
  U.S. Marketing Incentives and Operating Lease Residuals
 
                         
    September 30,
    December 31,
    September 30,
 
    2008     2007     2007  
    (Dollars in millions)  
 
Residual Support Program:
                       
Liabilities recorded
  $ 599     $ 118     $ 422  
Maximum obligations
  $ 1,451     $ 1,062     $ 903  
Risk Sharing:
                       
Liabilities recorded
  $ 385     $ 144     $ 130  
Maximum amount guaranteed
  $ 1,434     $ 1,118     $ 978  
 
                 
    Nine Months Ended
 
    September 30,  
    2008     2007  
    (Dollars in millions)  
 
Total U.S. payments to GMAC, primarily related to marketing incentives and operating lease residual program
  $ 3,079     $ 3,404  


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
  Equipment on Operating Leases Transferred to Us by GMAC
 
                         
    September 30,
    December 31,
    September 30,
 
    2008     2007     2007  
    (Dollars in millions)  
 
Note payable balance, secured by the assets transferred
  $ 35     $ 35     $ 373  
 
  Lease Impairment Charges
 
In the three months ended June 30, 2008, residual values of sport utility vehicles and fullsize pick-up trucks experienced a sudden and significant decline as a result of a shift in customer preference to passenger cars and crossover vehicles and away from fullsize pick-up trucks and sport utility vehicles. In addition, in the three months ended September 30, 2008 residual values of fullsize pick-up trucks in Canada continued to decline significantly. This decline in residual values is the primary factor responsible for the impairment charges of $808 million and $105 million recorded by GMAC and our FIO segment, respectively, in the nine months ended September 30, 2008 related to equipment on operating leases. The determination of vehicle residual values is a significant assumption in these impairment analyses and in the determination of amounts to accrue under the residual support and risk sharing agreements discussed above. It is reasonably possible that vehicle residual values could decline in the future and that we or GMAC may be required to record further impairment charges, which may be material. In addition, it is reasonably possible that such declines in residual values may result in increases in required payments under the residual support and risk sharing agreements discussed above.
 
  Revenue
 
                                 
    Three Months
       
    Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
    (Dollars in millions)  
 
U.S. exclusivity fee revenue
  $ 26     $ 26     $ 79     $ 79  
U.S. royalty revenue
  $ 4     $ 5     $ 12     $ 14  
 
  Participation Agreement
 
On June 4, 2008, we, along with Cerberus ResCap Financing LLC (Cerberus Fund) entered into a Participation Agreement (Participation Agreement) with GMAC. The Participation Agreement provides that we will fund up to $368 million in loans made by GMAC to ResCap through a $3.5 billion secured loan facility GMAC has provided to ResCap (ResCap Facility), and that the Cerberus Fund will fund up to $382 million. The ResCap Facility expires on May 1, 2010, and all funding pursuant to the Participation Agreement is to be done on a pro-rata basis between us and the Cerberus Fund.
 
We and the Cerberus Fund are required to fund our respective portions of the Participation Agreement when the amount outstanding pursuant to the ResCap Facility exceeds $2.75 billion, unless a default event has occurred, in which case we and the Cerberus Fund are required to fund our respective maximum obligations. Amounts funded by us and the Cerberus Fund pursuant to the Participation Agreement are subordinate to GMAC’s interest in the ResCap Facility, and all principal payments remitted by ResCap under the ResCap Facility are applied to GMAC’s outstanding balance, until such balance is zero. Principal payments remitted by ResCap while GMAC’s outstanding balance is zero are applied on a pro-rata basis to us and the Cerberus Fund.
 
The ResCap Facility is secured by various assets held by ResCap and its subsidiaries, and we are entitled to receive interest at LIBOR plus 2.75% for the amount we have funded pursuant to the Participation Agreement. In addition, we and the Cerberus Fund are also entitled to receive our pro-rata share of the 1.75% interest on GMAC’s share of the total outstanding balance. At


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
September 30, 2008, ResCap had fully drawn down the maximum amount pursuant to the ResCap Facility, and we had funded our maximum obligation of $368 million, which is recorded as Equity in and advances to nonconsolidated affiliates.
 
                                 
    Three Months
       
    Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
    (Dollars in millions)  
 
Interest income
  $ 11     $     $ 13     $  
 
  Unsecured Exposure Contractual Limit
 
Based on an agreement between GMAC and us, our unsecured obligations to GMAC cannot exceed $1.5 billion. These unsecured obligations arise from certain operating and financing arrangements within the United States. As a result of the market developments, which occurred during the three months ended June 30, 2008, including a decline in residual values of sport utility vehicles and fullsize pick-up trucks, our estimated obligations at June 30, 2008 exceeded the $1.5 billion contractual limit. In response, on August 6, 2008, we paid GMAC $646 million representing prepayment of the obligations included in the estimate of total liabilities subject to the contractual limit. At September 30, 2008 we had a prepaid balance with GMAC of $428 million, which represents the amount of our obligations we have paid in advance in order to remain at or below the $1.5 billion contractual limit.
 
As disclosed above, it is reasonably possible vehicle residual values could decline further and that we may be required to record increases in our liabilities related to the residual support and risk sharing agreements and accordingly make further payments to GMAC under this agreement.
 
Balance Sheet
 
The following table summarizes the balance sheet effects of our transactions with GMAC:
 
                         
    September 30,
    December 31,
    September 30,
 
    2008     2007     2007  
    (Dollars in millions)  
 
Assets:
                       
Accounts and notes receivable (a)
  $ 1,840     $ 1,285     $ 1,758  
Other current assets (b)
  $     $ 30     $ 39  
Equity in and advances to nonconsolidated affiliates (c)
  $ 368     $     $  
Liabilities:
                       
Accounts payable (d)
  $ 421     $ 548     $ 643  
Short-term borrowings and current portion of long-term debt (e)
  $ 2,580     $ 2,802     $ 2,935  
Accrued expenses (f)
  $ 1,269     $ 2,134     $ 1,573  
Long-term debt (g)
  $ 99     $ 119     $ 284  
(a) Represents wholesale settlements due from GMAC, amounts owed by GMAC with respect to the Equipment on operating leases, net transferred to us and the exclusivity fee and royalty arrangement.
(b) Primarily represents distributions due from GMAC on our Preferred Membership Interests.
(c) Represents amounts funded pursuant to the Participation Agreement.
(d) Primarily represents amounts accrued for interest rate support, capitalized cost reduction, residual support and lease pull-ahead programs and the risk sharing arrangement.
(e) Represents wholesale financing, sales of receivable transactions and the short-term portion of term loans provided to certain dealerships which we own or in which we have an equity interest. In addition, it includes borrowing arrangements


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
with GME locations and arrangements related to GMAC’s funding of our company-owned vehicles, rental car vehicles awaiting sale at auction and funding of the sale of our vehicles in which we retain title while the vehicles are consigned to GMAC or dealers, primarily in the United Kingdom. Our financing remains outstanding until the title is transferred to the dealers. This amount also includes the short-term portion of a note provided to our wholly-owned subsidiary holding debt related to the Equipment on operating leases, net transferred to us from GMAC.
(f) Primarily represents accruals for marketing incentives on vehicles which are sold, or anticipated to be sold, to customers or dealers and financed by GMAC in the U.S. This includes the estimated amount of residual support accrued under the residual support and risk sharing programs, rate support under the interest rate support programs, operating lease and finance receivable capitalized cost reduction incentives paid to GMAC to reduce the capitalized cost in automotive lease contracts and retail automotive contracts, and cost under lease pull-ahead programs. In addition it includes interest accrued on the transactions in (e) above.
(g) Primarily represents the long-term portion of term loans and a note payable with respect to the Equipment on operating leases, net transferred to us mentioned in (e) above.
 
Statement of Operations
 
The following table summarizes the income statement effects of our transactions with GMAC:
 
                                 
          Nine Months
 
    Three Months Ended
    Ended
 
    September 30,     September 30,  
    2008     2007     2008     2007  
          (Dollars in millions)        
 
Net sales and revenue (reduction) (a)
  $ 1,057     $ (657 )   $ (1,128 )   $ (2,520 )
Cost of sales and other expenses (b)
  $ 180     $ 140     $ 570     $ 384  
Automotive interest income and other non-operating income, net (c)
  $ 94     $ 109     $ 266     $ 321  
Interest expense (d)
  $ 61     $ 18     $ 176     $ 171  
Servicing expense (e)
  $ 16     $ 39     $ 66     $ 134  
Derivative gain (loss) (f)
  $ (4 )   $ 14     $ (5 )   $ 13  
(a) Primarily represents the reduction in net sales and revenue for marketing incentives on vehicles which are sold, or anticipated to be sold, to customers or dealers and financed by GMAC in the U.S. This includes the estimated amount of residual support accrued under the residual support and risk sharing programs, rate support under the interest rate support programs, operating lease and finance receivable capitalized cost reduction incentives paid to GMAC to reduce the capitalized cost in automotive lease contracts and retail automotive contracts, and costs under lease pull-ahead programs. This amount is offset by net sales for vehicles sold to GMAC for employee and governmental lease programs and third party resale purposes. During the three months ended September 30, 2008, net sales and revenue were favorably affected by a reduction of $0.7 billion in the accruals for residual support programs for leased vehicles due to recent experience related to dealer/lessee lease buy-outs and improvement in residual values of fullsize pick-ups and sport utility vehicles.
(b) Primarily represents cost of sales on the sale of vehicles to GMAC for employee and governmental lease programs and third party resale purposes. Also includes miscellaneous expenses for services performed for us by GMAC.
(c) Represents income on our Preferred Membership Interests in GMAC, interest earned on amounts outstanding under the Participation Agreement, exclusivity and royalty fee income and reimbursements by GMAC for certain services we provided. Included in this amount is rental income related to GMAC’s primary executive and administrative offices located in the Renaissance Center in Detroit, Michigan. The lease agreement expires on November 30, 2016.
(d) Represents interest incurred on term loans, notes payable and wholesale settlements.
(e) Represents servicing fees paid to GMAC on the automotive leases we retained.
(f) Represents gains and losses recognized in connection with a derivative transaction entered into with GMAC as the counterparty.


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
Note 19. Segment Reporting
 
We operate in two businesses, consisting of GMA and FIO. Our four automotive segments consist of GMNA, GME, GMLAAM and GMAP. We manufacture our cars and trucks in 35 countries under the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, HUMMER, Opel, Pontiac, Saab, Saturn, Vauxhall and Wuling. Our FIO business consists of our 49% share of GMAC’s operating results, which we account for under the equity method, and Other Financing, which is comprised primarily of two special purpose entities holding automotive leases previously owned by GMAC and its affiliates that we retained, and the elimination of inter-segment transactions between GM Automotive and Corporate and Other.
 
Corporate and Other includes the elimination of inter-segment transactions, certain non-segment specific revenue and expenses, including costs related to postretirement benefits for Delphi and other retirees and certain corporate activities. Amounts presented in automotive sales, interest income and interest expense in the tables that follow principally relate to the inter-segment transactions eliminated at Corporate and Other. All inter-segment balances and transactions have been eliminated in consolidation.
 
In the three months ended December 31, 2007, we changed our measure of segment profitability from Net income (loss) to income (loss) from continuing operations before income taxes, equity income, net of tax and minority interest, net of tax. Amounts for the three and nine months ended September 30, 2007 have been revised to present these periods on a comparable basis for these changes. In the three and nine months ended September 30, 2008, we reclassified immaterial amounts related to a vehicle assembly agreement from Automotive cost of sales to Automotive sales to report the arrangement on a net basis. In addition, 2007 amounts have been reclassified for the retroactive effect of discontinued operations due to the August 2007 sale of Allison as discussed in Note 3. Historically, Allison was included in GMNA. Certain reclassifications, including inter-segment eliminations between Corporate and FIO, have been made to the 2007 financial information to conform to current period presentation.
 
In the three months ended June 30, 2008 we determined that GM Daewoo Auto & Technology Company (GM Daewoo), our 50.9% owned and consolidated Korean subsidiary, included in our GMAP segment, had been applying hedge accounting to certain derivative contracts designated as cash flow hedges of forecasted sales without fully considering whether these sales were at all times probable of occurring. In accordance with SFAS No. 133, gains and losses on derivatives used to hedge a probable forecasted transaction are deferred as a component of other comprehensive income and reclassified into earnings in the period in which the forecasted transaction occurs. Gains and losses on derivatives related to forecasted transactions that are not probable of occurring are required to be recorded in current period earnings. In the three months ended June 30, 2008, we corrected our previous accounting by recognizing in Automotive sales losses of $407 million ($262 million in income (loss) from continuing operations before income taxes and $150 million after-tax and after minority interests) on these derivatives which had been inappropriately deferred in Accumulated other comprehensive loss. Of this amount, $250 million ($163 million in income (loss) from continuing operations before income taxes and $93 million after-tax and after minority interests) should have been recognized in earnings in the three months ended March 31, 2008, and the remainder should have been recognized in prior periods, predominantly in 2007. We have not restated our condensed consolidated financial statements or prior annual financial statements because we have concluded that the effect of correcting for this item and other minor out-of-period adjustments is not material to the three months ended June 30, 2008 and to each of the earlier periods.
 


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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
                                                                                                 
                                              Total
                         
                            GMA
    Total
    Corporate
    Excluding
          Other
    Total
       
    GMNA     GME     GMLAAM     GMAP     Eliminations     GMA     & Other(a)     FIO     GMAC(c)     Financing(b)     FIO     Total  
    (Dollars in millions)  
At and for the Three Months Ended September 30, 2008
                                                                                               
Automotive sales
                                                                                               
External customers
  $ 21,529     $ 7,115     $ 5,588     $ 3,271     $     $ 37,503     $     $ 37,503     $     $     $     $ 37,503  
Inter-segment
    1,015       367       93       1,495       (2,970 )                                          
                                                                                                 
Total automotive sales
    22,544       7,482       5,681       4,766       (2,970 )     37,503             37,503                         37,503  
Financial services and insurance revenue
                                                          438       438       438  
                                                                                                 
Total net sales and revenue
  $ 22,544     $ 7,482     $ 5,681     $ 4,766     $ (2,970 )   $ 37,503     $     $ 37,503     $     $ 438     $ 438     $ 37,941  
                                                                                                 
Depreciation, amortization and impairment
  $ 1,255     $ 447     $ 65     $ 145     $ 18     $ 1,930     $ 15     $ 1,945     $     $ 23     $ 23     $ 1,968  
Equity in loss of GMAC LLC
  $     $     $     $     $     $     $     $     $ (1,235 )   $     $ (1,235 )   $ (1,235 )
Interest income
  $ 229     $ 153     $ 75     $ 25     $     $ 482     $ (374 )   $ 108     $     $ 20     $ 20     $ 128  
Interest expense
  $ 509     $ 198     $ 11     $ 55     $ 4     $ 777     $ (235 )   $ 542     $     $ 28     $ 28     $ 570  
Income (loss) from continuing operations before income taxes, equity income and minority interest
  $ (384 )   $ (1,019 )   $ 517     $ (115 )   $ (57 )   $ (1,058 )   $ (131 )   $ (1,189 )   $ (1,476 )   $ 83     $ (1,393 )   $ (2,582 )
Equity income (loss), net of tax
    (22 )     13       8       50             49       1       50                         50  
Minority interests, net of tax
    11       3       (11 )     59             62       1       63             (5 )     (5 )     58  
                                                                                                 
Income (loss) from continuing operations before income taxes
  $ (395 )   $ (1,003 )   $ 514     $ (6 )   $ (57 )   $ (947 )   $ (129 )   $ (1,076 )   $ (1,476 )   $ 78     $ (1,398 )   $ (2,474 )
                                                                                                 
Investments in nonconsolidated affiliates
  $ 539     $ 354     $ 60     $ 1,360     $     $ 2,313     $ 38     $ 2,351     $ 1,949     $     $ 1,949     $ 4,300  
Total assets
  $ 79,162     $ 25,289     $ 9,014     $ 13,720     $ (12,483 )   $ 114,702     $ (11,601 )   $ 103,101     $ 6,418     $ 906     $ 7,324     $ 110,425  
Goodwill
  $ 161     $ 515     $     $     $     $ 676     $     $ 676     $     $     $     $ 676  
 

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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
                                                                                                 
                                              Total
                         
                            GMA
    Total
    Corporate
    Excluding
          Other
    Total
       
    GMNA     GME     GMLAAM     GMAP     Eliminations     GMA     & Other(a)     FIO     GMAC(c)     Financing(b)     FIO     Total  
    (Dollars in millions)  
At and for the Three Months Ended September 30, 2007
                                                                                               
Automotive sales
                                                                                               
External customers
  $ 26,022     $ 8,385     $ 4,829     $ 3,766     $     $ 43,002     $     $ 43,002     $     $     $     $ 43,002  
Inter-segment
    585       400       115       1,514       (2,614 )                                          
                                                                                                 
Total automotive sales
    26,607       8,785       4,944       5,280       (2,614 )     43,002             43,002                         43,002  
Financial services and insurance revenue
                                                          700       700       700  
                                                                                                 
Total net sales and revenue
  $ 26,607     $ 8,785     $ 4,944     $ 5,280     $ (2,614 )   $ 43,002     $     $ 43,002     $     $ 700     $ 700     $ 43,702  
                                                                                                 
Depreciation, amortization and impairment
  $ 1,341     $ 407     $ 76     $ 150     $ 9     $ 1,983     $ 14     $ 1,997     $     $ 297     $ 297     $ 2,294  
Equity in loss of GMAC LLC
  $     $     $     $     $     $     $     $     $ (809 )   $     $ (809 )   $ (809 )
Interest income
  $ 365     $ 178     $ 41     $ 44     $ 1     $ 629     $ (277 )   $ 352     $     $ 36     $ 36     $ 388  
Interest expense
  $ 747     $ 197     $ 58     $ 61     $ 1     $ 1,064     $ (225 )   $ 839     $     $ 106     $ 106     $ 945  
Income (loss) from continuing operations before income taxes, equity income and minority interests
  $ (1,760 )   $ (406 )   $ 375     $ 168     $ (27 )   $ (1,650 )   $ (1,033 )   $ (2,683 )   $ (773 )   $ 118     $ (655 )   $ (3,338 )
Equity income (loss), net of tax
    10       10       9       86       (1 )     114             114                         114  
Minority interests, net of tax
    (16 )     (2 )     (10 )     (68 )           (96 )     2       (94 )           (8 )     (8 )     (102 )
                                                                                                 
Income (loss) from continuing operations before income taxes
  $ (1,766 )   $ (398 )   $ 374     $ 186     $ (28 )   $ (1,632 )   $ (1,031 )   $ (2,663 )   $ (773 )   $ 110     $ (663 )   $ (3,326 )
                                                                                                 
Income from discontinued operations, net of tax
  $ 45     $     $     $     $     $ 45     $     $ 45     $     $     $     $ 45  
Gain on sale of discontinued operations, net of tax
  $ 3,504     $     $     $     $     $ 3,504     $     $ 3,504     $     $     $     $ 3,504  
Investments in nonconsolidated affiliates
  $ 327     $ 437     $ 64     $ 1,167     $     $ 1,995     $ 36     $ 2,031     $ 6,852     $     $ 6,852     $ 8,883  
Total assets
  $ 92,377     $ 27,655     $ 6,611     $ 14,860     $ (10,945 )   $ 130,558     $ (213 )   $ 130,345     $ 12,413     $ 6,742     $ 19,155     $ 149,500  
Goodwill
  $ 188     $ 575     $     $     $     $ 763     $     $ 763     $     $     $     $ 763  
 

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Table of Contents

 
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
                                                                                                 
                                              Total
                         
                            GMA
    Total
    Corporate
    Excluding
          Other
    Total
       
    GMNA     GME     GMLAAM     GMAP     Eliminations     GMA     & Other(a)     FIO     GMAC(c)     Financing(b)     FIO     Total  
    (Dollars in millions)  
For the Nine Months Ended September 30, 2008
                                                                                               
Automotive sales
                                                                                               
External customers
  $ 64,579     $ 26,269     $ 15,273     $ 10,999     $     $ 117,120     $     $ 117,120     $     $     $     $ 117,120