10-Q 1 gm2012q2.htm FORM 10-Q GM 2012 Q2
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 June 30, 2012
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             

Commission file number 001-34960
GENERAL MOTORS COMPANY
(Exact Name of Registrant as Specified in its Charter)
STATE OF DELAWARE
27-0756180
(State or other jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
 
 
300 Renaissance Center, Detroit, Michigan
48265-3000
(Address of Principal Executive Offices)
(Zip Code)
(313) 556-5000
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ  No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ  No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ  Accelerated filer  ¨  Non-accelerated filer  ¨  Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  þ
As of July 27, 2012 the number of shares outstanding of common stock was 1,565,954,484 shares.

Website Access to Company's Reports

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


INDEX
 
 
 
Page
 
Item 1.
 
 
 
 
 
 
 
Note 1.
 
Note 2.
 
Note 3.
 
Note 4.
 
Note 5.
 
Note 6.
 
Note 7.
 
Note 8.
 
Note 9.
 
Note 10.
 
Note 11.
 
Note 12.
 
Note 13.
 
Note 14.
 
Note 15.
 
Note 16.
 
Note 17.
 
Note 18.
 
Note 19.
 
Note 20.
 
Note 21.
 
Note 22.
 
Note 23.
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 6.
 




GENERAL MOTORS COMPANY AND SUBSIDIARIES


PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

CONDENSED CONSOLIDATED INCOME STATEMENTS
(In millions, except per share amounts)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Net sales and revenue
 
 
 
 
 
 
 
Automotive sales and revenue
$
37,127

 
$
39,043

 
$
74,455

 
$
74,942

GM Financial revenue
487

 
330

 
918

 
625

Total net sales and revenue
37,614

 
39,373

 
75,373

 
75,567

Costs and expenses

 
 
 

 
 
Automotive cost of sales
32,678

 
33,793

 
65,588

 
65,478

GM Financial operating and other expenses
268

 
186

 
516

 
351

Automotive selling, general and administrative expense
2,842

 
2,924

 
5,815

 
5,918

Other automotive expenses, net
5

 
19

 
20

 
25

Goodwill impairment charges
—

 
—

 
617

 
395

Total costs and expenses
35,793

 
36,922

 
72,556

 
72,167

Operating income
1,821

 
2,451

 
2,817

 
3,400

Automotive interest expense
118

 
155

 
228

 
304

Interest income and other non-operating income, net
139

 
308

 
414

 
912

Loss on extinguishment of debt
—

 
10

 
18

 
10

Income before income taxes and equity income
1,842

 
2,594

 
2,985

 
3,998

Income tax expense (benefit)
241

 
(61
)
 
457

 
76

Equity income, net of tax and gain on disposal of investments
300

 
382

 
723

 
2,526

Net income
1,901

 
3,037

 
3,251

 
6,448

Net income attributable to noncontrolling interests
(55
)
 
(45
)
 
(90
)
 
(90
)
Net income attributable to stockholders
$
1,846

 
$
2,992

 
$
3,161

 
$
6,358

Net income attributable to common stockholders
$
1,487

 
$
2,524

 
$
2,491

 
$
5,387

 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Basic earnings per common share
$
0.95

 
$
1.68

 
$
1.59

 
$
3.58

Weighted-average common shares outstanding
1,569

 
1,505

 
1,571

 
1,505

Diluted
 
 
 
 
 
 
 
Diluted earnings per common share
$
0.90

 
$
1.54

 
$
1.49

 
$
3.27

Weighted-average common shares outstanding
1,671

 
1,654

 
1,681

 
1,661


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


1


GENERAL MOTORS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Net income
$
1,901

 
$
3,037

 
$
3,251

 
$
6,448

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustments
(115
)
 
79

 
(52
)
 
116

Cash flow hedging gains (losses), net
(2
)
 
—

 
(2
)
 
23

Unrealized gain (loss) on securities
(136
)
 
5

 
(140
)
 
5

Defined benefit plans, net
15

 
(3
)
 
58

 
198

Other comprehensive income (loss), net of tax
(238
)
 
81

 
(136
)
 
342

Comprehensive income
1,663

 
3,118

 
3,115

 
6,790

Less: comprehensive income attributable to noncontrolling interests
(44
)
 
(49
)
 
(88
)
 
(105
)
Comprehensive income attributable to stockholders
$
1,619

 
$
3,069

 
$
3,027

 
$
6,685


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


2

GENERAL MOTORS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
(Unaudited)


 
June 30, 2012
 
December 31, 2011
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
22,184

 
$
16,071

Marketable securities
11,381

 
16,148

Restricted cash and marketable securities
734

 
1,005

Accounts and notes receivable (net of allowance of $324 and $331)
11,117

 
9,964

GM Financial finance receivables, net (including gross consumer finance receivables transferred to SPEs of $3,359 and $3,295)
3,478

 
3,251

Inventories
15,433

 
14,324

Equipment on operating leases, net
3,819

 
2,464

Other current assets and deferred income taxes
2,087

 
1,696

Total current assets
70,233

 
64,923

Non-current Assets
 
 
 
Restricted cash and marketable securities
1,046

 
1,228

GM Financial finance receivables, net (including gross consumer finance receivables transferred to SPEs of $6,427 and $5,773)
6,552

 
5,911

Equity in net assets of nonconsolidated affiliates
7,058

 
6,790

Property, net
25,026

 
23,005

Goodwill
28,405

 
29,019

Intangible assets, net
9,192

 
10,014

GM Financial equipment on operating leases, net (including assets transferred to SPEs of $478 and $274)
1,324

 
785

Other assets and deferred income taxes
3,151

 
2,928

Total non-current assets
81,754

 
79,680

Total Assets
$
151,987

 
$
144,603

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable (principally trade)
$
26,425

 
$
24,551

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


 


Automotive (including certain debt at GM Korea of $116 and $171; Note 11)
1,360

 
1,682

GM Financial
3,732

 
4,118

Accrued liabilities (including derivative liabilities at GM Korea of $31 and $44; Note 11)
25,134

 
22,875

Total current liabilities
56,651

 
53,226

Non-current Liabilities
 
 
 
Long-term debt
 
 
 
Automotive
3,783

 
3,613

GM Financial
5,918

 
4,420

Postretirement benefits other than pensions
6,732

 
6,836

Pensions
24,558

 
25,075

Other liabilities and deferred income taxes
12,735

 
12,442

Total non-current liabilities
53,726

 
52,386

Total Liabilities
110,377

 
105,612

Commitments and contingencies (Note 17)


 


Equity
 
 
 
Preferred stock, $0.01 par value, 2,000,000,000 shares authorized:
 
 
 
Series A (276,101,695 shares issued and outstanding (each with a $25.00 liquidation preference) at June 30, 2012 and December 31, 2011)
5,536

 
5,536

Series B (100,000,000 shares issued and outstanding (each with a $50.00 liquidation preference) at June 30, 2012 and December 31, 2011)
4,855

 
4,855

Common stock, $0.01 par value (5,000,000,000 shares authorized and 1,565,941,048 shares and 1,564,727,289 shares issued and outstanding at June 30, 2012 and December 31, 2011)
16

 
16

Capital surplus (principally additional paid-in capital)
26,399

 
26,391

Retained earnings
9,889

 
7,183

Accumulated other comprehensive loss
(5,995
)
 
(5,861
)
Total stockholders’ equity
40,700

 
38,120

Noncontrolling interests
910

 
871

Total Equity
41,610

 
38,991

Total Liabilities and Equity
$
151,987

 
$
144,603


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

3


GENERAL MOTORS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In millions)
(Unaudited) 
 
Series A
Preferred
Stock
 
Series B
Preferred
Stock
 
Common Stockholders’
 
Noncontrolling
Interests
 
Total
Equity
Common
Stock
 
Capital
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Balance December 31, 2010
$
5,536

 
$
4,855

 
$
15

 
$
24,257

 
$
266

 
$
1,251

 
$
979

 
$
37,159

Effect of adoption of amendments in ASU 2010-28 regarding goodwill impairment (Note 9)
—

 
—

 
—

 
—

 
(1,466
)
 
—

 
—

 
(1,466
)
Net income
—

 
—

 
—

 
—

 
6,358

 
—

 
90

 
6,448

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
327

 
15

 
342

Purchase of noncontrolling interest shares
—

 
—

 
—

 
41

 
—

 
(7
)
 
(134
)
 
(100
)
Exercise of common stock warrants
—

 
—

 
—

 
7

 
—

 
—

 
—

 
7

Stock based compensation
—

 
—

 
—

 
107

 
—

 
—

 
—

 
107

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

 
—

 
—

 
—

 
(429
)
 
—

 
—

 
(429
)
Dividends declared or paid to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
(31
)
 
(31
)
Deconsolidation of noncontrolling interest shares
—

 
—

 
—

 
—

 
—

 
—

 
(9
)
 
(9
)
Other
—

 
—

 
—

 
—

 
—

 
—

 
4

 
4

Balance June 30, 2011
$
5,536

 
$
4,855

 
$
15

 
$
24,412

 
$
4,729

 
$
1,571

 
$
914

 
$
42,032

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2011
$
5,536

 
$
4,855

 
$
16

 
$
26,391

 
$
7,183

 
$
(5,861
)
 
$
871

 
$
38,991

Net income
—

 
—

 
—

 
—

 
3,161

 
—

 
90

 
3,251

Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
(134
)
 
(2
)
 
(136
)
Exercise of common stock warrants
—

 
—

 
—

 
3

 
—

 
—

 
—

 
3

Stock based compensation
—

 
—

 
—

 
5

 
—

 
—

 
—

 
5

Cumulative dividends and cash dividends paid on Series A Preferred Stock and cumulative dividends on Series B Preferred Stock
—

 
—

 
—

 
—

 
(455
)
 
—

 
—

 
(455
)
Dividends declared or paid to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
(37
)
 
(37
)
Other
—

 
—

 
—

 
—

 
—

 
—

 
(12
)
 
(12
)
Balance June 30, 2012
$
5,536

 
$
4,855

 
$
16

 
$
26,399

 
$
9,889

 
$
(5,995
)
 
$
910

 
$
41,610


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


4


GENERAL MOTORS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
Net cash provided by operating activities
$
6,441

 
$
4,687

Cash flows from investing activities
 
 
 
Expenditures for property
(4,059
)
 
(2,498
)
Available-for-sale marketable securities, acquisitions
(2,928
)
 
(12,993
)
Trading marketable securities, acquisitions
(3,997
)
 
(258
)
Available-for-sale marketable securities, liquidations
7,592

 
6,288

Trading marketable securities, liquidations
3,625

 
269

Acquisition of companies, net of cash acquired
54

 
(8
)
Operating leases, liquidations
20

 
27

Proceeds from sale of business units/investments, net
3

 
4,778

Increase in restricted cash and marketable securities
(275
)
 
(311
)
Decrease in restricted cash and marketable securities
724

 
488

Purchases of consumer finance receivables
(2,874
)
 
(2,444
)
Principal collections and recoveries on consumer finance receivables
2,040

 
1,880

Net purchases of leased vehicles
(610
)
 
(410
)
Other investing activities
(140
)
 
5

Net cash used in investing activities
(825
)
 
(5,187
)
Cash flows from financing activities
 
 
 
Net increase (decrease) in short-term debt
(156
)
 
216

Proceeds from issuance of debt (original maturities greater than three months)
5,278

 
5,145

Payments on debt (original maturities greater than three months)
(4,077
)
 
(4,849
)
Payments to acquire noncontrolling interest
—

 
(100
)
Dividends paid
(459
)
 
(435
)
Proceeds from issuance of stock
3

 
—

Other financing activities
(23
)
 
(57
)
Net cash provided by (used in) financing activities
566

 
(80
)
Effect of exchange rate changes on cash and cash equivalents
(69
)
 
321

Net increase (decrease) in cash and cash equivalents
6,113

 
(259
)
Cash and cash equivalents at beginning of period
16,071

 
21,256

Cash and cash equivalents at end of period
$
22,184

 
$
20,997


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


5


GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




Note 1. Nature of Operations

General Motors Company, is sometimes referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” “ourselves,” the “Company,” “General Motors,” or “GM.” General Motors Corporation is sometimes referred to in this Quarterly Report on Form 10-Q, for the periods on or before July 9, 2009, as “Old GM.” Old GM was renamed Motors Liquidation Company (MLC), which was dissolved on December 15, 2011 and transferred its remaining assets and liabilities to the Motors Liquidation Company GUC Trust (GUC Trust).

We design, build and sell cars, trucks and automobile parts worldwide. We also provide automotive financing services primarily through General Motors Financial Company, Inc. (GM Financial).

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

Note 2. Basis of Presentation and Recent Accounting Standards

The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Accordingly they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying condensed consolidated financial statements include all adjustments, composed of normal recurring adjustments, considered necessary by management to fairly state our results of operations, financial position and cash flows. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K) as filed with the SEC.

Use of Estimates in the Preparation of the Financial Statements

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

Change in Presentation of Financial Statements

In 2012 we changed the presentation of our condensed consolidated balance sheet, condensed consolidated statements of cash flows and certain notes to the condensed consolidated financial statements to classify the assets and liabilities of GM Financial as current or non-current and to combine line items which were either of a related nature or not individually material. We have made corresponding reclassifications to the comparable information for all periods presented.

Venezuelan Exchange Regulations

Our Venezuelan subsidiaries utilize the U.S. Dollar as their functional currency because of the hyperinflationary status of the Venezuelan economy. The Venezuelan government has introduced foreign exchange control regulations which make it more difficult to convert Bolivar Fuerte (BsF) to U.S. Dollars. These regulations affect our Venezuelan subsidiaries' ability to pay non-BsF denominated obligations that do not qualify to be processed by the Venezuela currency exchange agency at the official exchange rates.

The aggregate net assets of our Venezuelan subsidiaries at June 30, 2012 and December 31, 2011 were $636 million and $438 million. At June 30, 2012 and December 31, 2011 other consolidated entities have receivables from our Venezuelan subsidiaries of $540 million and $380 million. The total amounts pending government approval for settlement at June 30, 2012 and December 31, 2011 were BsF 3.2 billion (equivalent to $751 million) and BsF 2.3 billion (equivalent to $535 million), for which some requests have been pending from 2007.

6

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)


Significant Non-Cash Activity

Investing Cash Flows

The following table summarizes the amounts of non-cash property additions that have been excluded from Expenditures for property within the investing activities section of the condensed consolidated statements of cash flows because no cash has been expended (dollars in millions):
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
Non-cash property additions
$
3,737

 
$
2,989


Recently Adopted Accounting Principles

In 2012 we adopted the provisions of Accounting Standards Update (ASU) 2011-05, “Presentation of Comprehensive Income” (ASU 2011-05) that requires presentation of all non-owner changes in equity in one continuous statement of comprehensive income or in two separate but consecutive statements. We elected to provide a separate statement of comprehensive income for all periods presented. The amendments in this update do not change the items that must be reported in other comprehensive income (OCI) or when an OCI item must be reclassified to net income. The adoption of ASU 2011-05 did not affect our condensed consolidated statements of financial position, results of operations and cash flows.

ASU 2011-05 was modified in December 2011 by the issuance of ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” This update indefinitely defers certain provisions of ASU 2011-05 that require the disclosure of the amount of reclassifications of items from OCI to net income by component of net income and by component of OCI.

Note 3. Acquisition of Businesses

Acquisition of GMAC South America LLC

In March 2012 we acquired from Ally Financial for cash of $29 million 100% of the outstanding equity interests of GMAC South America LLC whose only asset is GMAC de Venezuela CA (GMAC Venezuela) comprising the business and operations of Ally Financial in Venezuela. This acquisition provides us with a captive finance offering in Venezuela which we believe is important in maintaining market position and will provide continued sources of financing for our Venezuela dealers and customers.

We recorded the fair value of the assets acquired and liabilities assumed as of March 1, 2012, the date we obtained control, and have included GMAC Venezuela's results of operations and cash flows from that date forward. The following table summarizes the amounts recorded in connection with the acquisition of GMAC Venezuela, which are included in our GMSA segment (dollars in millions):
 
March 1, 2012
Cash
$
79

Other assets
11

Liabilities
(11
)
Bargain purchase gain
(50
)
Consideration paid
$
29


We determined the excess of net assets acquired over consideration paid was attributable to the measurement differences between the BsF denominated assets and liabilities valued using the official foreign exchange rate, as required by U.S. GAAP, and the enterprise value which has been discounted to reflect the uncertainty surrounding our ability to convert the BsF to U.S. Dollars and the risks of operating in a politically unstable country. The measurement differences do not qualify to be recorded in the application of the acquisition method of accounting, and we recorded the excess of net assets acquired over the consideration paid as a bargain purchase gain. The bargain purchase gain was recorded in Interest income and other non-operating income, net. We

7

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

did not provide pro forma financial information because we do not believe the information is material.

Acquisition of Additional GM Korea Interests

In March 2011 we completed the acquisition of an additional 6.9% interest in GM Korea Company (GM Korea) for cash of $100 million. The transaction was accounted for as an equity transaction as we retain the controlling financial interest in GM Korea. This transaction reduced our equity attributable to Noncontrolling interests by $134 million and our Accumulated other comprehensive income by $7 million and increased our Capital surplus by $41 million. We now own 77.0% of the outstanding shares of GM Korea.

Note 4. Marketable Securities

We measure the fair value of our marketable securities using a market approach where identical or comparable prices are available and an income approach in other cases. We obtain the majority of the prices used in this valuation from a pricing service. Our pricing service utilizes industry-standard pricing models that consider various inputs, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads and benchmark securities as well as other relevant economic measures. We conduct an annual review of valuations provided by our pricing service, which includes discussion and analysis of the inputs used by the pricing service to provide prices for the types of securities we hold. These inputs include prices for comparable securities, bid/ask quotes, interest rate yields and prepayment spreads. Based on our review we believe the prices received from our pricing service are a reliable representation of exit prices.

At June 30, 2012 the carrying amount of our investment in Peugeot S.A. (PSA) exceeded its fair value. The share prices for comparable European automotive companies are currently experiencing significant volatility stemming, in part, from the eurozone debt crisis and its effect on automotive sales within the eurozone, as well as the uncertainty around future sales. We assessed whether the decline in value represented an other-than-temporary impairment and concluded that the impairment is temporary. We believe that the recent economic uncertainty is weighing heavily on the valuation of PSA. Should market conditions not recover in the near-term, we may conclude the impairment is other-than-temporary, resulting in an impairment charge. We currently have the ability and intent to hold the investment until its fair value recovers.

The following tables summarize information regarding marketable securities (dollars in millions):

8

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
June 30, 2012
 
 
 
Unrealized
 
Fair Value
 
Fair Value Measurements on a Recurring Basis
 
Cost
 
Gains
 
Losses
 
 
Level 1
 
Level 2
 
Level 3
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
8,042

 
$
—

 
$
—

 
$
8,042

 
$
—

 
$
8,042

 
$
—

Sovereign debt
441

 
—

 
—

 
441

 
—

 
441

 
—

Certificates of deposit
350

 
—

 
—

 
350

 
—

 
350

 
—

Money market funds
1,309

 
—

 
—

 
1,309

 
1,309

 
—

 
—

Corporate debt
4,794

 
—

 
—

 
4,794

 
—

 
4,794

 
—

Total marketable securities classified as cash equivalents
$
14,936

 
$
—

 
$
—

 
14,936

 
$
1,309

 
$
13,627

 
$
—

Cash, time deposits, and other cash equivalents
 
 
 
 
 
 
7,248

 
 
 
 
 
 
Total cash and cash equivalents
 
 
 
 
 
 
$
22,184

 
 
 
 
 
 
Marketable securities - current
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
1,370

 
$
—

 
$
—

 
$
1,370

 
$
—

 
$
1,370

 
$
—

Sovereign debt
67

 
—

 
—

 
67

 
—

 
67

 
—

Certificates of deposit
40

 
—

 
—

 
40

 
—

 
40

 
—

Corporate debt
3,479

 
4

 
2

 
3,481

 
—

 
3,481

 
—

Total available-for-sale securities
$
4,956

 
$
4

 
$
2

 
4,958

 
—

 
4,958

 
—

Trading securities(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
Sovereign debt
 
 
 
 
 
 
6,423

 
—

 
6,423

 
—

Total trading securities
 
 
 
 
 
 
6,423

 
—

 
6,423

 
—

Total marketable securities - current
 
 
 
 
 
 
11,381

 
—

 
11,381

 
—

Marketable securities - non-current
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity(b)
$
404

 
$
—

 
$
160

 
244

 
244

 
—

 
—

Total marketable securities - non-current
$
404

 
$
—

 
$
160

 
244

 
244

 
—

 
—

Total marketable securities
 
 
 
 
 
 
$
11,625

 
$
244

 
$
11,381

 
$
—

Restricted cash and marketable securities
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
1,027

 
$
—

 
$
—

 
$
1,027

 
$
1,027

 
$
—

 
$
—

Sovereign debt
20

 
—

 
—

 
20

 
—

 
20

 
—

Other
169

 
—

 
—

 
169

 
—

 
169

 
—

Total marketable securities classified as restricted cash and marketable securities
$
1,216

 
$
—

 
$
—

 
1,216

 
$
1,027

 
$
189

 
$
—

Restricted cash, time deposits, and other restricted cash equivalents
 
 
 
 
 
 
564

 
 
 
 
 
 
Total restricted cash and marketable securities
 
 
 
 
 
 
$
1,780

 
 
 
 
 
 
________
(a)
Net unrealized losses on trading securities were $111 million and $61 million in the three and six months ended June 30, 2012. Net unrealized gains (losses) were insignificant in the three and six months ended June 30, 2011. Unrealized gains (losses) are primarily related to remeasurement of Canadian Dollar (CAD) denominated securities.
(b)
Represents our seven percent ownership in PSA acquired in connection with our agreement with PSA to create a long-term and strategic alliance. The investment is recorded in Other assets and deferred income taxes.

9

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
December 31, 2011
 
 
 
Unrealized
 
Fair Value
 
Fair Value Measurements on a Recurring Basis
 
Cost
 
Gains
 
Losses
 
 
Level 1
 
Level 2
 
Level 3
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
239

 
$
—

 
$
—

 
$
239

 
$
—

 
$
239

 
$
—

Sovereign debt
490

 
—

 
—

 
490

 
—

 
490

 
—

Certificates of deposit
2,028

 
—

 
—

 
2,028

 
—

 
2,028

 
—

Money market funds
1,794

 
—

 
—

 
1,794

 
1,794

 
—

 
—

Corporate debt
5,112

 
—

 
—

 
5,112

 
—

 
5,112

 
—

Total available-for-sale securities
$
9,663

 
$
—

 
$
—

 
9,663

 
1,794

 
7,869

 
—

Trading securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Sovereign debt
 
 
 
 
 
 
497

 
—

 
497

 
—

Total trading securities
 
 
 
 
 
 
497

 
—

 
497

 
—

Total marketable securities classified as cash equivalents
 
 
 
 
 
 
10,160

 
$
1,794

 
$
8,366

 
$
—

Cash, time deposits, and other cash equivalents
 
 
 
 
 
 
5,911

 
 
 
 
 
 
Total cash and cash equivalents
 
 
 
 
 
 
$
16,071

 
 
 
 
 
 
Marketable securities - current
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
5,214

 
$
2

 
$
—

 
$
5,216

 
$
—

 
$
5,216

 
$
—

Sovereign debt
143

 
—

 
—

 
143

 
—

 
143

 
—

Certificates of deposit
178

 
—

 
—

 
178

 
—

 
178

 
—

Corporate debt
4,566

 
3

 
4

 
4,565

 
—

 
4,565

 
—

Total available-for-sale securities
$
10,101

 
$
5

 
$
4

 
10,102

 
—

 
10,102

 
—

Trading securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
34

 
34

 
—

 
—

Sovereign debt
 
 
 
 
 
 
5,936

 
—

 
5,936

 
—

Other debt
 
 
 
 
 
 
76

 
—

 
76

 
—

Total trading securities
 
 
 
 
 
 
6,046

 
34

 
6,012

 
—

Total marketable securities - current
 
 
 
 
 
 
$
16,148

 
$
34

 
$
16,114

 
$
—

Restricted cash and marketable securities
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
1,363

 
$
—

 
$
—

 
$
1,363

 
$
1,363

 
$
—

 
$
—

Sovereign debt
15

 
—

 
—

 
15

 
—

 
15

 
—

Other
161

 
3

 
—

 
164

 
—

 
164

 
—

Total marketable securities classified as restricted cash and marketable securities
$
1,539

 
$
3

 
$
—

 
1,542

 
$
1,363

 
$
179

 
$
—

Restricted cash, time deposits, and other restricted cash equivalents

 
 
 
 
 
 
691

 
 
 
 
 
 
Total restricted cash and marketable securities
 
 
 
 
 
 
$
2,233

 
 
 
 
 
 

 
June 30, 2012
 
December 31, 2011
Classification of Restricted cash and marketable securities
 
 
 
Current
$
734

 
$
1,005

Non-current
1,046

 
1,228

Total restricted cash and marketable securities
$
1,780

 
$
2,233


10

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)


We maintained securities of $84 million as compensating balances to support letters of credit of $70 million at June 30, 2012 and December 31, 2011. We have access to these securities in the normal course of business; however, the letters of credit may be withdrawn if the minimum collateral balance is not maintained.

Sales proceeds from investments in marketable securities classified as available-for-sale and sold prior to maturity were $551 million and $132 million in the three months ended June 30, 2012 and 2011 and $978 million and $249 million in the six months ended June 30, 2012 and 2011.

The following table summarizes the amortized cost and the fair value of investments classified as available-for-sale within cash equivalents, marketable securities and restricted cash by contractual maturity at June 30, 2012 (dollars in millions):
 
Amortized Cost
 
Fair Value
Due in one year or less
$
17,136

 
$
17,136

Due after one year through five years
1,479

 
1,482

Total contractual maturities of available-for-sale securities
$
18,615

 
$
18,618


Note 5. GM Financial Finance Receivables, net

In April 2012 GM Financial commenced commercial lending activities in the U.S. centered on floorplan financing of dealer vehicle inventory and dealer loans to finance dealer sites, facilities, facility improvements and working capital. These loans are made on a secured basis.

The following table summarizes GM Financial finance receivables, net relating to consumer and commercial activities (dollars in millions):
 
June 30, 2012
 
December 31, 2011
Current
$
3,478

 
$
3,251

Non-current
6,552

 
5,911

Total GM Financial finance receivables, net
$
10,030

 
$
9,162


The following table summarizes the components of GM Financial finance receivables, net (dollars in millions):
 
June 30, 2012
 
December 31, 2011
Pre-acquisition consumer finance receivables, outstanding balance
$
3,100

 
$
4,366

Pre-acquisition consumer finance receivables, carrying amount
$
2,811

 
$
4,027

Post-acquisition finance receivables, net of fees(a)
7,468

 
5,314

Total finance receivables
10,279

 
9,341

Less: allowance for loan losses on post-acquisition finance receivables
(249
)
 
(179
)
Total GM Financial finance receivables, net
$
10,030

 
$
9,162

________
(a) At June 30, 2012 the balance includes finance receivables and loans in connection with the commercial lending program of $128 million.

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

11

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Pre-acquisition consumer finance receivables, carrying amount, beginning of period
$
3,358

 
$
6,336

 
$
4,027

 
$
7,299

Post-acquisition finance receivables, beginning of period
6,326

 
2,005

 
5,314

 
924

Loans originated or purchased(a)
1,663

 
1,349

 
3,059

 
2,487

Charge-offs
(53
)
 
(6
)
 
(104
)
 
(8
)
Principal collections and other(a)
(978
)
 
(859
)
 
(1,898
)
 
(1,711
)
Change in carrying amount adjustment on the pre-acquisition finance receivables
(37
)
 
(131
)
 
(119
)
 
(297
)
Balance at end of period
$
10,279

 
$
8,694

 
$
10,279

 
$
8,694

________
(a) Includes finance receivables and loans originated of $174 million and principal collections of $46 million in connection with the commercial lending program for the three and six months ended June 30, 2012.

The following table summarizes the carrying amount and estimated fair value of GM Financial finance receivables, net (dollars in millions):
 
June 30, 2012
 
December 31, 2011
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
GM Financial finance receivables, net
$
10,030

 
$
10,330

 
$
9,162

 
$
9,386


GM Financial determined the fair value of consumer finance receivables using Level 2 and Level 3 inputs within a cash flow model. The Level 3 inputs reflect assumptions regarding expected prepayments, deferrals, delinquencies, recoveries and charge-offs of the loans within the finance receivable portfolio. The cash flow model produces an estimated amortization schedule of the finance receivables which is the basis for the calculation of the series of cash flows that derive the fair value of the portfolio. The series of cash flows are calculated and discounted using a weighted-average cost of capital (WACC) using unobservable debt and equity percentages, an unobservable cost of equity and an observable cost of debt based on companies with a similar credit rating and maturity and maturity profile as the portfolio. Macroeconomic factors could negatively affect the credit performance of the portfolio and therefore could potentially affect the assumptions used in our cash flow model.

Substantially all commercial finance receivables have variable interest rates and maturities of one year. Therefore, carrying amount is considered to be a reasonable estimate of fair value which is determined using Level 1 inputs.

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

At June 30, 2012 and December 31, 2011 the accrual of finance charge income has been suspended on delinquent consumer finance receivables based on contractual amounts due of $412 million and $439 million. At June 30, 2012 there were no commercial finance receivables or loans on non-accrual status.

GM Financial reviews its pre-acquisition portfolio for differences between contractual cash flows and the cash flows expected to be collected from its initial investment in the pre-acquisition portfolio to determine if the difference is attributable, at least, in part to credit quality. In the six months ended June 30, 2012 as a result of improvements in credit performance of the pre-acquisition portfolio, which resulted in an increase of expected cash flows of $170 million, GM Financial transferred this excess non-accretable discount to accretable yield. GM Financial will recognize this excess as finance charge income over the remaining life of the portfolio.

The following table summarizes accretable yield (dollars in millions):

12

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Balance at beginning of period
$
768

 
$
999

 
$
737

 
$
1,201

Accretion of accretable yield
(143
)
 
(181
)
 
(279
)
 
(383
)
Transfer from non-accretable discount
3

 
254

 
170

 
254

Balance at end of period
$
628

 
$
1,072

 
$
628

 
$
1,072


The following table summarizes the allowance for post-acquisition loan losses on consumer finance receivables (dollars in millions):
 
June 30, 2012
 
December 31, 2011
Current
$
189

 
$
136

Non-current
60

 
43

Total allowance for post-acquisition loan losses
$
249

 
$
179


The following table summarizes activity for the allowance for post-acquisition loan losses on consumer finance receivables (dollars in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Balance at beginning of period
$
208

 
$
65

 
$
179

 
$
26

Provision for loan losses
62

 
45

 
110

 
84

Charge-offs
(53
)
 
(6
)
 
(104
)
 
(8
)
Recoveries
32

 
4

 
64

 
6

Balance at end of period
$
249

 
$
108

 
$
249

 
$
108


Credit Quality

Consumer Finance Receivables

Credit bureau scores, generally referred to as FICO scores, are determined during GM Financial's automotive loan origination process. The following table summarizes the credit risk profile of consumer finance receivables by FICO score band, determined at origination (dollars in millions):
 
June 30, 2012
 
December 31, 2011
FICO score less than 540
$
2,631

 
$
2,133

FICO score 540 to 599
4,632

 
4,167

FICO score 600 to 659
2,582

 
2,624

FICO score greater than 660
595

 
756

Balance at end of period(a)
$
10,440

 
$
9,680

__________
(a)
Composed of the sum of pre-acquisition consumer finance receivables - outstanding balance and post-acquisition consumer finance receivables, net of fees.

Commercial Finance Receivables

GM Financial's commercial finance receivables consist of dealer financings. A proprietary model is used to assign a risk rating to each dealer. A credit review of each dealer is performed at least annually and, if necessary, the dealer's risk rating is adjusted on the basis of the review.


13

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

Delinquency

Consumer Finance Receivables

The following summarizes the contractual amount of consumer finance receivables, which is not materially different than the recorded investment, more than 30 days delinquent, but not yet in repossession, and in repossession, but not yet charged off (dollars in millions):
 
June 30, 2012
 
June 30, 2011
 
Amount
 
Percent of Contractual Amount Due
 
Amount
 
Percent of Contractual Amount Due
Delinquent contracts
 
 
 
 
 
 
 
31-to-60 days
$
428

 
4.1
%
 
$
398

 
4.4
%
Greater-than-60 days
158

 
1.5
%
 
158

 
1.7
%
Total finance receivables more than 30 days delinquent
586

 
5.6
%
 
556

 
6.1
%
In repossession
25

 
0.3
%
 
23

 
0.3
%
Total finance receivables more than 30 days delinquent and in repossession
$
611

 
5.9
%
 
$
579

 
6.4
%

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

Commercial Finance Receivables

At June 30, 2012 all commercial finance receivables were current with respect to payment status.

Note 6. Securitizations

The following table summarizes securitization activity and cash flows from consolidated special purpose entities (SPEs) used for securitizations (dollars in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Receivables securitized
$
2,433

 
$
2,069

 
$
4,349

 
$
2,918

Net proceeds from securitization
$
2,300

 
$
1,950

 
$
4,100

 
$
2,750

Servicing fees


 


 


 


Variable interest entities
$
59

 
$
49

 
$
118

 
$
98

Net distributions from trusts


 


 


 


Variable interest entities
$
465

 
$
291

 
$
916

 
$
434


GM Financial retains servicing responsibilities for receivables transferred to certain securitization SPEs. At June 30, 2012 and December 31, 2011 GM Financial serviced finance receivables that have been transferred to certain SPEs of $9.5 billion and $7.9 billion. At June 30, 2012 and December 31, 2011 a Canadian subsidiary of GM Financial serviced leased assets of $802 million and $1.0 billion for a third party.

Note 7. Inventories

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

14

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
June 30, 2012
 
December 31, 2011
Productive material, supplies and work in process
$
7,112

 
$
6,486

Finished product, including service parts
8,321

 
7,838

Total inventories
$
15,433

 
$
14,324


Note 8. Equity in Net Assets of Nonconsolidated Affiliates

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

The following table summarizes information regarding Equity income, net of tax and gain on disposal of investments (dollars in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
China JVs
$
331

 
$
379

 
$
750

 
$
829

New Delphi (including gain on disposition)
—

 
—

 
—

 
1,727

Others
(31
)
 
3

 
(27
)
 
(30
)
Total equity income, net of tax and gain on disposal of investments
$
300

 
$
382

 
$
723

 
$
2,526


We received dividends from nonconsolidated affiliates of $1.3 billion and $1.1 billion in the three months ended June 30, 2012 and 2011 and $1.4 billion and $1.1 billion in the six months ended June 30, 2012 and 2011. At June 30, 2012 and December 31, 2011 we had undistributed earnings including dividends declared but not received of $909 million and $1.6 billion related to our nonconsolidated affiliates.

Investment in China JVs

The following table summarizes our direct ownership interests in our Chinese joint ventures, collectively referred to as China JVs:
 
June 30, 2012
 
June 30, 2011
Shanghai General Motors Co., Ltd. (SGM)
49
%
 
49
%
Shanghai GM Norsom Motor Co., Ltd. (SGM Norsom)
25
%
 
25
%
Shanghai GM Dong Yue Motors Co., Ltd. (SGM DY)
25
%
 
25
%
Shanghai GM Dong Yue Powertrain (SGM DYPT)
25
%
 
25
%
SAIC-GM-Wuling Automobile Co., Ltd. (SGMW)
44
%
 
44
%
FAW-GM Light Duty Commercial Vehicle Co., Ltd. (FAW-GM)
50
%
 
50
%
Pan Asia Technical Automotive Center Co., Ltd.
50
%
 
50
%
Shanghai OnStar Telematics Co., Ltd. (Shanghai OnStar)
40
%
 
40
%
Shanghai Chengxin Used Car Operation and Management Co., Ltd. (Shanghai Chengxin Used Car)
33
%
 
33
%
SAIC General Motors Sales Co., Ltd. (SGMS)
49
%
 



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

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


15

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

SGMS is a joint venture established in November 2011 by SAIC (51%) and us (49%) to engage in the sales of the imported brands of Buick, Chevrolet and Cadillac and the sales of automobiles manufactured by SGM.

Sale of New Delphi

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

Investment in HKJV

In March 2011 the fair value of our investment in SAIC GM Investment Limited (HKJV) was determined to be less than its carrying amount. HKJV is our joint venture which controls our automotive operations in India. The loss in value was determined to be other-than-temporary; therefore, we recorded an impairment charge of $39 million in the three months ended March 31, 2011. In addition we recorded other charges totaling $67 million related to our investment in the HKJV.

We have provided SAIC Motor Hong Kong Investment Limited (SAIC-HK), a 50% equity holder in HKJV, an option to not participate in future capital injections, which would otherwise be required under certain circumstances. Upon election to exercise the option SAIC-HK would be relieved from providing up to $173 million in future capital injections. The related option liability was $94 million and $88 million and total unrealized losses were $70 million and $64 million at June 30, 2012 and December 31, 2011.

A Monte Carlo option-pricing model was used to estimate the fair value of the option liability which is a Level 3 measure. The key inputs into the option pricing model were the expected volatility, risk-free rate, expected term, fair value of HKJV and expected amounts of the future funding requirement. The fair value estimate of the option is most sensitive to the fair value of HKJV, which is unobservable. A discounted cash flow methodology was utilized to estimate the fair value of HKJV. A decrease in the fair value of HKJV will result in an increase in the fair value of the option liability.

We were informed of SAIC-HK's intent to exercise its right to not participate in future capital injections in HKJV. If this occurs we plan to settle the promissory note in the three months ending September 30, 2012 and provide an additional equity investment of $125 million into HKJV. As a result SAIC-HK's interest in HKJV would be diluted from 50% to 9%. We also anticipate that the shareholders agreement would be amended such that we obtain control of and consolidate HKJV.

VMM Deconsolidation

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

Transactions with Nonconsolidated Affiliates

Nonconsolidated affiliates are involved in various aspects of the development, production and marketing of cars, trucks and automobile parts. We purchase component parts and vehicles from certain nonconsolidated affiliates for resale to dealers. The following tables summarize the effects of transactions with nonconsolidated affiliates (dollars in millions):

16

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Results of operations
 
 
 
 
 
 
 
Automotive sales and revenue
$
722

 
$
852

 
$
1,305

 
$
1,687

Automotive purchases, net
$
174

 
$
38

 
$
309

 
$
830

Automotive selling, general and administrative expense
$
1

 
$
(2
)
 
$
3

 
$
6

Automotive interest expense
$
6

 
$
5

 
$
12

 
$
10

Interest income and other non-operating income (expense), net
$
148

 
$
13

 
$
163

 
$
11


 
June 30, 2012
 
December 31, 2011
Financial position
 
 
 
Accounts and notes receivable, net
$
915

 
$
1,785

Accounts and notes payable
$
359

 
$
342

Deferred revenue and customer deposits
$
44

 
$
150


 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
Cash flows
 
 
 
Operating
$
2,391

 
$
1,904

Investing
$
(37
)
 
$
1


Note 9. Goodwill
The following tables summarize the changes in the carrying amounts of Goodwill (dollars in millions):
 
GMNA
 
GME
 
GMIO
 
GMSA
 
Total
Automotive
 
GM
Financial
 
Total
Balance at January 1, 2012
$
26,399

 
$
581

 
$
610

 
$
151

 
$
27,741

 
$
1,278

 
$
29,019

Impairment charges
—

 
(590
)
 
(27
)
 
—

 
(617
)
 
—

 
(617
)
Effect of foreign currency translation and other
—

 
9

 
(1
)
 
(5
)
 
3

 
—

 
3

Balance at June 30, 2012
$
26,399

 
$
—

 
$
582

 
$
146

 
$
27,127

 
$
1,278

 
$
28,405

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated impairment charges at December 31, 2011
$
—

 
$
(2,482
)
 
$
(270
)
 
$
—

 
$
(2,752
)
 
$
—

 
$
(2,752
)
Accumulated impairment charges at
June 30, 2012
$
—

 
$
(3,072
)
 
$
(297
)
 
$
—

 
$
(3,369
)
 
$
—

 
$
(3,369
)

We adopted the provisions of ASU 2010-28 "When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts" (ASU 2010-28) on January 1, 2011 and performed Step 2 of the goodwill impairment testing analysis for our GME reporting unit which had a negative carrying amount resulting in the recognition of a cumulative-effect adjustment to Retained earnings. GME continued to have a negative carrying amount and because it was more likely than not further goodwill impairment existed in the three months ended March 31, 2012 and 2011 we recorded further Goodwill impairment charges in the three months ended March 31, 2012 and 2011. At March 31, 2012 GME's Goodwill balance was $0.

In the three months ended March 31 and June 30, 2012 we performed event-driven goodwill impairment tests at our GM Korea reporting unit, which resulted in a Goodwill impairment charge of $27 million in the three months ended March 31, 2012 within our GMIO segment.

17

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

The following tables summarize the Goodwill impairment charges recorded in the three and six months ended June 30, 2012 and 2011 (dollars in millions):
 
2012
 
GMNA
 
GME
 
GMIO
 
GMSA
 
Total
Automotive
 
GM
Financial
 
Total
Three months ended June 30
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Six months ended June 30
$
—

 
$
590

 
$
27

 
$
—

 
$
617

 
$
—

 
$
617

 
2011
 
GMNA
 
GME
 
GMIO
 
GMSA
 
Total
Automotive
 
GM
Financial
 
Total
Effect of Adoption of ASU 2010-28(a)
$
—

 
$
1,466

 
$
—

 
$
—

 
$
1,466

 
$
—

 
$
1,466

Three months ended June 30
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Six months ended June 30
$
—

 
$
395

 
$
—

 
$
—

 
$
395

 
$
—

 
$
395

_________
(a)
Impairment charges were recorded as a cumulative-effect adjustment to beginning Retained earnings upon the adoption of ASU 2010-28 in the three months ended March 31, 2011.

The Goodwill impairment charges recorded as a result of the initial adoption of ASU 2010-28 in the three months ended March 31, 2011 and the event-driven goodwill impairment tests in the six months ended June 30, 2012 and 2011 represent the net decreases in implied goodwill resulting primarily from decreases in the fair value-to-U.S. GAAP differences attributable to those assets and liabilities that gave rise to goodwill upon our application of fresh-start reporting, as discussed in Note 32 to our consolidated financial statements in our 2011 Form 10-K. The net decreases resulted primarily from a decrease in our nonperformance risk and an improvement in our incremental borrowing rates since July 10, 2009. At certain of the testing dates the net decrease also resulted from an increase in the high quality corporate bond rates utilized to measure our employee benefit obligations and a decrease in credit spreads between high quality corporate bond rates and market interest rates for companies with similar nonperformance risk. In addition, for the purpose of deriving an implied goodwill balance, deterioration in the business outlook for GME resulted in a reduction in the fair value of certain tax attributes and an increase in the fair value of estimated employee benefit obligations.

When performing our goodwill impairment testing, the fair values of our reporting units were determined based on valuation techniques using the best available information, primarily discounted cash flow projections. We make significant assumptions and estimates about the extent and timing of future cash flows, growth rates, market share and discount rates that represent unobservable inputs into our valuation methodologies. The cash flows are estimated over a significant future period of time, which makes those estimates and assumptions subject to a high degree of uncertainty. Where available and as appropriate, comparative market multiples and the quoted market price of our common stock are used to corroborate the results of the discounted cash flow method. Assumptions used in our discounted cash flow analysis that have the most significant effect on the estimated fair values of our reporting units include:

•Our estimated WACC;
•Our estimated long-term growth rates; and
•Our estimate of industry sales and our market share.

The valuation methodologies utilized to perform our goodwill impairment testing were consistent with those used in our application of fresh-start reporting on July 10, 2009 and in subsequent annual or event-driven goodwill impairment tests and utilized Level 3 measures. Because the fair value of goodwill can be measured only as a residual amount and cannot be determined directly we calculated the implied goodwill for GME and GM Korea in the same manner that goodwill is recognized in a business combination pursuant to Accounting Standards Codification (ASC) 805, "Business Combinations."

The following table summarizes the Goodwill balances and key assumptions, which are unobservable, utilized for each of our reporting units that required a Step 2 analysis (dollars and industry volumes in millions):

18

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
 
 
 
 
 
 
Industry Volumes(a)(b)
 
Market Share(a)(b)
 
Goodwill(c)
 
WACC
 
Long-Term Growth Rates
 
2011/2012
 
2015/2016
 
2011/2012
 
2015/2016
GME - At January 1, 2011
$
3,053

 
17.0
%
 
0.5
%
 
18.4
 
22.0
 
6.6
%
 
7.4
%
GME - At March 31, 2011
$
1,661

 
16.5
%
 
0.5
%
 
18.4
 
22.0
 
6.6
%
 
7.4
%
GME - At March 31, 2012
$
594

 
17.5
%
 
0.5
%
 
19.1
 
21.9
 
6.2
%
 
6.3
%
GM Korea - At March 31, 2012
$
564

 
14.8
%
 
3.0
%
 
81.0
 
97.1
 
1.4
%
 
1.1
%
GM Korea - At June 30, 2012
$
523

 
14.8
%
 
3.0
%
 
81.0
 
97.1
 
1.4
%
 
1.1
%
_________
(a)
Industry volumes and market share for GM Korea are based on global industry volumes because GM Korea exports vehicles globally.
(b)
GME amounts at January 1, 2011 and March 31, 2011 are 2011 through 2015 and GME amounts at March 31, 2012 are 2012 through 2016. GM Korea amounts are 2012 through 2015.
(c)
Represents the balance of Goodwill evaluated for impairment under the Step 2 analysis.

The WACCs considered various factors including bond yields, risk premiums and tax rates; the terminal values were determined using a growth model that applied a reporting unit's long-term growth rate to its projected cash flows beyond the forecast period; and industry sales and a market share for each reporting unit included annual estimates through the forecast period. In addition, minimum operating cash needs that incorporate specific business, economic and regulatory factors giving rise to varying cash needs were estimated.

During our Step 2 analyses we determined the fair values of these reporting units had not increased sufficiently to give rise to implied goodwill other than the goodwill arising from the fair value-to-U.S. GAAP differences attributable to those assets and liabilities that gave rise to goodwill upon our application of fresh-start reporting. On our testing dates our Step 2 analyses indicated GME's and GM Korea's implied goodwill was less than their recorded goodwill; therefore, Goodwill was adjusted at the various dates indicated in the table above, except for at June 30, 2012 GM Korea's implied goodwill exceeded its recorded goodwill. As such GM Korea's goodwill was not adjusted at June 30, 2012.

Future goodwill impairments that may be material could be recognized should the economic uncertainty continue, our equity price decline on a sustained basis, global economies enter into another recession and industry growth stagnates, or should we reverse deferred tax asset valuation allowances in certain tax jurisdictions. Our U.S. and Canadian operations are experiencing current profitability. To the extent this profitability trend continues our conclusion regarding the need for full valuation allowances could change leading to the reversal of a significant portion of valuation allowance in 2012. This could result in a material impairment of goodwill.

In these circumstances future goodwill impairments would largely be affected by decreases in the fair value-to-U.S. GAAP differences that have occurred subsequent to our application of fresh-start reporting. The decrease may occur upon: (1) an improvement in our credit rating; (2) a decrease in credit spreads between high quality corporate bond rates and market interest rates thus resulting in a decrease in the spread between our employee benefit related obligations under U.S. GAAP and their fair values; and/or (3) a change in the fair values of our estimated employee benefit obligations. A decrease would also occur upon reversal of our deferred tax asset valuation allowances. Any decreases in the fair value-to-U.S. GAAP differences that result in goodwill impairment would have a negative effect on our earnings that could be material.

Our fair value estimates for event-driven impairment tests assume the achievement of the future financial results contemplated in our forecasted cash flows and there can be no assurance that we will realize that value. The estimates and assumptions used are subject to significant uncertainties, many of which are beyond our control, and there is no assurance that anticipated financial results will be achieved.

Note 10. Intangible Assets, net

The following table summarizes the components of Intangible assets, net (dollars in millions):

19

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
June 30, 2012
 
December 31, 2011
 
Gross
Carrying
Amount
 

Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 

Accumulated
Amortization
 
Net
Carrying
Amount
Technology and intellectual property
$
7,751

 
$
5,695

 
$
2,056

 
$
7,751

 
$
5,081

 
$
2,670

Brands
5,393

 
447

 
4,946

 
5,410

 
374

 
5,036

Dealer network and customer relationships
2,123

 
378

 
1,745

 
2,138

 
322

 
1,816

Favorable contracts
510

 
240

 
270

 
514

 
200

 
314

Other
17

 
17

 
—

 
17

 
14

 
3

Total amortizing intangible assets
15,794

 
6,777

 
9,017

 
15,830

 
5,991

 
9,839

Non amortizing in process research and development
175

 


 
175

 
175

 


 
175

Total intangible assets
$
15,969

 
$
6,777

 
$
9,192

 
$
16,005

 
$
5,991

 
$
10,014


The following table summarizes amortization expense related to intangible assets (dollars in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Amortization expense related to intangible assets
$
392

 
$
463

 
$
790

 
$
966


The following table summarizes estimated amortization expense related to intangible assets in each of the next five years (dollars in millions):
 
2013
 
2014
 
2015
 
2016
 
2017
Estimated amortization expense
$
1,228

 
$
611

 
$
313

 
$
314

 
$
311


Note 11. Variable Interest Entities

Consolidated VIEs

Automotive

Variable interest entities (VIEs) that we do not control through a majority voting interest that are consolidated because we are the primary beneficiary include certain vehicle assembling, manufacturing and selling venture arrangements, the most significant of which is GM Egypt. At June 30, 2012 and December 31, 2011: (1) Total assets of these VIEs were $446 million and $463 million, which were composed of Cash and cash equivalents, Accounts and notes receivable, net, Inventories and Property, net; and (2) Total liabilities were $267 million and $298 million, which were composed of Accounts payable (principally trade) and Accrued liabilities. In the three months ended June 30, 2012 and 2011 Total net sales and revenue recorded by these VIEs were $226 million and $227 million and Net income was $10 million and $21 million. In the six months ended June 30, 2012 and 2011 Total net sales and revenue recorded by these VIEs were $462 million and $337 million and Net income was $7 million and $25 million. These amounts are stated prior to intercompany eliminations. Liabilities recognized as a result of consolidating VIEs generally do not represent claims against us or our other subsidiaries and assets recognized generally are for the benefit of the VIEs' operations and cannot be used to satisfy our obligations.

GM Korea, a non-wholly owned consolidated subsidiary that we control through a majority voting interest, is also a VIE because in the future it may require additional subordinated financial support. At June 30, 2012 and December 31, 2011 the creditors of GM Korea's short-term debt of $116 million and $171 million, current derivative liabilities of $31 million and $44 million and long-term debt of $4 million and $7 million do not have recourse to our general credit. In February 2011 we provided a guarantee to a minority shareholder in GM Korea to repurchase GM Korea's preferred shares according to the redemption schedule should GM Korea not repurchase the shares. This guarantee decreased the amount of long-term debt which did not have recourse to our general credit in the three months ended March 31, 2011.

Automotive Financing - GM Financial


20

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

GM Financial finances its loan and lease origination volume through the use of credit facilities and securitization trusts that issue asset-backed securities to investors. GM Financial retains a residual interest in these entities and is not required to provide any additional financial support to its sponsored credit facilities and securitization SPEs. The SPEs are considered VIEs because they do not have sufficient equity at risk and are consolidated because GM Financial has the power over those activities that most significantly affect the economic performance of the SPEs. The finance receivables, leased assets and other assets held by these subsidiaries are not available to our creditors or creditors of our other subsidiaries. Refer to Notes 5, 6 and 13 for additional information on GM Financial's involvement with the SPEs.

Nonconsolidated VIEs

Automotive

VIEs that are not consolidated include certain vehicle assembling, manufacturing and selling venture arrangements and other automotive related entities to which we provided financial support including Ally Financial and HKJV. We concluded these entities are VIEs because they do not have sufficient equity at risk or may require additional subordinated financial support. We currently lack the power through voting or similar rights to direct those activities of these entities that most significantly affect their economic performance. Our variable interests in these nonconsolidated VIEs include accounts and notes receivable, equity in net assets, guarantees and financial support, some of which were provided to certain current or previously divested suppliers in order to ensure that supply needs for production were not disrupted due to a supplier's liquidity concerns or possible shutdowns.

The following table summarizes the amounts recorded for nonconsolidated VIEs and the related off-balance sheet guarantees and maximum exposure to loss, excluding Ally Financial that is disclosed in Note 22 (dollars in millions):

 
June 30, 2012
 
December 31, 2011
 
Carrying Amount
 
Maximum Exposure to Loss
 
Carrying Amount
 
Maximum Exposure to Loss
Assets
 
 
 
 
 
 
 
Accounts and notes receivable, net
$
9

 
$
9

 
$
1

 
$
1

Equity in net assets of nonconsolidated affiliates
141

 
137

 
190

 
186

Other assets
21

 
21

 
1

 
1

Total assets
$
171

 
$
167

 
$
192

 
$
188

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Other liabilities
$
201

 
 
 
$
198

 
 
 
 
 
 
 
 
 
 
Off-balance sheet
 
 
 
 
 
 
 
Loan commitments
 
 
$
15

 
 
 
$
15

Other liquidity arrangements(a)
 
 
216

 
 
 
220

Total off-balance sheet arrangements
 
 
$
231

 
 
 
$
235

__________
(a)
Amounts at June 30, 2012 and December 31, 2011 represented additional contingent future capital funding requirements related primarily to HKJV.

Refer to Note 22 for additional information on Ally Financial, including our maximum exposure to loss under agreements with Ally Financial and our recorded investment in Ally Financial. Refer to Note 8 for additional information on our investment in HKJV.

Note 12. Depreciation, Amortization and Impairment Charges

The following table summarizes depreciation, amortization and impairment charges related to Property, net, Equipment on operating leases, net and GM Financial equipment on operating leases, net (dollars in millions):

21

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Depreciation and amortization of long-lived assets
$
925

 
$
951

 
$
1,817

 
$
1,879

Impairment charges of long-lived assets(a)
$
23

 
$
18

 
$
54

 
$
44

Depreciation of equipment on operating leases
$
105

 
$
128

 
$
197

 
$
208

Impairment charges of equipment on operating leases
$
75

 
$
74

 
$
130

 
$
113

__________
(a)
The fair value of related assets was determined to be $0 in the three months ended June 30, 2012 and 2011 and $0 in the six months ended June 30, 2012 and 2011 measured utilizing Level 3 inputs. Fair value measurements of long-lived assets utilized projected cash flows discounted at a rate commensurate with the perceived business risks related to the assets involved.

The following table summarizes equipment on operating leases to daily rental car companies measured at fair value utilizing Level 3 inputs on a nonrecurring basis (dollars in millions):
 
 
 
Fair Value Measurements on a Nonrecurring Basis (a)
 
Fair Value Measures
 
Level 1
 
Level 2
 

Level 3
Three months ended June 30, 2012
$
1,067

 
$
—

 
$
—

 
$
1,067

Three months ended June 30, 2011
$
1,359

 
$
—

 
$
—

 
$
1,359

Six months ended June 30, 2012
$
1,915

 
$
—

 
$
—

 
$
1,915

Six months ended June 30, 2011
$
1,920

 
$
—

 
$
—

 
$
1,920

__________
(a)
The carrying amount of the related assets at June 30, 2012 and 2011 may no longer equal the fair value as the fair value presented is as of the date the impairment was taken during the period presented.

Impairment of vehicles leased to daily rental car companies with guaranteed repurchase obligations is determined to exist if the expected cash flows are lower than the carrying amount of the vehicle. We have multiple, distinct portfolios of vehicles leased to rental car companies and may have multiple impairments within a period. Expected cash flows include all estimated net revenue and costs associated with the sale to daily rental car companies through disposal at auction. The fair value measurements are determined, reviewed and approved on a monthly basis by personnel with appropriate knowledge of transactions with daily rental car companies and auction transactions.

The following table summarizes the significant quantitative unobservable inputs and assumptions used in the fair value measurement of Equipment on operating leases, net (dollars in millions):
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
Valuation Technique
 
Significant
 Unobservable Input
 
June 30, 2012
 
June 30, 2012
Impaired equipment on operating leases
Cash flow
 
Estimated net revenue
 
$
1,094

 
$
1,961

 
 
 
Estimated costs
 
$
1,169

 
$
2,091


Note 13. Debt

Automotive

The following table summarizes the carrying amount and fair value of debt (dollars in millions):


June 30, 2012

December 31, 2011
Carrying amount
$
5,143

 
$
5,295

Fair value(a)
$
5,649

 
$
5,467

__________
(a)
The fair value of debt included $4.4 billion measured utilizing Level 2 inputs at June 30, 2012 and December 31, 2011. The fair value of debt included $1.2 billion and $1.1 billion measured utilizing Level 3 inputs at June 30, 2012 and December 31, 2011.

22

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)


The Level 2 fair value measurements utilize a discounted cash flow model. The valuation is reviewed internally by personnel with appropriate expertise in valuation methodologies. This model utilizes observable inputs such as contractual repayment terms and benchmark forward yield curves plus a spread that is intended to represent our nonperformance risk for secured or unsecured obligations. We estimate our nonperformance risk using our corporate credit rating, the rating on our secured revolver, yields on traded bonds of companies with comparable credit ratings and risk profiles. We acquire the benchmark yield curves and nonperformance risk spread from independent sources that are widely used in the financial industry. In certain circumstances we adjust the valuation of debt for additional nonperformance risk or potential prepayment probability scenarios. We may use a probability weighting of prepayment scenarios when the stated rate exceeds market rates and the instrument contains prepayment features. The prepayment scenarios are adjusted to reflect the views of market participants. The fair value measurements subject to additional adjustments for nonperformance risk or prepayment have been categorized within Level 3.

In the three months ended March 31, 2012 we prepaid and retired a debt obligation of $39 million with a carrying amount of $21 million and we recorded a loss on extinguishment of debt of $18 million which primarily represented the unamortized debt discount.

Automotive Financing - GM Financial

The following table summarizes the current and non-current portion of debt (dollars in millions):

June 30, 2012

December 31, 2011
Short-term debt and current portion of long-term debt
$
3,732


$
4,118

Long-term debt
5,918


4,420

Total GM Financial debt
$
9,650


$
8,538


The following table summarizes the carrying amount and fair value of debt (dollars in millions):
 
 
 
June 30, 2012
 
December 31, 2011
 
Level
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Credit facilities
 
 
 
 
 
 
 
 
 
Medium-term note facility
3
 
$
215

 
$
216

 
$
294

 
$
294

Syndicated warehouse facility
2
 
—

 
—

 
621

 
621

Lease warehouse facilities
2
 
308

 
308

 
181

 
181

Bank funding facility
3
 
—

 
—

 
3

 
3

Total credit facilities
 
 
523

 
524

 
1,099

 
1,099

Securitization notes payable

 

 

 


 


Securitization notes payable
1
 
7,986

 
8,081

 
6,938

 
6,946

Private securitization 2012-PP1
3
 
640

 
650

 


 


Total securitization notes payable
 
 
8,626

 
8,731

 
6,938

 
6,946

Senior notes and convertible senior notes
2
 
501

 
544

 
501

 
511

Total GM Financial debt
 
 
$
9,650

 
$
9,799

 
$
8,538

 
$
8,556


The carrying amount of the syndicated warehouse facility and lease funding facilities is considered to be a reasonable estimate of fair value because these facilities have variable rates of interest and maturities of approximately one year. The fair value of the bank funding facility, securitization notes payable and senior notes and convertible senior notes are based on quoted market prices, when available. If quoted prices are not available the market value is estimated by discounting future net cash flows expected to be settled using a current risk-adjusted rate.

GM Financial uses observable and unobservable inputs to estimate fair value of the medium-term note facility. Observable inputs are used regarding an advance rate on the receivables to generate an estimated debt amount as well as the interest rate used to calculate the series of estimated principal payments. Those series of interest payments are discounted using an unobservable interest rate based on the most recent securitization in order to estimate fair value which would approximate the replacement value.

23

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)


GM Financial uses observable and unobservable inputs to estimate fair value for the private securitization 2012 - PPI. Unobservable inputs are related to the structuring of the debt into various classes, which is based on public securitizations issued during the same time frame. Observable inputs are used by obtaining active prices based on the securitization debt issued during the same time frame. These observable inputs are then used to create expected market prices (unobservable inputs), which are then applied to the debt classes in order to estimate fair value which would approximate market value.

Credit Facilities

The following table summarizes further details regarding terms and availability of GM Financial's credit facilities at June 30, 2012 (dollars in millions):


Facility
Amount
 
Advances
Outstanding
 
Assets
Pledged
 
Restricted
Cash
Pledged(a)
Syndicated warehouse facility(b)
$
2,500

 
$
—

 
$
—

 
$
—

U.S. lease warehouse facility(c)
$
600

 
—

 
—

 
—

Canada lease warehouse facility(d)
$
589

 
308

 
478

 
2

Medium-term note facility(e)
 
 
215

 
236

 
84

 
 
 
$
523

 
$
714

 
$
86

__________
(a)
These amounts do not include cash collected on finance receivables pledged of $29 million which is included in Restricted cash and marketable securities.
(b)
In May 2012 GM Financial increased the Syndicated warehouse facility amount from $2.0 billion to $2.5 billion and extended the maturity date to May 2013.
(c)
In January 2012 GM Financial extended the maturity date of the lease warehouse facility for lease originations in the U.S. to January 2013. Borrowings on the facility are collateralized by leased assets.
(d)
In July 2012 GM Financial increased the lease warehouse facility for lease originations in Canada from CAD $600 million to CAD $800 million and extended the maturity date to July 2013. Borrowings in the facility are collateralized by leased assets. The facility amount represents CAD $600 million at June 30, 2012 and the advances outstanding amount represents CAD $314 million at June 30, 2012.
(e)
The revolving period under this facility has ended and the outstanding debt balance will be repaid over time based on the amortization of the receivables pledged until October 2016 when any remaining amount outstanding will be due and payable.

Securitization Notes Payable

Securitization notes payable represents debt issued by GM Financial in securitization transactions. The following table summarizes securitization notes payable (dollars in millions):
 
June 30, 2012
 
December 31, 2011
Year of Transactions
Maturity Dates(a)
 
 
Original
Note
Amounts
 
Original
Weighted-
Average
Interest
Rates
 
Total
Receivables
Pledged
 

Note
Balance
 

Note
Balance
2006
January 2014
 
$
1,200

 
5.4%
 
$
—

 
$
—

 
$
63

2007
April 2014 - March 2016
 
$
1,000 - 1,500

 
5.3% - 5.5%
 
—

 
—

 
794

2008
October 2014 - April 2015
 
$
500 - 750

 
 6.0% - 10.5%
 
346

 
124

 
171

2009
January 2016 - July 2017
 
$
227 - 725

 
2.7% - 7.5%
 
300

 
221

 
298

2010
July 2017 - April 2018
 
$
200 - 850

 
2.2% - 3.8%
 
1,582

 
1,395

 
1,756

2011
July 2018 - March 2019
 
$
800 - 1,000

 
2.4% - 2.9%
 
3,374

 
3,105

 
3,813

2012
June 2019 - November 2019
 
$
800 - 1,200

 
1.9% - 2.9%
 
3,948

 
3,758

 


 
 
 
 
 
 
 
 
$
9,550

 
8,603

 
6,895

Purchase accounting premium
 
23

 
43

Total securitization notes payable
 
$
8,626

 
$
6,938

__________
(a)
Maturity dates represent final legal maturity of securitization notes payable. Securitization notes payable are expected to be paid based on amortization of the finance receivables pledged to the trusts.

24

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)


Note 14. Product Warranty Liability

The following table summarizes activity for policy, product warranty, recall campaigns and certified used vehicle warranty liabilities (dollars in millions):
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
Balance at beginning of period
$
6,600

 
$
6,789

Warranties issued and assumed in period
1,675

 
1,552

Payments
(1,758
)
 
(1,902
)
Adjustments to pre-existing warranties
339

 
366

Effect of foreign currency translation
(19
)
 
121

Balance at end of period
$
6,837

 
$
6,926


Note 15. Pensions and Other Postretirement Benefits

Contributions

We made a contribution in January 2011 to our U.S. hourly and salaried defined benefit pension plans of 61 million shares of our common stock valued at $2.2 billion for funding purposes at the time of contribution. The contributed shares qualified as a plan asset for funding purposes at the time of contribution and as a plan asset valued at $1.9 billion for accounting purposes in July 2011. This was a voluntary contribution above our funding requirements for the pension plans.

We continue to pursue various options to fund and derisk our pension plans, including continued changes to the pension asset portfolio mix to reduce funded status volatility.

Net Periodic Pension and OPEB Expense

The following tables summarize the components of net periodic pension and other postretirement benefits (OPEB) (income) expense (dollars in millions):
 
Three Months Ended June 30, 2012
 
Three Months Ended June 30, 2011
 
U.S. Plans
Pension Benefits
 
Non-U.S. Plans
Pension Benefits
 
U.S. Plans
Other Benefits
 
Non-U.S. Plans
Other Benefits
 
U.S. Plans
Pension Benefits
 
Non-U.S. Plans
Pension Benefits
 
U.S. Plans
Other Benefits
 
Non-U.S. Plans
Other Benefits
Service cost
$
161

 
$
106

 
$
7

 
$
3

 
$
157

 
$
96

 
$
7

 
$
8

Interest cost
1,080

 
276

 
58

 
16

 
1,228

 
313

 
68

 
53

Expected return on plan assets
(1,333
)
 
(218
)
 
—

 
—

 
(1,672
)
 
(237
)
 
—

 
—

Amortization of prior service credit
(1
)
 
—

 
(29
)
 
(3
)
 
—

 
(1
)
 
—

 
(3
)
Recognized net actuarial loss
1

 
9

 
13

 
2

 
—

 
1

 
1

 
—

Curtailments, settlements and other (gains) losses
(2
)
 
14

 
—

 
—

 
(23
)
 
(19
)
 
—

 
—

Net periodic pension and OPEB (income) expense
$
(94
)
 
$
187

 
$
49

 
$
18

 
$
(310
)
 
$
153

 
$
76

 
$
58



25

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
Six Months Ended June 30, 2012
 
Six Months Ended June 30, 2011
 
U.S. Plans
Pension Benefits
 
Non-U.S. Plans
Pension Benefits
 
U.S. Plans
Other Benefits
 
Non-U.S. Plans
Other Benefits
 
U.S. Plans
Pension Benefits
 
Non-U.S. Plans
Pension Benefits
 
U.S. Plans
Other Benefits
 
Non-U.S. Plans
Other Benefits
Service cost
$
321

 
$
198

 
$
12

 
$
8

 
$
315

 
$
192

 
$
13

 
$
17

Interest cost
2,160

 
553

 
117

 
32

 
2,457

 
614

 
135

 
105

Expected return on plan assets
(2,665
)
 
(435
)
 
—

 
—

 
(3,346
)
 
(467
)
 
—

 
—

Amortization of prior service credit
(1
)
 
—

 
(58
)
 
(5
)
 
—

 
(1
)
 
—

 
(5
)
Recognized net actuarial loss
1

 
17

 
26

 
3

 
—

 
1

 
2

 
—

Curtailments, settlements and other (gains) losses
(23
)
 
42

 
—

 
—

 
(23
)
 
(16
)
 
—

 
—

Net periodic pension and OPEB (income) expense
$
(207
)
 
$
375

 
$
97

 
$
38

 
$
(597
)
 
$
323

 
$
150

 
$
117


Significant Plan Amendments, Benefit Modifications and Related Events

U.S. Salaried Defined Benefit Pension Plan

In January 2012 we amended the U.S. salaried pension plan to cease the accrual of additional benefits effective September 30, 2012. This amendment resulted in a curtailment which decreased the liability and decreased the net actuarial loss component of Accumulated other comprehensive income by $309 million. Active plan participants will receive additional contributions in the defined contribution plan starting in October 2012.

In May 2012 we entered into an agreement in which the salaried pension plan will purchase a group annuity contract from an insurance company that requires the insurance company to pay and administer the future annuity payments to certain of our salaried retirees. Following the execution of the agreement certain retired participants in the salaried plan are being offered lump-sum distributions. Approximately 42,000 salaried retirees and surviving beneficiaries will be eligible to receive a voluntary single lump-sum payment option. Retired salaried employees that are not offered lump-sum distributions or those that decline the lump-sum offer will receive annuity payments from the insurance company in accordance with the terms of the group annuity contract. Approximately 118,000 salaried retirees are affected by changes depending on retirement date and eligibility. We will provide additional funding to the salaried pension plan so that the plan has sufficient assets to purchase the group annuity contract, provide additional funding to the salaried pension plan for current salaried employees and complete the transactions contemplated by the agreement. It is expected that the additional funding for the salaried pension plan will be in the range of $3.5 billion to $4.5 billion. Due to the magnitude of the pension obligations being settled and the interest rate sensitivity of the transactions, it is possible that the ultimate amount of additional funding could be outside this range when the transactions are completed. The ultimate amount of funding will be subject to several additional factors including plan asset returns, the lump-sum election rate and those associated with the creation of the new defined benefit plan. Certain aspects of the transactions contemplated by the agreement are subject to external regulatory review. Assuming all of the closing conditions are met we expect the transactions contemplated under the agreement to be completed by December 31, 2012.

In August 2012, the U.S. salaried pension plan was amended to create a legally separate new defined benefit pension plan for primarily active and terminated vested participants. The underlying benefits offered to plan participants were unchanged. The existing plan will primarily cover retirees receiving payments. We expect to settle the existing plan by December 31, 2012 through lump-sum distributions and the purchase of a group annuity contract from an insurance company, as previously discussed, and the plan will subsequently be terminated. Accordingly, we will remeasure the U.S. salaried pension plan in August 2012.

Canadian Salaried Benefit Plans

In June 2012 we amended the Canadian salaried pension plan to cease the accrual of additional benefits effective January 1, 2013 and provide active employees a lump-sum distribution option at retirement. The remeasurement, amendments and offsetting curtailment increased the liability by $84 million, and resulted in a net decrease in the pre-tax components of Accumulated other comprehensive income composed of net actuarial loss of $58 million, net actuarial curtailment gain of $20 million and prior service cost of $46 million. Active plan participants will receive additional contributions in the defined contribution plan starting in January 2013.

26

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)


We also amended the Canadian salaried retiree healthcare plan to eliminate post-65 healthcare benefits for employees retiring on or after July 1, 2014. In conjunction with this change we amended the plan to offer either a monthly monetary payment or an annual lump-sum cash payment to a defined contribution plan for health care in lieu of the benefit coverage provisions formerly provided under the healthcare plan. These amendments decreased the liability by $28 million and resulted in a net increase in the pre-tax components of Accumulated other comprehensive income composed of prior service credit of $51 million and net actuarial loss of $23 million.

Remeasurements

In the three months ended March 31, 2012 certain pension plans in GME were remeasured as part of our Goodwill impairment testing, resulting in an increase of $150 million in Pensions and a pre-tax increase in the net actuarial loss component of Accumulated other comprehensive income.

In the three months ended March 31, 2011 certain pension plans in GME were remeasured as part of our Goodwill impairment testing, resulting in a decrease of $272 million in Pensions and a pre-tax increase in the net actuarial gain component of Accumulated other comprehensive income.

Refer to Note 9 for additional information on our Goodwill impairment.

Note 16. Derivative Financial Instruments and Risk Management

Automotive

Derivatives and Hedge Accounting

In accordance with our risk management policy, we enter into a variety of foreign currency exchange rate and commodity derivative contracts to manage our exposure to fluctuations in certain foreign currency exchange rates and commodity prices. At June 30, 2012 our derivative instruments consisted primarily of forward contracts and options. At June 30, 2012 and December 31, 2011 no outstanding derivative contracts were designated in hedging relationships. We manage our counterparty credit risk by monitoring the credit ratings of our counterparties and by requiring them to post collateral in certain circumstances. Certain of our agreements with counterparties require that we provide cash collateral. At June 30, 2012 and December 31, 2011 no collateral was posted related to derivative instruments, and we did not have any agreements with counterparties to derivative instruments containing covenants requiring the maintenance of certain credit rating levels or credit risk ratios that would require the posting of collateral in the event that such covenants are violated.

Fair Value of Derivatives

The following tables summarize fair value measurements of our derivative instruments measured on a recurring basis (dollars in millions):

27

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
June 30, 2012
 
 
 
Derivative Assets
 
Derivative Liabilities
 
Notional
 
Current(a)
 
Non-Current(b)
 
Current(c)
 
Non-Current(d)
Foreign currency
$
6,860

 
$
88

 
$
—

 
$
38

 
$
—

Commodity
2,512

 
8

 
4

 
5

 
2

Embedded
1,336

 
16

 
35

 
2

 
4

Total
$
10,708

 
$
112

 
$
39

 
$
45

 
$
6

 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
 
 
Derivative Assets
 
Derivative Liabilities
 
Notional
 
Current(a)
 
Non-Current(b)
 
Current(c)
 
Non-Current(d)
Foreign currency
$
6,507

 
$
64

 
$
—

 
$
46

 
$
—

Commodity
2,566

 
9

 
—

 
10

 
5

Embedded
1,461

 
28

 
124

 
1

 
5

Total
$
10,534

 
$
101

 
$
124

 
$
57

 
$
10

__________
(a)
Recorded in Other current assets and deferred income taxes.
(b)
Recorded in Other assets and deferred income taxes.
(c)
Recorded in Accrued liabilities.
(d)
Recorded in Other liabilities and deferred income taxes.
 
June 30, 2012
 
December 31, 2011
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency
$
—

 
$
88

 
$
—

 
$
88

 
$
—

 
$
64

 
$
—

 
$
64

Commodity
—

 
4

 
8

 
12

 
—

 
9

 
—

 
9

Embedded
—

 
3

 
48

 
51

 
—

 
4

 
148

 
152

Total
$
—

 
$
95

 
$
56

 
$
151

 
$
—

 
$
77

 
$
148

 
$
225

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency
$
—

 
$
38

 
$
—

 
$
38

 
$
—

 
$
46

 
$
—

 
$
46

Commodity
—

 
7

 
—

 
7

 
—

 
5

 
10

 
15

Embedded
—

 
6

 
—

 
6

 
—

 
6

 
—

 
6

Total
$
—

 
$
51

 
$
—

 
$
51

 
$
—

 
$
57

 
$
10

 
$
67


We measure the fair value of our portfolio of foreign currency, commodity and embedded derivatives using industry accepted models. The significant Level 2 inputs used in the valuation of our derivatives include spot rates, forward rates, volatility and interest rates. These inputs are obtained from pricing services, broker quotes and other sources.

We entered into a power plant lease agreement which included the purchase of natural gas at a fixed price adjusted for movements in heavy fuel oil and coal indices as published by a German governmental agency. The natural gas agreement was determined to be a derivative for accounting purposes and is valued as a forward contract. This commodity derivative valuation uses Level 3 inputs. The significant unobservable inputs used in the fair value measurement of our commodity derivative are coal and heavy fuel oil forward rates and supplier credit spreads. Significant increases (decreases) in the coal and heavy fuel oil index and supplier credit spread would result in significant decreases (increases) to the fair value measurement.

We are party to a long-term supply agreement which provides for pricing to be partially denominated in a currency other than the functional currency of the parties to the contract. This pricing feature was determined to be an embedded derivative which we have bifurcated for valuation and accounting purposes. This embedded derivative is valued using an industry accepted model which contains Level 3 inputs.

28

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)


The significant unobservable inputs used in the fair value measurement of our embedded foreign currency derivative is the estimate of the Turkish central bank's Euro/Turkish Lira (TRY) forward exchange rate and monthly volume commitment and vehicle mix. Significant decreases (increases) to Euro/TRY forward exchange rate and monthly volume commitment and vehicle mix would result in significant decreases (increases) to the fair value measurement.

The valuations are performed, reviewed and approved by personnel with appropriate expertise in valuation methodologies. For certain derivatives we compare our own valuations with valuations prepared by independent outside parties.

The following table summarizes the significant quantitative unobservable inputs and assumptions used in the fair value measurement of the derivatives at June 30, 2012:

 
Valuation Technique
 
Significant Unobservable Input
 
Metric
Commodity
Discounted cash flow
 
Coal forward price per ton in Euro(a)
 
€110.44
 
 
 
Heavy fuel oil forward price per ton in Euro(a)
 
€528.56
 
 
 
Supplier nonperformance risk (average)
 
2.72%
Embedded
Discounted cash flow
 
Average Euro/TRY forward exchange rate(b)
 
€2.75
 
 
 
Volume commitment and vehicle mix in Euro(c)
 
€1.0 billion
__________
(a)
Forward prices are estimated to be equivalents of the spot price as published by a governmental agency.
(b)
Calculated by adjusting market forward rates for the spread between current market and Turkish central bank spot prices.
(c)
Volume commitment is spread evenly on a monthly basis and vehicle mix is pursuant to management forecasts.

The following table summarizes the activity for our derivative investments measured using Level 3 inputs (dollars in millions):
 
Three Months Ended June 30, 2012
 
Three Months Ended June 30, 2011
 
Embedded
 
Commodity
 
Total
 
Embedded
 
Commodity
 
Total
Balance at beginning of period
$
104

 
$
16

 
$
120

 
$
57

 
$
—

 
$
57

Total realized/unrealized gains (losses)(a)
 
 
 
 
 
 
 
 
 
 
 
Included in earnings
(43
)
 
(6
)
 
(49
)
 
87

 
—

 
87

Included in other comprehensive income
(6
)
 
(1
)
 
(7
)
 
1

 
—

 
1

Settlements
(7
)
 
(1
)
 
(8
)
 
—

 
—

 
—

Balance at end of period
$
48

 
$
8

 
$
56

 
$
145

 
$
—

 
$
145

 
 
 
 
 
 
 
 
 
 
 
 
Amount of total gains (losses) in the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date
$
(44
)
 
$
(6
)
 
$
(50
)
 
$
87

 
$
—

 
$
87

 

29

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
Six Months Ended June 30, 2012
 
Six Months Ended June 30, 2011
 
Embedded
 
Commodity
 
Total
 
Embedded
 
Commodity
 
Total
Balance at beginning of period
$
148

 
$
(10
)
 
$
138

 
$
—

 
$
—

 
$
—

Total realized/unrealized gains (losses)(a)

 

 

 

 

 

Included in earnings
(86
)
 
(2
)
 
(88
)
 
140

 
—

 
140

Included in other comprehensive income
(2
)
 
(1
)
 
(3
)
 
5

 
—

 
5

Settlements
(12
)
 
(3
)
 
(15
)
 
—

 
—

 
—

Issuances
—

 
24

 
24

 
—

 
—

 
—

Balance at end of period
$
48

 
$
8

 
$
56

 
$
145

 
$
—

 
$
145

 
 
 
 
 
 
 
 
 
 
 
 
Amount of total gains (losses) in the period included in earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date
$
(86
)
 
$
(2
)
 
$
(88
)
 
$
140

 
$
—

 
$
140

________
(a)
Realized and unrealized gains (losses) are recorded in Interest income and other non-operating income, net and foreign currency translation gains (losses) are recorded in Accumulated other comprehensive income.

Gains (Losses) on Derivatives

The following table summarizes derivative gains (losses) recorded in Interest income and other non-operating income, net (dollars in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Foreign currency
$
24

 
$
35

 
$
8

 
$
25

Commodity
(20
)
 
(44
)
 
(26
)
 
(44
)
Embedded
(45
)
 
86

 
(88
)
 
145

Warrants
—

 
—

 
—

 
4

Total gains (losses) recorded in earnings
$
(41
)
 
$
77

 
$
(106
)
 
$
130


Other Derivatives

In February 2011 we exercised warrants to purchase 4 million shares of a supplier's common stock at $2.76 per share and sold the shares and received proceeds of $48 million.

Automotive Financing - GM Financial

GM Financial is exposed to market risks arising from adverse changes in interest rates due to floating interest rate exposure on its credit facilities and on certain securitization notes payable and manages this exposure with interest rate swaps and caps. GM Financial had interest rate swaps and caps in asset positions with notional amounts of $1.5 billion and $2.0 billion at June 30, 2012 and December 31, 2011. GM Financial had interest rate swaps and caps in liability positions with notional amounts of $1.5 billion and $2.0 billion at June 30, 2012 and December 31, 2011. The fair value of these derivative financial instruments was insignificant.

Note 17. Commitments and Contingencies

The following tables summarize information related to commitments and contingencies (dollars in millions):

30

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
June 30, 2012
 
December 31, 2011
 
Liability
Recorded
 
Maximum
Liability(a)
 
Liability
Recorded
 
Maximum
Liability(a)
Guarantees(b)
 
 
 
 
 
 
 
Operating leases
$
—

 
$
9

 
$
—

 
$
26

Ally Financial commercial loans
$
4

 
$
8

 
$
—

 
$
24

Third party commercial loans and other obligations
$
7

 
$
246

 
$
7

 
$
210

Other product-related claims
$
55

 
$
932

 
$
53

 
$
838

__________
(a)
Calculated as future undiscounted payments.
(b)
Excludes residual support and risk sharing programs and vehicle repurchase obligations related to Ally Financial.
 
June 30, 2012
 
December 31, 2011
 
Liability Recorded
 
Liability Recorded
Environmental liability(a)
$
168

 
$
169

Product liability
$
574

 
$
514

Other litigation-related liability and tax administrative matters(b)
$
1,221

 
$
1,196

__________
(a)
Includes $33 million and $34 million recorded in Accrued liabilities at June 30, 2012 and December 31, 2011 and the remainder was recorded in Other liabilities and deferred income taxes.
(b)
Consists primarily of indirect tax-related litigation as well as various non-U.S. labor related matters.

Guarantees

We have provided guarantees related to the residual value of certain operating leases. These guarantees terminate in years ranging from 2016 to 2035. Certain leases contain renewal options.

We provide payment guarantees on commercial loans made by Ally Financial and outstanding with certain third parties, such as dealers or rental car companies. These guarantees either expire in 2012 through 2018 or are ongoing. We determined the fair value ascribed to the guarantees at inception and subsequent to inception to be insignificant based on the credit worthiness of the third parties. Refer to Note 22 for additional information on guarantees that we provide to Ally Financial.

We have agreements with third parties that guarantee the fulfillment of certain suppliers' commitments and other obligations. These guarantees expire in 2012 through 2016 or are ongoing, or upon the occurrence of specific events.

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. At June 30, 2012 any proceeds from collateral would be approximately $50 million.

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 and other closure costs pertaining to real property we owned. We periodically enter into agreements that incorporate indemnification provisions in the normal course of business. It is not possible to estimate our maximum exposure under these indemnifications or guarantees due to the conditional nature of these obligations. Immaterial amounts have been recorded for such obligations as the majority of them are not probable or estimable at this time, and the fair value of the guarantees at issuance was insignificant.

In addition to the guarantees and indemnifying agreements previously discussed, we indemnify dealers for certain product liability related claims as subsequently discussed.

With respect to other product-related claims involving products manufactured by certain joint ventures, we believe that costs incurred are adequately covered by recorded accruals. These guarantees terminate in years ranging from 2020 to 2026.

Environmental Liability


31

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

Automotive 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 remediation. We are in various stages of investigation or remediation for sites where contamination has been alleged. We are involved in a number of actions to remediate 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. An environmental reserve is recorded 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. Recorded liabilities are not reduced for possible recoveries from insurance carriers or other parties. Liabilities have been recorded for the expected costs to 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 may vary because of uncertainties with respect to factors such as the 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).

The final outcome of environmental matters cannot be predicted with certainty at this time. Subsequent adjustments to initial estimates are recorded as necessary based upon additional information obtained. In future periods, new laws or regulations, advances in remediation technologies and additional information about the ultimate remediation methodology to be used could significantly change our estimates. 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 financial condition, results of operations and cash flows. At June 30, 2012 we estimate the remediation losses could range from $130 million to $290 million.

Product Liability

With respect to product liability claims involving our and Old GM's products, we believe that any judgment against us for actual damages will be adequately covered by our recorded accruals and, where applicable, excess liability insurance coverage. Although punitive damages are claimed in some of these lawsuits, and such claims are inherently unpredictable, accruals incorporate historic experience with these types of claims. Liabilities have been recorded for the expected cost of all known product liability claims plus an estimate of the expected cost for product liability claims that have already been incurred and are expected to be filed in the future for which we are self-insured. These amounts were recorded in Accrued liabilities and Other liabilities and deferred income taxes.

We indemnify dealers for certain product liability related claims including products sold by Old GM. We monitor actual claims experience and make periodic adjustments to our estimates. Based on management's judgment concerning the projected number and value of both dealer indemnification obligations and product liability claims, we have applied actuarial methodologies and estimated the liability. We expect our product liability reserve to rise in future periods as new claims arise from incidents subsequent to July 9, 2009.

Other Litigation-Related Liability and Tax Administrative Matters

Various legal actions, governmental investigations, claims and proceedings are pending against us including matters arising out of alleged product defects; employment-related matters; governmental regulations relating to safety, emissions, and fuel economy; product warranties; financial services; dealer, supplier and other contractual relationships; tax-related matters not recorded pursuant to ASC 740, "Income Taxes" (indirect tax-related matters) and environmental matters.

With regard to the litigation matters discussed in the previous paragraph, reserves have been established for matters in which we believe that losses are probable and can be reasonably estimated, the majority of which are associated with indirect tax-related matters as well as various non-U.S. labor-related matters. Indirect tax-related matters are being litigated globally pertaining to value added taxes, customs, duties, sales, property taxes and other non-income tax related tax exposures. The various non-U.S. labor-related matters include claims from current and former employees related to alleged unpaid wage, benefit, severance, and other compensation matters. Certain South American administrative proceedings are indirect tax-related and may require that we deposit funds in escrow. Escrow deposits may range from $458 million to $687 million. Some of the matters may involve compensatory, punitive, or other treble damage claims, environmental remediation programs, or sanctions, that if granted, could

32

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

require us to pay damages or make other expenditures in amounts that could not be reasonably estimated at June 30, 2012. We believe that appropriate accruals have been established for such matters based on information currently available. Reserves for litigation losses are recorded in Accrued liabilities and Other liabilities and deferred income taxes. 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 our financial condition, results of operations and cash flows in any particular reporting period.

Commencing on or about September 29, 2010, current and former hourly employees of GM Korea filed six separate group actions in the Incheon District Court in Incheon, Korea. The cases allege that GM Korea failed to include certain allowances in its calculation of Ordinary Wages due under the Presidential Decree of the Korean Labor Standards Act. Although GM Korea intends to vigorously defend the claims asserted, at June 30, 2012 we have an accrual of 175 billion Korean Won (equivalent to $152 million) in connection with these cases. The current estimate of the value of plaintiffs' claims, if allowed in full, exceeds the accrual by 642 billion Korean Won (equivalent to $556 million) which represents the reasonably possible liability exposure. Both the scope of claims asserted and GM Korea's assessment of any or all of individual claim elements may change if new information becomes available.

On February 12, 2010 a claim was filed in the Ontario Superior Court of Justice against General Motors of Canada Limited (GMCL) on behalf of a purported class of over 200 former GMCL dealers (the Plaintiff Dealers) which had entered into wind-down agreements with GMCL. In May 2009, in the context of the global restructuring of the business and the possibility that GMCL might be required to initiate insolvency proceedings, GMCL offered the Plaintiff Dealers the wind-down agreements to assist with their exit from the GMCL dealer network and to facilitate winding down their operations in an orderly fashion by December 31, 2009 or such other date as GMCL approved but no later than on October 31, 2010. The Plaintiff Dealers allege that the Dealer Sales and Service Agreements were wrongly terminated by GMCL and that GMCL failed to comply with certain disclosure obligations, breached its statutory duty of fair dealing and unlawfully interfered with the Plaintiff Dealers' statutory right to associate in an attempt to coerce the Plaintiff Dealers into accepting the wind-down agreements. The Plaintiff Dealers seek damages and assert that the wind-down agreements are rescindable. The Plaintiff Dealers' initial pleading makes reference to a claim “not exceeding” CAD $750 million, without explanation of any specific measure of damages. On March 1, 2011 the court approved certification of a class for the purpose of deciding a number of specifically defined issues, including: (1) whether GMCL breached its obligation of "good faith" in offering the wind-down agreements; (2) whether GMCL interfered with the Plaintiff Dealers' rights of free association; (3) whether GMCL was obligated to provide a disclosure statement and/or disclose more specific information regarding its restructuring plans in connection with proffering the wind-down agreements; and (4) assuming liability, whether the Plaintiff Dealers can recover damages in the aggregate (as opposed to proving individual damages). On June 22, 2011 the court granted GMCL permission to appeal the class certification decision. On March 26, 2012 the Ontario Superior Court dismissed GMCL's appeal of the class certification order. Accordingly the case will proceed as a class action. The current prospects for liability are uncertain, but because liability is not deemed probable, we have no accrual relating to this litigation. We cannot estimate the range of reasonably possible loss in the event of liability, as the case presents a variety of different legal theories, none of which GMCL believes are valid.

On April 6, 2010 the International Union, United Automobile, Aerospace and Agriculture Implement Workers of America (UAW) filed suit against us in the U.S. District Court for the Eastern District of Michigan claiming that we breached an obligation to contribute $450 million to the UAW Retiree Medical Benefits Trust (New VEBA). The UAW alleges that we were contractually required to make this contribution. The reasonably possible loss as defined by ASC 450 “Contingencies” is $450 million, which is the amount claimed, but we believe that the claim is without merit and we have no accrual relating to this litigation. We filed a motion in the U.S. Bankruptcy Court for the Southern District of New York (Bankruptcy Court) asserting that the UAW's claim is barred by the Bankruptcy Court approved 2009 UAW Retiree Settlement Agreement and by other orders issued by the Bankruptcy Court that preclude additional GM contributions to the New VEBA. We also maintain that Delphi Corporation's bankruptcy plan of reorganization did not fulfill the applicable conditions of the relevant agreement and therefore payment would not be due even in the absence of the 2009 UAW Retiree Settlement Agreement. On August 23, 2011, the Bankruptcy Court issued an opinion abstaining from hearing the case, which will accordingly be litigated in the U.S. District Court for the Eastern District of Michigan.

We are a participating party-in-interest in proceedings pending in the Bankruptcy Court to adjudicate claims in the Old GM bankruptcy arising from certain securities issued by General Motors Nova Scotia Finance Company (Nova Scotia Finance), an Old GM subsidiary which we did not acquire in 2009 (Nova Scotia Claims Litigation). Although the current proceedings involve no claims against us, they present issues which, depending upon their resolution, could result in future claims against GMCL.

In 2003, Nova Scotia Finance, a Nova Scotia unlimited liability company issued notes of 600 million British Pounds (GBP),

33

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

which were guaranteed by Old GM (Guaranty) (collectively, the Notes). The proceeds of the Notes were converted to CAD and loaned by Nova Scotia Finance to GMCL by means of two intercompany loans totaling CAD $1.3 billion. As part of the bankruptcy proceeding, these intercompany loans were compromised for CAD $399 million pursuant to a transaction defined by a Lock-Up Agreement between GMCL, Nova Scotia Finance, Old GM and certain holders of the notes (Noteholders). The Lock-Up Agreement defined a transaction by which the Noteholders consented to, among other things, the compromise of the intercompany loans in exchange for payment of CAD $399 million as a Consent Fee. The Consent Fee was originally financed by a loan from Old GM to GMCL immediately prior to the Old GM bankruptcy filing. That loan was subsequently repaid. Pursuant to the terms of the Lock-Up Agreement, the Consent Fee did not reduce the principal amount outstanding under the Notes or the Guaranty. We acquired Old GM's interest in the Lock-Up Agreement in 2009.

In the Nova Scotia Claims Litigation, the Noteholders seek an allowed claim in the Old GM bankruptcy based on the Guaranty. The trustee of Nova Scotia Finance seeks an allowed claim in the amount of the deficiency between Nova Scotia Finance's assets and liabilities, by reason of the fact that it is an unlimited liability company and Old GM was its sole shareholder. The claim asserted by the trustee includes sums allegedly owed by Nova Scotia Finance to us by reason of currency swaps entered into between Old GM and Nova Scotia Finance, which we contend we acquired from Old GM in 2009. Allowance of the claims is opposed by the GUC Trust, which asserts that the claims of the Trustee and Noteholders are duplicative, that they should be reduced by the amount of the Consent Fee, and/or that they should be equitably subordinated or equitably disallowed by reason of alleged inequitable conduct by the Noteholders. In support of this position, the GUC Trust has asserted that the Lock-Up Agreement is void because it was not approved by the Bankruptcy Court and was funded by Old GM, that we did not acquire MLC's interest in the Lock-Up Agreements and currency swaps, and that other aspects of the sale of assets to us on July 10, 2009 may be adjusted to permit disallowance or reduction of the claims of the Noteholders and Trustee. The matter is currently scheduled for trial commencing on August 7, 2012.

Although we believe the positions taken by the GUC Trust are without merit, it is reasonably possible that the Bankruptcy Court will issue rulings adverse to our interest in the Nova Scotia Claims Litigation. Such rulings could lead to subsequent claims which, although we believe would be without merit, could adversely impact GMCL's compromise of the intercompany loans. It is impossible to estimate the reasonably possible loss which would depend upon a variety of factors including the outcome of additional litigation. However, the compromise of the intercompany loans for CAD $399 million resulted in a savings to GMCL of CAD $935 million (equivalent to $918 million) which we believe represents a reasonable estimate of the approximate amount of the maximum reasonably possible loss.

Liability Related to Contingently Issuable Shares

Under the Amended and Restated Master Sale and Purchase Agreement, as amended between us and Old GM and certain of its direct and indirect subsidiaries, we were obligated to issue additional shares of our common stock to MLC (Adjustment Shares) in the event that allowed general unsecured claims against MLC, as estimated by the Bankruptcy Court, exceed $35.0 billion. Following the dissolution of MLC on December 15, 2011, any Adjustment Shares we are obligated to issue will be issuable to the GUC Trust. The maximum number of Adjustment Shares issuable is 30 million shares (subject to adjustment to take into account stock dividends, stock splits and other transactions). The number of Adjustment Shares to be issued is calculated based on the extent to which estimated general unsecured claims exceed $35.0 billion with the maximum number of Adjustment Shares issued if estimated general unsecured claims total $42.0 billion or more. At June 30, 2012, based on the most recent information available, we concluded that the possibility that general unsecured claims would exceed $35.0 billion was remote. We do not anticipate future disclosure regarding Adjustment Shares.

GME Planned Spending Guarantee

As part of our Opel/Vauxhall restructuring plan agreed to with European labor representatives, we have committed to achieving specified milestones associated with planned spending from 2011 to 2014 on certain product programs. If we fail to accomplish the requirements set out under the agreement, we will be required to pay certain amounts up to Euro 265 million for each of those years, and/or interest on those amounts, to our employees. Certain inventory with a carrying amount of $197 million and $209 million at June 30, 2012 and December 31, 2011 was pledged as collateral under the agreement. Through June 30, 2012 spending was sufficient to meet the current requirements under the agreement and the specified milestones have been accomplished. Management has the intent and believes it has the ability to meet the future requirements under the agreement.

Contract Cancellations


34

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

The following table summarizes contract cancellation charges primarily related to the cancellation of product programs (dollars in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
GMNA
$
21

 
$
21

 
$
27

 
$
21

GME
49

 
3

 
49

 
3

GMIO
5

 
6

 
5

 
6

Total contract cancellations
$
75

 
$
30

 
$
81

 
$
30


Note 18. Income Taxes

For interim income tax reporting we estimate our annual effective tax rate and apply it to our year to date ordinary income/loss. The tax effect of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur. Tax jurisdictions with a projected or year to date loss for which a tax benefit cannot be realized are excluded.

In interim periods, income tax expense is composed of two key elements: (1) the amount necessary to appropriately state the year to date estimated tax expense of entities included in our effective tax rate calculation, which is calculated as the difference between the amount currently estimated for the year to date period and the amount previously recorded in prior interim periods; and (2) the tax effect of unusual or infrequent items that occur in the period.

In the three months ended June 30, 2012 income tax expense of $241 million primarily resulted from tax expense attributable to entities included in our effective tax rate calculation. The recorded effective tax rate is lower than the applicable statutory tax rate due primarily to income earned in jurisdictions for which a full valuation allowance is recorded. In the three months ended June 30, 2011 the income tax benefit of $61 million primarily resulted from tax expense attributable to entities included in our effective tax rate calculation more than offset by tax benefit attributable to previously unrecognized tax benefits in various jurisdictions. This benefit includes reductions in interest expense and valuation allowances associated with these previously unrecognized tax benefits.

In the six months ended June 30, 2012 income tax expense of $457 million primarily resulted from tax expense attributable to entities included in our effective tax rate calculation. The recorded effective tax rate is lower than the applicable statutory tax rate due primarily to income earned in jurisdictions for which a full valuation allowance is recorded. In the six months ended June 30, 2011 income tax expense of $76 million primarily resulted from tax expense attributable to entities included in our effective tax rate calculation partially offset by tax benefits attributable to previously unrecognized tax benefits in various jurisdictions.

We file income tax returns in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. We have open tax years from 2002 to 2011 with various significant tax jurisdictions. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. In addition the global nature of our operations means that transfer pricing disputes may arise.

In March 2012 a Mexican income tax audit covering the 2004 tax year was concluded and an assessment, adjusted for inflation, of $128 million including tax, interest and penalties was issued. The total 2002, 2003 and 2004 assessments, adjusted for inflation, as of June 30, 2012 including tax, interest and penalties is $292 million. We believe we have adequate reserves established. Collection of any assessment will be suspended until a revised assessment is issued and during any subsequent proceedings through U.S. and Mexican competent authorities.

In May 2012 a Brazilian income tax assessment was issued related to the 2007 tax year totaling $180 million including tax, interest and penalties. We believe we have adequate reserves established. Proceedings may require that we deposit escrow funds in the future.

At June 30, 2012 it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits in the next 12 months.

35

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)


Note 19. Restructuring and Other Initiatives

We have previously executed various restructuring and other initiatives, and we plan to execute additional initiatives in the future, if necessary, in order to align manufacturing capacity and other costs with prevailing global automotive production and to improve the utilization of remaining facilities. Related charges are recorded in Automotive cost of sales and Automotive selling, general and administrative expense.

The following tables summarize the reserves related to restructuring and other initiatives (excluding restructuring reserves related to dealer wind-down agreements) and charges by segment, including postemployment benefit reserves and charges (dollars in millions):
 
GMNA
 
GME
 
GMIO
 
GMSA
 
Total
Balance at January 1, 2012
$
884

 
$
687

 
$
1

 
$
12

 
$
1,584

Additions
97

 
9

 
4

 
2

 
112

Interest accretion and other
3

 
22

 
(1
)
 
—

 
24

Payments
(86
)
 
(192
)
 
—

 
(8
)
 
(286
)
Revisions to estimates
(12
)
 
(2
)
 
—

 
—

 
(14
)
Effect of foreign currency
8

 
16

 
—

 
—

 
24

Balance at March 31, 2012
894

 
540

 
4

 
6

 
1,444

Additions
13

 
38

 
27

 
73

 
151

Interest accretion and other
3

 
18

 
—

 
—

 
21

Payments
(123
)
 
(43
)
 
(5
)
 
(13
)
 
(184
)
Revisions to estimates
—

 
(7
)
 
—

 
—

 
(7
)
Effect of foreign currency
(8
)
 
(26
)
 
—

 
1

 
(33
)
Balance at June 30, 2012(a)
$
779

 
$
520

 
$
26

 
$
67

 
$
1,392


 
GMNA
 
GME
 
GMIO
 
GMSA
 
Total
Balance at January 1, 2011
$
1,135

 
$
664

 
$
3

 
$
—

 
$
1,802

Additions
26

 
33

 
—

 
1

 
60

Interest accretion and other
7

 
24

 
—

 
—

 
31

Payments
(129
)
 
(205
)
 
(2
)
 
(1
)
 
(337
)
Revisions to estimates
7

 
—

 
—

 
—

 
7

Effect of foreign currency
16

 
34

 
—

 
—

 
50

Balance at March 31, 2011
1,062

 
550

 
1

 
—

 
1,613

Additions
8

 
62

 
—

 
1

 
71

Interest accretion and other
6

 
16

 
—

 
—

 
22

Payments
(109
)
 
(76
)
 
—

 
(1
)
 
(186
)
Revisions to estimates
(8
)
 
—

 
—

 
—

 
(8
)
Effect of foreign currency
(1
)
 
11

 
—

 
—

 
10

Balance at June 30, 2011(a)
$
958

 
$
563

 
$
1

 
$
—

 
$
1,522

__________
(a)
The remaining cash payments related to these reserves for restructuring and other initiatives, including temporary layoff benefits of $363 million and $369 million at June 30, 2012 and June 30, 2011 for GMNA, primarily relate to postemployment benefits.

Three and Six Months Ended June 30, 2012

GMNA recorded charges, interest accretion and other and revisions to estimates primarily related to cash severance incentive programs for skilled trade U.S. hourly employees.

36

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)


Our 2011 UAW labor agreement included cash severance incentive programs which were completed at March 31, 2012 for skilled trade U.S. hourly employees. A total of 1,400 skilled trade U.S. hourly employees participated in these programs at a total cost of $99 million and was recorded upon irrevocable acceptances by both parties. Substantially all of the program cost was recorded in the three months ended March 31, 2012.

GME recorded charges, interest accretion and other primarily related to previously announced separation and early retirement programs in Germany. Through June 30, 2012, the separation programs had a total cost of $313 million and affected a total of 1,900 employees. We expect to complete these programs in 2013 and incur an additional $0.1 billion, which will affect an additional 350 employees. To the extent these programs involve voluntary separations, no liabilities are recorded until offers to employees are accepted. If employees are involuntarily terminated, a liability is recorded at the communication date.

In the three months ended June 30, 2012 GMIO recorded charges of $22 million for employee separation costs related to a voluntary separation program in Korea which affected 146 employees. A liability under this program is recorded as offers to employees are accepted.

In the three months ended June 30, 2012 GMSA recorded charges of $71 million for employee separation costs related to a separation program in Brazil. We may incur additional future charges in connection with this program.

Three and Six Months Ended June 30, 2011

GMNA recorded charges, interest accretion and other and revisions to estimates that increased the reserves primarily related to skilled trades U.S. hourly employees who participated in a special attrition program.

GME recorded charges and interest accretion and other for separation programs primarily related to previously announced programs in Germany.

Dealer Wind-downs

We market vehicles worldwide through a network of independent retail dealers and distributors. We determined that a reduction in the number of GMNA dealerships was necessary.

The following table summarizes GMNA's restructuring reserves related to dealer wind-down agreements (dollars in millions):
 
2012
 
2011
Balance at January 1
$
25

 
$
144

Revisions to estimates
—

 
(6
)
Payments
(3
)
 
(80
)
Balance at March 31
22

 
58

Revisions to estimates
(4
)
 
(1
)
Payments
(1
)
 
(24
)
Balance at June 30
$
17

 
$
33


Note 20. Earnings Per Share

In the three and six months ended June 30, 2012 and 2011 we were required to use the two-class method for calculating basic earnings per share and the more dilutive of the two-class or the if-converted method to calculate diluted earnings per share as the applicable market value of our common stock was below $33.00 per common share in the periods ended June 30, 2012 and 2011. Under the two-class method for computing earnings per share, undistributed earnings are allocated to common stock and the Series B Preferred Stock according to their respective participation rights in undistributed earnings, as if all the earnings for the period had been distributed. This allocation to the Series B Preferred Stock holders reduced Net income attributable to common stockholders, resulting in a lower basic and dilutive earnings per share amount. Variability may result in our calculation of earnings per share from period to period depending on whether the application of the two-class method is required.


37

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

Basic and diluted earnings per share are computed by dividing Net income attributable to common stockholders by the weighted-average common shares outstanding in the period. Diluted earnings per share is computed by giving effect to all potentially dilutive securities that were outstanding.

The following tables summarize basic and dilutive earnings per share (in millions, except for per share amounts):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Basic earnings per share
 
 
 
 
 
 
 
Net income attributable to stockholders(a)
$
1,846

 
$
2,992

 
$
3,161

 
$
6,358

Less: cumulative dividends on preferred stock and undistributed earnings allocated to Series B Preferred Stock participating security(b)
(359
)
 
(468
)
 
(670
)
 
(971
)
Net income attributable to common stockholders
$
1,487

 
$
2,524

 
$
2,491

 
$
5,387

Weighted-average common shares outstanding - basic
1,569

 
1,505

 
1,571

 
1,505

Basic earnings per common share
$
0.95

 
$
1.68

 
$
1.59

 
$
3.58

Diluted earnings per share
 
 
 
 
 
 
 
Net income attributable to stockholders(a)
$
1,846

 
$
2,992

 
$
3,161

 
$
6,358

Less: cumulative dividends on preferred stock and undistributed earnings allocated to Series B Preferred Stock participating security(c)
(350
)
 
(447
)
 
(655
)
 
(924
)
Net income attributable to common stockholders
$
1,496

 
$
2,545

 
$
2,506

 
$
5,434

Weighted-average shares outstanding - diluted
 
 
 
 
 
 
 
Weighted-average common shares outstanding - basic
1,569

 
1,505

 
1,571

 
1,505

Dilutive effect of warrants
98

 
147

 
106

 
154

Dilutive effect of restricted stock units (RSUs)
4

 
2

 
4

 
2

Weighted-average common shares outstanding - diluted
1,671

 
1,654

 
1,681

 
1,661

Diluted earnings per common share
$
0.90

 
$
1.54

 
$
1.49

 
$
3.27

__________
(a)
Includes earned but undistributed dividends of $26 million on our Series A Preferred Stock and $20 million on our Series B Preferred Stock in the three and six months ended June 30, 2012 and 2011.
(b)
Includes cumulative dividends on preferred stock of $214 million and earnings of $145 million that have been allocated to the Series B Preferred Stock holders in the three months ended June 30, 2012 and cumulative dividends on preferred stock of $214 million and earnings of $254 million that have been allocated to the Series B Preferred Stock holders in the three months ended June 30, 2011. Includes cumulative dividends on preferred stock of $429 million and earnings of $241 million that have been allocated to the Series B Preferred Stock holders in the six months ended June 30, 2012 and cumulative dividends on preferred stock of $429 million and earnings of $542 million allocated to the Series B Preferred Stock holders in the six months ended June 30, 2011.
(c)
Includes cumulative dividends on preferred stock of $214 million and earnings of $136 million that have been allocated to the Series B Preferred Stock holders in the three months ended June 30, 2012 and cumulative dividends on preferred stock of $214 million and earnings of $233 million that have been allocated to the Series B Preferred Stock holders in the three months ended June 30, 2011. Includes cumulative dividends on preferred stock of $429 million and earnings of $226 million that have been allocated to the Series B Preferred Stock holders in the six months ended June 30, 2012 and cumulative dividends on preferred stock of $429 million and earnings of $495 million that have been allocated to the Series B Preferred Stock holders in the six months ended June 30, 2011.

Three and Six Months Ended June 30, 2012

The application of the two-class method resulted in an allocation of undistributed earnings to our Series B Preferred Stock holders and, accordingly, 152 million common stock equivalents from the assumed conversion of the Series B Preferred Stock are not considered outstanding for purposes of determining the weighted-average common shares outstanding in the computation of diluted earnings per share.

In 2011 MLC distributed all of its 272 million warrants for our common stock to its unsecured creditors and the GUC Trust. The warrant holders may exercise the warrants at any time prior to their respective expiration dates. Upon exercise of the warrants the shares issued will be included in the number of basic shares outstanding used in the computation of earnings per share.

38

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)


Warrants to purchase 313 million shares of our common stock were outstanding at June 30, 2012, of which 46 million shares were not included in the computation of diluted earnings per share because the warrants' exercise price was greater than the average market price of the common shares. Under the treasury stock method, the assumed exercise of the remaining warrants resulted in 98 million and 106 million dilutive shares in the three and six months ended June 30, 2012.

Diluted earnings per share included the effect of 17 million unvested RSUs granted to certain global executives. The Adjustment Shares were excluded from the computation of basic and diluted earnings per share as the condition that would result in the issuance of the Adjustment Shares was not satisfied.

Three and Six Months Ended June 30, 2011

The application of the two-class method resulted in an allocation of undistributed earnings to our Series B Preferred Stock holders and, accordingly, 152 million common stock equivalents from the assumed conversion of the Series B Preferred Stock are not considered outstanding for purposes of determining the weighted-average common shares outstanding in the computation of diluted earnings per share.

Warrants to purchase 317 million shares of our common stock were outstanding, of which 46 million shares were not included in the computation of diluted earnings per share because the warrants' exercise price was greater than the average market price of our common stock. Under the treasury stock method, the assumed exercise of warrants to purchase the remaining warrants resulted in 147 million and 154 million dilutive shares in the three and six months ended June 30, 2011.

Diluted earnings per share included the effect of 14 million unvested RSUs granted to certain global executives. The Adjustment Shares were excluded from the computation of basic and diluted earnings per share as the condition that would result in the issuance of the Adjustment Shares was not satisfied.

In July 2011 the 61 million shares of common stock contributed to our pension plans in January 2011 met the criteria to qualify as plan assets for accounting purposes. These shares were not considered outstanding for earnings per share purposes in the three and six months ended June 30, 2011.

Note 21. Stock Incentive Plans

Long-Term Incentive Plan

We granted 7 million and 5 million RSUs valued at the grant date fair value of our common stock in the six months ended June 30, 2012 and 2011. These awards granted either cliff vest or ratably vest generally over a three-year service period, as defined in the terms of each award. We have elected to record compensation cost for these awards on a straight-line basis over the entire vesting period. Our policy is to issue new shares upon settlement of RSUs.

The 2012 awards granted to the Top 25 highest compensated employees will settle on the second and third anniversary dates of grant in 25% increments in conjunction with each 25% of our Troubled Asset Relief Program (TARP) obligations that are repaid. The awards for the Next 75 and non-Top 100 highest compensated employees will vest and settle on the second and third anniversary dates of grant. Vesting and subsequent settlement will generally occur based upon employment at the end of each specified service period.

The 2011 awards granted to the Top 25 highest compensated employees will settle three years from the grant date in 25% increments in conjunction with each 25% of our TARP obligations that are repaid. The awards for the Next 75 highest compensated employees will settle either: (1) three years from the date of grant; or (2) on the first and third anniversary dates of grant. The awards to the non-Top 100 highest compensated employees will settle on the first, second and third anniversary dates of grant. Vesting and subsequent settlement will generally occur based upon employment at the end of each specified service period.

Salary Stock

In the six months ended June 30, 2012 and 2011 a portion of each participant's salary accrued on each salary payment date converted to RSUs on a quarterly basis. The awards are fully vested and nonforfeitable upon grant, therefore compensation cost is fully recognized on the date of grant. In March 2012 we amended the plan to provide for cash settlement of awards. As a result

39

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

we will now settle these awards in cash and we reclassified $97 million from Capital surplus to Accrued liabilities and Other liabilities and deferred income taxes. The liability for these awards is remeasured to fair value at the end of each reporting period. Prior to this amendment it was our policy to issue new shares upon settlement of these awards.

RSUs

The following table summarizes information about the RSUs under our stock incentive plans (RSUs in millions):
 
Shares
 
Weighted-
Average
Grant Date
Fair Value
 
Weighted-Average
Remaining
Contractual
Term
RSUs outstanding at January 1, 2012
22.5

 
$
23.01

 
1.1
Granted
8.0

 
$
25.11

 
 
Settled
(1.9
)
 
$
31.65

 
 
Forfeited or expired
(0.7
)
 
$
25.02

 
 
RSUs outstanding at June 30, 2012
27.9

 
$
22.95

 
1.2
RSUs unvested and expected to vest at June 30, 2012
18.0

 
$
23.62

 
1.5
RSUs vested and payable at June 30, 2012
9.3

 
$
21.47

 
—

The following table summarizes compensation expense recorded for our stock incentive plans (dollars in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Compensation expense
$
55

 
$
60

 
$
127

 
$
113


The compensation cost of each RSU that will be settled in equity is based on the fair value of our common stock on the date of grant or, for those RSUs reclassified from liability to equity-based awards, the fair value of our common stock as of the date of the public offering.

At June 30, 2012 the total unrecognized compensation expense for nonvested equity awards was $307 million. This expense is expected to be recorded over a weighted-average period of 1.5 years.

The total fair value of RSUs that vested in the six months ended June 30, 2012 and 2011 was $82 million and $49 million.

Note 22. Ally Financial

Transactions with Ally Financial

The following tables summarize the financial statement effects of and maximum obligations under agreements with Ally Financial (dollars in millions):
 
June 30, 2012
 
December 31, 2011
Residual support(a)
 
 
 
Receivables (liabilities) recorded
$
(19
)
 
$
6

Maximum obligation
$
87

 
$
40

Risk sharing(a)
 
 
 
Liabilities recorded
$
8

 
$
66

Maximum obligation
$
17

 
$
88

Vehicle repurchase obligations(b)
 
 
 
Maximum obligations
$
21,989

 
$
19,779

Fair value of guarantee
$
16

 
$
17


40

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

__________
(a)
Represents receivables and liabilities recorded and maximum obligations for agreements entered into prior to December 31, 2008. Agreements entered into after December 31, 2008 have not included residual support or risk sharing programs. In the six months ended June 30, 2012 and 2011 favorable adjustments to our residual support and risk sharing liabilities of $73 million and $323 million were recorded in the U.S. due to increases in estimated and actual residual values at contract termination.
(b)
The maximum potential amount of future payments required to be made to Ally Financial under this guarantee is based on the repurchase value of total eligible vehicles financed by Ally Financial in dealer stock. If vehicles are required to be repurchased under this arrangement, the total exposure would be reduced to the extent vehicles are able to be resold.
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
U.S. marketing incentives and lease residual payments
$
477

 
$
425

 
$
811

 
$
970

Exclusivity fee income
$
18

 
$
22

 
$
38

 
$
46


Balance Sheet

The following table summarizes the balance sheet effects of transactions with Ally Financial (dollars in millions):
 
June 30, 2012
 
December 31, 2011
Assets
 
 
 
Accounts and notes receivable, net(a)
$
257

 
$
243

Liabilities
 
 
 
Accounts payable(b)
$
31

 
$
59

Short-term debt and current portion of long-term debt(c)
$
925

 
$
1,068

Accrued liabilities and other liabilities(d)
$
833

 
$
650

Long-term debt(e)
$
8

 
$
8

Other non-current liabilities(f)
$
27

 
$
35

__________
(a)
Represents wholesale settlements due from Ally Financial and receivables for exclusivity fees and royalties.
(b)
Represents amounts billed to us and payable related to incentive programs.
(c)
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.
(d)
Represents accruals for marketing incentives on vehicles which are sold, or anticipated to be sold, to customers or dealers and financed by Ally Financial in North America. This includes the estimated amount of residual and rate support accrued, capitalized cost reduction incentives and amounts owed under lease pull-ahead programs.
(e)
Represents the long-term portion of term loans from Ally Financial to certain consolidated dealerships.
(f)
Represents the long-term portion of liabilities for marketing incentives on vehicles financed by Ally Financial.

Statement of Operations

The following table summarizes the income statement effects of transactions with Ally Financial (dollars in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Total net sales and revenue (decrease)(a)
$
(535
)
 
$
(43
)
 
$
(1,285
)
 
$
(617
)
Automotive cost of sales and other automotive expenses(b)
$
3

 
$
4

 
$
7

 
$
8

Interest income and other non-operating income, net(c)
$
20

 
$
29

 
$
42

 
$
85

Automotive interest expense(d)
$
14

 
$
19

 
$
8

 
$
37

__________
(a)
Represents marketing incentives on vehicles which were sold, or anticipated to be sold, to customers or dealers and financed by Ally Financial. This includes the estimated amount of residual and rate support accrued, capitalized cost reduction incentives and costs under lease pull-ahead programs. This amount is offset by net sales for vehicles sold to Ally Financial for employee and governmental lease programs and third party resale purposes.

41

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

(b)
Represents cost of sales on the sale of vehicles to Ally Financial for employee and governmental lease programs and third party resale purposes.
(c)
Represents income on investments in Ally Financial preferred stock (through March 31, 2011) and exclusivity and royalty fee income. Included in this amount is rental income related to Ally Financial's primary executive and administrative offices located in the Renaissance Center in Detroit, Michigan. The lease agreement expires in November 2016.
(d)
Represents interest incurred on notes payable and wholesale settlements. In January 2012 we received $21 million from Ally Financial as part of a settlement of previously overcharged interest.

Fair Value of Ally Financial Common Stock

At June 30, 2012 and December 31, 2011 we held a 9.9% common equity ownership in Ally Financial. Our entire equity ownership is held indirectly through an independent trust which has the sole authority to vote the shares and is required to dispose of all Ally Financial common stock by December 24, 2013.

We estimated the fair value of Ally Financial common stock using a market approach that applies the average price to tangible book value multiples of comparable companies to the consolidated Ally Financial tangible book value. The significant inputs used in our fair value analyses included Ally Financial's June 30, 2012 and December 31, 2011 financial statements, financial statements and price to tangible book value multiples of comparable companies in the banking and finance industry, and the effects of certain Ally Financial shareholder rights described below. The measurement of Ally Financial common stock is a Level 3 fair value measurement.

At December 31, 2011 we determined the carrying amount of our investment in Ally Financial common stock exceeded our estimate of its fair value. Our estimate of fair value resulted from broader macroeconomic uncertainties and volatility in the financial markets including the eurozone debt crisis, continued heightened risk of recession and concerns about Ally Financial's mortgage related operations. Our estimate considered the potential effect of contractual provisions held by the United States Department of the Treasury who may receive incremental ownership interest in Ally Financial depending upon Ally Financial's equity value at the time of a successful public offering or private sale. These contractual provisions could result in significant dilution of our ownership interest. Based on an evaluation of the duration and severity of this decline in fair value, we concluded the impairment was other-than-temporary. As a result we recorded an impairment charge of $555 million in Interest income and other non-operating income, net to reduce our investment to its estimated fair value of $403 million.

The following table summarizes the carrying amount and estimated fair value of Ally Financial common stock (dollars in millions):
 
June 30, 2012
 
December 31, 2011
Carrying amount
$
404

 
$
403

Fair value
$
436

 
$
403


Ally Financial Preferred Stock

In March 2011 our investment in Ally Financial preferred stock was sold through a public offering for net proceeds of $1.0 billion. The gain of $339 million related to the sale was recorded in Interest income and other non-operating income, net.

Note 23. Segment Reporting

We analyze the results of our business through our five segments: GMNA, GME, GMIO, GMSA and GM Financial. Each segment has a manager responsible for executing our strategies. Our automotive manufacturing operations are integrated within the segments, benefit from broad-based trade agreements and are subject to regulatory requirements, such as Corporate Average Fuel Economy regulations. While not all vehicles within a segment are individually profitable on a fully loaded cost basis, those vehicles are needed in our product mix in order to attract customers to dealer showrooms and to maintain sales volumes for other, more profitable vehicles. Because of these factors, we do not manage our business on an individual brand or vehicle basis. The chief operating decision maker evaluates the operating results and performance of our automotive segments through Income (loss) before interest and income taxes, as adjusted for additional amounts, which are presented net of noncontrolling interests, and evaluates GM Financial through income before income taxes.

Substantially all of the cars, trucks and parts produced are marketed through retail dealers in North America, and through

42

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

distributors and dealers outside of North America, the substantial majority of which are independently owned.

In addition to the products sold to dealers for consumer retail sales, cars and trucks are also sold to fleet customers, including daily rental car companies, commercial fleet customers, leasing companies and governments. Sales to fleet customers are completed through the network of dealers and in some cases sold directly to fleet customers. Retail and fleet customers can obtain a wide range of aftersale vehicle services and products through the dealer network, such as maintenance, light repairs, collision repairs, vehicle accessories and extended service warranties.

GMNA primarily meets the demands of customers in North America with vehicles developed, manufactured and/or marketed under the following four brands:
•     Buick
•      Cadillac
•      Chevrolet
•      GMC

The demands of customers outside of North America are primarily met with vehicles developed, manufactured and/or marketed under the following brands:
•     Buick
•     Chevrolet
•      Holden
•      Vauxhall
•     Cadillac
•      GMC
•      Opel
 

At June 30, 2012 we also had equity ownership stakes directly or indirectly in entities through various regional subsidiaries, including GM Korea, SGM, SGMW, FAW-GM and HKJV. These companies design, manufacture and market vehicles under the following brands:
•     Alpheon
•     Buick
•     Chevrolet
•      Wuling
•     Baojun
•     Cadillac
•      Jiefang
 

Nonsegment operations are classified as Corporate. Corporate includes investments in Ally Financial, certain centrally recorded income and costs, such as interest, income taxes and corporate expenditures and certain nonsegment specific revenues and expenses.

In 2012 we recorded gains and losses on extinguishment of debt within Corporate for segment reporting purposes. Previously gains and losses on extinguishment of debt were recorded within the applicable automotive segments. This change is consistent with how management currently views the results of our operations.

All intersegment balances and transactions have been eliminated in consolidation.

The following tables summarize key financial information by segment (dollars in millions):

43

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
At and For the Three Months Ended June 30, 2012
 
GMNA
 
GME
 
GMIO
 
GMSA
 
Corporate
 
Eliminations
 
Total
Automotive
 
GM
Financial
 
Eliminations
 
Total
Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External customers
$
21,553

 
$
5,532

 
$
5,915

 
$
4,117

 
$
10

 
$
—

 
$
37,127

 
$
—

 
$
—

 
$
37,127

GM Financial revenue
—

 
—

 
—

 
—

 
—

 
—

 
—

 
487

 
—

 
487

Intersegment
1,347

 
362

 
1,030

 
62

 
—

 
(2,802
)
 
(1
)
 
—

 
1

 
—

Total net sales and revenue
$
22,900

 
$
5,894

 
$
6,945

 
$
4,179

 
$
10

 
$
(2,802
)
 
$
37,126

 
$
487

 
$
1

 
$
37,614

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before automotive interest and income taxes-adjusted
$
1,965

 
$
(361
)
 
$
557

 
$
(19
)
 
$
(236
)
 
$
(4
)
 
$
1,902

 
$
217

 
$
—

 
$
2,119

Adjustments
$
—

 
$
—

 
$
—

 
$
—

 
—

 
$
—

 
$
—

 
—

 
$
—

 
—

Corporate interest income
 
 
 
 
 
 
 
 
86

 
 
 
 
 


 
 
 
86

Automotive interest expense
 
 
 
 
 
 
 
 
118

 
 
 
 
 


 
 
 
118

Income (loss) before income taxes
 
 
 
 
 
 
 
 
(268
)
 
 
 
 
 
217

 
 
 
2,087

Income tax expense
 
 
 
 
 
 
 
 
132

 
 
 
 
 
109

 
 
 
241

Net income (loss) attributable to stockholders
 
 
 
 
 
 
 
 
$
(400
)
 
 
 
 
 
$
108

 
 
 
$
1,846

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity in net assets of nonconsolidated affiliates
$
64

 
$
49

 
$
6,942

 
$
3

 
$
—

 
$
—

 
$
7,058

 
$
—

 
$
—

 
$
7,058

Total assets
$
89,874

 
$
15,872

 
$
23,481

 
$
12,629

 
$
29,804

 
$
(33,780
)
 
$
137,880

 
$
14,673

 
$
(566
)
 
$
151,987

Depreciation, amortization and impairment of long-lived assets and finite-lived intangible assets
$
894

 
$
295

 
$
149

 
$
117

 
$
14

 
$
(1
)
 
$
1,468

 
$
54

 
$
(2
)
 
$
1,520

Equity income, net of tax and gain on disposal of investments
$
2

 
$
—

 
$
298

 
$
—

 
$
—

 
$
—

 
$
300

 
$
—

 
$
—

 
$
300

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Significant non-cash charges not classified as adjustments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment charges related to long-lived assets
$
21

 
$
—

 
$
2

 
$
—

 
$
—

 
$
—

 
$
23

 
$
—

 
$
—

 
$
23

Impairment charges related to equipment on operating leases
14

 
61

 
—

 
—

 
—

 
—

 
75

 
—

 
—

 
75

Total significant non-cash charges
$
35

 
$
61

 
$
2

 
$
—

 
$
—

 
$
—

 
$
98

 
$
—

 
$
—

 
$
98



44

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
For the Six Months Ended June 30, 2012
 
GMNA
 
GME
 
GMIO
 
GMSA
 
Corporate
 
Eliminations
 
Total
Automotive
 
GM
Financial
 
Eliminations
 
Total
Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External customers
$
44,728

 
$
10,787

 
$
10,931

 
$
7,984

 
$
25

 
$
—

 
$
74,455

 
$
—

 
$
—

 
$
74,455

GM Financial revenue
—

 
—

 
—

 
—

 
—

 
—

 
—

 
918

 
—

 
918

Intersegment
2,348

 
620

 
2,074

 
134

 
—

 
(5,177
)
 
(1
)
 
—

 
1

 
—

Total net sales and revenue
$
47,076

 
$
11,407

 
$
13,005

 
$
8,118

 
$
25

 
$
(5,177
)
 
$
74,454

 
$
918

 
$
1

 
$
75,373

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before automotive interest and income taxes-adjusted
$
3,656

 
$
(617
)
 
$
1,086

 
$
64

 
$
(255
)
 
$
(31
)
 
$
3,903

 
$
398

 
$
—

 
$
4,301

Adjustments(a)
$
—

 
$
(590
)
 
$
(22
)
 
$
—

 
—

 
$
—

 
$
(612
)
 
—

 
$
—

 
(612
)
Corporate interest income
 
 
 
 
 
 
 
 
175

 
 
 
 
 


 
 
 
175

Automotive interest expense
 
 
 
 
 
 
 
 
228

 
 
 
 
 


 
 
 
228

Loss on extinguishment of debt
 
 
 
 
 
 
 
 
18

 
 
 
 
 
—

 
 
 
18

Income (loss) before income taxes
 
 
 
 
 
 
 
 
(326
)
 
 
 
 
 
398

 
 
 
3,618

Income tax expense
 
 
 
 
 
 
 
 
274

 
 
 
 
 
183

 
 
 
457

Net income (loss) attributable to stockholders
 
 
 
 
 
 
 
 
$
(600
)
 
 
 
 
 
$
215

 
 
 
$
3,161

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenditures for property
$
2,241

 
$
624

 
$
616

 
$
538

 
$
33

 
$
—

 
$
4,052

 
$
7

 
$
—

 
$
4,059

Depreciation, amortization and impairment of long-lived assets and finite-lived intangible assets
$
1,782

 
$
575

 
$
278

 
$
235

 
$
26

 
$
(1
)
 
$
2,895

 
$
97

 
$
(4
)
 
$
2,988

Equity income, net of tax and gain on disposal of investments
$
4

 
$
—

 
$
719

 
$
—

 
$
—

 
$
—

 
$
723

 
$
—

 
$
—

 
$
723

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Significant non-cash charges not classified as adjustments in (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment charges related to long-lived assets
$
45

 
$
—

 
$
8

 
$
1

 
$
—

 
$
—

 
$
54

 
$
—

 
$
—

 
$
54

Impairment charges related to equipment on operating leases
34

 
96

 
—

 
—

 
—

 
—

 
130

 
—

 
—

 
130

Total significant non-cash charges
$
79

 
$
96

 
$
8

 
$
1

 
$
—

 
$
—

 
$
184

 
$
—

 
$
—

 
$
184

__________
(a)
Consists of Goodwill impairment charges of $590 million in GME and $22 million in GMIO.


45

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
For the Three Months Ended June 30, 2011
 
GMNA
 
GME
 
GMIO
 
GMSA
 
Corporate
 
Eliminations
 
Total
Automotive
 
GM
Financial
 
Eliminations
 
Total
Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External customers
$
22,097

 
$
7,128

 
$
5,505

 
$
4,299

 
$
14

 
$
—

 
$
39,043

 
$
—

 
$
—

 
$
39,043

GM Financial revenue
—

 
—

 
—

 
—

 
—

 
—

 
—

 
330

 
—

 
330

Intersegment(a)
1,031

 
331

 
897

 
64

 
—

 
(2,323
)
 
—

 
—

 
—

 
—

Total net sales and revenue
$
23,128

 
$
7,459

 
$
6,402

 
$
4,363

 
$
14

 
$
(2,323
)
 
$
39,043

 
$
330

 
$
—

 
$
39,373

 


 


 


 


 


 


 


 


 


 


Income (loss) before automotive interest and income taxes-adjusted
$
2,249

 
$
102

 
$
573

 
$
57

 
$
(138
)
 
$
(25
)
 
$
2,818

 
$
144

 
$
—

 
$
2,962

Adjustments
$
—

 
$
—

 
$
—

 
$
—

 
—

 
$
—

 
$
—

 
—

 
$
—

 
—

Corporate interest income
 
 
 
 
 
 
 
 
124

 
 
 
 
 
 
 
 
 
124

Automotive interest expense
 
 
 
 
 
 
 
 
155

 
 
 
 
 
 
 
 
 
155

Income (loss) before income taxes
 
 
 
 
 
 
 
 
(169
)
 
 
 
 
 
144

 
 
 
2,931

Income tax benefit
 
 
 
 
 
 
 
 
(44
)
 
 
 
 
 
(17
)
 
 
 
(61
)
Net income (loss) attributable to stockholders
 
 
 
 
 
 
 
 
$
(125
)
 
 
 
 
 
$
161

 
 
 
$
2,992

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation, amortization and impairment of long-lived assets and finite-lived intangible assets
$
990

 
$
374

 
$
123

 
$
115

 
$
13

 
$
—

 
$
1,615

 
$
19

 
$
—

 
$
1,634

Equity income, net of tax and gain on disposal of investments
$
3

 
$
—

 
$
379

 
$
—

 
$
—

 
$
—

 
$
382

 
$
—

 
$
—

 
$
382

Significant non-cash charges not classified as adjustments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment charges related to long-lived assets
$
17

 
$
—

 
$
—

 
$
1

 
$
—

 
$
—

 
$
18

 
$
—

 
$
—

 
$
18

Impairment charges related to equipment on operating leases
45

 
29

 
—

 
—

 
—

 
—

 
74

 
—

 
—

 
74

Total significant non-cash charges
$
62

 
$
29

 
$
—

 
$
1

 
$
—

 
$
—

 
$
92

 
$
—

 
$
—

 
$
92

__________
(a)
Presentation of intersegment sales has been adjusted to conform to the current presentation.



46

GENERAL MOTORS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —— (Continued)

 
For the Six Months Ended June 30, 2011
 
GMNA
 
GME
 
GMIO
 
GMSA
 
Corporate
 
Eliminations
 
Total
Automotive
 
GM
Financial
 
Eliminations
 
Total
Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
External customers
$
43,380

 
$
13,390

 
$
9,997

 
$
8,145

 
$
30

 
$
—

 
$
74,942

 
$
—

 
$
—

 
$
74,942

GM Financial revenue
—

 
—

 
—

 
—

 
—

 
—

 
—

 
625

 
—

 
625

Intersegment(a)
1,858

 
939

 
1,613

 
114

 
—

 
(4,524
)
 
—

 
—

 
—

 
—

Total net sales and revenue
$
45,238

 
$
14,329

 
$
11,610

 
$
8,259

 
$
30

 
$
(4,524
)
 
$
74,942

 
$
625

 
$
—

 
$
75,567

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before automotive interest and income taxes-adjusted
$
3,502

 
$
107

 
$
1,159

 
$
147

 
$
(158
)
 
$
(27
)
 
$
4,730

 
$
274

 
$
—

 
$
5,004

Adjustments(b)
$
1,645

 
$
(395
)
 
$
(106
)
 
$
—

 
339

 
$
—

 
$
1,483

 
—

 
$
—

 
1,483

Corporate interest income
 
 
 
 
 
 
 
 
251

 
 
 
 
 
 
 
 
 
251

Automotive interest expense
 
 
 
 
 
 
 
 
304

 
 
 
 
 
 
 
 
 
304

Income before income taxes
 
 
 
 
 
 
 
 
128

 
 
 
 
 
274

 
 
 
6,434

Income tax expense
 
 
 
 
 
 
 
 
22

 
 
 
 
 
54

 
 
 
76

Net income attributable to stockholders
 
 
 
 
 
 
 
 
$
106

 
 
 
 
 
$
220

 
 
 
$
6,358

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenditures for property
$
1,247

 
$
440

 
$
428

 
$
357

 
$
26

 
$
(4
)
 
$
2,494

 
$
4

 
$
—

 
$
2,498

Depreciation, amortization and impairment of long-lived assets and finite-lived intangible assets
$
1,967

 
$
714

 
$
239

 
$
231

 
$
26

 
$
—

 
$
3,177

 
$
33

 
$
—

 
$
3,210

Equity income, net of tax and gain on disposal of investments
$
1,732

 
$
—

 
$
794

 
$
—

 
$
—

 
$
—

 
$
2,526

 
$
—

 
$
—

 
$
2,526

Significant non-cash charges not classified as adjustments in (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment charges related to long-lived assets
$
40

 
$
—

 
$
2

 
$
2

 
$
—

 
$
—

 
$
44

 
$
—

 
$
—

 
$
44

Impairment charges related to equipment on operating leases
60

 
53

 
—

 
—

 
—

 
—

 
113

 
—

 
—

 
113

Total significant non-cash charges
$
100

 
$
53

 
$
2

 
$
2

 
$
—

 
$
—

 
$
157

 
$
—

 
$
—

 
$
157

__________
(a)
Presentation of intersegment sales has been adjusted to conform to the current presentation.
(b)
Consists of the gain on sale of our New Delphi Class A Membership Interests of $1.6 billion in GMNA, Goodwill impairment charges of $395 million in GME, charges related to HKJV of $106 million in GMIO and a gain on the sale of Ally Financial preferred stock of $339 million in Corporate.



47


GENERAL MOTORS COMPANY AND SUBSIDIARIES


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General Motors Company is sometimes referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” “ourselves,” the “Company,” “General Motors” or “GM.”

Presentation and Estimates

Basis of Presentation

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the accompanying condensed consolidated financial statements and the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011 (2011 Form 10-K), as filed with the Securities and Exchange Commission (SEC).

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

Consistent with industry practice, market share information includes estimates of industry sales in certain countries where public reporting is not legally required or otherwise available on a consistent basis.

Supplemental Consolidating Information

We are providing supplemental consolidating information in order to provide more transparency into the financial position, operating results and cash flows of our two businesses, Automotive and GM Financial.

Use of Estimates in the Preparation of the Financial Statements

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

Change in Presentation of Financial Statements

In 2012 we changed the presentation of our condensed consolidated balance sheet, condensed consolidated statements of cash flows and certain notes to the condensed consolidated financial statements to classify the assets and liabilities of GM Financial as current or non-current and to combine line items which were either of a related nature or not individually material. We have made corresponding reclassifications to the comparable information for all periods presented.

Overview

Automotive

Our vision is to design, build and sell the world's best vehicles. We offer a global vehicle portfolio of cars, crossovers and trucks. We are committed to leadership in vehicle design, quality, reliability, telematics and infotainment and safety, as well as to developing key energy efficiency and diversity and advanced propulsion technologies, including electric vehicles. Our business is diversified across products and geographic markets. We meet the local sales and service needs of our retail and fleet customers with a global network of independent dealers. In the six months ended June 30, 2012, 71.8% of our vehicle sales volume was generated outside the U.S.

Our automotive business is organized into four geographically-based segments:

•
GMNA, with sales, manufacturing and distribution operations in the U.S., Canada and Mexico and sales and distribution

48


GENERAL MOTORS COMPANY AND SUBSIDIARIES


operations in Central America and the Caribbean, represented 32.6% of our vehicle sales volume in the six months ended June 30, 2012 and we had the largest market share in this market at 17.1%.
•
GME has sales, manufacturing and distribution operations across Western and Central Europe. GME's vehicle sales volume, which in addition to Western and Central Europe, includes Eastern Europe (including Russia and the other members of the Commonwealth of Independent States among others) represented 18.3% of our vehicle sales volume in the six months ended June 30, 2012. In the six months ended June 30, 2012 we estimate we had the number four market share in this market at 8.5%. GMIO distributes Chevrolet brand vehicles which, when sold in Europe, are included in GME vehicle sales volume and market share data.
•
GMIO has sales, manufacturing and distribution operations in Asia-Pacific, Eastern Europe (including Russia and the other members of the Commonwealth of Independent States among others), Africa and the Middle East. GMIO's vehicle sales volume, which includes Asia-Pacific, Africa and the Middle East is our largest segment by vehicle sales volume. GMIO represented 38.3% of our global vehicle sales volume, including sales through our joint ventures, in the six months ended June 30, 2012. In the six months ended June 30, 2012 we estimate we had the number two market share in this market at 9.3% and the number one market share in China. In the six months ended June 30, 2012 GMIO derived 79.1% of its vehicle sales volume from China. GMIO records the financial results of Chevrolet brand vehicles that it distributes and sells in Europe.
•
GMSA, with sales, manufacturing, distribution and financing operations in Brazil, Argentina, Colombia, Ecuador and Venezuela as well as sales and distribution operations in Bolivia, Chile, Paraguay, Peru and Uruguay, represented 10.8% of our vehicle sales volume in the six months ended June 30, 2012. In the six months ended June 30, 2012 we estimate we had the largest market share in this market at 18.2%. We had the number three market share in Brazil. In the six months ended June 30, 2012 GMSA derived 57.7% of its vehicle sales volume from Brazil.

Based upon our current outlook, we expect the average of GMNA's results for the second and third quarters of 2012 to approximate the results of the first quarter.

Automotive Financing - GM Financial

GM Financial specializes in purchasing retail automobile installment sales contracts originated by GM and non-GM franchised and select independent dealers in connection with the sale of used and new automobiles. GM Financial also offers lease products through GM dealerships in connection with the sale of used and new automobiles that target customers with sub-prime and prime credit bureau scores. GM Financial primarily generates revenue and cash flows through the purchase, retention, subsequent securitization and servicing of finance receivables. To fund the acquisition of receivables prior to securitization, GM Financial uses available cash and borrowings under its credit facilities. GM Financial earns finance charge income on finance receivables and pays interest expense on borrowings under its credit facilities. GM Financial periodically transfers receivables to securitization trusts that issue asset-backed securities to investors. The securitization trusts are special purpose entities that are also variable interest entities that meet the requirements to be consolidated in the financial statements.

In April 2012 GM Financial commenced commercial lending activities in the U.S. centered on floor plan financing of dealer vehicle inventory and dealer loans to finance dealer sites, facilities, facility improvements and working capital. These loans are made on a secured basis. We believe the availability of financing for our dealers is important to our business.

Focus on Chinese Market

We view the Chinese market, the fastest growing global market by volume of vehicles sold, as important to our global growth strategy and are employing a multi-brand strategy, led by our Buick and Chevrolet brands. In the coming years, we plan to increasingly leverage our global architectures to increase the number of nameplates under the Buick, Chevrolet and Cadillac brands in China and continue to grow our business under the Baojun, Jiefang and Wuling brands. We operate in Chinese markets through a number of joint ventures and maintaining good relations with our joint ventures partners, which are affiliated with the Chinese government, is an important part of our China growth strategy.

Refer to Note 8 to our condensed consolidated financial statements for our direct ownership interests in our Chinese joint ventures, collectively referred to as China JVs.

The following tables summarize certain key operational and financial data for the China JVs (dollars in millions, vehicles in thousands):

49


GENERAL MOTORS COMPANY AND SUBSIDIARIES


 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Total wholesale vehicles(a)
696

 
586

 
1,452

 
1,272

Market share(b)
13.7
%
 
13.2
%
 
14.5
%
 
13.4
%
Total net sales and revenue
$
7,577

 
$
7,287

 
$
16,270

 
$
15,146

Net income
$
707

 
$
810

 
$
1,594

 
$
1,754

__________
(a)
Including vehicles exported to markets outside of China.
(b)
Market share for China market.
 
June 30, 2012
 
December 31, 2011
Cash and cash equivalents
$
3,791

 
$
4,679

Debt
$
98

 
$
106


Automotive Financing Strategy

Our automotive financing strategy centers around ensuring that our dealers and customers have consistently available, transparent and competitive financing options throughout the business and credit cycles.

Historically Ally Financial has provided a majority of the financing for our dealers and a significant portion of the financing for our customers in the U.S., Canada and other major international markets where we operate. Ally Financial continues to provide the majority of the financing needs of our dealers and customers.

We utilize GM Financial to further bolster our offerings in the leasing and sub-prime financing segments in the U.S. and Canada. We believe that by having our own capabilities in key segments of the market we will be able to achieve more competition and better service from the market, while ensuring certainty of availability through the business cycles.

In April 2011 GM Financial began originating leases for our customers in Canada via FinanciaLinx Corporation. Given the importance of leasing and the current lack of availability of leasing offerings to our customers in the Canadian market (due to regulatory restrictions preventing banks and bank holding companies from offering leasing in Canada), we believe having a captive financing offering in Canada is important to our business.

In 2012 in order to increase our competitiveness and benefit from increased financing sources, we entered into arrangements with banks to provide incentivized retail financing to our customers in the U.S. and Canada and our Vauxhall customers in the U.K.

We will continue to expand the business of GM Financial in targeted areas that we view as strategic and to otherwise evaluate opportunities in specific segments of the automotive financing market, both in the U.S. and internationally. We expect any expansion of GM Financial or any arrangements with other financing providers will complement our important relationship with Ally Financial.

European Outlook

In the first half of 2012 the European automotive industry has been severely affected by the ongoing sovereign debt crisis, high unemployment and a lack of consumer confidence coupled with overcapacity. European automotive industry vehicle sales to retail and fleet customers were 10.0 million units in the six months ended June 30, 2012, representing a 4.9% decrease compared to the corresponding period in 2011. In the six months ended June 30, 2012 GME's market share declined to 8.5% from 8.8% in the year ended December 31, 2011 and the region suffered EBIT (loss)-adjusted of $0.6 billion in the six months ended June 30, 2012 compared to EBIT-adjusted of $0.1 billion in the corresponding period in 2011.

In response, we are implementing and executing various actions to strengthen our European operations and increase our competitiveness. The key areas of the plan include: (1) investments in our product portfolio; (2) a revised brand strategy; and (3) reducing material, development and production costs and further leveraging synergies from the alliance between the Company and Peugeot S.A. (PSA), as subsequently discussed.


50


GENERAL MOTORS COMPANY AND SUBSIDIARIES


Notwithstanding the above we believe it is likely that adverse economic conditions, and their effect on the European automotive industry, will not improve significantly during the remainder of 2012 and we expect to incur substantial losses in the region as a result. In addition, the success of our plan will depend on a combination of our ability to execute the actions contemplated, as well as external factors which are outside of our control.

Should there be a further deterioration in the outlook and in our ability to generate cash in the region we may be required to test certain long-lived assets for recoverability. If the result of such analysis indicates that the carrying amount of such assets exceeds their estimated fair value, the resulting non-cash impairment charge may have a material effect on our results of operations.

Alliance with Peugeot S.A.

In February 2012 we entered into an agreement with PSA to create a long-term and broad-scale global strategic alliance that is expected to leverage the combined strengths and capabilities of the two companies, contribute to our profitability and improve our competitiveness in Europe. In connection with the alliance, in March 2012 we acquired a seven percent equity stake in PSA for $0.4 billion and in June 2012 we entered into a long-term exclusive service agreement with Gefco, a wholly-owned subsidiary of PSA, to provide logistics services in Europe beginning in 2013. The alliance is structured around two main pillars: the sharing of vehicle platforms, components and modules and the creation of a global purchasing joint venture for the sourcing of commodities, components and other goods and services. The implementation of the strategic alliance is subject to the execution of various definitive agreements which will outline the terms of the joint business activities.

Restructuring Activities

We have previously executed various restructuring and other initiatives, and we plan to execute additional initiatives in the future, if necessary, in order to align manufacturing capacity and other costs with prevailing global automotive production and to improve the utilization of remaining facilities.

Our 2011 labor agreement with the International Union, United Automobile, Aerospace and Agriculture Implement Workers of America included cash severance incentive programs which were completed at March 31, 2012 for skilled trade U.S. hourly employees. A total of 1,400 skilled trade U.S. hourly employees participated in these programs at a total cost of $0.1 billion and was recorded upon irrevocable acceptances by both parties. Substantially all of the program cost was recorded in the three months ended March 31, 2012.

Through June 30, 2012 separation and early retirement programs in Germany had a total cost of $0.3 billion and affected a total of 1,900 employees. We expect to complete these programs in 2013 and incur an additional $0.1 billion, which will affect an additional 350 employees.

In the three months ended June 30, 2012 additional programs were implemented in GMIO and GMSA, which recorded charges of $22 million and $0.1 billion.

Benefit Plan Changes

U.S. Salaried Pension Plan

In January 2012 we amended the U.S. salaried pension plan to cease the accrual of additional benefits effective September 30, 2012. This amendment resulted in a curtailment which decreased the liability and decreased the net actuarial loss component of Accumulated other comprehensive income by $0.3 billion. Active plan participants will receive additional contributions in the defined contribution plan starting in October 2012.

In May 2012 we entered into an agreement in which the salaried pension plan will purchase a group annuity contract from an insurance company that requires the insurance company to pay and administer future annuity payments to certain of our salaried retirees. In addition, certain retired participants in the salaried plan are being offered lump-sum distributions. Retired salaried employees that are not offered lump-sum distributions or those that decline the lump-sum offer will receive annuity payments from the insurance company in accordance with the terms of the group annuity contract. We expect to incur pre-tax special charges in the range of $2.5 billion to $3.5 billion ($3.0 billion to $4.0 billion after tax) in the second half of 2012. The tax expense of $0.5 billion would result from the removal of income tax allocations between Accumulated other comprehensive income and operations in prior years. However, due to the magnitude of the pension obligations being settled and the interest rate sensitivity of the transactions, it is possible that the ultimate amount of special charges could be outside of this range when the transactions

51


GENERAL MOTORS COMPANY AND SUBSIDIARIES


are completed. The ongoing annual impact to earnings will be approximately $200 million unfavorable due to a decrease in pension income. Upon completion we expect to account for the transactions as a settlement of pension obligations of approximately $26 billion.

In August 2012, the U.S. salaried pension plan was amended to create a legally separate new defined benefit pension plan for primarily active and terminated vested participants. The underlying benefits offered to plan participants were unchanged. The existing plan will primarily cover retirees receiving payments. We expect to settle the existing plan by December 31, 2012 through lump-sum distributions and the purchase of a group annuity contract from an insurance company, as previously discussed, and the plan will subsequently be terminated. Accordingly, we will remeasure the U.S. salaried pension plan in August 2012.

Canadian Salaried Benefit Plans

In June 2012 we amended the Canadian salaried pension plan to cease the accrual of additional benefits effective January 1, 2013. Active plan participants will receive additional contributions in the defined contribution plan starting in January 2013. We also amended the Canadian salaried retiree healthcare plan to eliminate post-65 healthcare benefits for employees retiring on or after July 1, 2014. In conjunction with this change we amended the plan to offer either a monthly monetary payment to a defined contribution plan for health care or an annual lump-sum cash payment to a defined contribution plan for health care in lieu of the benefit coverage provisions formerly provided under the healthcare plan.

Venezuelan Exchange Regulations

Our Venezuelan subsidiaries utilize the U.S. Dollar as their functional currency because of the hyperinflationary status of the Venezuelan economy. The Venezuelan government has introduced foreign exchange control regulations which make it more difficult to convert Bolivar Fuerte (BsF) to U.S. Dollars. These regulations affect our Venezuelan subsidiaries' ability to pay non-BsF denominated obligations that do not qualify to be processed by the Venezuela currency exchange agency at the official exchange rates.

Refer to Note 2 to our condensed consolidated financial statements for additional details regarding amounts pending government approval for settlement and the net assets of our Venezuelan subsidiaries.

52


GENERAL MOTORS COMPANY AND SUBSIDIARIES


Consolidating Results of Operations
(Dollars in Millions)
 
Three Months Ended June 30, 2012
 
Three Months Ended June 30, 2011
 
 Automotive
 
GM Financial
 
Eliminations
 
Consolidated
 
Automotive
 
GM Financial
 
Eliminations
 
Consolidated
Net sales and revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Automotive sales and revenue
$
37,126

 
$
—

 
$
1

 
$
37,127

 
$
39,043

 
$
—

 
$
—

 
$
39,043

GM Financial revenue
—

 
487

 
—

 
487

 
—

 
330

 
—

 
330

Total net sales and revenue
37,126

 
487

 
1

 
37,614

 
39,043

 
330

 
—

 
39,373

Costs and expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Automotive cost of sales
32,675

 
—

 
3

 
32,678

 
33,793

 
—

 
—

 
33,793

GM Financial operating expenses
—

 
93

 
—

 
93

 
—

 
86

 
—

 
86

GM Financial interest expense
—

 
64

 
—

 
64

 
—

 
42

 
—

 
42

GM Financial other expenses
—

 
113

 
(2
)
 
111

 
—

 
58

 
—

 
58

Automotive selling, general and administrative expense
2,842

 
—

 
—

 
2,842

 
2,924

 
—

 
—

 
2,924

Other automotive expenses, net
5

 
—

 
—

 
5

 
19

 
—

 
—

 
19

Goodwill impairment charges
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total costs and expenses
35,522

 
270

 
1

 
35,793

 
36,736

 
186

 
—

 
36,922

Operating income
1,604

 
217

 
—

 
1,821

 
2,307

 
144

 
—

 
2,451

Automotive interest expense
118

 
—

 
—

 
118

 
155

 
—

 
—

 
155

Interest income and other non-operating income, net
139

 
—

 
—

 
139

 
308

 
—

 
—

 
308

Loss on extinguishment of debt
—

 
—

 
—

 
—

 
10

 
—

 
—

 
10

Income before income taxes and equity income
1,625

 
217

 
—

 
1,842

 
2,450

 
144

 
—

 
2,594

Income tax expense (benefit)
132

 
109

 
—

 
241

 
(44
)
 
(17
)
 
—

 
(61
)
Equity income, net of tax and gain on disposal of investments
300

 
—

 
—

 
300

 
382

 
—

 
—

 
382

Net income
1,793

 
108

 
—

 
1,901

 
2,876

 
161

 
—

 
3,037

Net income attributable to noncontrolling interests
(55
)
 
—

 
—

 
(55
)
 
(45
)
 
—

 
—

 
(45
)
Net income attributable to stockholders
$
1,738

 
$
108

 
$
—

 
$
1,846

 
$
2,831

 
$
161

 
$
—

 
$
2,992


53


GENERAL MOTORS COMPANY AND SUBSIDIARIES


 
Six Months Ended June 30, 2012
 
Six Months Ended June 30, 2011
 
 Automotive
 
GM Financial
 
Eliminations
 
Consolidated
 
Automotive
 
GM Financial
 
Eliminations
 
Consolidated
Net sales and revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Automotive sales and revenue
$
74,454

 
$
—

 
$
1

 
$
74,455

 
$
74,942

 
$
—

 
$
—

 
$
74,942

GM Financial revenue
—

 
918

 
—

 
918

 
—

 
625

 
—

 
625

Total net sales and revenue
74,454

 
918

 
1

 
75,373

 
74,942

 
625

 
—

 
75,567

Costs and expenses


 


 


 


 


 


 


 


Automotive cost of sales
65,583

 
—

 
5

 
65,588

 
65,478

 
—

 
—

 
65,478

GM Financial operating expenses
—

 
191

 
—

 
191

 
—

 
162

 
—

 
162

GM Financial interest expense
—

 
127

 
—

 
127

 
—

 
83

 
—

 
83

GM Financial other expenses
—

 
202

 
(4
)
 
198

 
—

 
106

 
—

 
106

Automotive selling, general and administrative expense
5,815

 
—

 
—

 
5,815

 
5,918

 
—

 
—

 
5,918

Other automotive expenses, net
20

 
—

 
—

 
20

 
25

 
—

 
—

 
25

Goodwill impairment charges
617

 
—

 
—

 
617

 
395

 
—

 
—

 
395

Total costs and expenses
72,035

 
520

 
1

 
72,556

 
71,816

 
351

 
—

 
72,167

Operating income
2,419

 
398

 
—

 
2,817

 
3,126

 
274

 
—

 
3,400

Automotive interest expense
228

 
—

 
—

 
228

 
304

 
—

 
—

 
304

Interest income and other non-operating income, net
414

 
—

 
—

 
414

 
912

 
—

 
—

 
912

Loss on extinguishment of debt
18

 
—

 
—

 
18

 
10

 
—

 
—

 
10

Income before income taxes and equity income
2,587

 
398

 
—

 
2,985

 
3,724

 
274

 
—

 
3,998

Income tax expense
274

 
183

 
—

 
457

 
22

 
54

 
—

 
76

Equity income, net of tax and gain on disposal of investments
723

 
—

 
—

 
723

 
2,526

 
—

 
—

 
2,526

Net income
3,036

 
215

 
—

 
3,251

 
6,228

 
220

 
—

 
6,448

Net income attributable to noncontrolling interests
(90
)
 
—

 
—

 
(90
)
 
(90
)
 
—

 
—

 
(90
)
Net income attributable to stockholders
$
2,946

 
$
215

 
$
—

 
$
3,161

 
$
6,138

 
$
220

 
$
—

 
$
6,358


Production and Retail Vehicle Sales Volume

Management believes that production volume and retail vehicle sales data provide meaningful information regarding our automotive operating results. Production volumes manufactured by our assembly facilities are generally aligned with current period net sales and revenue, as we generally recognize revenue either upon the release of the vehicle to the carrier responsible for transporting it to a dealer, or when the vehicle is delivered to a dealer. Retail vehicle sales data, which represents estimated sales to the end customer, including fleets, does not correlate directly to the revenue we recognize during the period. However, retail vehicle sales data is indicative of the underlying demand for our vehicles and is the basis for our market share.

Information relating to our relative position in the global automotive industry is based upon the good faith estimates of management and includes all sales by joint ventures on a total vehicle basis, not based on the percentage of ownership in the joint venture. Market share information is based on retail vehicle sales volume. Worldwide market share and vehicle sales data excludes the markets of Iran, North Korea, Sudan and Syria.

Production volume includes vehicles produced by certain joint ventures. The joint venture agreements with SAIC-GM-Wuling Automobile Co., Ltd. (SGMW) and FAW-GM Light Duty Commercial Vehicle Co., Ltd. (FAW-GM) allow for significant rights as a member as well as the contractual right to report SGMW and FAW-GM joint venture production in China. The following table summarizes total production volume (vehicles in thousands):


54


GENERAL MOTORS COMPANY AND SUBSIDIARIES


 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
GMNA
 
 
 
 
 
 
 
Cars
327

 
308

 
648

 
593

Trucks
510

 
516

 
1,051

 
1,017

Total GMNA
837

 
824

 
1,699

 
1,610

GME
230

 
326

 
522

 
670

GMIO


 

 

 

Consolidated entities
309

 
310

 
584

 
567

Joint ventures


 

 

 

SGMW
373

 
284

 
759

 
603

SGM
299

 
292

 
604

 
583

FAW-GM
9

 
10

 
28

 
25

Other
105

 
107

 
187

 
191

Total GMIO
1,095

 
1,003

 
2,162

 
1,969

GMSA
231

 
247

 
433

 
478

Worldwide
2,393

 
2,400

 
4,816

 
4,727


Vehicle Sales
The following tables summarize total industry sales of new motor vehicles of domestic and foreign makes and the related competitive position (vehicles in thousands):

55


GENERAL MOTORS COMPANY AND SUBSIDIARIES


 
Vehicle Sales(a)(b)(c)
Three Months Ended June 30,
 
2012
 
2011
 
Industry
 
GM
 
GM as
a % of
Industry
 
Industry
 
GM
 
GM as
a % of
Industry
GMNA
 
 
 
 
 
 
 
 
 
 
 
United States
3,885

 
707

 
18.2
%
 
3,339

 
669

 
20.0
%
Canada
515

 
67

 
13.1
%
 
483

 
74

 
15.2
%
Mexico
238

 
43

 
18.1
%
 
210

 
39

 
18.4
%
Other
74

 
3

 
3.5
%
 
66

 
2

 
3.8
%
Total GMNA
4,712

 
820

 
17.4
%
 
4,098

 
784

 
19.1
%
GME
 
 
 
 
 
 
 
 
 
 
 
United Kingdom
565

 
68

 
12.0
%
 
543

 
72

 
13.3
%
Germany
943

 
76

 
8.0
%
 
943

 
84

 
8.9
%
Italy
437

 
35

 
8.1
%
 
553

 
45

 
8.1
%
Russia
803

 
80

 
10.0
%
 
734

 
70

 
9.5
%
Uzbekistan
29

 
28

 
96.0
%
 
32

 
31

 
95.9
%
France
658

 
34

 
5.1
%
 
706

 
37

 
5.2
%
Spain
226

 
21

 
9.3
%
 
268

 
25

 
9.2
%
Other
1,487

 
112

 
7.6
%
 
1,621

 
125

 
7.7
%
Total GME
5,149

 
454

 
8.8
%
 
5,402

 
488

 
9.0
%
GMIO
 
 
 
 
 
 
 
 
 
 
 
China(d)
4,880

 
672

 
13.8
%
 
4,384

 
588

 
13.4
%
Australia
288

 
27

 
9.5
%
 
248

 
33

 
13.3
%
South Korea
397

 
40

 
10.0
%
 
402

 
39

 
9.8
%
Middle East Operations
302

 
34

 
11.1
%
 
251

 
36

 
14.5
%
India(d)
838

 
21

 
2.5
%
 
773

 
27

 
3.4
%
Egypt
46

 
12

 
26.4
%
 
45

 
12

 
25.8
%
Other
2,601

 
57

 
2.2
%
 
1,808

 
40

 
2.2
%
Total GMIO
9,351

 
863

 
9.2
%
 
7,911

 
775

 
9.8
%
GMSA
 
 
 
 
 
 
 
 
 
 
 
Brazil
899

 
154

 
17.1
%
 
912

 
161

 
17.6
%
Argentina
207

 
33

 
15.9
%
 
213

 
34

 
16.0
%
Colombia
79

 
21

 
27.0
%
 
80

 
27

 
33.5
%
Venezuela
34

 
10

 
29.4
%
 
31

 
13

 
42.4
%
Other
181

 
36

 
19.9
%
 
187

 
39

 
21.0
%
Total GMSA
1,400

 
254

 
18.2
%
 
1,423

 
274

 
19.3
%
Total Worldwide
20,611

 
2,391

 
11.6
%
 
18,834

 
2,320

 
12.3
%

56


GENERAL MOTORS COMPANY AND SUBSIDIARIES


 
Vehicle Sales(a)(b)(c)
Six Months Ended June 30,
 
2012
 
2011
 
Industry
 
GM
 
GM as
a % of
Industry
 
Industry
 
GM
 
GM as
a % of
Industry
GMNA
 
 
 
 
 
 
 
 
 
 
 
United States
7,426

 
1,316

 
17.7
%
 
6,452

 
1,262

 
19.6
%
Canada
886

 
117

 
13.2
%
 
823

 
125

 
15.2
%
Mexico
479

 
87

 
18.1
%
 
428

 
77

 
18.0
%
Other
146

 
5

 
3.4
%
 
132

 
5

 
3.6
%
Total GMNA
8,937

 
1,524

 
17.1
%
 
7,836

 
1,468

 
18.7
%
GME

 

 

 

 

 

United Kingdom
1,205

 
138

 
11.5
%
 
1,184

 
153

 
12.9
%
Germany
1,792

 
140

 
7.8
%
 
1,783

 
153

 
8.6
%
Italy
881

 
68

 
7.7
%
 
1,126

 
89

 
7.9
%
Russia
1,433

 
136

 
9.5
%
 
1,266

 
113

 
8.9
%
Uzbekistan
53

 
50

 
93.2
%
 
57

 
55

 
95.1
%
France
1,282

 
61

 
4.8
%
 
1,477

 
74

 
5.0
%
Spain
456

 
40

 
8.8
%
 
509

 
46

 
9.0
%
Other
2,921

 
218

 
7.5
%
 
3,137

 
240

 
7.6
%
Total GME
10,023

 
852

 
8.5
%
 
10,540

 
922

 
8.7
%
GMIO

 

 

 

 

 

China(d)
9,782

 
1,417

 
14.5
%
 
9,419

 
1,273

 
13.5
%
Australia
548

 
56

 
10.3
%
 
496

 
63

 
12.6
%
South Korea
757

 
72

 
9.5
%
 
791

 
69

 
8.8
%
Middle East Operations
616

 
65

 
10.5
%
 
503

 
66

 
13.1
%
India(d)
1,889

 
49

 
2.6
%
 
1,681

 
55

 
3.3
%
Egypt
89

 
23

 
26.2
%
 
77

 
21

 
26.6
%
Other
5,552

 
109

 
2.0
%
 
4,117

 
80

 
1.9
%
Total GMIO
19,234

 
1,791

 
9.3
%
 
17,085

 
1,627

 
9.5
%
GMSA

 

 

 

 

 

Brazil
1,717

 
291

 
16.9
%
 
1,737

 
303

 
17.5
%
Argentina
462

 
74

 
16.1
%
 
445

 
70

 
15.7
%
Colombia
160

 
45

 
28.3
%
 
158

 
53

 
33.3
%
Venezuela
68

 
23

 
34.1
%
 
57

 
24

 
42.3
%
Other
355

 
70

 
19.8
%
 
347

 
72

 
20.7
%
Total GMSA
2,761

 
504

 
18.2
%
 
2,744

 
522

 
19.0
%
Total Worldwide
40,955

 
4,671

 
11.4
%
 
38,205

 
4,538

 
11.9
%


57


GENERAL MOTORS COMPANY AND SUBSIDIARIES


 
Vehicle Sales(a)(b)(c)
Three Months Ended June 30,
 
2012
 
2011
 
Industry
 
GM
 
GM as
a % of
Industry
 
Industry
 
GM
 
GM as
a % of
Industry
United States
 
 
 
 
 
 
 
 
 
 
 
Cars
1,927


296

 
15.4
%
 
1,634

 
302

 
18.5
%
Trucks
1,008

 
236

 
23.4
%
 
879

 
209

 
23.8
%
Crossovers
950

 
176

 
18.5
%
 
825

 
158

 
19.2
%
Total United States
3,885

 
707

 
18.2
%
 
3,339

 
669

 
20.0
%
Canada, Mexico and Other
827

 
113

 
13.6
%
 
760

 
115

 
15.1
%
Total GMNA
4,712

 
820

 
17.4
%
 
4,098

 
784

 
19.1
%
 
Vehicle Sales(a)(b)(c)
Six Months Ended June 30,
 
2012
 
2011
 
Industry
 
GM
 
GM as
a % of
Industry
 
Industry
 
GM
 
GM as
a % of
Industry
United States
 
 
 
 
 
 
 
 
 
 
 
Cars
3,719

 
552

 
14.8
%
 
3,132

 
534

 
17.0
%
Trucks
1,924

 
444

 
23.1
%
 
1,693

 
411

 
24.3
%
Crossovers
1,783

 
320

 
17.9
%
 
1,627

 
317

 
19.5
%
Total United States
7,426

 
1,316

 
17.7
%
 
6,452

 
1,262

 
19.6
%
Canada, Mexico and Other
1,511

 
209

 
13.8
%
 
1,384

 
207

 
14.9
%
Total GMNA
8,937

 
1,524

 
17.1
%
 
7,836

 
1,468

 
18.7
%
__________
(a)
GMNA vehicle sales primarily represent sales to the end customer. GME, GMIO and GMSA vehicle sales primarily represent estimated sales to the end customer. In countries where end customer data is not readily available other data sources, such as wholesale or forecast volumes, are used to estimate vehicle sales.
(b)
Certain fleet sales that are accounted for as operating leases are included in vehicle sales at the time of delivery to the daily rental car companies.
(c)
Vehicle sales data may include rounding differences.
(d)
Includes the following joint venture vehicle sales:
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Joint venture sales in China
 
 
 
 
 
 
 
SGM
302

 
290

 
640

 
600

SGMW and FAW-GM
368

 
296

 
775

 
672

Joint venture sales in India
 
 
 
 
 
 
 
SAIC GM Investment Limited (HKJV)
21

 
27

 
49

 
55


Total Net Sales and Revenue
(Dollars in Millions)

58


GENERAL MOTORS COMPANY AND SUBSIDIARIES


 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
 2012 vs. 2011 Change
 
 2012 vs. 2011 Change
 
 
Amount
 
%
 
Amount
 
%
GMNA
$
22,900

 
$
23,128

 
$
47,076

 
$
45,238

 
$
(228
)
 
(1.0
)%
 
$
1,838

 
4.1
 %
GME
5,894

 
7,459

 
11,407

 
14,329

 
(1,565
)
 
(21.0
)%
 
(2,922
)
 
(20.4
)%
GMIO
6,945

 
6,402

 
13,005

 
11,610

 
543

 
8.5
 %
 
1,395

 
12.0
 %
GMSA
4,179

 
4,363

 
8,118

 
8,259

 
(184
)
 
(4.2
)%
 
(141
)
 
(1.7
)%
GM Financial
487

 
330

 
918

 
625

 
157

 
47.6
 %
 
293

 
46.9
 %
Total operating segments
40,405

 
41,682

 
80,524

 
80,061

 
(1,277
)
 
(3.1
)%
 
463

 
0.6
 %
Corporate and eliminations
(2,791
)
 
(2,309
)
 
(5,151
)
 
(4,494
)
 
(482
)
 
(20.9
)%
 
(657
)
 
(14.6
)%
Total net sales and revenue
$
37,614

 
$
39,373

 
$
75,373

 
$
75,567

 
$
(1,759
)
 
(4.5
)%
 
$
(194
)
 
(0.3
)%

In the three months ended June 30, 2012 Total net sales and revenue decreased by $1.8 billion (or 4.5%) due primarily to: (1) net foreign currency translation and remeasurement losses of $1.6 billion due to the weakening of major currencies against the U.S. Dollar; (2) decreased wholesale volumes of $1.0 billion; (3) decreased revenues from powertrain and part sales of $0.3 billion due to decreased volumes; (4) reduction in favorable lease residual adjustments of $0.2 billion; (5) decreased revenues of $0.1 billion due to the deconsolidation of VM Motori (VMM) in June 2011; partially offset by (6) favorable vehicle mix of $0.7 billion; (7) favorable vehicle pricing effect of $0.3 billion; and (8) increased GM Financial finance income of $0.2 billion.

In the six months ended June 30, 2012 Total net sales and revenue decreased by $0.2 billion (or 0.3%) due primarily to: (1) net foreign currency translation and remeasurement losses of $2.1 billion due to the weakening of major currencies against the U.S. Dollar; (2) decreased revenues from powertrain and parts sales of $0.5 billion due to decreased volumes; (3) reduction in favorable lease residual adjustments of $0.3 billion; (4) decreased revenues of $0.1 billion due to the deconsolidation of VMM in June 2011; (5) decreased revenues from rental car leases of $0.1 billion; partially offset by (6) favorable vehicle mix of $1.2 billion; (7) favorable vehicle pricing effect of $1.1 billion; (8) increased GM Financial finance income of $0.3 billion; and (9) increased wholesale volumes of $0.2 billion.

Automotive Cost of Sales
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
2012 vs. 2011 Change
 
 2012 vs. 2011 Change
 
 
Amount
 
%
 
Amount
 
%
Automotive cost of sales
$
32,678

 
$
33,793

 
$
65,588

 
$
65,478

 
$
(1,115
)
 
(3.3
)%
 
$
110

 
0.2
 %
Automotive gross margin
$
4,449

 
$
5,250

 
$
8,867

 
$
9,464

 
$
(801
)
 
(15.3
)%
 
$
(597
)
 
(6.3
)%

In the three months ended June 30, 2012 Automotive cost of sales decreased by $1.1 billion (or 3.3%), in line with Total net sales and revenue, due primarily to: (1) net foreign currency translation, remeasurement and transaction gains of $1.2 billion due to the weakening of major currencies against the U.S. Dollar; (2) decreased costs of $0.8 billion related to decreased wholesale volumes; (3) decreased costs of $0.2 billion related to powertrain and parts sales; (4) decreased engineering expense of $0.1 billion; (5) decreased policy and warranty expense of $0.1 billion; (6) decreased depreciation and amortization expense of $0.1 billion; (7) decreased material and freight costs of $0.1 billion; (8) decreased costs of $0.1 billion due to the deconsolidation of VMM in June 2011; partially offset by (9) unfavorable vehicle mix of $0.9 billion; (10) increased employee costs of $0.3 billion including decreased net pension and other postretirement benefits (OPEB) income and separation costs; and (11) increased manufacturing expense, including new launches of $0.2 billion.

In the six months ended June 30, 2012 Automotive cost of sales increased by $0.1 billion (or 0.2%) due primarily to: (1) unfavorable vehicle mix of $1.6 billion; (2) increased employee costs of $0.5 billion including decreased net pension and OPEB income and separation costs; (3) increased manufacturing expense, including new launches of $0.3 billion; (4) increased policy and warranty expense of $0.1 billion; partially offset by (5) net foreign currency translation, remeasurement and transaction gains of $2.0 billion due to the weakening of major currencies against the U.S. Dollar; (6) decreased costs of $0.3 billion related to powertrain and parts sales; and (7) decreased costs of $0.1 billion due to the deconsolidation of VMM in June 2011.

Automotive Selling, General and Administrative Expense

59


GENERAL MOTORS COMPANY AND SUBSIDIARIES


 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
2012 vs. 2011 Change
 
 2012 vs. 2011 Change
 
 
 
Amount
 
%
 
Amount
 
%
Automotive selling, general and administrative expense
$
2,842

 
$
2,924

 
$
5,815

 
$
5,918

 
$
(82
)
 
(2.8
)%
 
$
(103
)
 
(1.7
)%

In the three months ended June 30, 2012 Automotive selling, general and administrative expense decreased by $0.1 billion (or 2.8%) due primarily to: (1) net foreign currency translation and remeasurement gains of $0.1 billion due to the weakening of major currencies against the U.S. Dollar; (2) the recovery of bad debt of $40 million; partially offset by (3) increased administrative expenses of $0.1 billion.

In the six months ended June 30, 2012 Automotive selling, general and administrative expense decreased by $0.1 billion (or 1.7%) due primarily to: (1) net foreign currency translation and remeasurement gains of $0.2 billion due to the weakening of major currencies against the U.S. Dollar; (2) reduction in bad debt expense of $0.1 billion; partially offset by (3) increased administrative expenses of $0.2 billion.

Goodwill Impairment Charges
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
2012 vs. 2011 Change
 
 2012 vs. 2011 Change
 
 
 
 
Amount
 
%
 
Amount
 
%
Goodwill impairment charges
$
—

 
$
—

 
$
617

 
$
395

 
$
—

 
—
%
 
$
222

 
56.2
%

In the six months ended June 30, 2012 Goodwill impairment charges increased by $0.2 billion (or 56.2%) as we recorded charges of $0.6 billion, primarily in GME. Refer to Note 9 to our condensed consolidated financial statements for additional information related to our Goodwill impairment charges.

Interest Income and Other Non-Operating Income, net
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
2012 vs. 2011 Change
 
 2012 vs. 2011 Change
 
 
 
Amount
 
%
 
Amount
 
%
Interest income and other non-operating income, net
$
139

 
$
308

 
$
414

 
$
912

 
$
(169
)
 
(54.9
)%
 
$
(498
)
 
(54.6
)%

In the three months ended June 30, 2012 Interest income and other non-operating income, net decreased by $0.2 billion (or 54.9%) due primarily to: (1) increased derivative losses of $0.1 billion related to fair value adjustments; and (2) decreased interest income of $38 million.

In the six months ended June 30, 2012 Interest income and other non-operating income, net decreased by $0.5 billion (or 54.6%) due primarily to: (1) decreased other non-operating income of $0.3 billion related to the sale of Ally Financial preferred stock in the six months ended June 30, 2011 that did not recur in the six months ended June 30, 2012; (2) increased derivative losses of $0.2 billion related to fair value adjustments; (3) decreased interest income of $0.1 billion; partially offset by (4) a bargain purchase gain of $50 million related to the acquisition of GMAC South America LLC whose only asset is GMAC de Venezuela CA (GMAC Venezuela) in the six months ended June 30, 2012.

Income Tax Expense (Benefit)
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
2012 vs. 2011 Change
 
 2012 vs. 2011 Change
 
 
 
Amount
 
%
 
Amount
 
%
Income tax expense (benefit)
$
241

 
$
(61
)
 
$
457

 
$
76

 
$
302

 
n.m.
 
$
381

 
n.m.
__________
n.m. = not meaningful

In the three and six months ended June 30, 2012 income tax expense increased by $0.3 billion and $0.4 billion due primarily to the recognition of previously unrecognized tax benefits of $0.2 billion, including reductions to interest expense of $0.1 billion and associated valuation allowances of $0.1 billion in the three months ended June 30, 2011, that did not recur in the three and six

60


GENERAL MOTORS COMPANY AND SUBSIDIARIES


months ended June 30, 2012.

The recorded effective tax rate is lower than the applicable statutory tax rate in both periods due primarily to income earned in jurisdictions for which a full valuation allowance is recorded.

Equity Income, Net of Tax and Gain on Disposal of Investments
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
2012 vs. 2011 Change
 
 2012 vs. 2011 Change
 
 
 
Amount
 
%
 
Amount
 
%
China JVs
$
331

 
$
379

 
$
750

 
$
829

 
$
(48
)
 
(12.7
)%
 
$
(79
)
 
(9.5
)%
New Delphi (including gain on disposition)
—

 
—

 
—

 
1,727

 
—

 
—
 %
 
(1,727
)
 
(100.0
)%
Others
(31
)
 
3

 
(27
)
 
(30
)
 
(34
)
 
n.m.

 
3

 
10.0
 %
Total equity income, net of tax and gain on disposal of investments
$
300

 
$
382

 
$
723

 
$
2,526

 
$
(82
)
 
(21.5
)%
 
$
(1,803
)
 
(71.4
)%
__________
n.m. = not meaningful

In the three months ended June 30, 2012 Equity income, net of tax and gain on disposal of investments decreased by $0.1 billion (or 21.5%) due primarily to decreased equity income from the China JVs.

In the six months ended June 30, 2012 Equity income, net of tax and gain on disposal of investments decreased by $1.8 billion (or 71.4%) due primarily to (1) a $1.6 billion gain related to the sale of our Delphi Automotive LLP (New Delphi) Class A Membership Interests and related equity income in the six months ended June 30, 2011 that did not recur in the six months ended June 30, 2012; and (2) decreased equity income of $0.1 billion from the China JVs.

Reconciliation of Consolidated, Automotive and GM Financial Segment Results

Management believes earnings before interest and taxes (EBIT)-adjusted provides meaningful supplemental information regarding our automotive segments' operating results because it excludes interest income, interest expense and income taxes as well as certain additional amounts. Management does not consider these excluded items when assessing and measuring the operational and financial performance of the organization, its management teams and when making decisions to allocate resources, such as capital investment, among business units and for internal reporting and as part of its forecasting and budgeting processes. Such adjustments include impairment charges related to goodwill and certain investments, gains or losses on the settlement/extinguishment of obligations and gains or losses on the sale of non-core investments. Management believes this measure allows it to readily view operating trends, perform analytical comparisons and benchmark performance between periods and among geographic regions. We believe EBIT-adjusted is useful in allowing for greater transparency of our core operations and is therefore used by management in its financial and operational decision-making.

While management believes that EBIT-adjusted provides useful information, it is not an operating measure under U.S. GAAP and there are limitations associated with its use. Our calculation of EBIT-adjusted may not be completely comparable to similarly titled measures of other companies due to potential differences between companies in the method of calculation. As a result the use of EBIT-adjusted has limitations and should not be considered in isolation from, or as a substitute for, other measures such as Net income or Net income attributable to stockholders. Due to these limitations, EBIT-adjusted is used as a supplement to U.S. GAAP measures.

Management believes income before income taxes provides meaningful supplemental information regarding GM Financial's operating results. GM Financial uses a separate measure from our automotive operations because management believes interest income and interest expense are part of operating results when assessing and measuring the operational and financial performance of the segment.

In 2012 we recorded a loss on extinguishment of debt within Corporate for segment reporting purposes, and it is excluded from EBIT-adjusted. Previously gains and losses on extinguishment of debt were recorded within the applicable automotive segments. This change is consistent with how management currently views the results of our operations.


61


GENERAL MOTORS COMPANY AND SUBSIDIARIES


The following tables summarize the reconciliation of our automotive segments EBIT-adjusted and GM Financial's income before income taxes to Net income attributable to stockholders and provide supplemental detail of the adjustments, which are presented net of noncontrolling interests (dollars in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Automotive
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EBIT-adjusted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GMNA(a)
$
1,965

 
103.3
 %
 
$
2,249

 
79.8
 %
 
$
3,656

 
93.7
 %
 
$
3,502

 
74.0
 %
GME(a)
(361
)
 
(19.0
)%
 
102

 
3.6
 %
 
(617
)
 
(15.8
)%
 
107

 
2.3
 %
GMIO(a)
557

 
29.3
 %
 
573

 
20.3
 %
 
1,086

 
27.8
 %
 
1,159

 
24.5
 %
GMSA(a)
(19
)
 
(1.0
)%
 
57

 
2.0
 %
 
64

 
1.6
 %
 
147

 
3.1
 %
Corporate and eliminations
(240
)
 
(12.6
)%
 
(163
)
 
(5.7
)%
 
(286
)
 
(7.3
)%
 
(185
)
 
(3.9
)%
Total automotive EBIT-adjusted
1,902

 
100.0
 %
 
2,818

 
100.0
 %
 
3,903

 
100.0
 %
 
4,730

 
100.0
 %
Adjustments
—

 
 
 
—

 
 
 
(612
)
 
 
 
1,483

 
 
Corporate interest income
86

 
 
 
124

 
 
 
175

 
 
 
251

 
 
Automotive interest expense
118

 
 
 
155

 
 
 
228

 
 
 
304

 
 
Loss on extinguishment of debt
—

 
 
 


 
 
 
18

 
 
 
 
 
 
Automotive Financing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GM Financial income before income taxes
217

 
 
 
144

 
 
 
398

 
 
 
274

 
 
Consolidated Income Taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense (benefit)
241

 
 
 
(61
)
 
 
 
457

 
 
 
76

 
 
Net income attributable to stockholders
$
1,846

 
 
 
$
2,992

 
 
 
$
3,161

 
 
 
$
6,358

 
 
__________
(a)
Our automotive operations interest and income taxes are recorded centrally in Corporate; therefore, there are no reconciling items for our automotive operating segments between EBIT-adjusted and Net income attributable to stockholders.

 
Six Months Ended June 30, 2012
 
GMNA
 
GME
 
GMIO
 
GMSA
 
Corporate
 
Total
Goodwill impairment charges
$
—

 
$
(590
)
 
$
(22
)
 
$
—

 
$
—

 
$
(612
)

 
Six Months Ended June 30, 2011
 
GMNA
 
GME
 
GMIO
 
GMSA
 
Corporate
 
Total
Gain on sale of our Class A Membership Interests in New Delphi
$
1,645

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,645

Goodwill impairment charges
—

 
(395
)
 
—

 
—

 
—

 
(395
)
Charges related to HKJV
—

 
—

 
(106
)
 
—

 
—

 
(106
)
Gain on sale of Ally Financial preferred stock
—

 
—

 
—

 
—

 
339

 
339

Total adjustments
$
1,645

 
$
(395
)
 
$
(106
)
 
$
—

 
$
339

 
$
1,483



62


GENERAL MOTORS COMPANY AND SUBSIDIARIES


Consolidating Financial Condition
(In millions, except share amounts)
 
June 30, 2012
 
December 31, 2011
 
Automotive
 
GM Financial
 
Eliminations
 
Consolidated
 
Automotive
 
GM Financial
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
21,232

 
$
952

 
$
—

 
$
22,184

 
$
15,499

 
$
572

 
$
—

 
$
16,071

Marketable securities
11,381

 
—

 
—

 
11,381

 
16,148

 
—

 
—

 
16,148

Restricted cash and marketable securities
223

 
511

 
—

 
734

 
206

 
799

 
—

 
1,005

Accounts and notes receivable, net
11,096

 
56

 
(35
)
 
11,117

 
9,949

 
52

 
(37
)
 
9,964

GM Financial finance receivables, net
—

 
3,478

 
—

 
3,478

 
—

 
3,251

 
—

 
3,251

Inventories
15,433

 
—

 
—

 
15,433

 
14,324

 
—

 
—

 
14,324

Equipment on operating leases, net
3,819

 
—

 
—

 
3,819

 
2,464

 
—

 
—

 
2,464

Other current assets and deferred income taxes
2,052

 
45

 
(10
)
 
2,087

 
1,657

 
46

 
(7
)
 
1,696

Total current assets
65,236

 
5,042

 
(45
)
 
70,233

 
60,247

 
4,720

 
(44
)
 
64,923

Non-current Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted cash and marketable securities
703

 
343

 
—

 
1,046

 
912

 
316

 
—

 
1,228

GM Financial finance receivables, net
—

 
6,552

 
—

 
6,552

 
—

 
5,911

 
—

 
5,911

Equity in net assets of nonconsolidated affiliates
7,058

 
—

 
—

 
7,058

 
6,790

 
—

 
—

 
6,790

Property, net
24,976

 
50

 
—

 
25,026

 
22,957

 
47

 
1

 
23,005

Goodwill
27,127

 
1,278

 
—

 
28,405

 
27,741

 
1,278

 
—

 
29,019

Intangible assets, net
9,192

 
—

 
—

 
9,192

 
10,013

 
1

 
—

 
10,014

GM Financial equipment on operating leases, net
—

 
1,367

 
(43
)
 
1,324

 
—

 
809

 
(24
)
 
785

Other assets and deferred income taxes
3,588

 
41

 
(478
)
 
3,151

 
3,200

 
30

 
(302
)
 
2,928

Total non-current assets
72,644

 
9,631

 
(521
)
 
81,754

 
71,613

 
8,392

 
(325
)
 
79,680

Total Assets
$
137,880

 
$
14,673

 
$
(566
)
 
$
151,987

 
$
131,860

 
$
13,112

 
$
(369
)
 
$
144,603

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable (principally trade)
$
26,390

 
$
69

 
$
(34
)
 
$
26,425

 
$
24,531

 
$
58

 
$
(38
)
 
$
24,551

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

 
 
 
 
 
 
 

Automotive
1,360

 
—

 
—

 
1,360

 
1,682

 
—

 
—

 
1,682

GM Financial
—

 
3,732

 
—

 
3,732

 
—

 
4,118

 
—

 
4,118

Accrued liabilities
25,006

 
147

 
(19
)
 
25,134

 
22,767

 
119

 
(11
)
 
22,875

Total current liabilities
52,756

 
3,948

 
(53
)
 
56,651

 
48,980

 
4,295

 
(49
)
 
53,226

Non-current Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Automotive
3,783

 
—

 
—

 
3,783

 
3,613

 
—

 
—

 
3,613

GM Financial
—

 
5,918

 
—

 
5,918

 
—

 
4,420

 
—

 
4,420

Postretirement benefits other than pensions
6,732

 
—

 
—

 
6,732

 
6,836

 
—

 
—

 
6,836

Pensions
24,558

 
—

 
—

 
24,558

 
25,075

 
—

 
—

 
25,075

Other liabilities and deferred income taxes
12,631

 
616

 
(512
)
 
12,735

 
12,355

 
406

 
(319
)
 
12,442

Total non-current liabilities
47,704

 
6,534

 
(512
)
 
53,726

 
47,879

 
4,826

 
(319
)
 
52,386

Total Liabilities
100,460

 
10,482

 
(565
)
 
110,377

 
96,859

 
9,121

 
(368
)
 
105,612

Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock, $0.01 par value, 2,000,000,000 shares authorized:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A (276,101,695 shares issued and outstanding (each with a $25.00 liquidation preference) at June 30, 2012 and December 31, 2011)
5,536

 
—

 
—

 
5,536

 
5,536

 
—

 
—

 
5,536

Series B (100,000,000 shares issued and outstanding (each with a $50.00 liquidation preference) at June 30, 2012 and December 31, 2011)
4,855

 
—

 
—

 
4,855

 
4,855

 
—

 
—

 
4,855

Common stock, $0.01 par value (5,000,000,000 shares authorized and 1,565,941,048 shares and 1,564,727,289 shares issued and outstanding at June 30, 2012 and December 31, 2011)
16

 
—

 
—

 
16

 
16

 
—

 
—

 
16

Capital surplus (principally additional paid-in capital)
26,399

 
—

 
—

 
26,399

 
26,391

 
—

 
—

 
26,391

Retained earnings
5,689

 
4,200

 
—

 
9,889

 
3,186

 
3,998

 
(1
)
 
7,183

Accumulated other comprehensive loss
(5,985
)
 
(9
)
 
(1
)
 
(5,995
)
 
(5,854
)
 
(7
)
 
—

 
(5,861
)
Total stockholders’ equity
36,510

 
4,191

 
(1
)
 
40,700

 
34,130

 
3,991

 
(1
)
 
38,120

Noncontrolling interests
910

 
—

 
—

 
910

 
871

 
—

 
—

 
871

Total Equity
37,420

 
4,191

 
(1
)
 
41,610

 
35,001

 
3,991

 
(1
)
 
38,991

Total Liabilities and Equity
$
137,880

 
$
14,673

 
$
(566
)
 
$
151,987

 
$
131,860

 
$
13,112

 
$
(369
)
 
$
144,603



63


GENERAL MOTORS COMPANY AND SUBSIDIARIES


Current Assets

Marketable securities decreased by $4.8 billion (or 29.5%) due primarily to our reinvesting in shorter term cash equivalents as these marketable securities matured to rebalance our securities portfolio in the normal course of business.

Accounts and notes receivable, net increased by $1.2 billion (or 11.6%) due primarily to: (1) an increase of $2.0 billion related to higher vehicle sales at the end of June 2012 compared to December 2011; (2) net increase of $0.3 billion in value added tax receivable; partially offset by (3) a net decrease of $0.9 billion related to dividends collected from our China JVs in the six months ended June 30, 2012; and (3) decreased net foreign currency translation of $0.1 billion due to the weakening of major currencies against the U.S. Dollar.

Equipment on operating lease, net increased by $1.4 billion (or 55.0%) due primarily to a net increase of $1.6 billion in vehicles under lease; partially offset by depreciation of $0.2 billion for the six months ended June 30, 2012.

Non-Current Assets

GM Financial finance receivables, net increased by $0.6 billion (or 10.8%) due primarily to an increase of new loan originations, partially offset by expected principal payments becoming current.

Goodwill decreased by $0.6 billion (or 2.1%) due to the impairment charges in GME and GMIO.

GM Financial equipment on operating leases, net increased by $0.5 billion (or 68.7%) due primarily to leased vehicles purchased in the U.S. and Canada of $0.5 billion and $0.3 billion; partially offset by depreciation of $0.1 billion for the six months ended June 30, 2012.

Non-Current Liabilities

GM Financial Long-term debt increased by $1.5 billion (or 33.9%) due primarily to the issuance of securitization notes payable of $2.6 billion partially offset by long-term debt reclassed to current of $1.0 billion.

GM North America
(Dollars in Millions)
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
2012 vs. 2011 Change
 
 2012 vs. 2011 Change
 
 
 
 
Amount
 
%
 
Amount
 
%
Total net sales and revenue
$
22,900

 
$
23,128

 
$
47,076

 
$
45,238

 
$
(228
)
 
(1.0
)%
 
$
1,838

 
4.1
%
EBIT-adjusted
$
1,965

 
$
2,249

 
$
3,656

 
$
3,502

 
$
(284
)
 
(12.6
)%
 
$
154

 
4.4
%

GMNA Total Net Sales and Revenue

In the three months ended June 30, 2012 Total net sales and revenue decreased by $0.2 billion (or 1.0%) due primarily to: (1) reduction in favorable lease residual adjustments of $0.2 billion; and (2) unfavorable net foreign currency remeasurement of $0.2 billion due to the weakening of the Canadian Dollar (CAD) and Mexican Peso against the U.S. Dollar; partially offset by (3) favorable vehicle mix of $0.2 billion.

In the six months ended June 30, 2012 Total net sales and revenue increased by $1.8 billion (or 4.1%) due primarily to: (1) increased wholesale volumes of $2.2 billion representing 90,000 vehicles (or 5.6%) due to increased industry demand and successful recent vehicle launches such as the Buick Verano, Chevrolet Sonic and Chevrolet Cruze; and (2) favorable vehicle pricing of $0.5 billion; partially offset by (3) reduction in favorable lease residual adjustments of $0.3 billion; (4) unfavorable net foreign currency remeasurement of $0.2 billion due to the weakening of the CAD and Mexican Peso against the U.S. Dollar; and (5) unfavorable vehicle mix of $0.1 billion.

GMNA EBIT-Adjusted

In the three months ended June 30, 2012 EBIT-adjusted decreased by $0.3 billion (or 12.6%) due primarily to: (1) decrease in U.S. pension income of $0.2 billion; (2) reduction in favorable lease residual adjustments of $0.2 billion; (3) increase in

64


GENERAL MOTORS COMPANY AND SUBSIDIARIES


manufacturing expense, including new launches, of $0.2 billion; and (4) unfavorable vehicle mix of $0.1 billion; partially offset by (5) decreased material prices and freight of $0.2 billion; and (6) decrease in depreciation and amortization expense of $0.1 billion.

In the six months ended June 30, 2012 EBIT-adjusted increased by $0.2 billion (or 4.4%) due primarily to: (1) increased wholesale volumes of $0.6 billion due to increased industry demand and successful recent vehicle launches; and (2) favorable vehicle pricing of $0.5 billion; (3) decrease in depreciation and amortization expense of $0.2 billion; and (4) decreased material prices and freight of $0.1 billion; partially offset by (5) decrease in U.S. pension income of $0.4 billion; (6) unfavorable vehicle mix of $0.4 billion; (7) reduction in favorable lease residual adjustments of $0.3 billion; and (8) increase in manufacturing expense, including new launches, of $0.3 billion.

GM Europe
(Dollars in Millions)
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
2012 vs. 2011 Change
 
 2012 vs. 2011 Change
 
 
 
 
Amount
 
%
 
Amount
 
%
Total net sales and revenue
$
5,894

 
$
7,459

 
$
11,407

 
$
14,329

 
$
(1,565
)
 
(21.0
)%
 
$
(2,922
)
 
(20.4
)%
EBIT (loss)-adjusted
$
(361
)
 
$
102

 
$
(617
)
 
$
107

 
$
(463
)
 
n.m.

 
$
(724
)
 
n.m.

__________
n.m. = not meaningful

GME Total Net Sales and Revenue

In the three months ended June 30, 2012 Total net sales and revenue decreased by $1.6 billion (or 21.0%) due primarily to: (1) decreased wholesale volumes of $0.8 billion representing 51,000 vehicles (or 14.5%) due to the weak European economy; (2) unfavorable foreign currency translation effect of $0.7 billion, due to the strengthening of the U.S. Dollar against the Euro, British Pound, Hungarian Forint, Russian Ruble and Turkish Lira; (3) decreased parts, accessories and powertrain engine and transmission sales of $0.1 billion associated with lower demand; and (4) a decrease of $0.1 billion due to the deconsolidation of VMM in June 2011; partially offset by (5) favorable vehicle mix of $0.2 billion due to the new generation Opel Astra GTC and Ampera and increased sales of other higher priced vehicles.

In the six months ended June 30, 2012 Total net sales and revenue decreased by $2.9 billion (or 20.4%) due primarily to: (1) decreased wholesale volumes of $1.8 billion representing 121,000 vehicles (or 17.7%) due to the weak European economy; (2) unfavorable foreign currency translation effect of $1.0 billion, due to the strengthening of the U.S. Dollar against the Euro, British Pound, Hungarian Forint, Russian Ruble and Turkish Lira; (3) decreased parts, accessories and powertrain engine and transmission sales of $0.4 billion associated with lower demand; and (4) a decrease of $0.1 billion due to the deconsolidation of VMM in June 2011; partially offset by (5) favorable vehicle mix of $0.4 billion due to the new generation Opel Zafira, Astra GTC and Ampera and increased sales of other higher priced vehicles.

GME EBIT (Loss)-Adjusted

In the three months ended June 30, 2012 EBIT (loss)-adjusted was $0.4 billion compared to EBIT-adjusted of $0.1 billion in the three months ended June 30, 2011 due primarily to: (1) decreased volumes of $0.1 billion; (2) unfavorable net vehicle mix of $0.1 billion; (3) decreased parts, accessories and powertrain engine and transmission sales of $0.1 billion associated with lower demand; and (4) a decrease of $0.1 billion resulting from the net effect of changes in an embedded foreign currency derivative asset associated with a long-term supply agreement; partially offset by (5) lower manufacturing and material costs of $0.1 billion.

In the six months ended June 30, 2012 EBIT (loss)-adjusted was $0.6 billion compared to EBIT-adjusted of $0.1 billion in the six months ended June 30, 2011 due primarily to: (1) decreased volumes of $0.4 billion; (2) a decrease of $0.2 billion resulting from the net effect of changes in an embedded foreign currency derivative asset associated with a long-term supply agreement; (3) decreased parts, accessories and powertrain engine and transmission sales of $0.2 billion, associated with lower demand; and (4) unfavorable net vehicle mix of $0.1 billion; partially offset by (5) lower manufacturing and material costs of $0.2 billion.

GM International Operations
(Dollars in Millions)


65


GENERAL MOTORS COMPANY AND SUBSIDIARIES


 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
2012 vs. 2011 Change
 
 2012 vs. 2011 Change
 
 
 
 
Amount
 
%
 
Amount
 
%
Total net sales and revenue
$
6,945

 
$
6,402

 
$
13,005

 
$
11,610

 
$
543

 
8.5
 %
 
$
1,395

 
12.0
 %
EBIT-adjusted
$
557

 
$
573

 
$
1,086

 
$
1,159

 
$
(16
)
 
(2.8
)%
 
$
(73
)
 
(6.3
)%

GMIO Total Net Sales and Revenue

In the three months ended June 30, 2012 Total net sales and revenue increased by $0.5 billion (or 8.5%) due primarily to: (1) increased wholesale volumes of $0.5 billion representing 33,000 vehicles due primarily to industry growth across the region; (2) favorable vehicle pricing effect of $0.2 billion due to higher pricing on new models launched and lower sales incentives; and (3) favorable components, parts and accessories sales of $0.1 billion; partially offset by (4) unfavorable net foreign currency translation effect of $0.3 billion driven by weakening of major currencies such as the Korean Won, Australian Dollar and South African Rand against the U.S. Dollar.

In the six months ended June 30, 2012 Total net sales and revenue increased by $1.4 billion (or 12.0%) due primarily to: (1) increased wholesale volumes of $0.9 billion representing 61,000 vehicles due primarily to strong industry growth across the region; (2) favorable vehicle mix of $0.3 billion due to the sales of higher priced Chevrolet Captiva, Chevrolet Orlando and Chevrolet Malibu; (3) favorable vehicle pricing effect of $0.3 billion due to higher pricing on new models launched and lower sales incentives; and (4) favorable components, parts and accessories sales of $0.2 billion; partially offset by (5) unfavorable net foreign currency translation effect of $0.3 billion driven by weakening of major currencies such as the Korean Won and South African Rand against the U.S. Dollar.

The vehicle sales of our China and India joint ventures are not reflected in Total net sales and revenue. The results of our joint ventures are recorded in Equity income, net of tax and gain on disposal of investments.

GMIO EBIT-Adjusted

In the three months ended June 30, 2012 EBIT-adjusted remained flat, due primarily to: (1) favorable price effect of $0.2 billion due to higher pricing on new models launched and lower sales incentives; and (2) favorable net wholesale volumes of $0.1 billion; offset by (3) increased costs of $0.1 billion due primarily to increased material and manufacturing costs; (4) unfavorable net foreign currency translation effect of $0.1 billion driven by weakening of major currencies such as the Korean Won, Australian Dollar and South Africa Rand against the U.S. Dollar; and (5) decreased equity income, net of tax, of $0.1 billion.

In the six months ended June 30, 2012 EBIT-adjusted decreased by $0.1 billion (or 6.3%), due primarily to: (1) increased costs of $0.5 billion due primarily to increased material, manufacturing and warranty costs; and (2) decreased equity income, net of tax, of $0.1 billion; partially offset by (3) favorable price effect of $0.3 billion due to higher pricing on new models launched and lower sales incentives; and (4) favorable net wholesale volumes of $0.2 billion.

GM South America
(Dollars in Millions)
 
Three Months Ended
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
2012 vs. 2011 Change
 
2012 vs. 2011 Change
 
 
 
Amount
 
%
 
Amount
 
%
Total net sales and revenue
$
4,179

 
$
4,363

 
$
8,118

 
$
8,259

 
$
(184
)
 
(4.2
)%
 
$
(141
)
 
(1.7
)%
EBIT (loss)-adjusted
$
(19
)
 
$
57

 
$
64

 
$
147

 
$
(76
)
 
n.m.

 
$
(83
)
 
(56.5
)%
__________
n.m. = not meaningful

GMSA Total Net Sales and Revenue

In the three months ended June 30, 2012 Total net sales and revenue decreased by $0.2 billion (or 4.2%), due primarily to: (1) unfavorable net foreign currency translation effect of $0.5 billion, due to the strengthening of the U.S. dollar against major currencies such as the Brazilian Real and Argentinian Peso; and (2) decreased wholesale volumes of $0.1 billion representing 7,000 vehicles (or 2.6%) due to deteriorated market share driven by increased competition and aggressive pricing in the market; offset by (3) favorable vehicle mix of $0.3 billion due to increased sales of the Chevrolet Cruze and Chevrolet S10; and (4) favorable vehicle pricing effect of $0.1 billion, primarily in Argentina due to higher inflation and in Venezuela due to the hyperinflationary economy.

66


GENERAL MOTORS COMPANY AND SUBSIDIARIES



In the six months ended June 30, 2012 Total net sales and revenue decreased by $0.1 billion (or 1.7%), due primarily to: (1) unfavorable net foreign currency translation effect of $0.6 billion, due to the strengthening of the U.S. dollar against major currencies such as the Brazilian Real and Argentinian Peso; and (2) decreased wholesale volumes of $0.4 billion representing 26,000 vehicles (or 4.9%) due to deteriorated market share driven by increased competition and aggressive pricing in the market; partially offset by (3) favorable vehicle mix of $0.6 billion due to increased sales of the Chevrolet Cruze and Chevrolet S10; and (4) favorable vehicle pricing effect of $0.2 billion, primarily in Argentina due to higher inflation and in Venezuela due to the hyperinflationary economy.

GMSA EBIT (Loss)-Adjusted

In the three months ended June 30, 2012 EBIT (loss)-adjusted was $19 million compared to EBIT-adjusted of $0.1 billion in the three months ended June 30, 2011, due primarily to: (1) increased material, freight and manufacturing costs of $0.1 billion; and (2) employee separation costs in Brazil of $0.1 billion; partially offset by (3) favorable vehicle pricing effect of $0.1 billion, primarily in Argentina due to higher inflation and in Venezuela due to the hyperinflationary economy; and (4) favorable net vehicle mix of $0.1 billion due to increased sales of the Chevrolet Cruze and Chevrolet S10.

In the six months ended June 30, 2012 EBIT-adjusted decreased by $0.1 billion (or 56.5%), due primarily to: (1) increased material, freight and manufacturing costs of $0.3 billion; (2) unfavorable net wholesale volumes of $0.1 billion; and (3) employee separation costs of $0.1 billion in Brazil; partially offset by (3) favorable vehicle pricing effect of $0.2 billion, primarily in Argentina due to higher inflation and in Venezuela due to the hyperinflationary economy; (4) favorable net vehicle mix of $0.2 billion due to increased sales of the Chevrolet Cruze and Chevrolet S10; and (5) a bargain purchase gain of $50 million on the purchase of GMAC Venezuela.

GM Financial
(Dollars in Millions)
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
2012 vs. 2011 Change
 
2012 vs. 2011 Change
 
 
 
Amount
 
%
 
Amount
 
%
GM Financial revenue
$
487

 
$
330

 
$
918

 
$
625

 
$
157

 
47.6
%
 
$
293

 
46.9
%
Income before income taxes
$
217

 
$
144

 
$
398

 
$
274

 
$
73

 
50.7
%
 
$
124

 
45.3
%

GM Financial Revenue

In the three months ended June 30, 2012 GM Financial revenue increased by $157 million (or 47.6%) due to: (1) increased finance income of $113 million due to a larger loan portfolio balance; and (2) increased lease income of $44 million due to a larger lease portfolio.

In the six months ended June 30, 2012 GM Financial revenue increased by $293 million (or 46.9%) due primarily to: (1) increased finance income of $203 million due to a larger loan portfolio balance; and (2) increased lease income of $85 million due to a larger lease portfolio.

GM Financial Income Before Income Taxes

In the three months ended June 30, 2012 income before income taxes increased by $73 million (or 50.7%) due primarily to: (1) increased finance income of $113 million due to a larger loan portfolio; and (2) increased lease income of $44 million due to a larger lease portfolio; partially offset by (3) increased leased vehicle expenses of $38 million due to a larger lease portfolio; (4) increased interest expense of $22 million due to an increase in average debt outstanding and an increase in the effective interest rate; (5) increased provision for loan losses of $17 million due to a larger loan portfolio; and (6) increased operating expenses of $7 million due to company growth.

Average debt outstanding in the three months ended June 30, 2012 and 2011 was $8.9 billion and $7.5 billion and the effective rate of interest paid was 2.9% and 2.3%.

In the six months ended June 30, 2012 income before income taxes increased by $124 million (or 45.3%) due primarily to: (1) increased finance income of $203 million due to a larger loan portfolio; and (2) increased lease income of $85 million due to a

67


GENERAL MOTORS COMPANY AND SUBSIDIARIES


larger lease portfolio; partially offset by (3) increased leased vehicle expenses of $70 million due to a larger lease portfolio; (4) increased interest expense of $44 million due to an increase in average debt outstanding and an increase in the effective interest rate; (5) increased provision for loan losses of $26 million due to a larger loan portfolio; and (6) increased operating expenses of $29 million due to company growth.

Average debt outstanding in the six months ended June 30, 2012 and 2011 was $8.8 billion and $7.3 billion and the effective rate of interest paid was 2.9% and 2.3%.

Corporate
(Dollars in Millions)
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
 
2012 vs. 2011 Change
 
2012 vs. 2011 Change
 
 
 
Amount
 
%
 
Amount
 
%
Net income (loss) attributable to stockholders
$
(400
)
 
$
(125
)
 
$
(600
)
 
$
106

 
$
(275
)
 
220.0
%
 
$
(706
)
 
n.m.
__________
n.m. = not meaningful

Corporate Net Income (Loss) Attributable to Stockholders

In the three months ended June 30, 2012 Net loss attributable to stockholders increased by $0.3 billion due primarily to an increase in income tax expense of $0.2 billion; and (2) an increase in foreign currency transaction losses of $0.1 billion.

In the six months ended June 30, 2012 Net loss attributable to stockholders was $0.6 billion compared to Net income attributable to stockholders of $0.1 billion in the six months ended June 30, 2011 due primarily to: (1) a gain of $0.3 billion recorded on the sale of our Ally Financial preferred stock in March 2011 that did not recur in the six months ended June 30, 2012; (2) an increase in income tax expense of $0.3 billion; and (3) an increase in foreign currency transaction losses of $0.1 billion.

Liquidity and Capital Resources
Liquidity Overview

We believe that our current level of cash and cash equivalents, marketable securities and availability under our secured revolving credit facility will be sufficient to meet our liquidity needs. However, we expect to have substantial cash requirements going forward which we plan to fund through available liquidity and cash flow from operations. Our known material future uses of cash include, among other possible demands: (1) reinvestment in our business through capital expenditures, engineering and product development activities; (2) pension contributions and OPEB and other payments; (3) payments to reduce debt and other long-term obligations; (4) dividend payments on our Series A and Series B Preferred Shares; and (5) certain South American income and indirect tax-related administrative proceedings may require that we deposit funds in escrow or make payments which may range up to $0.9 billion.

Our liquidity plans are subject to a number of risks and uncertainties, including those described in the “Risk Factors” section of our 2011 Form 10-K, some of which are outside our control. Macroeconomic conditions could limit our ability to successfully execute our business plans and therefore adversely affect our liquidity plans.

Recent Management Initiatives

We continue to monitor and evaluate opportunities to optimize our liquidity position and capital structure in order to strengthen our balance sheet. Maintaining minimal financial leverage remains a key strategic initiative. We continue to evaluate potential repayments of long-term obligations prior to maturity. Any such repayments may negatively affect our liquidity in the short-term.

From time to time we consider the possibility of acquisitions, dispositions and strategic alliances that we believe would generate significant advantages and substantially strengthen our business. This may include additional loans or investments with our joint venture partners and may negatively impact our liquidity in the short-term. As previously mentioned, in February 2012 we entered into an agreement with PSA to create an alliance to leverage the strengths and capabilities of our two companies and acquired a seven percent equity stake in PSA for $0.4 billion.


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GENERAL MOTORS COMPANY AND SUBSIDIARIES


We continue to pursue various options to fund and derisk our pension plans. In May 2012 we entered into an agreement in which the U.S. salaried pension plan will purchase a group annuity contract from an insurance company to pay and administer future annuity payments to certain of our salaried retirees and expect to provide additional funding for the salaried pension plan in the range of $3.5 billion to $4.5 billion by December 31, 2012. Refer to Note 15 to our condensed consolidated financial statements for additional details on pension activities.


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GENERAL MOTORS COMPANY AND SUBSIDIARIES


Consolidating Statements of Cash Flows
(In millions)

 
Six Months Ended June 30, 2012
 
Six Months Ended June 30, 2011
 
Automotive
 
GM Financial
 
Consolidated
 
Automotive
 
GM Financial
 
Consolidated
Net cash provided by operating activities
$
6,032

 
$
409

 
$
6,441

 
$
4,365

 
$
322

 
$
4,687

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Expenditures for property
(4,052
)
 
(7
)
 
(4,059
)
 
(2,494
)
 
(4
)
 
(2,498
)
Available-for-sale marketable securities, acquisitions
(2,928
)
 
—

 
(2,928
)
 
(12,993
)
 
—

 
(12,993
)
Trading marketable securities, acquisitions
(3,997
)
 
—

 
(3,997
)
 
(258
)
 
—

 
(258
)
Available-for-sale marketable securities, liquidations
7,592

 
—

 
7,592

 
6,288

 
—

 
6,288

Trading marketable securities, liquidations
3,625

 
—

 
3,625

 
269

 
—

 
269

Acquisition of companies, net of cash acquired
54

 
—

 
54

 
(8
)
 
—

 
(8
)
Operating leases, liquidations
2

 
18

 
20

 
6

 
21

 
27

Proceeds from sale of business units/investments, net
3

 
—

 
3

 
4,778

 
—

 
4,778

Increase in restricted cash and marketable securities
(181
)
 
(94
)
 
(275
)
 
(201
)
 
(110
)
 
(311
)
Decrease in restricted cash and marketable securities
366

 
358

 
724

 
362

 
126

 
488

Purchases of consumer finance receivables
—

 
(2,874
)
 
(2,874
)
 
—

 
(2,444
)
 
(2,444
)
Principal collections and recoveries on consumer finance receivables
—

 
2,040

 
2,040

 
—

 
1,880

 
1,880

Net purchases of leased vehicles
—

 
(610
)
 
(610
)
 
—

 
(410
)
 
(410
)
Other investing activities
(10
)
 
(130
)
 
(140
)
 
40

 
(35
)
 
5

Net cash provided by (used in) investing activities
474

 
(1,299
)
 
(825
)
 
(4,211
)
 
(976
)
 
(5,187
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in short-term debt
(156
)
 
—

 
(156
)
 
216

 
—

 
216

Proceeds from issuance of debt (original maturities greater than three months)
215

 
5,063

 
5,278

 
274

 
4,871

 
5,145

Payments on debt (original maturities greater than three months)
(148
)
 
(3,929
)
 
(4,077
)
 
(866
)
 
(3,983
)
 
(4,849
)
Payments to acquire noncontrolling interest
—

 
—

 
—

 
(100
)
 
—

 
(100
)
Dividends paid
(459
)
 
—

 
(459
)
 
(435
)
 
—

 
(435
)
Proceeds from issuance of stock
3

 
—

 
3

 
—

 
—

 
—

Other financing activities
—

 
(23
)
 
(23
)
 
(22
)
 
(35
)
 
(57
)
Net cash provided by (used in) financing activities
(545
)
 
1,111

 
566

 
(933
)
 
853

 
(80
)
Effect of exchange rate changes on cash and cash equivalents
(69
)
 
—

 
(69
)
 
322

 
(1
)
 
321

Net transactions with Automotive/GM Financial
(159
)
 
159

 
—

 
(133
)
 
133

 
—

Net increase (decrease) in cash and cash equivalents
5,733

 
380

 
6,113

 
(590
)
 
331

 
(259
)
Cash and cash equivalents at beginning of period
15,499

 
572

 
16,071

 
21,061

 
195

 
21,256

Cash and cash equivalents at end of period
$
21,232

 
$
952

 
$
22,184

 
$
20,471

 
$
526

 
$
20,997


Automotive

Available Liquidity

Available liquidity includes cash, cash equivalents and current marketable securities balances. At June 30, 2012 our available liquidity was $32.6 billion, excluding funds available under credit facilities of $5.8 billion. The amount of available liquidity is subject to intra-month and seasonal fluctuations and includes balances held by various business units and subsidiaries worldwide that are needed to fund their operations.

We manage our liquidity primarily at our treasury centers as well as at certain of our significant consolidated overseas subsidiaries. Our cash equivalents and marketable securities balances include investments in U.S. government and agency obligations, foreign government securities, time deposits and certificates of deposits and corporate debt securities, and are primarily denominated in U.S. Dollars. Our investment guidelines, which we may change from time to time, prescribe certain minimum credit rating thresholds and limit our exposures to any particular sector, asset class, issuance or security type. Substantially all of our current investments in debt securities are with A/A2 or better rated issuers. We maintain cash balances and investments in certain foreign currencies, such as the CAD, to fund future payments on foreign currency denominated obligations thereby reducing a portion of the related foreign currency exposure. We actively monitor and manage our liquidity exposure to Europe which is related primarily to short-term bank deposits and short-term debt securities of high-quality European issuers. A portion of our total liquidity includes amounts deemed indefinitely reinvested in our foreign subsidiaries. We have used and will continue to use other methods including

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GENERAL MOTORS COMPANY AND SUBSIDIARIES


intercompany loans to utilize these funds across our global operations as needed. The following table summarizes our liquidity (dollars in millions):
 
June 30, 2012
 
December 31, 2011
Cash and cash equivalents
$
21,232

 
$
15,499

Marketable securities
11,381

 
16,148

Available liquidity
32,613

 
31,647

Available under credit facilities
5,843

 
5,867

Total available liquidity
$
38,456

 
$
37,514


Credit Facilities

We use credit facilities as a mechanism to provide additional flexibility in managing our global liquidity. Our primary borrowing capacity under these credit facilities comes from our $5.0 billion secured revolving credit facility. The balance of our credit facilities are geographically dispersed across all regions. The following tables summarize our committed and uncommitted credit facilities (dollars in millions):
 
Total Credit Facilities
 
Amounts Available
Under Credit Facilities
 
June 30, 2012
 
December 31, 2011
 
June 30, 2012
 
December 31, 2011
Committed
$
5,329

 
$
5,338

 
$
5,305

 
$
5,308

Uncommitted
589

 
629

 
538

 
559

Total
$
5,918

 
$
5,967

 
$
5,843

 
$
5,867


 
Total Credit Facilities
 
Amounts Available
Under Credit Facilities
 
June 30, 2012
 
December 31, 2011
 
June 30, 2012
 
December 31, 2011
Secured revolving credit facility
$
5,000

 
$
5,000

 
$
5,000

 
$
5,000

Other(a)
918

 
967

 
843

 
867

Total
$
5,918

 
$
5,967

 
$
5,843

 
$
5,867

__________
(a)
Consists of credit facilities available at our foreign subsidiaries that are not individually significant.

Our largest credit facility is our five year, $5.0 billion secured revolving credit facility which includes a letter of credit sub-facility of up to $500 million. Additionally, we can use collateral under the revolving credit facility to support other obligations of up to $2.0 billion. We continue to evaluate potential uses for this collateral which may strengthen our overall liquidity position without impacting our financial leverage. We entered into the secured revolving credit facility agreement in October 2010. While we do not believe that we will draw on the secured revolving credit facility to fund operating activities, the facility provides additional liquidity and financing flexibility. Availability under the secured revolving credit facility is subject to borrowing base restrictions. Our obligations under the secured revolving credit facility are guaranteed by certain of our domestic subsidiaries and secured by a substantial portion of our domestic assets excluding cash, cash equivalents, marketable securities and GM Financial. If we receive an investment grade corporate rating from two or more of the credit rating agencies: Fitch Ratings, Moody's Investor Service and Standard & Poor's, we may no longer have to post collateral under the terms of the facility.

Uncommitted credit facilities include lines of credit which are available to us but under which the lenders have no legal obligation to provide funding upon our request. We and our subsidiaries use credit facilities to fund working capital needs, product programs, facilities development and other general corporate purposes.

Cash Flow

Operating Activities


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GENERAL MOTORS COMPANY AND SUBSIDIARIES


In the six months ended June 30, 2012 net cash provided by operating activities increased by $1.7 billion due primarily to: (1) favorable changes in working capital of $1.1 billion including the termination of advance wholesale agreements in GMNA which adversely impacted working capital in 2011; and (2) other items of $0.6 billion which primarily included favorable net pension and OPEB activities of $0.4 billion and increased non-cash goodwill impairment charges of $0.2 billion.

Investing Activities

In the six months ended June 30, 2012 net cash provided by investing activities was $0.5 billion compared to net cash used in investing activities of $4.2 billion in the six months ended June 30, 2011 due primarily to: (1) proceeds in excess of new investments in marketable securities of $11.0 billion; partially offset by (2) proceeds received from the sale of our investments in New Delphi and Ally Financial preferred stock of $4.8 billion in 2011; and (3) increased capital expenditures of $1.6 billion as we continue to reinvest in our business.

Financing Activities

In the six months ended June 30, 2012 net cash used in financing activities decreased $0.4 billion due primarily to: (1) additional payments on debt obligations of $0.7 billion in 2011 which included prepayments to retire debt facilities in GMSA; and (2) a payment to acquire an additional interest in GM Korea Company (GM Korea) of $0.1 billion in 2011; partially offset by (3) net decreases in short-term debt facilities of $0.4 billion.

Free Cash Flow

Management believes free cash flow provides meaningful supplemental information regarding the liquidity of our automotive operations and its ability to generate sufficient cash flow above those required in our business to sustain our operations. We measure free cash flow as cash flow from operations adjusted for capital expenditures. While management believes that free cash flow provides useful information, it is not an operating measure under U.S. GAAP and there are limitations associated with its use. Our calculation of free cash flow may not be completely comparable to similarly titled measures of other companies due to potential differences between companies in the method of calculation. As a result the use of free cash flow has limitations and should not be considered in isolation from, or as a substitute for, other measures such as cash flows from operating activities. Due to these limitations, free cash flow is used as a supplement to U.S. GAAP measures. The following table summarizes free cash flow (dollars in millions):
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
Operating cash flow
$
6,032

 
$
4,365

Less: capital expenditures
(4,052
)
 
(2,494
)
Free cash flow
$
1,980

 
$
1,871


Automotive Financing - GM Financial

Liquidity Overview

GM Financial's primary sources of cash are finance charge income, servicing fees, net distributions from securitization trusts, borrowings under credit facilities, transfers of finance receivables to trusts in securitization transactions, collections and recoveries on finance receivables and net proceeds from senior notes transactions. GM Financial's primary uses of cash are purchases of finance receivables and leased assets, repayment of credit facilities, securitization of notes payable and other indebtedness, funding credit enhancement requirements for securitization transactions and credit facilities and operating expenses.

GM Financial used cash of $2.9 billion and $2.4 billion for the purchase of consumer finance receivables and $0.6 billion and $0.4 billion for the purchase of leased vehicles in the six months ended June 30, 2012 and 2011. GM Financial used cash of $0.2 billion for the purchase of commercial finance receivables in the three months ended June 30, 2012. These purchases were funded initially utilizing cash and borrowings under credit facilities and subsequently funded in securitization transactions. GM Financial received cash of $2.0 billion and $1.9 billion from collections and recoveries on receivables in the six months ended June 30, 2012 and 2011.


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GENERAL MOTORS COMPANY AND SUBSIDIARIES


Available Liquidity

The following table summarizes GM Financial's available liquidity (dollars in millions):
 
June 30, 2012
 
December 31, 2011
Cash and cash equivalents
$
952

 
$
572

Borrowing capacity on unpledged eligible receivables
361

 
387

Borrowing capacity on unpledged eligible leased assets
530

 
294

Available liquidity
$
1,843

 
$
1,253


Credit Facilities

In the normal course of business, in addition to using available cash, GM Financial pledges receivables to and borrows under credit facilities to fund operations and repays these borrowings as appropriate under GM Financial's cash management strategy.

The following table summarizes those credit facilities (dollars in millions):
 
June 30, 2012
 
December 31, 2011
 
Facility Amount
 
Advances Outstanding
 
Facility Amount
 
Advances Outstanding
Syndicated warehouse facility(a)
$
2,500

 
$
—

 
$
2,000

 
$
621

U.S. lease warehouse facility(b)
$
600

 
—

 
$
600

 
—

Canada lease warehouse facility(c)
$
589

 
308

 
$
589

 
181

Medium-term note facility(d)
 
 
215

 
 
 
294

Bank funding facility
 
 
—

 
 
 
3

Total
 
 
$
523

 
 
 
$
1,099

__________
(a)
In May 2012 GM Financial increased the Syndicated warehouse facility amount from $2.0 billion to $2.5 billion and extended the maturity date to May 2013.
(b)
In January 2012 GM Financial extended the maturity date of the lease warehouse facility for lease originations in the U.S. to January 2013. Borrowings on the facility are collateralized by leased assets.
(c)
In July 2012 GM Financial increased the lease warehouse facility for lease originations in Canada from CAD $600 million to CAD $800 million and extended the maturity date to July 2013. Borrowings on this facility are collateralized by leased assets. The facility amount represents CAD $600 million at June 30, 2012 and December 31, 2011, and the advances outstanding amount represents CAD $314 million and CAD $185 million at June 30, 2012 and December 31, 2011.
(d)
The revolving period under this facility has ended and the outstanding debt balance will be repaid over time based on the amortization of the receivables pledged until October 2016 when any remaining amount outstanding will be due and payable.

GM Financial is required to hold certain funds in restricted cash accounts to provide additional collateral for borrowings under the credit facilities and securitization notes payable. GM Financial's funding agreements contain various covenants requiring minimum financial ratios, asset quality and portfolio performance ratios (portfolio net loss and delinquency ratios, and pool level cumulative net loss ratios) as well as limits on deferment levels. Failure to meet any of these covenants could result in an event of default under these agreements. If an event of default occurs under these agreements, the lenders could elect to declare all amounts outstanding under these agreements to be immediately due and payable, enforce their interests against collateral pledged under these agreements or, with respect to the syndicated warehouse facility, restrict GM Financial's ability to obtain additional borrowings.

Guarantees Provided to Third Parties

We have provided guarantees related to the residual value of operating leases, certain suppliers' commitments, certain product-related claims and commercial loans made by Ally Financial and outstanding with certain third parties excluding vehicle repurchase obligations, residual support and risk sharing related to Ally Financial. The maximum potential obligation under these commitments was $1.2 billion and $1.1 billion at June 30, 2012 and December 31, 2011.

Our current agreement with Ally Financial requires the repurchase of Ally Financial financed inventory invoiced to dealers with limited exclusions, in the event of a qualifying voluntary or involuntary termination of the dealer's sales and service agreement. The repurchase obligation ended in August 2011 for vehicles invoiced through August 2010, ends in August 2012 for vehicles

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GENERAL MOTORS COMPANY AND SUBSIDIARIES


invoiced through August 2011 and ends in August 2013 for vehicles invoiced through August 2012.

The maximum potential amount of future payments required to be made to Ally Financial under this guarantee would be based on the repurchase value of total eligible vehicles financed by Ally Financial in dealer stock and is estimated to be $22.0 billion and $19.8 billion at June 30, 2012 and December 31, 2011. If vehicles are required to be repurchased under this arrangement, the total exposure would be reduced to the extent vehicles are able to be resold to another dealer or at auction. The fair value of the guarantee was $16 million and $17 million at June 30, 2012 and December 31, 2011 which considers the likelihood of dealers terminating and estimating the loss exposure for the ultimate disposition of vehicles.

Refer to Notes 17 and 22 to our condensed consolidated financial statements for additional information on guarantees we have provided.

Pension Funding Requirements

On July 6, 2012 the U.S. Government enacted the Moving Ahead for Progress in the 21st Century Act which allows plan sponsors funding relief for U.S. pension plans through the application of higher funding interest rates. As a result, under current economic conditions, we expect the new law to further delay required contributions to our U.S. pension plans. The new law does not impact our reported funded status or funding contemplated under our derisking initiatives as subsequently discussed.

As part of our overall balance sheet derisking strategy on June 1, 2012 we announced certain actions related to our U.S. salaried pension plan which we expect to complete in 2012. These actions include the offer of lump-sum payments to retirees and the purchase of annuities for the vast majority of the remaining salaried retiree obligation. To consummate the actions announced we expect that the additional funding for the salaried pension plan will be in the range of $3.5 billion to $4.5 billion subject to several factors including interest rates, salaried pension plan asset returns and the lump-sum election rate.

Fair Value Measurements

Refer to Note 16 to our condensed consolidated financial statements for information regarding derivative fair value measurements.

Dividends

The declaration of any dividend on our common stock is a matter to be acted upon by our Board of Directors in its sole discretion. Since our formation we have not paid any dividends on our common stock and have no current plans to pay any dividends on our common stock. Our payment of dividends on our common stock in the future, if any, will be determined by our Board of Directors in its sole discretion out of funds legally available for that purpose and will depend on business conditions, our financial condition, earnings, liquidity and capital requirements, the covenants in our debt instruments and other factors.

So long as any share of our Series A or B Preferred Stock remains outstanding, no dividend or distribution may be declared or paid on our common stock unless all accrued and unpaid dividends have been paid on our Series A and B Preferred Stock, subject to exceptions, such as dividends on our common stock payable solely in shares of our common stock. Our secured revolving credit facility contains certain restrictions on our ability to pay dividends, subject to exceptions, such as dividends payable solely in shares of our common stock. So long as any share of our Series A Preferred Stock remains outstanding, no dividend or distribution may be declared or paid on our Series B Preferred Stock unless all accrued and unpaid dividends have been paid on our Series A Preferred Stock, subject to exceptions, such as dividends on our Series B Preferred Stock solely in shares of our common stock.

The following table summarizes dividends paid on our Series A and B Preferred Stock (dollars in millions):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
 
June 30, 2012
 
June 30, 2011
Series A Preferred Stock(a)
$
156

 
$
156

 
$
311

 
$
311

Series B Preferred Stock(b)
58

 
59

 
118

 
124

Total Preferred Stock dividends paid
$
214

 
$
215

 
$
429

 
$
435

__________
(a)
Cumulative unpaid dividends on our Series A Preferred Stock were $26 million at June 30, 2012.
(b)
Cumulative unpaid dividends on our Series B Preferred Stock were $20 million at June 30, 2012 and 2011.


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GENERAL MOTORS COMPANY AND SUBSIDIARIES


Employees

At June 30, 2012 we employed 210,000 employees of whom 142,000 (68%) were hourly employees and 68,000 (32%) were salaried employees. The following table summarizes worldwide employment (in thousands):
 
June 30, 2012
 
December 31, 2011
GMNA
101

 
98

GME
38

 
39

GMIO
35

 
34

GMSA
32

 
33

GM Financial
4

 
3

Total worldwide
210

 
207

 


 
 
U.S. - Salaried
29

 
29

U.S. - Hourly
50

 
48


Critical Accounting Estimates

The condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that affect the condensed consolidated financial statements and the judgments and assumptions used are consistent with those described in the MD&A section in our 2011 Form 10-K, with updates to our critical accounting estimates related to events occurring subsequent to the filing of our 2011 Form 10-K discussed below.

Impairment of Goodwill

We adopted the provisions of Accounting Standards Update 2010-28, "When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts," on January 1, 2011 and performed Step 2 of the goodwill impairment testing for our GME reporting unit which had a negative carrying amount resulting in the recognition of a cumulative-effect adjustment to Retained earnings of $1.5 billion. In addition, in the three months ended March 31, 2012 and 2011 we performed event-driven goodwill impairment tests at our GME reporting unit which resulted in Goodwill impairment charges of $590 million and $395 million. At March 31, 2012 GME's Goodwill balance was $0. In the three months ended March 31 and June 30, 2012 we also performed event-driven goodwill impairment tests at our GM Korea reporting unit which resulted in a Goodwill impairment charge of $27 million in the three months ended March 31, 2012. Refer to Note 9 to our condensed consolidated financial statements for additional information on these Goodwill impairment charges, including assumptions utilized in determining the fair values of GME and GM Korea and the amounts of these reporting units' implied goodwill.

The key assumptions utilized in determining the fair value-to-U.S. GAAP differences giving rise to the implied goodwill for GME and GM Korea are the determination of our nonperformance risk, interest rates, estimates of our employee benefit related obligations and/or the estimated timing of the utilization of our deferred tax assets, including our determination whether it is more likely than not that the deferred tax assets will be utilized. Of these factors, the amount of implied goodwill determined for GME is most sensitive to changes in our nonperformance risk, interest rates and estimates of our employee benefit related obligations. The amount of implied goodwill determined for GM Korea is most sensitive to our determination of whether it is more likely than not that its deferred tax assets will or will not be utilized.

Our fair value estimates assume the achievement of the future financial results contemplated in our forecasted cash flows and there can be no assurance that we will realize that value. The estimates and assumptions used are subject to significant uncertainties, many of which are beyond our control, and there is no assurance that anticipated financial results will be achieved.

Valuation of Deferred Tax Assets

We establish valuation allowances for deferred tax assets based on a more likely than not standard. The ability to realize deferred

75


GENERAL MOTORS COMPANY AND SUBSIDIARIES


tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward 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 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.

The assessment regarding whether a valuation allowance is required or should be adjusted also considers all available positive and negative evidence factors, including but not limited to:

•
Nature, frequency, and severity of recent losses;

•
Duration of statutory carryforward periods;

•
Historical experience with tax attributes expiring unused; and

•
Near- and medium-term financial outlook.

It is difficult to conclude a valuation allowance is not required when there is significant objective and verifiable negative evidence, such as cumulative losses in recent years. We utilize a rolling three years of actual and current year anticipated results as the primary measure of cumulative losses in recent years.

The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns and future profitability. Our accounting for deferred tax consequences represents our best estimate of those future events. Changes in our current estimates, due to unanticipated events or otherwise, could have a material effect on our financial condition and results of operations.

After many years of significant North American operating losses, our U.S. and Canadian operations have experienced profitability in 2010, 2011 and through the first half of 2012. We continue to believe it is more likely than not our U.S. and Canadian deferred tax assets will not be realized. However, to the extent positive evidence trends continue, our conclusion regarding the need for full valuation allowances could change leading to the reversal of a significant portion of our valuation allowances in 2012. At June 30, 2012 deferred tax asset valuation allowances for the U.S. and Canada were $36.2 billion and $3.1 billion.

In a valuation allowance environment, utilization of tax attributes to offset taxable income reduces the overall level of deferred tax assets subject to valuation allowance. Additionally, our recorded effective tax rate is lower than the applicable statutory tax rate, due primarily to income earned in jurisdictions for which a full valuation allowance is recorded. Our effective tax rate will approach the statutory tax rate in periods after valuation allowances are reversed. In the quarter in which valuation allowances are reversed, we will record a material tax benefit reflecting the reversal, which could result in a negative effective tax rate. Valuation allowance reversals could result in goodwill impairment. Refer to Note 9 to our condensed consolidated financial statements for additional information related to Goodwill impairment charges.

Forward-Looking Statements

In this report and in reports we subsequently file and have previously filed with the SEC on Forms 10-K and 10-Q and file or furnish on Form 8-K, and in related comments by our management, we use words like “anticipate,” “believe,” “continue,” “could,” “designed,” “effect,” “estimate,” “evaluate,” “expect,” “forecast,” “goal,” “initiative,” “intend,” “may,” “objective,” “outlook,” “plan,” “potential,” “priorities,” “project,” “pursue,” “seek,” “should,” “target,” “when,” “would,” or the negative of any of those words or similar expressions to identify forward-looking statements that represent our current judgment about possible future events. In making these statements we rely on assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments as well as other factors we consider appropriate under the circumstances. We believe these judgments are reasonable, but these statements are not guarantees of any events or financial results, and our actual results may differ materially due to a variety of important factors, both positive and negative. These factors,

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GENERAL MOTORS COMPANY AND SUBSIDIARIES


which may be revised or supplemented in subsequent reports on SEC Forms 10-K, 10-Q and 8-K, include among others the following:

•
Our ability to realize production efficiencies and to achieve reductions in costs as a result of our restructuring initiatives and labor modifications;
•
Our ability to maintain quality control over our vehicles and avoid material vehicle recalls;
•
Our ability to maintain adequate liquidity and financing sources and an appropriate level of debt, including as required to fund our planned significant investment in new technology, and, even if funded, our ability to realize successful vehicle applications of new technology;
•
Shortages of and increases or volatility in the price of oil, including as a result of political instability in the Middle East and African nations;
•
The effect of business or liquidity difficulties for us or one or more subsidiaries on other entities in our corporate group as a result of our highly integrated and complex corporate structure and operation;
•
Our ability to continue to attract customers, particularly for our new products, including cars and crossover vehicles;
•
Availability of adequate financing on acceptable terms to our customers, dealers, distributors and suppliers to enable them to continue their business relationships with us;
•
The ability of our suppliers to deliver parts, systems and components without disruption and at such times to allow us to meet production schedules;
•
Our ability to take actions we believe are important to our long-term strategy;
•
Our ability to manage the distribution channels for our products;
•
Our ability to successfully restructure our European operations;
•
The continued availability of both wholesale and retail financing from Ally Financial and its affiliates and other finance companies in markets in which we operate to support our ability to sell vehicles, which is dependent on those entities' ability to obtain funding and their continued willingness to provide financing, which may be reduced or suspended;
•
Our continued ability to develop captive financing capability, including through GM Financial;
•
Overall strength and stability of general economic conditions and of the automotive industry, both in the U.S. and in global markets, particularly Europe;
•
Continued economic instability or poor economic conditions in the U.S., Europe and other global markets, including the credit markets, or changes in economic conditions, commodity prices, housing prices, foreign currency exchange rates or political stability in the markets in which we operate;
•
Significant changes in the competitive environment, including the effect of competition and excess manufacturing capacity in our markets, on our pricing policies or use of incentives and the introduction of new and improved vehicle models by our competitors;
•
Significant changes in economic and market conditions in China, including the effect of competition from new market entrants, on our vehicle sales and market position in China;
•
Changes in the existing, or the adoption of new, laws, regulations, policies or other activities of governments, agencies and similar organizations, including where such actions may affect the production, licensing, distribution or sale of our products, the cost thereof or applicable tax rates;
•
Costs and risks associated with litigation;
•
Significant increases in our pension expense or projected pension contributions resulting from changes in the value of plan assets, the discount rate applied to value the pension liabilities or other assumption changes; and
•
Changes in accounting principles, or their application or interpretation, and our ability to make estimates and the assumptions underlying the estimates, which could have an effect on earnings.

We caution readers not to place undue reliance on forward-looking statements. We undertake no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other factors that affect the subject of these statements, except where we are expressly required to do so by law.

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*  *  *  *  *  *  *

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in our exposure to market risk since December 31, 2011. Refer to Item 7A in our 2011 Form 10-K.

*  *  *  *  *  *  *

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chairman and CEO and Senior Vice President and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) at June 30, 2012. Based on this evaluation required by paragraph (b) of Rules 13a-15 or 15d-15, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2012.

Changes in Internal Controls

There have not been any changes in internal control over financial reporting during the three months ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

*  *  *  *  *  *  *


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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The discussion in the following paragraphs describes material legal proceedings that arose in the three months ended June 30, 2012 or provides an update of developments that have occurred in various material pending legal proceedings to which we are a party, other than ordinary routine litigation incidental to our business. The proceedings that are being updated are fully described in our 2011 Form 10-K as updated in our Form 10-Q for the period ended March 31, 2012. We and the other defendants affiliated with us intend to defend all of the following actions vigorously.

Canadian Export Antitrust Class Actions

As previously reported since January 1, 2001 approximately 80 class action cases have been filed on behalf of all purchasers of new motor vehicles in various U.S. state and federal courts against General Motors Corporation, General Motors of Canada Limited (GMCL), Ford Motor Company, Chrysler, LLC, Toyota Motor Corporation, Honda Motor Co., Ltd., Nissan Motor Company, Limited, and Bavarian Motor Works and their Canadian affiliates, the National Automobile Dealers Association and the Canadian Automobile Dealers Association. The nearly identical complaints alleged that the defendant manufacturers, aided by the association defendants, conspired among themselves and with their dealers to prevent the sale to U.S. citizens of vehicles produced for the Canadian market and sold by dealers in Canada. The complaints alleged that new vehicle prices in Canada are 10% to 30% lower than those in the U.S., and that preventing the sale of these vehicles to U.S. citizens resulted in the payment of higher than competitive prices by U.S. consumers. The complaints, as amended, sought injunctive relief under U.S. antitrust law and treble damages under U.S. and state antitrust laws, but did not specify damages. The complaints further alleged unjust enrichment and violations of state unfair trade practices act. The federal court actions were consolidated for coordinated pretrial proceedings under the caption In re New Market Vehicle Canadian Export Antitrust Litigation Cases in the U.S. District Court for the District of Maine, but on July 2, 2009 the federal court granted summary judgment in favor of the defendants which concluded the federal actions.

And as previously reported certain related class action cases were pending against the defendants in various U.S. state courts. GMCL without conceding liability agreed with plaintiffs to settle all remaining state court cases in the amount of $21 million with the settlement to be apportioned among the claimants, their lawyers and administrative costs. Lawyers representing the plaintiffs sought approval of the settlement by the state courts in late 2011. All courts have now approved the settlement and the funds will be disbursed as the claims, fees and administrative costs are confirmed.

Inventory Management Securities Class Action

On June 29, 2012 a putative securities class action was filed against us and a number of our past and current officers and directors in the United States District Court for the Southern District of New York (George G. Scott v. General Motors Company et al). Purporting to sue on behalf of owners of common stock deriving from our 2010 initial public offering, plaintiff asserts non-fraud prospectus based liability claims under various Federal securities statutes alleging that the Company has made false statements about its vehicle inventory controls and production decisions, particularly with respect to full-size trucks. The plaintiff's complaint requests compensatory damages, rescission and litigations costs, fees and disbursements.

*  *  *  *  *  *  *

Item 1A. Risk Factors

We face a number of significant risks and uncertainties in connection with our operations. Our business, results of operations and financial condition could be materially adversely affected by these risk factors. There have been no material changes to the Risk Factors disclosed in our 2011 Form 10-K.
*  *  *  *  *  *  *


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Item 6. Exhibits
Exhibit
Number
  
Exhibit Name
  
 
10.1
 
Definitive Transaction Framework Agreement, dated as of May 30, 2012, by and among General Motors LLC, Prudential Insurance Company of America, Prudential Financial, Inc. and State Street Bank and Trust Company, as Independent Fiduciary of the GM Retirement Program for Salaried Employees**
 
Filed Herewith
31.1
  
Section 302 Certification of the Chief Executive Officer

  
Filed Herewith
31.2
  
Section 302 Certification of the Chief Financial Officer

  
Filed Herewith
32.1
  
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  
Filed Herewith
32.2
  
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  
Filed Herewith
101.INS*
 
XBRL Instance Document
 
Furnished with this Report
101.SCH*
 
XBRL Taxonomy Extension Schema Document
 
Furnished with this Report
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
Furnished with this Report
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document
 
Furnished with this Report
101.PRE*
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
Furnished with this Report
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document
 
Furnished with this Report
__________
*
Submitted electronically with this Report.
**
Confidential treatment has been requested for portions of this agreement.

* * * * * * *


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GENERAL MOTORS COMPANY AND SUBSIDIARIES




SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
GENERAL MOTORS COMPANY
(Registrant)


 
 
 
By:
/s/ NICK S. CYPRUS
 
 
 
 
Nick S. Cyprus, Vice President, Controller and Chief Accounting Officer
 
Date:
August 3, 2012
 
 
 


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