RNS Number:8394K
General Motors Accept Corp Canada
08 April 2005
General Motors Acceptance Corporation of Canada, Limited
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
For the Year Ended December 31, 2004
INCORPORATED UNDER THE LAWS OF CANADA
3300 BLOOR STREET WEST, SUITE 2800, TORONTO, ONTARIO M8X 2X5
*****
BOARD OF DIRECTORS
PAUL D. BULL THOMAS E. DICKERSON
Vice-President, President,
Global Borrowings, General Motors Acceptance
General Motors Corporation of Canada, Limited
Acceptance Corporation
WENDE M. RAPSON GEORGE F. HOWELL
Legal Counsel and Corporate Secretary, Former Manager, Toronto
General Motors Acceptance General Motors Acceptance
Corporation of Canada, Limited Corporation of Canada, Limited
ALAN P. FRANKLIN W. JAMES WATSON
Treasurer and Comptroller, Former President,
General Motors Acceptance Corporation of General Motors Acceptance
Canada, Limited Corporation of Canada, Limited
OFFICERS
THOMAS E. DICKERSON
President
ALAN P. FRANKLIN WENDE M. RAPSON
Treasurer and Comptroller Legal Counsel and Corporate Secretary
MANAGEMENT'S RESPONSIBILITIES FOR CONSOLIDATED
FINANCIAL STATEMENTS
The following consolidated financial statements of General Motors Acceptance
Corporation of Canada, Limited were prepared by management, which is responsible
for their integrity and objectivity. The statements have been prepared in
conformity with Canadian generally accepted accounting principles and, as such,
include amounts based on judgments of management.
Management is further responsible for maintaining a system of internal
accounting controls, designed to provide reasonable assurance that the books and
records reflect the transactions of the Company and that its established
policies and procedures are carefully followed, and that the Company's assets
are safeguarded. Perhaps the most important feature of the system of control is
that it is continually reviewed for its effectiveness and is augmented by
written policies and guidelines, the careful selection and training of qualified
personnel and an internal audit program.
Deloitte & Touche LLP, an independent auditing firm, is engaged by the
Shareholder to audit the consolidated financial statements of General Motors
Acceptance Corporation of Canada, Limited and to issue a report thereon. The
audit is conducted in accordance with Canadian generally accepted auditing
standards which comprehend the consideration of internal accounting controls and
tests of transactions to the extent necessary to form an independent opinion on
the financial statements prepared by management. The Auditors' Report appears
on the following page.
The Board of Directors' responsibilities include, but are not limited to: (1)
ensuring that management fulfills its responsibilities in the preparation of the
consolidated financial statements and (2) recommending the engaging of the
auditors. Representatives of management and the internal auditors meet
regularly (separately and jointly) to assess the effectiveness of the system of
internal controls. It is management's conclusion that the system of internal
accounting controls at December 31, 2004 provides reasonable assurance that the
books and records reflect the transactions of the Company and that it complies
with its established policies and procedures.
s/ Thomas E. Dickerson
Thomas E. Dickerson
Director
s/ Alan P. Franklin
Alan P. Franklin
Director
AUDITORS' REPORT
To the Shareholder of General Motors Acceptance Corporation of Canada, Limited:
We have audited the consolidated balance sheets of General Motors Acceptance
Corporation of Canada, Limited as at December 31, 2004 and 2003, and the
consolidated statements of income and retained earnings and of cash flows for
the years then ended. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2004
and 2003, and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.
s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Chartered Accountants
March 16, 2005
Consolidated Balance Sheet
General Motors Acceptance Corporation of Canada, Limited
December 31, December 31,
2004 2003
(in thousands)
Assets
Cash and cash equivalents $ 2,785,666 $ 2,366,000
Subordinated interests in securitization trusts, net 444,452 406,908
Finance receivables and loans, net 6,385,266 8,105,023
Investment in operating leases, net 7,079,305 5,746,415
Income and other taxes receivable 19,618 -
Notes receivable from affiliates 2,552,074 2,118,528
Accounts receivable from affiliates 25,388 50,981
Investments 797,500 1,084,392
Other assets 759,350 521,733
TOTAL ASSETS $ 20,848,619 $ 20,399,980
Liabilities
Debt payable within one year $ 7,166,238 $ 5,444,581
Interest payable 171,889 190,025
Income and other taxes payable - 10,527
Accrued expenses and other liabilities 983,763 829,952
Future income taxes 777,327 696,679
Debt payable after one year 9,778,720 11,270,030
Total Liabilities 18,877,937 18,441,794
Shareholder's Equity
Capital stock without par value (authorized - unlimited,
outstanding - 1,450,000 common shares) 50,000 50,000
Contributed surplus - 129,692
Retained earnings 1,920,682 1,778,494
Total Shareholder's Equity 1,970,682 1,958,186
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 20,848,619 $ 20,399,980
The Notes to Consolidated Financial Statements are an integral part of these
statements.
Approved by the Board:
s/ Thomas E. Dickerson
Director
s/ Alan P. Franklin
Director
Consolidated Statements of Income and Retained Earnings
General Motors Acceptance Corporation of Canada, Limited
Year Ended December 31,
2004 2003
(in thousands)
Revenue
Consumer $ 296,248 $ 324,957
Commercial 198,438 267,342
Operating leases 1,657,218 1,361,679
Total financing revenue 2,151,904 1,953,978
Interest and discount (824,516) (822,075)
Depreciation on operating leases (1,208,540) (996,230)
Net financing revenue 118,848 135,673
Other income 258,990 267,867
Net financing revenue and other income 377,838 403,540
Expense
Operating expenses 167,358 183,066
Provision for credit losses (7,881) 25,938
Total expenses 159,477 209,004
Income before income taxes 218,361 194,536
Income tax expense 76,173 61,108
Net income 142,188 133,428
Retained earnings, beginning of the year 1,778,494 1,645,066
Retained earnings, end of the year $ 1,920,682 $ 1,778,494
The Notes to Consolidated Financial Statements are an integral part of these statements.
Consolidated Statement of Cash Flows
General Motors Acceptance Corporation of Canada, Limited
Year Ended December 31,
2004 2003
(in thousands)
Operating Activities
Net income $ 142,188 $ 133,428
Depreciation 1,211,128 998,439
Provision for credit losses (7,881) 25,938
Gain on sale of finance receivables - Consumer (33,641) (33,520)
Net change in:
Other assets (240,205) 38,264
Accounts receivable from affiliates 25,593 (24,543)
Interest payable (18,136) 5,259
Income and other taxes payable/receivable (30,145) (64,108)
Accrued expenses and other liabilities 153,811 17,402
Future income taxes 80,648 39,872
Cash provided by operating activities 1,283,360 1,136,431
Financing Activities
Net change in short-term debt 133,996 (569,487)
Issuance of long-term debt 3,355,871 5,056,440
Repayment of long-term debt (3,259,520) (3,599,160)
Repatriation of contributed surplus (129,692) -
Cash provided by financing activities 100,655 887,793
Investing Activities
Acquisitions of finance receivables and loans (18,566,493) (20,669,310)
Liquidations of finance receivables and loans 17,746,679 18,745,693
Proceeds from sales of finance receivables 2,581,093 2,275,277
Purchases of operating lease assets (3,318,942) (2,740,397)
Disposals of operating lease assets 777,512 1,166,852
Net change in:
Notes receivable from affiliates (433,546) 845,233
Investments 286,892 -
Subordinated interests in securitization trusts (37,544) (62,572)
Cash used in investing activities (964,349) (439,224)
Increase in cash and cash equivalents 419,666 1,585,000
Cash and cash equivalents at beginning of the year 2,366,000 781,000
Cash and cash equivalents at end of the year $ 2,785,666 $ 2,366,000
Supplemental disclosure
Cash paid for:
Interest $ 840,290 $ 815,329
Taxes $ 53,179 $ 108,047
The Notes to Consolidated Financial Statements are an integral part of these statements.
Note 1. Significant Accounting Policies
General Motors Acceptance Corporation of Canada, Limited ("GMACCL" or the "
Company"), a wholly-owned subsidiary of General Motors Acceptance Corporation
("GMAC"), a Delaware corporation, was incorporated in 1953 under the laws of
Canada. The Company is a financial services organization providing a diverse
range of services to a national customer base.
Consolidation and basis of presentation
The consolidated financial statements are prepared in accordance with Canadian
generally accepted accounting principles and include the accounts of the Company
and its wholly-owned subsidiaries GMAC Leaseco Corporation ("Leaseco"), Canadian
Securitized Auto Receivables Corporation ("CSAR"), Canadian Securitized Auto
Receivables One Corporation ("CSAROC") and Canadian Lease Auto Receivable
Corporation ("CLARC").
Use of estimates and assumptions
The preparation of the Company's financial statements, in accordance with
Canadian generally accepted accounting principles, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the period. During the years presented, management has made estimates and
valuation assumptions primarily related, but not limited, to the determination
of the allowance for credit losses, the valuation of automotive lease residuals
and the valuation of interests in securitized assets. Due to the inherent
uncertainty involved in making estimates, actual results could differ from those
estimates.
Cash equivalents
Cash equivalents are defined as short-term, highly liquid investments with
maturities of 90 days or less.
Finance receivables and loans
Finance receivables and loans are reported at the principal amount outstanding,
net of unearned income. Revenue is recorded over the term of the related
finance receivable or loan using the interest method. Certain loan origination
costs are deferred and amortized to consumer or commercial revenue over the life
of the related finance receivable or loan using the interest method.
Nonaccrual loans
Consumer and commercial revenue recognition is suspended when finance
receivables and loans are placed on nonaccrual status. Consumer receivables are
placed on nonaccrual status when contractually delinquent for 120 days.
Commercial receivables and loans are placed on nonaccrual status when
contractually delinquent for 90 days. Revenue accrued but not collected at the
date finance receivables and loans are placed on nonaccrual status is reversed
and subsequently recognized only to the extent it is received in cash. Finance
receivables and loans are restored to accrual status only when contractually
current and the collection of future payments is reasonably assured.
Impaired loans
Commercial loans are considered impaired when the Company is no longer
reasonably assured that it will be able to collect all amounts due according to
the contractual terms of the loan agreement and the recorded investment in the
loan exceeds its estimated fair value. If the recorded investment in impaired
loans exceeds the estimated fair value, a valuation allowance is established as
a component of the allowance for credit losses. The Company's policy is to
recognize interest income related to impaired loans on a cash basis. In
addition to commercial loans specifically identified for impairment, the Company
has portfolios of smaller-balance homogeneous loans that are collectively
evaluated for impairment, as discussed within the allowance for credit losses
accounting policy.
Allowance for credit losses
The allowance for credit losses is management's estimate of incurred losses in
the lending portfolios. Portions of the allowance for credit losses are
specified to cover the estimated losses on commercial loans specifically
identified for impairment. The unspecified portion of the allowance for credit
losses covers estimated losses on the homogeneous portfolios of finance
receivables and loans collectively evaluated for impairment. Additions to the
allowance for credit losses are made by charges to the provision for credit
losses. Amounts determined to be uncollectible are charged against the
allowance for credit losses. Additionally, losses arising from the sale of
repossessed assets collateralizing automotive finance receivables and loans are
charged to the allowance for credit losses. Recoveries of previously
charged-off amounts are credited to the allowance for credit losses.
The Company performs periodic and systematic detailed reviews of its lending
portfolios to identify inherent risks and to assess the overall collectibility
of those portfolios. The allowance relates to portfolios collectively reviewed
for impairment, generally consumer finance receivables and loans, and is based
on aggregated portfolio evaluations by product type. Loss models are utilized
for these portfolios which consider a variety of factors including, but not
limited to, historical loss experience, current economic conditions, anticipated
repossessions or foreclosures based on portfolio trends, delinquencies and
credit scores, and expected loss factors by receivable and loan type. Loans in
the commercial portfolios are generally reviewed on an individual loan basis
and, if necessary, an allowance is established for individual loan impairment.
Loans subject to individual reviews are analyzed based on factors including, but
not limited to, historical loss experience, current economic conditions,
collateral performance, and performance trends within specific geographic and
portfolio segments, and any other pertinent information, which result in the
estimation of specific allowances for credit losses. The allowance related to
specifically identified impaired loans is established based on discounted
expected cash flows, observable market prices, or for loans that are solely
dependent on the collateral for repayment, the fair value of the collateral.
The evaluation of these factors for both consumer and commercial finance
receivables and loans involves complex, subjective judgments.
Securitizations
The Company sells retail finance receivables and wholesale loans to a variety of
securitization trusts. Subordinated interests in the sold receivables and loans
are generally retained in the form of overcollateralization and cash reserve
accounts. The Company's retained interests are generally subordinate to
investors' interests. The receivables and loans are sold on a fully serviced
basis. On sale, a servicing liability is recognized and amortized to other
income over the estimated remaining life of the sold receivables and loans. In
2003, two bankruptcy-remote subsidiaries of GMACCL (CSAR and CSAROC) were formed
to facilitate the Company's securitization transactions. The Company recognizes
gains and losses on securitizations of retail finance receivables and wholesale
loans which qualify as sales under the Canadian Institute of Chartered
Accountants ("CICA") Accounting Guideline ("AcG")-12 - "Transfers of
Receivables" at the date of transfer.
Gains or losses on sales depend on the previous carrying amount of the finance
receivables and loans involved in the transfer, which is allocated between the
finance receivables and loans sold and the retained interests based on their
relative fair values at the date of sale. Since quoted market prices are
generally not available, GMACCL estimates the fair value of retained interests
by determining the present value of future expected cash flows using modeling
techniques that incorporate management's best estimates of key variables,
including credit losses, prepayment speeds, weighted average life and discount
rates commensurate with the risks involved and the interest or finance rates on
variable and adjustable contracts held by the securitization trusts. Credit
loss assumptions are based upon historical experience and the characteristics of
individual receivables and loans underlying the securities. Prepayment speed
estimates are based on historical prepayment rates on similar assets. Discount
rate assumptions are determined using data obtained from market participants,
where available, or based on current relevant treasury rates plus a risk
adjusted spread based on analysis of historical spreads on similar types of
securities. Estimates of interest rates on variable and adjustable contracts
are based on spreads over the applicable benchmark interest rate using
market-based yield curves. Gains on sales are reported in other income.
Recourse to the Company is limited to the right to future residual cash flows, a
retained limited interest in the principal balance of the sold receivables and
loans and certain cash deposits provided as credit enhancements for investors.
The securitization trusts and their investors have no recourse to the Company's
other assets for failure of debtors to pay when due. Appropriate limited
recourse loss allowances are established for expected credit losses on sold
retail finance receivables.
Secured financings
The Company's operating lease securitization transaction, which was completed on
June 17, 2004, has been accounted for as a secured financing as the Company has
retained substantial risks of ownership of the leased property. The sold
operating leases remain on the balance sheet with the corresponding obligation
(consisting of the debt securities issued) reflected as debt. The Company
recognizes income on the operating leases and interest expense on the securities
issued in the securitization. In 2004, a special purpose bankruptcy remote
subsidiary of GMACCL (CLARC) was formed to facilitate the Company's secured
financing transactions.
Investment in operating leases
Investments in operating leases are reported at cost plus deferred lease
origination costs less accumulated depreciation. Income from operating lease
assets, which includes lease origination fees net of lease origination costs, is
recognized as operating lease revenue on a straight-line basis over the
scheduled lease term. Depreciation of vehicles is generally provided on a
straight-line basis to an estimated residual value over a period of time
consistent with the term of the underlying operating lease agreement. The
Company evaluates its depreciation policy for leased vehicles on a regular
basis.
The Company has significant investments in the residual values of assets in its
operating lease portfolio. The residual values represent an estimate of the
values of the assets at the end of the lease contracts and are initially
recorded based on residual values established at contract inception by using
independently published residual value guides and estimates. Realization of the
residual values is dependent on the Company's future ability to market the
vehicles under then prevailing market conditions. Over the life of the lease,
GMACCL evaluates the adequacy of its estimate of the residual value and may make
adjustments to the extent the expected value of the vehicle (including support
payments from General Motors Canada Limited ("GMCL")) at lease termination
changes. In addition to estimating the residual value at lease termination, the
Company also evaluates the current value of the operating lease asset and tests
for impairment to the extent necessary, based on market considerations and
portfolio characteristics. Impairment is determined to exist if the
undiscounted expected future cash flows are lower than the carrying value of the
asset. When a lease vehicle is returned to GMACCL, the Company reclassifies the
asset from investment in operating leases to other assets at the lower of cost
or estimated fair value, less costs to sell.
Repossessed assets
Assets are classified as repossessed and included in other assets when physical
possession of the collateral is taken. Repossessed assets are carried at the
lower of the outstanding balance at the time of repossession, or the fair value
of the asset. Losses on the periodic revaluation of repossessed assets are
charged to operating expenses. Gains and losses on the sales of repossessed
assets subject to operating leases are recorded to depreciation expense. Losses
arising from the sale of repossessed assets collateralizing automotive finance
receivables and loans are charged to the allowance for credit losses. Net costs
of maintaining and operating repossessed assets are expensed as incurred.
Property and equipment
Property and equipment, stated at cost net of accumulated depreciation and
amortization, are reported within other assets on the balance sheet.
Derivative instruments and hedging activities
Effective January 1, 2004, the Company adopted AcG-13 - "Hedging Relationships",
the new accounting guideline issued by the CICA, which increases the
documentation, designation and effectiveness criteria to achieve hedge
accounting subsequent to the adoption date. This standard is to be applied
prospectively and retroactive application is not permitted. The guideline
requires the discontinuance of hedge accounting for hedging relationships
previously established that do not meet the criteria at the date it is first
applied. AcG-13 does not change the method of accounting for derivatives in
hedging relationships, but the Emerging Issues Committee of the CICA issued
EIC-128 - "Accounting for Trading, Speculative or Non-Hedging Derivative
Financial Instruments", which was adopted concurrently with AcG-13 and requires
fair value accounting for derivatives that do not qualify for hedge accounting.
The Company is party to derivative financial instruments that it uses in the
normal course of its business to reduce its exposure to fluctuations in interest
rates and foreign currency exchange rates. The Company enters into these
transactions for purposes other than trading. These financial exposures are
managed in accordance with corporate policies and procedures. The objectives of
the derivative financial instruments portfolio are to manage interest rate and
currency risks by offsetting a funding obligation, adjusting fixed and floating
rate funding levels, and facilitating securitization transactions. As part of
the approval process, management identifies the specific financial risk that the
derivative transaction will minimize and the appropriate instrument to be used
to reduce the risk. If it is determined that a high correlation between a
specific transaction risk and the instrument does not exist, the transaction is
generally not approved.
The primary classes of derivatives used by the Company are interest rate and
foreign currency swaps. Those instruments involve, to varying degrees, elements
of credit risk in the event that a counterparty should default, and market risk
as the instruments are subject to interest and foreign currency exchange rate
fluctuations. Credit risk is managed through the continual monitoring and
approval of financially sound counterparties. Market risk is mitigated as
derivatives are generally hedges of underlying transactions. Cash receipts or
payments on these agreements occur at periodic contractually defined intervals.
Interest rate swaps
Interest rate swaps are contractual agreements with a notional amount between
the Company and another party to exchange payments representing the net
difference between a fixed and floating interest rate or between different
floating interest rates, periodically over the life of the agreements without
exchange of the underlying notional amounts. The Company uses swaps to alter its
fixed and floating interest rate exposures. Interest rate swaps that are
designated, and effective, as hedges of underlying debt obligations are not
marked to market, but the cash payments are recorded as an adjustment to
interest expense recognized over the lives of the underlying debt agreements.
Interest rate swaps are reviewed at inception and on an ongoing basis to ensure
they remain effective as hedges in managing interest rate exposure. Interest
rate swaps that are not designated in an effective hedging relationship are
carried at fair value with the changes in fair value, including any payments and
receipts made or received, being recorded in Other Income.
Foreign currency swaps
Foreign currency swaps are used to economically hedge foreign exchange exposure
on foreign currency denominated debt by converting the funding currency to
Canadian dollars. Foreign currency swaps are legal agreements between two
parties to purchase one currency and sell another currency, for a price
specified at the contract date, with delivery and settlement at both the
effective date and maturity date of the contract. Foreign currency swap
agreements are not designated as hedges for accounting purposes. As such, they
are carried at fair value on the balance sheet with the changes in fair value
being recorded as an adjustment to interest expense in the period in which they
occur.
Realized and unrealized gains or losses associated with derivative financial
instruments, which have been terminated, dedesignated from a hedging
relationship or cease to be effective prior to maturity, are deferred under
Other Assets and Other Liabilities on the balance sheet and recognized in income
on a basis consistent with the underlying hedged item. In the event a
designated hedged item is sold, extinguished or matures prior to the termination
of the related derivative financial instrument, any realized or unrealized gain
or loss on such derivative financial instrument is recognized in income.
Income taxes
The Company uses the asset and liability method of accounting for income taxes.
Under this method, future income tax assets and liabilities are measured to
reflect the net tax effects of the temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. The future income tax assets and
liabilities are computed based on the tax rates that are expected to be in
effect when the underlying items of income and expense are expected to be
realized. Future income tax assets are recognized subject to management's
judgment that realization is more likely than not.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to the
current period's presentation.
Accounting and reporting developments
In June 2003, the CICA issued AcG-15 - "Consolidation of Variable Interest
Entities". AcG-15 addresses consolidation and disclosure by business
enterprises of variable interest entities, representing those entities whose
total equity investment at risk is not sufficient to permit the entity to
finance its activities without additional subordinated financial support or
whose equity investors do not have the characteristics of a "controlling
financial interest". The standard explains how to identify variable interest
entities and how an enterprise assesses its interests in a variable interest
entity in order to decide whether to consolidate that entity. AcG-15 requires
an enterprise to consolidate a variable interest entity when that enterprise has
a variable interest, or combination of variable interests, that will absorb a
majority of the entity's expected losses as defined in AcG-15, receive a
majority of the entity's expected residual returns, as defined in AcG-15, or
both. AcG-15 applies to annual and interim periods beginning on or after
November 1, 2004. The Company will comply with AcG-15 beginning in the first
interim reporting period in 2005.
A number of the Company's securitization-related variable interests are held in
qualifying special purpose entities and, therefore, are exempt from this
standard. The remainder of the Company's securitization-related variable
interests are held in multi-seller securitization trusts. GMACCL has certain
other interests in variable interest entities for which a preliminary primary
beneficiary analysis has been performed. Management believes that consolidation
will not be required under AcG-15, however, a final analysis must be completed.
In the event consolidation is required, management does not anticipate that
there will be a material impact on the Company's financial position, results of
operations, or cash flows.
Note 2. Cash and Cash Equivalents
Cash and cash equivalents is comprised of collateralized short-term overnight
call loans and high quality trust and bank obligations totaling $2,785.7 million
and $ 2,366.0 million as at December 31, 2004 and 2003, respectively.
Note 3. Finance Receivables and Loans
The composition of finance receivables and loans outstanding was as follows:
December 31,
2004 2003
(in thousands)
Consumer
Retail automotive $ 4,212,688 $ 5,541,549
Commercial
Wholesale 1,467,063 1,786,411
Leasing and lease financing 361,060 496,739
Term loans to dealers and other 381,209 357,034
Total commercial 2,209,332 2,640,184
Total finance receivables and loans1 and 2 $ 6,422,020 $ 8,181,733
1 Net of unearned income of $392,580 and $574,423 at December 31, 2004 and
2003, respectively.
2 The aggregate amount of gross finance receivables and loans maturing in the
next four years is as follows: $3,304,925 in 2005; $1,389,334 in 2006;
$1,061,536 in 2007; $637,213 in 2008; $421,592 in 2009 and thereafter.
Prepayments may cause actual maturities to differ from scheduled
maturities.
The following table presents an analysis of the activity in the allowance for
credit losses on finance receivables and loans:
December 31,
2004 2003
(in thousands)
Allowance at beginning of year $ 76,710 $ 76,920
Provisions charged to income1 (7,881) 25,938
Charge-offs (16,864) (15,591)
Recoveries and other (50) (1,934)
Allowance relating to sold receivables (15,161) (8,623)
Allowance at end of year $ 36,754 $ 76,710
1 During 2004, the Company reduced its allowance for credit losses by $20.3
million as a result of revised estimates in respect of incurred losses
associated with its consumer loan portfolio based on observed trends over an
extended period of time with regard to underwriting quality, delinquency,
repossessions, net losses and economic factors. The $36.8 million allowance
established for credit losses as at December 31, 2004, represents management's
estimate of incurred credit losses in the finance receivable and loan portfolio
based on assumptions management believes are likely to occur.
Note 4. Sale of Finance Receivables
The Company securitizes automotive financial assets as a funding source. The
Company sold retail finance receivables with contractual principal aggregating
$2,688.6 million in 2004 and $2,549.7 million in 2003. The outstanding balance
of sold retail finance receivables totaled $3,304.9 million and $2,886.1 million
at December 31, 2004 and 2003, respectively.
The Company has also sold wholesale loans on a revolving basis resulting in a
decrease in the balance of wholesale loans outstanding of $2,551.1 million and
$2,385.0 million at December 31, 2004 and 2003, respectively. The Company is
committed to sell eligible loans arising in certain dealer accounts to a maximum
of $2,597.0 million. The outstanding securitized balance may increase or
decrease from time to time within the maximum program limits to reflect
fluctuations in available wholesale loan levels.
In the aforementioned securitizations, the Company retains servicing
responsibilities and subordinated interests. The Company receives the rights to
future cash flows remaining after the investors in the securitization trusts
have received their contractual payments. The investors and the securitization
trusts have no recourse to the Company's other assets for failure of debtors to
pay when due. The Company's retained interests are subordinate to investors'
interests and their value is subject to credit and prepayment risks on the
transferred assets. The Company sells the receivables on a fully serviced
basis. No further compensation for servicing is received after the initial
sale.
The Company maintains cash collateral accounts for certain retail finance
receivables and all current wholesale loan securitizations at predetermined
amounts in the unlikely event that deficiencies occur in cash flows owed to the
investors. The amounts available in such cash collateral accounts are recorded
in other assets and totaled $97.0 million as of December 31, 2004 and $81.7
million as of December 31, 2003.
The following table summarizes pre-tax gains on securitizations and certain cash
flows received from and paid to securitization trusts related to receivables and
loans sold.
December 31, 2004 December 31, 2003
Retail Wholesale Retail Wholesale
(in millions) (in millions)
Pre-tax gains on securitizations1 $ 33.6 $ 54.9 $ 33.5 $ 54.9
Proceeds from new securitizations $ 2,396.1 $ 185.0 $ 2,275.3 $ -
Other cash flows received on retained interests $ 65.2 - $ 47.2 -
Collections reinvested in revolving
wholesale securitizations n/a $ 13,288.4 n/a $ 8,315.9
1 Due to the short-term and floating rate nature of wholesale loans, the fair
value consideration received approximates cost.
Key economic assumptions used in measuring the estimated fair value of retained
interests in retail finance receivables sales1 as of the dates of such sales,
were as follows:
December 31,
2004 2003
Annual prepayment rate2 0.93% - 0.97% 0.89%
Weighted-average life (in years) 1.61 - 1.77 1.58 - 1.64
Expected credit losses3 0.40% 0.75%
Discount rate 9.50% 9.50%
Servicing liability 1.00% 1.00%
Variable returns to securitization investors 30 day Canadian BA rate 30 day Canadian BA rate
1 The fair value of retained interests in wholesale securitizations is
assumed to approximate the carrying value due to the short-term nature of
wholesale loans.
2 Based on the weighted average maturity (WAM) for finance receivables.
3 A reserve totaling $12.3 million and $21.4 million at December 31, 2004 and
2003, respectively, has been established for expected credit losses on sold
retail finance receivables entered into after the adoption of AcG-12
"Transfers of Receivables" on April 1, 2001.
The table below outlines the sensitivity of the current fair value of retained
interests in securitizations of retail finance receivables1 completed subsequent
to March 31, 2001 resulting from 10% and 20% adverse changes in the key economic
assumptions used to measure the fair value.
December 31, 2004
(in thousands)
Fair value of retained interests $ 314,818.6
Annual prepayment rate 0.54% - 1.20%
Impact of 10% adverse change2 $ (847.9)
Impact of 20% adverse change2 $ (1,767.6)
Discount rate 9.50%
Impact of 10% adverse change $ (3,052.9)
Impact of 20% adverse change $ (6,020.5)
Expected credit losses 0.40%
Impact of 10% adverse change $ (1,812.8)
Impact of 20% adverse change $ (3,625.9)
Variable returns to securitization investors (annual rate) 2.83% - 3.50%
Impact of 10% adverse change $ (4,277.9)
Impact of 20% adverse change $ (8,553.2)
1 The fair value of retained interests in wholesale securitizations is
assumed to approximate carrying value due to the short-term nature of
wholesale loans.
2 An adverse change in the fair value of retained interests may result from
either an increase or decrease in prepayment speeds, depending upon the
characteristics of each securitization and the related residual cash flows.
Due to the composition of the Company's sold retail finance receivables,
this amount represents the net adverse impact of a decrease in prepayment
speeds.
These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on adverse variations in
assumptions generally cannot be extrapolated because the relationship of the
change in assumption to the change in fair value may not be linear. Also, in
this table, the effect of a variation in a particular assumption on the fair
value of the retained interest is calculated without changing any other
assumption. In reality, changes in one factor may result in changes in another,
which may magnify or counteract the sensitivities.
Expected static pool net credit losses include actual incurred losses plus
projected net credit losses divided by the original balance of the outstandings
comprising the securitization pool. The table below displays the expected
static pool net credit losses for 2004 and 2003 based on securitizations
occurring in that year. Static pool losses are not applicable to wholesale loan
securitizations due to their short-term nature.
Retail finance receivables
securitized in
Expected static pool net credit losses as of: 2004 2003
December 31, 2004 0.33% 0.33%
December 31, 2003 n/a 0.32%
The following table presents components of securitized financial assets and
other assets managed, along with quantitative information about delinquencies
and net credit losses:
Total finance Amount 60 days or
receivables and loans more past due Net credit losses
2004 2003 2004 2003 2004 2003
(in millions) (in millions) (in millions)
Retail automotive $ 7,517.5 $8,427.6 $ 6.2 $ 6.2 $ 20.4 $ 18.9
Wholesale 4,018.2 4,171.4 - - - -
Leasing and lease financing 361.1 496.8 1.0 1.8 - (0.1)
Term loans to dealers and other 381.2 357.0 - - - -
Total managed portfolio1 12,278.0 13,452.8 $ 7.2 $ 8.0 $ 20.4 $ 18.8
Securitized finance receivables and 5,856.0 5,271.1
loans
Total finance receivables and loans $ 6,422.0 $8,181.7
1 Managed portfolio represents finance receivables and loans on the balance
sheet or that have been securitized.
Note 5. Investment in Operating Leases, Net
Investment in operating leases was as follows:
December 31,
2004 2003
(in thousands)
Vehicles, at cost $ 9,323,052 $ 7,267,732
Accumulated depreciation (2,243,747) (1,521,317)
Investment in operating leases, net $ 7,079,305 $ 5,746,415
The future lease payments due from customers for vehicles on operating leases at
December 31, 2004 totaled $3,660.9 million and are due as follows: $1,710.1
million in 2005; $1,179.8 million in 2006; $609.6 million in 2007; $161.0
million in 2008; and $0.4 million in 2009.
Note 6. Investments
In 1999, the Company acquired 100% of the outstanding shares of GMAC Commercial
Finance (Holdings) Limited ("Commercial Finance"), formerly GMAC Commercial
Credit (Holdings) Limited, and 60% of the outstanding shares of Interleasing
(UK) Limited ("Interleasing") from GMAC for fair market value consideration
equal to $797.5 million and $252.2 million, respectively. In conjunction with
these acquisitions, the Company entered into an agreement with GMAC and the
acquired entities under which GMAC unilaterally nominates the board of directors
of those entities and therefore ultimately determines their strategic investing,
financing and operating policies. Accordingly, the Company has not consolidated
these investments and has recorded these investments on a cost basis. In
addition, the Company has an agreement with GMAC whereby GMAC unconditionally
guarantees the Company's investment in Commercial Finance and Interleasing.
Income associated with these investments will be recorded when received.
In January 2002, GMAC injected $34.7 million into the Company which was recorded
as an increase to contributed surplus. These funds were invested in
Interleasing to maintain the Company's 60% ownership interest.
On October 13, 2004, the Company sold its shares in Interleasing to General
Motors Acceptance Corporation, Continental ("Continental"), an affiliated
company. Proceeds on the sale were $286.9 million. No gain or loss was
realized on the sale. Consideration was received through the issuance of an
interest bearing promissory note by Continental. The Company received full
payment on the promissory note prior to December 31, 2004.
The recorded investment in Commercial Finance at December 31, 2004 was $797.5
million.
Commercial Finance had consolidated total assets of approximately $1.9 billion
at December 31, 2004 and $2.1 billion at December 31, 2003, the majority of
which represented loans receivable relating to the group's asset-based lending
activities and goodwill arising on acquisition of subsidiaries. Consolidated
total liabilities as at December 31, 2004 and December 31, 2003 are
approximately $1.2 billion and $1.5 billion, respectively, substantially all of
which relates to financing provided by other GMAC affiliated companies.
Note 7. Other Assets
Other assets consisted of:
December 31,
2004 2003
(in thousands)
Property and equipment, at cost $ 7,981 $ 8,096
Accumulated depreciation (2,299) (2,507)
Net property and equipment 5,682 5,589
Restricted cash collections for securitization trusts 80,247 25,780
Cash reserves held for securitization trusts 179,605 82,494
Servicer advances 7,718 5,491
Accrued interest and operating lease receivables 27,539 23,527
Investment in used vehicles held for sale 45,373 32,366
Non-performing assets, net 8,999 9,187
Unamortized debt issuance costs 22,843 21,420
Derivative assets 237,765 196,600
Deferred insurance and warranty premiums on lease contracts 119,575 101,394
Prepaid pension asset 23,737 17,545
Other assets 267 340
Total other assets $ 759,350 $ 521,733
Note 8. Lines of Credit with Banks
Established committed revolving lines of credit with banks totaled $1.25 billion
at December 31, 2004 and 2003, of which $625 million will expire on June 13,
2005 and $625 million will expire on June 16, 2008.
Note 9. Debt Payable Within One Year
Weighted Average
Interest Rate December 31,
December 31, 2004 2004 2003
(in thousands)
Short-term notes
Domestic 2.706% $ 2,272,692 $ 2,131,775
Foreign 1 2.803% 50,550 58,011
Total principal amount 2,323,242 2,189,786
Unamortized discount (7,239) (6,482)
Total 2,316,003 2,183,304
Bank loans and overdrafts 4.250% 5,483 4,187
Other notes and debentures payable within one year
Domestic 5.449% 3,466,034 2,939,338
Foreign 2 2.896% 1,131,609 317,752
Total 4,597,643 3,257,090
Total unsecured financing 6,919,129 5,444,581
Total secured financing 247,109 -
Total debt payable within one year $ 7,166,238 $ 5,444,581
1 Denominated in U.S. dollars
2 Denominated in US Dollar, Japanese Yen, New Zealand Dollar, Polish Zloty,
Czech Koruna, Euro, Danish Krone, British Pound Sterling and Norwegian
Krone.
The Company has entered into foreign currency swap agreements to fully hedge its
exposures related to notes and debentures payable in foreign currencies.
All of the above debt, with the exception of secured financing, is guaranteed by
GMAC. Effective July 1, 2000, all new guaranteed debt entered into by the
Company became subject to a guarantee fee. In respect of its guarantee of
short-term notes, GMAC was paid $4.2 million in 2004 and $5.0 million in 2003.
This fee is excluded from the weighted average interest rates above.
Note 10. Debt Payable After One Year
Contract Currency December 31,
Maturity Date Rate Denomination 2004 2003
(in millions) (in thousands)
January, 2005 7.000% USD 200 $ - $ 258,220
February, 2005 (1) Y 6,000 - 72,369
February, 2005 8.250% NZD 100 - 84,632
February, 2005 (2) USD 30 - 38,733
March, 2005 7.000% CAD 100 - 100,000
March, 2005 7.750% USD 250 - 322,775
April, 2005 (3) Euro 26 - 41,656
April, 2005 7.000% CZK 1,000 - 50,286
April, 2005 12.250% PLN 100 - 34,473
July, 2005 5.250% DKK 400 - 87,550
October, 2005 7.500% NZD 100 - 84,632
November, 2005 6.125% DKK 400 - 87,550
December, 2005 6.625% CAD 100 - 100,000
February, 2006 6.125% DKK 600 131,984 131,324
March, 2006 6.250% CAD 100 100,000 100,000
May, 2006 6.250% CAD 100 100,000 100,000
September, 2006 6.125% CAD 100 100,000 100,000
November, 2007 6.125% DKK 400 87,989 87,550
February, 2008 6.000% DKK 500 109,987 109,437
May, 2008 7.000% CAD 10 10,000 10,000
June, 2008 4.500% Euro 50 81,811 81,472
June, 2008 4.500% Euro 25 40,906 40,736
September, 2008 (4) Euro 400 654,490 651,774
September, 2008 7.750% NZD 100 86,513 84,630
December, 2008 5.750% CAD 100 100,000 100,000
June, 2009 (5) Euro 50 81,811 -
June, 2009 (6) Euro 15 24,543 -
December, 2010 6.625% GBP 200 463,655 462,561
September, 2011 7.125% AUD 200 187,484 -
Notes with original maturities up to ten years with a weighted
average interest rate at December 31, 2004 of 5.78% 7,031,423 7,847,670
Total unsecured financing 9,392,596 11,270,030
Total secured financing 386,124 -
Total debt payable after one year $ 9,778,720 $ 11,270,030
(1) Interest at a rate of 0.10% above the 3 month JPY LIBOR rate
(2) Interest at a rate of 0.21% above the 3 month US LIBOR rate
(3) Interest at a rate of 0.20% above the 3 month EURIBOR rate
(4) Interest at a rate of 1.75% above the 3 month EURIBOR rate
(5) Interest at a rate of 1.5% above the 6 month EURIBOR rate
(6) Interest at a rate of 1.5% above the 6 month EURIBOR rate
The Company has entered into foreign currency swap agreements to fully hedge its
exposures related to notes and debentures payable in foreign currencies.
All of the above debt, with the exception of secured financing, is guaranteed by
GMAC. Effective July 1, 2000, all new guaranteed debt entered into by the
Company became subject to a guarantee fee. In respect of its guarantee of debt
due after one year, GMAC was paid $40.8 million in 2004 and $33.4 million in
2003.
The following table presents the maturity of long-term debt at December 31,
2004. The maturity of the debt is based on contractual terms, assuming that no
repurchases will occur.
(in thousands)
2006 $ 3,358,583
2007 2,287,434
2008 2,340,245
2009 1,147,337
2010 479,055
2011 and thereafter 187,510
Long-term debt 9,800,164
Unamortized discount (21,444)
Total long-term debt $ 9,778,720
Note 11. Secured Financing
On June 17, 2004, Leaseco entered into a Master Concurrent Lease Agreement
("MCLA") with Canadian Auto Retail Lease Trust No. 1 (the "CARLT 1"). The
Company acts as Administrative Agent for the CARLT 1 pursuant to the
Administration Agreement. In accordance with the MCLA, CARLT 1 will be entitled
to receive the lease payments from the underlying lessees and CARLT 1 will also
have an option to acquire the underlying vehicles upon termination of the
underlying lease or the occurrence of other certain limited events. This
transaction was accounted for as a secured financing. As at December 31, 2004,
the net book value of operating leases was $759.9 million and the outstanding
financing was $633.2 million.
The Company maintains cash collateral accounts for certain lease securitizations
at predetermined amounts in the unlikely event that deficiencies occur in cash
flows owed to investors. The amounts available in such cash collateral accounts
are recorded in other assets and totaled $83.1 million as of December 31, 2004.
Note 12. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities was as follows:
December 31,
2004 2003
(in thousands)
Dealer credit account plan $ 239,043 $ 223,753
Customer security deposits 45,100 35,794
Employee compensation and benefits 46,993 44,135
Derivative liabilities 156,363 81,914
Securitization trustee payable 164,267 167,324
Deferred income 132,454 53,607
Accounts payable and other liabilities 199,543 223,425
Total accrued expenses and other liabilities $ 983,763 $ 829,952
Note 13. Interest and Discount
Interest and discount expense includes $714.8 million in 2004 and $699.6 million
in 2003, applicable to indebtedness initially incurred for terms of more than
one year.
Note 14. Other Income
Details of other income were as follows:
Year Ended December 31,
2004 2003
(in thousands)
Excess interest and other
ongoing revenue from securitizations $ 79,799 $ 86,672
Gains on securitizations 88,567 88,387
Service fee revenue from GMCL 36,207 49,159
Interest income on cash and cash equivalents 41,041 35,502
Gain on non-hedging securitization derivatives, net 2,315 -
Other 11,061 8,147
Total other income $ 258,990 $ 267,867
Note 15. Transactions with Affiliates
The Company enters into transactions with related parties, in the normal course
of business, on the same basis as non-related parties.
Balance Sheet
A summary of the effect of transactions with affiliated companies on GMACCL's
balance sheet was as follows:
December 31,
2004 2003
(in thousands)
Dealer receivables due from GMCL 1 $ 136,839 $ 127,018
Notes receivable from affiliates
GMCL 2 $ 1,775,789 $ 1,557,923
GMAC Commercial Finance Corporation - Canada 3 251,612 348,437
GMAC Commercial Mortgage of Canada, Limited 3 205,140 103,023
GMAC Residential Funding of Canada, Limited 3 319,533 109,145
$ 2,552,074 $ 2,118,528
Accounts receivable from affiliates
GMCL $ 39,188 $ 62,393
GMAC (13,800) (11,412)
$ 25,388 $ 50,981
Repatriation of contributed surplus $ 129,692 -
1 GMACCL provides wholesale financing and term loans to dealerships whereby
GMCL has an ownership interest. These amounts are included in finance
receivables and loans.
2 The Company sold to GMCL, $498.6 million in 2004, and $398.6 million in
2003, of vehicles subject to operating leases. The Company continues to
service these leases. Under a loan agreement, the Company also makes
secured loans to GMCL to fund their vehicle leasing program and GMCL may
prepay all or any portion of these loans, at any time. The rate of
interest is based on a spread over the bankers' acceptance rate or
government treasury note related to the term of the loan.
3 The Company has agreements to provide funding to related Canadian
corporations wholly owned by GMAC. The revolving lines of credit and
advances may be prepaid in total, or any portion thereof, at any time.
Interest payable on advances is determined based on a spread over the
average monthly commercial paper portfolio rate.
Income Statement
A summary of the effect of transactions with affiliated companies on GMACCL's
income statement was as follows:
Year Ended December 31,
2004 2003
(in thousands)
Net financing revenue
Interest on notes receivable from affiliates $ 95,625 $ 121,727
Guarantee fee paid to GMAC 45,002 38,441
Interest on wholesale settlements 1 11,680 13,107
Consumer lease payments 2 9,702 6,669
GMCL lease residual value support (2,313) 18,270
Wholesale subvention from GMCL 813 1,849
Other income
Service fee revenue from GMCL 3 36,207 49,159
Off-lease vehicle administration fees charged to GMCL 4 2,906 1,992
Expenses
Payments to GMAC for technical and administrative services 21,433 19,855
Payments to GMCL for administrative services 1,342 1,293
Insurance premiums paid to Motors Insurance Corporation 2 98
1 The settlement terms related to the wholesale financing of certain GM
products are at shipment date. To the extent that wholesale settlements
with GMCL are made prior to the expiration of transit, interest is received
from GMCL.
2 GMCL sponsors lease pull-ahead programs whereby consumers are encouraged to
terminate lease contracts early in conjunction with the acquisition of a
new General Motors ("GM") vehicle. Under these programs, GMCL waives the
customer's remaining payment obligation and reimburses GMACCL for the
waived payments.
3 GMACCL administers operating lease receivables on behalf of GMCL and
receives a servicing fee.
4 GMACCL charges an administration fee for the sale of off-lease vehicles
owned by GMCL at auction.
Note 16. Income Taxes
The significant temporary differences giving rise to the Company's future net
income tax liability for 2004 and 2003 of $777.3 million and $696.7 million,
respectively, are as follows:
December 31, 2004 December 31, 2003
Assets Liabilities Assets Liabilities
(in thousands) (in thousands)
Lease transactions $ 806,797 $ 747,312
Loss carryforwards and minimum tax credits $ 26,248 $ 25,205
Provision for financing losses 21,103 36,056
Pension and other post retirement benefits 7,461 7,333
Securitizations 28,724 24,338
Other 4,385 6,377
Derivative mark to market 1,003
Total future income taxes $ 59,197 $ 836,524 $ 74,971 $ 771,650
The significant components of income tax expense are as follows:
Year Ended December 31,
2004 2003
(in thousands)
Current income tax expense (recovery) $ (1,486) $ 29,861
Future income tax expense (recovery) relating to temporary differences 82,159 57,247
Future income tax expense (recovery) relating to reduction in tax rate (4,500) (26,000)
Total income tax expense $ 76,173 $ 61,108
A reconciliation of the statutory income tax rate to the effective tax rate for
the years 2004 and 2003 follows:
December 31,
2004 2003
% %
Combined federal and provincial statutory income tax rate 35.0 37.2
Large corporations tax 6.5 8.2
Change in tax rate for future income taxes (2.1) (13.4)
Other items (4.5) (0.6)
Effective tax rate 34.9 31.4
At December 31, 2004, the Company has provincial minimum tax credits of $26.2
million for income tax purposes that expire as follows: $0.8 million in 2006;
$4.9 million in 2007; $4.2 million in 2008; $4.1 million in 2009; $2.9 million
in 2010; $3.8 million in 2012; $3.6 million in 2013; and $1.9 million in 2014.
For financial reporting purposes, a future tax asset of $26.2 million has been
recognized in respect of these minimum tax credits. Realization of the minimum
tax credits is dependent on future taxable income. Although realization is not
assured, management believes that it is more likely than not that they will be
realized.
Note 17. Fair Value of Financial Instruments
The estimated fair value of financial instruments was as follows:
December 31, 2004 December 31, 2003
Book Estimated Book Estimated
Value Fair Value Value Fair Value
(in thousands) (in thousands)
Financial assets
Subordinated interests in securitization $ 444,452 $ 512,878 $ 406,908 $ 461,511
trusts
Finance receivables and loans, net 6,385,266 6,397,876 8,105,023 8,121,463
Notes receivable from affiliates 2,552,074 2,534,395 2,118,528 2,076,886
Financial liabilities
Debt $ 16,944,958 $ 17,058,724 $ 16,714,611 $ 16,886,713
The Company has developed the fair value estimates using available market
information or other appropriate valuation methodologies. Considerable judgment
is required in interpreting market data to develop estimates of fair value, so
the estimates are not necessarily indicative of the amounts that could be
realized or would be paid in a current market exchange. The effect of using
different market assumptions and/or estimation methodologies may be material to
the estimated fair value amounts. Fair value information presented herein is
based on information available at December 31, 2004 and 2003. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been updated since those
dates and, therefore, the current estimates of fair value at dates subsequent to
December 31, 2004 and 2003 may differ significantly from these amounts.
The following describes the methodologies and assumptions used, by financial
instrument in the above table, to determine fair value:
Subordinated interests in securitization trusts
The fair value was estimated by discounting the underlying expected cash flows
using current market rates.
Finance receivables and loans, net
The fair value was estimated by discounting the expected future cash flows using
applicable spreads to approximate current rates applicable to each category of
finance receivables and loans. The carrying value of wholesale receivables and
other receivables where interest rates adjust on a short term basis with
applicable market indices (generally the prime rate) are assumed to approximate
fair value.
Notes receivable from affiliates
The fair value was estimated by discounting the expected future cash flows using
applicable spreads to approximate current rates.
Debt
The fair value of debt was determined by using quoted market prices for the same
or similar issues, if available, or based on the current rates offered to the
Company for debt with similar remaining maturities. Commercial paper and demand
notes have an original term of less than 365 days and, therefore, the carrying
amount of these liabilities is considered to approximate fair value. Fair value
of derivative instruments are excluded from these amounts.
Interest rate swaps
The fair value of the existing interest rate swaps was estimated by discounting
expected cash flows using quoted market interest rates. The notional balances
of interest rate swap instruments of $8,293.9 million and $9,597.9 million at
December 31, 2004 and 2003, respectively. The unrealized gain was $156.5
million in 2004 and $265.8 million in 2003.
Foreign currency swaps
The fair value of the existing foreign currency swaps was estimated by
discounting expected cash flows using quoted market exchange rates. The
notional balances of foreign currency swap instruments of $3,067.0 million and
$3,256.8 million at December 31, 2004 and 2003, respectively. The unrealized
loss was $17.0 million in 2004 and $10.9 million in 2003.
Derivatives that were dedesignated from pre-existing hedging relationships on
January 1, 2004, when AcG-13 was first adopted, were recorded at fair value on
the balance sheet. The cumulative unrealized gain of $17.8 million up to that
date was deferred and recorded in Other Liabilities and will be amortized into
interest expense and other income over the remaining term of the original
hedging relationship. For the twelve months ended December 31, 2004, $11.2
million of the cumulative unrealized gain has been amortized into income with
$3.1 million credited against interest expense and $8.1 million recorded in
other income.
Credit risk
These aforementioned swap instruments contain an element of credit risk in the
event that the counterparties are unable to meet the terms of the agreements.
However, the Company minimizes the risk exposure by limiting counterparties to
those major banks and financial institutions which meet established guidelines.
In the unlikely event that a counterparty fails to meet the terms of an interest
rate or foreign currency swap agreement, risk is limited to the fair value of
the instrument.
Concentration of credit risk
The Company's business is to provide financing for GM products and GM dealers.
Wholesale and dealer loan financing relates to GM dealers, with security
provided by GM vehicles (for wholesale) and GM dealership property (for loans).
For wholesale financing, the Company is also provided further protection by GMCL
factory repurchase programs. Retail contracts and operating lease assets relate
to the secured sale and registered lease, respectively, of GM vehicles. The
majority of retail contracts and operating lease assets are geographically
diversified throughout Canada.
Note 18. Guarantees, Commitments and Contingencies
Guarantees
The Company has standard indemnification clauses in certain of its funding
arrangements that would require the Company to pay counterparties for increased
costs due to certain changes in laws or regulations. Since any changes would be
dictated by legislative and regulatory actions, which by their nature are
unpredictable, the Company is not able to estimate a maximum exposure under
these arrangements.
In connection with certain asset sales and securitization transactions, the
Company typically delivers standard representations and warranties to the
purchaser regarding the characteristics of the underlying transferred assets.
These representations and warranties conform to specific guidelines, which are
customary in securitization transactions. These clauses are intended to ensure
that the terms and conditions of the sales contracts are met upon transfer of
the asset. Prior to any sale or securitization transaction, the Company
performs due diligence with respect to the assets to be included in the sale to
ensure that they meet the purchaser's requirements, as expressed in the
representations and warranties. Due to these procedures, the Company believes
that the potential for loss under these arrangements is remote. Accordingly, no
liability is reflected in the Consolidated Balance Sheet related to these
potential obligations. The maximum potential amount of future payments the
Company could be required to make would be equal to the current balances of all
assets subject to such securitization or sale activities. The Company does not
monitor the total value of assets historically transferred to securitization
vehicles or through other asset sales. Therefore, the Company is unable to
develop an estimate of the maximum payout under these representations and
warranties.
Commitments
Future minimum rental payments required under operating leases, primarily for
real property, with noncancelable lease terms that expire after December 31,
2004, were as follows:
(in thousands)
2005 $ 4,597
2006 3,011
2007 1,682
2008 1,409
2009 310
Total minimum payment required $ 11,009
Contingencies
The Company is subject to potential liability under laws and government
regulations and various claims and legal actions that are pending or may be
asserted against it. The aggregate ultimate liability of the Company under
these laws, government regulations, claims and actions was not determinable at
December 31, 2004. After consultation with counsel, it is the opinion of
management that such liability is not expected to have a material adverse effect
on the Company's consolidated financial condition, results of operations or cash
flows.
Note 19. Employee Benefit Plans
Pension
The Company participates with certain affiliated companies in Canada in a
defined benefit pension plan that covers substantially all of its employees.
Benefits under the plan are generally related to an employee's length of
service, salaries and, where applicable, contributions. An actuarial valuation
is performed each year to determine the present value of the accrued pension
benefits based on projections of employees' compensation levels to time of
retirement.
The measurement dates for the 2004 and 2003 year-end valuations were November
30, 2004 and November 30, 2003, respectively. Funding decisions in respect of
plan assets occur annually based on the previous year valuations.
As of the above valuation dates, the percentage of the fair value of total plan
assets represented by each major category of plan assets were as follows:
Asset Category (%) 2004 2003
Equity Securities 61 61
Debt Securities 33 32
Real Estate 6 7
Total 100 100
Other post-retirement benefits
The Company participates in various post-retirement medical, dental, vision and
life insurance plans. The Company accrues post-retirement benefit costs over
the active service period of employees to the date of full eligibility for such
benefits.
Other Post-retirement
Pension Plan Benefits
December 31, December 31,
2004 2003 2004 2003
Change in benefit obligations (in thousands) (in thousands)
Benefit obligation at beginning of year $ 115,449 $ 109,968 $ 60,324 $ 49,972
Service cost 2,506 2,406 1,883 1,565
Interest cost 7,520 7,424 3,739 3,518
Plan participants' contributions 118 111 - -
Actuarial loss 13,891 3,376 1,480 873
Benefits paid (7,661) (7,836) (927) (1,002)
Plan amendments and other - - (3,025) 5,398
Benefit obligation at end of year 131,823 115,449 63,474 60,324
Change in plan assets
Fair value of plan assets at beginning of 87,147 81,793 - -
year
Actual return on plan assets 9,834 8,462 - -
Employer's contributions 10,542 4,429 - -
Plan participants' contributions 118 111 - -
Benefits paid (7,476) (7,648) - -
Fair value of plan assets at end of year 100,165 87,147 - -
Funded status (31,658) (28,302) (63,474) (60,324)
Unrecognized actuarial loss 48,641 38,039 20,930 20,027
Past service cost 6,754 7,808 127 1,089
Net amount recognized $ 23,737 $ 17,545 $ (42,417) $ (39,208)
December 31, December 31,
2004 2003 2004 2003
(in thousands) (in thousands)
Components of expense
Service cost $ 2,506 $ 2,406 $ 1,883 $ 1,565
Interest cost 7,520 7,424 3,739 3,518
Expected return on plan assets (8,274) (7,592) 127 -
Amortization of past service cost 1,114 1,264 1,480 98
Recognized net actuarial loss 1,729 1,566 - 873
Amortization of transitional obligation - 10 - -
Other (245) - - -
Net expense $ 4,350 $ 5,078 $ 7,229 $ 6,054
Weighted-average assumptions
Discount rate 6.00% 6.75% 6.00% 6.75%
Expected rate of return on plan assets 8.75% 8.75% - -
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
Note 20. Subsequent Event
Securitization
On January 17, 2005, the Company sold a pool of retail finance receivables to
Canadian Capital Auto Receivables Asset Trust. The contractual principal
balance totaled $477.7 million and the proceeds received was approximately
$413.4 million.
Secured Financing
On January 19, 2005, Leaseco entered into a Master Concurrent Lease Agreement ("
MCLA") with Canadian Auto Retail Lease Trust No. 2. The original net book value
of the lease assets, which were subject to the MCLA, was approximately $766.4
million and the financing received was approximately $744.1 million.
Credit Ratings
Substantially all of GMAC and the Company's debt has been rated by nationally
recognized statistical rating organizations. As of March 16, 2005, all of
GMAC's and the Company's ratings were within the investment grade category.
Concerns over the competitive and financial strength of GM, including how it
will fund its health care liabilities, resulted in GMAC and the Company
experiencing a series of negative rating actions since 2001, with GMAC's and the
Company's current credit ratings representing the lowest levels in history. In
the fourth quarter of 2004, all of the nationally recognized rating agencies
downgraded GMAC's and the Company's credit ratings. On February 14, 2005, one
rating agency (Moody's Investors Service, Inc.) revised the outlook of GMAC and
the Company from stable to negative. On March 16, 2005, the rating agencies
lowered the credit rating and/or outlook of GMAC and the Company as summarized
in the table below.
Rating Agency Commercial Outlook Senior Debt Outlook Date of Last
Paper Action
Dominion Bond
Rating Service R-1 (low) Negative BBB (high) Negative March 16, 2005
Limited
Fitch, Inc. F-3 Negative BBB- Negative March 16, 2005
Moody's Investors
Service, Inc. Prime-2 Negative Baa1 Credit Watch March 16, 2005
(Negative)
Standard &
Poor's Ratings A-3 Negative BBB- Negative March 16, 2005
Services
The cost and availability of unsecured financing is influenced by credit
ratings, which are intended to be an indicator of the creditworthiness of a
particular company, security, or obligation. Lower ratings generally result in
higher borrowing costs as well reduced access to capital markets. However,
because of management's focus on diversifying and expanding the Company's
funding sources over the past few years, and based on the Company's current
liquidity position, management believes that the Company has taken appropriate
steps to withstand further action by the rating agencies, if that were to occur
in the future.
The Company's liquidity, as well as its ongoing profitability, is in large part
dependent upon its timely access to capital and the costs associated with
raising funds in different segments of the capital markets. Over the past
several years, the Company's funding strategy has focused on managing liquidity
risk through the development of diversified funding sources across a varied
investor base and management of debt maturities over a longer period of time,
thereby, increasing the amount of available cash balances ($2.8 billion at
December 31, 2004 as compared to $2.4 billion at December 31, 2003 and $0.8
billion at December 31, 2002). This strategy, combined with a continuous
prefunding of requirements, is designed to meet the Company's ongoing cash flow
requirements. In developing the funding strategy, management considers market
conditions, prevailing interest rates, liquidity needs, and the desired
maturity profile of its liabilities. The diversity of the Company's funding
sources enhances funding flexibility, limits dependence on any one source of
funds, and results in a more cost effective long-term strategy. This strategy
has helped the Company maintain liquidity during periods of weakness in the
capital markets, changes in the Company's business, or changes in the Company's
credit ratings.
*****
GENERAL MOTORS ACCEPTANCE CORPORATION OF CANADA, LIMITED
The business of GMACCL is financed by capital funds, intermediate and long-term
debt, short, medium, and long-term notes offered on a continuous basis and
borrowings under bank lines of credit.
The Company offers its commercial paper in Canada directly to investors, in
physical note or book-entry form, to mature on any business day selected by the
investor, with a maximum maturity of 365 days. GMACCL commercial paper is
available payable to a named payee and is issued on a discount or
interest-bearing basis at identical yields. GMACCL commercial paper is payable
upon maturity at the registered office of the Company (the minimum investment
may vary depending on province of residence).
GMACCL also sells medium-term notes in Canada through dealer agents and directly
to the public on a continuous basis. These notes are offered by prospectus and
may be issued in registered form for any maturity of over one year. The minimum
investment is $25,000 with interest payable monthly, quarterly, semi-annually or
annually to the registered holder. At the option of the investor, notes with
maturities from more than one year to less than two years may also be offered
with interest payable at maturity. Both the principal and interest payable with
respect to medium-term notes are paid at the registered office of the Company.
General Motors Acceptance Corporation, a Delaware corporation, unconditionally
guarantees both principal and interest on GMACCL's commercial paper and
medium-term notes.
The commercial paper and medium-term notes are offered by the Company across
Canada. A prospectus for medium-term notes and additional information may be
obtained by contacting the Company's registered office located at:
3300 Bloor Street West
Suite 2800
Toronto, Ontario M8X 2X5
Toronto area investors Quebec investors Investors outside of Toronto
and Quebec
Phone: (416) 234-6616 Phone: (514) 856-8244 Phone: (800) 268-2508
Prevailing rates for GMACCL commercial paper and medium-term notes in Canada may
be obtained by calling the following numbers:
Toronto area investors Quebec investors Investors outside of Toronto
and Quebec
Phone: (416) 234-6629 Phone: (514) 856-8872 Phone: (800) 268-2506
This information is provided by RNS
The company news service from the London Stock Exchange
END
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