RNS Number:0904K
General Motors Accept Corp Canada
15 April 2003
2002 ANNUAL REPORT
General Motors Acceptance Corporation of Canada, Limited
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INCORPORATED UNDER THE LAWS OF CANADA
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3300 BLOOR STREET WEST, SUITE 2800, TORONTO, ONTARIO M8X 2X5
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BOARD OF DIRECTORS
PAUL D. BULL THOMAS E. DICKERSON
Vice-President, President,
Global Borrowings, General Motors Acceptance Corporation of
General Motors Acceptance Corporation Canada, Limited
WENDE M. RAPSON GEORGE F. HOWELL
Legal Counsel and Corporate Secretary, Former Manager, Toronto Branch,
General Motors Acceptance Corporation of General Motors Acceptance Corporation of
Canada, Limited Canada, Limited
ALAN P. FRANKLIN W. JAMES WATSON
Treasurer and Comptroller, Former President,
General Motors Acceptance Corporation of General Motors Acceptance Corporation of
Canada, Limited Canada, Limited
OFFICERS
THOMAS E. DICKERSON
President
ALAN P. FRANKLIN WENDE M. RAPSON
Treasurer and Comptroller Legal Counsel and Corporate Secretary
PRESIDENT'S LETTER
With great pleasure, I can report that 2002 was another outstanding year for
General Motors Acceptance Corporation of Canada, Limited ("GMACCL"). Net
income for the year was $270 million, second only to our record profit of $285
million in 2001, despite a weakened economy. Increased earnings from higher
asset levels and a continued favorable trend in asset performance were partially
offset by wider borrowing spreads that have occurred primarily as a result of
rating agency downgrades in the past fifteen months. Our success is clearly
attributable to the creativity of our employees, our commitment to dealer and
consumer satisfaction, our partnership with General Motors of Canada Limited ("
GMCL") combined with vehicle industry sales growth, and the flexibility of our
organization in responding to growing competitive forces.
Industry sales of passenger cars and trucks in 2002 grew by 8.4% over 2001 to
1.7 million vehicles - an all-time industry record. GMCL's sales of 520,768
vehicles represents the strongest volume since 1988, a 10.8% increase in sales
over 2001, and a market share of 30.1% (best since 1999). While the intense
marketing pressures of recent years continued, we financed or leased more than
307,000 General Motors ("GM") vehicles or 59% of the GM new car and truck
deliveries during the year - continuing evidence of the value of our coordinated
'One Team' marketing approach with GMCL.
Of equal importance to our success, is our partnership with our automotive
dealers and the strength of these relationships. During 2002 - for the second
straight year - GMACCL achieved No. 1 rankings across the board in the J. D.
Power Dealer Financing Satisfaction Study. As the competition attempts to make
in-roads, we will continue to intensify our efforts and be even more innovative
in focusing on our dealer customers. Our ability to offer a broad range of
financial products and terms, expand customer relationships and further leverage
technology to better service our customers while reducing costs will be our
focus.
Internet remarketing activity continued to gain momentum and acceptance in 2002.
SmartAuction, our website where dealers can purchase off-lease vehicles, has
proven to be a notable distribution channel enabling us to reduce cycle time,
cut costs and increase proceeds. Our 'One Team' approach to the remarketing
of both GMCL and GMACCL vehicle returns has achieved positive results and
efficiency gains for both organizations. While we anticipate continued success
with this initiative, we expect a considerable decline in the level of "
scheduled" vehicle lease maturities during 2003 and to be challenged by a
weakened used vehicle market resulting from unprecedented new vehicle programs
and a downturn in dealer export activities.
The uncertain global economic environment present at the close of 2001 saw
little resolved in 2002. Consequently, GMACCL maintained its defensive funding
strategy to minimize liquidity risk throughout 2002. In order to sustain our
already reduced reliance on the commercial paper market, this strategy focused
on maintaining a greater proportion of term debt and increasing our asset
securitization activity to fund operations. Our term debt and commercial paper
credit ratings were affirmed this year by Moody's Investors Service, Dominion
Bond Rating Service, and Fitch. Separately, Standard & Poor's lowered its
credit rating on our term debt in response to an increase in GM's unfunded
pension liability. In all cases our debt remained investment grade, providing
broad access to the capital markets, including the unsecured debt and asset
securitization markets. Access to these diversified funding sources enhances
our ability to provide adequate liquidity to meet our funding requirements and
is supported by our back-up credit lines. By preserving the balance sheet
strength of GMACCL, we have enhanced our ability to finance GM products at the
wholesale and retail level as we go forward.
While each coming year brings with it new challenges and various forms of
adversity, we will remain focused at GMACCL on being a leader within the
automotive financial services industry in Canada. Continual ingenuity, customer
focus, partnership, funding diversification, leveraging technology and the
broader business organization, and cost control will make this happen. Our
employees stand ready to keep our positive momentum alive and produce continued
success in the years ahead. We look forward to the challenges of 2003 and the
rewards they will provide to our customers, our shareholder and our employees.
s/ Thomas E. Dickerson
Thomas E. Dickerson
President
Mangement's Discussion and Analysis
Overview
General Motors Acceptance Corporation of Canada, Limited ("GMACCL" or the "
Company"), incorporated in 1953 under the laws of Canada, is a wholly owned
subsidiary of General Motors Acceptance Corporation ("GMAC"), a Delaware
corporation. The principal business of the Company is to provide General Motors
("GM") dealers with the automotive financing necessary for the dealers to
acquire and maintain vehicle inventories and provide retail customers means by
which to finance new vehicles through GM dealers. The Company also makes loans
to General Motors of Canada Limited ("GMCL") and affiliates in addition to
providing other financial services.
Net income of the Company totaled $269.6 million in 2002, a 5.5% decrease from
the $285.3 million reported in 2001. Return on average equity was 16.1% in 2002
compared with 20.7% in 2001. Despite operating in challenging economic and
capital market environments, 2002 earnings are second only to 2001 for the
highest earnings in the Company's history.
Financing Operations
GMACCL's financing operations offer a wide range of financial services and
products (directly and indirectly) to retail automotive consumers, automotive
dealerships, and other commercial businesses. These products and services
include the purchase of installment sales contracts and leases, extending
floorplan and other lines of credit.
Consumer Automotive Financing
GMACCL provides vehicle financing to consumers through automotive dealerships.
The Company primarily deals with franchised GM dealers. In most cases GMACCL,
as an indirect lender, purchases retail installment sale contracts (retail
contracts) and lease contracts (leases) for new and used vehicles from
GM-affiliated dealers.
Industry deliveries of new passenger cars and light trucks in Canada in 2002
were 1.7 million units. Deliveries of new General Motors vehicles by GM dealers
to customers totaled 520,768 units in 2002, an 10.8% increase from the 470,093
units in 2001.
The following table summarizes GMACCL's new vehicle consumer financing volume
and the Company's share of GMCL retail sales.
Year Ended December 31,
2002 2001
Number of Vehicles Financed(1)
Retail and lease financing (new) 160,157 166,184
Retail and lease financing (used) 24,187 25,354
Operating lease (new) 153,387 138,428
Operating lease (used) 3,692 4,452
Total 341,423 334,418
Percent financed of GMCL's new retail deliveries
(including fleet sales) 59.1% 63.2%
(1)Includes GM and non-GM vehicles
GMCL may elect to sponsor incentive programs (on both retail contracts and
leases) by supporting financing rates below the standard rates at which GMACCL
purchases retail contracts. Such purchase incentives are also referred to as
rate support or subvention. GMCL pays the difference between the customer rate
and GMACCL's rate directly to GM dealers. GMACCL purchases these contracts at a
discount and recognizes the discount into income over the life of the contract.
GMCL may also provide incentives on leasing by providing rate and/or residual
value support, established at lease inception.
Consumer Credit Approval
Based on information provided by the dealer, the Company performs a credit
review prior to purchasing a retail contract or lease from the dealer. As part
of this process, GMACCL evaluates, among other things, the following factors:
* The consumer's credit history, including any prior experience with
GMACCL
* The asset value of the vehicle and the amount of equity (downpayment)
in the vehicle
* The term of the retail contract or lease
GMACCL uses a proprietary credit scoring system to support this credit approval
process and to manage the credit quality of the portfolio. Credit scoring is
used to differentiate credit applicants in terms of expected default rates. This
enables the Company to properly evaluate credit applications for approval. The
credit scoring model is periodically reviewed and updated based on historical
information and current trends. These actions by management do not eliminate
credit risk. Improper evaluations of contracts for purchase could negatively
affect the credit quality of the Company's receivables portfolio.
Servicing
The Company's servicing activities consist of collecting and processing customer
payments, responding to customer inquiries, initiating contact with customers
who are delinquent in a payment, and maintaining a perfected security interest
in the financed vehicle. In the event that the customer fails to comply with
the terms of the retail contract or lease, GMACCL, after satisfying local legal
requirements, is generally able to repossess the vehicle.
Consumer Credit Risk
Credit losses in the Company's consumer automotive retail contract and lease
portfolio are influenced by general business conditions, such as unemployment,
bankruptcy filings and used vehicle prices. GMACCL manages credit risk through
its contract purchase policy and credit review process, including the
proprietary credit scoring system.
Delinquency and repossession rates on new and used retail (including sold
finance receivables) and leasing serviced accounts decreased during 2002.
Retail and lease financing accounts past due over 30 days as a percentage of
accounts outstanding averaged 0.54% in 2002, compared with 0.55% in 2001.
Repossessions of vehicles decreased slightly to 0.50% of accounts outstanding in
2002, from 0.51% a year earlier.
Delinquency rates in the serviced operating lease portfolio decreased in 2002.
The ratio of accounts past due over 30 days to accounts outstanding averaged
0.78% in 2002, compared with 0.88% in 2001. The number of terminations by
default decreased from 5,115 in 2001 to 4,283 in 2002.
In general, the Company's allowance for credit losses is intended to cover
management's estimate of probable incurred losses in the consumer portfolio.
The following table summarizes the allowance for credit losses as a percentage
of on-balance sheet consumer finance receivables:
Year Ended December 31,
2002 2001
(in thousands)
Allowance for credit losses $ 68,920 $ 61,688
Allowance for credit losses as percentage of receivables 1.24% 1.28%
The Company's consumer automotive leases are operating leases and exhibit
different loss performance as compared to consumer automotive retail contracts.
Credit losses on the operating lease portfolio are not as significant as retail
contracts losses because lease losses are limited to past due payments, late
charges, and fees for excess wear and tear. Since some of these fees are not
assessed until the vehicle is returned, credit losses on the lease portfolio are
correlated with lease termination volume. Credit risk is accounted for within
the overall depreciation and valuation of the operating lease asset.
Despite a more adverse economic environment, the overall credit quality of the
portfolio has remained strong, primarily due to the high quality of contracts
purchased over the past few years because of management's strict credit review
and collection policies. In addition, the increased volume of GMCL rate
supported contracts has further enhanced the credit quality of the portfolio.
Lease Residual Risk
With consumer leasing, GMACCL purchases leases (and the associated vehicles)
from dealerships. The purchase prices of the consumer leases are based on the
negotiated price for the vehicle less vehicle trade-in or downpayment from the
customer. Under the lease, the consumer is obligated to make payments in amounts
equal to the purchase price, less the projected residual value of the vehicle at
lease maturity, plus lease charges. The customer is also responsible for charges
due to late payments, excess mileage, and excessive wear and use.
In a consumer lease, the Company assumes ownership of the vehicle from the
dealer. Neither the consumer nor the dealer is responsible for the value of the
vehicle at the time of lease maturity. In many instances, the vehicle is
returned to GMACCL for remarketing. The following summarizes the methods of
vehicle sale at the end of the lease, stated as a percentage of total lease
vehicle disposals.
Year Ended December 31,
2002 2001
Auction (physical or internet) 52% 44%
Sale to dealer 41% 48%
Other (including option exercised by lessee) 7% 8%
The Company primarily utilizes physical auctions and internet auctions in
disposing of vehicles not purchased directly by dealers or lessees.
* Physical auctions - The Company is responsible for handling decisions
for the vehicles sold at the auction, including arranging for inspections,
authorizing repairs and refurbishment and determining whether bids received
at auction should be accepted.
* Internet auctions - In 2000, the Company began offering off-lease vehicles
to GM dealers and affiliates through a proprietary internet site. The
internet sales program was established to increase the net sales proceeds
on off-lease vehicles by reducing the time between vehicle return and
ultimate disposition (reducing holding costs) and broadening the number of
prospective buyers (maximizing proceeds). GMACCL sets the pricing floors on
vehicles and administers the auction process. The Company earns a service
fee for every sale. The internet sales program has increased significantly
since inception and was the remarketing channel for approximately 18% of
off-lease vehicles disposed through auction during 2002.
GMACCL maintains a risk of loss to the extent that the value of the vehicle upon
remarketing is below the residual value estimated at contract inception. GMACCL
primarily uses published residual guidebook values (Automotive Lease Guide or
ALG) in establishing residual values at contract inception.
GMACCL also makes secured loans to GMCL ("GMCL loans") to fund GMCL's vehicle
leasing program. Under this program, GMCL purchases, from the Company, varying
levels of vehicles that are subject to operating leases. GMACCL expects that
this program will continue indefinitely. Significant impacts of the GMCL
leasing program are a shift from the Company to GMCL of the inherent risk
associated with residual value realization and a continuing focus by GMCL on the
longer term considerations connected with the marketing and remarketing of lease
vehicles. The GMCL loans are secured by the leased vehicles and lease payments
and are made on terms similar to those of loans made to unrelated parties. The
loan agreement sets a loan cap of $5.5 billion. The Company continues to
service, on a fee for service basis, the leases acquired by GMCL.
Commercial Financing
An important aspect of GMACCL's financing operations is supporting the sale of
GM vehicles through ''wholesale'' or ''floor plan'' financing, primarily to
finance the dealers' purchase of new and used vehicles manufactured or
distributed by General Motors and, less often, other vehicle manufacturers,
pending sale or lease to the ultimate customer. Wholesale represents the
largest portion of the dealer financing business for GMACCL. Wholesale credit is
arranged through lines of credit extended to individual dealers. In general,
each wholesale credit line is secured by all vehicles owned by the dealer and,
in some instances, by other assets owned by the dealer and/or the dealer's
personal guarantee. In addition to traditional floor plan financing, the Company
provides lease financing and makes loans to dealers for working capital needs,
improvements to dealership facilities, and the acquisition of real estate.
The following table summarizes GMACCL's wholesale financing volume:
Year Ended December 31,
2002 2001
Financing for GM dealers (in billions) $ 17.7 $ 14.3
Total wholesale volume financed(1) (in units) 602,467 508,766
Share of GM deliveries 88.7% 90.7%
(1)New and used vehicles financed
Credit Approval
Prior to establishing a wholesale line of credit, GMACCL performs a thorough
credit analysis of the dealer. During this analysis, the Company:
* Reviews credit reports, financial statements, and may obtain bank
references
* Evaluates marketing capabilities
* Evaluates the dealer's financial condition
* Assesses the dealer's operations and management
Based on this analysis, the Company approves the issuance and size of the credit
line, which dealers may exceed on occasion only with proper approval by the
Company.
Servicing and Monitoring
GMACCL may demand payment of interest and principal on wholesale at any time.
However, unless GMACCL terminates the credit line or the dealer defaults, GMACCL
requires payment of the principal amount financed for a vehicle upon its sale or
lease by the dealer. Interest on floor plan loans is generally payable monthly.
Wholesale financing is structured to yield interest at a floating rate
representing a reasonable spread relative to prime.
A statement setting forth billing and account information is prepared by GMACCL
and distributed on a monthly basis to each dealer. Interest and other
non-principal charges are billed in arrears and are required to be paid
immediately upon receipt of the monthly billing statement.
GMACCL personnel periodically inspect and verify the existence of dealer vehicle
inventories. The timing of the verifications varies and no advance notice is
given to the dealer. Among other things, verifications are intended to
determine dealer compliance with the financing agreement and confirm the status
of GMACCL's collateral.
Commercial Credit Risk
GMACCL's credit risk on the commercial portfolio is markedly different than that
of its consumer portfolio. Whereas the consumer portfolio represents a
homogeneous pool of retail contracts and leases that exhibit fairly predictable
and stable loss patterns, the commercial portfolio exposures are less
predictable.
Credit risk is managed and guided by policies and procedures that are designed
to ensure that risks are accurately assessed, properly approved and continuously
monitored. Significant transactions are approved, credit risk assessments are
performed (including the evaluation of the adequacy of the collateral) and the
credit risk profile of individual borrowers is monitored. Corporate approval is
required for transactions exceeding business unit approval limits.
In general, the Company's allowance for credit losses is intended to cover
management's estimate of probable incurred losses in the commercial portfolio.
The following table summarizes the allowance for credit losses as a percentage
of on-balance sheet commercial finance receivables:
Year Ended December 31,
2002 2001
(in thousands)
Allowance for credit losses $ 8,000 $ 5,300
Allowance for credit losses as percentage of receivables 0.27% 0.16%
Results of Operations
The following table summarizes the operating results of the Company for the
periods indicated:
Year Ended December 31,
2002 2001 Change
(in thousands) %
Financing revenue
Consumer $ 366,080 $ 329,695 11.0
Commercial 335,362 590,840 (43.2)
Operating leases 1,143,289 880,143 29.9
Total financing revenue 1,844,731 1,800,678 2.5
Interest and discount (738,909) (909,425) (18.7)
Depreciation of operating leases (792,115) (596,494) 32.8
Net financing revenue 313,707 294,759 6.4
Other income 268,381 327,127 (18.0)
Net financing revenue and other income 582,088 621,886 (6.4)
Expenses
Operating expenses (183,747) (173,918) 5.7
Provision for credit losses (29,081) (28,297) 2.8
Income before income taxes 369,260 419,671 (12.0)
Provision for income taxes (99,659) (134,403) (25.9)
Net income $ 269,601 $ 285,268 (5.5)
Despite challenging economic and capital market environments, GMACCL's financing
operations experienced a 6.4% increase in net financing revenue during 2002.
The continued use of GMCL sponsored special rate financing programs and residual
value support combined with reduced sales of lease vehicles to GMCL, fueled
asset growth in the consumer retail and lease contract portfolios. The favorable
income generated from this asset growth was offset by increased depreciation on
the larger lease asset portfolio, and a reduction in revenues generated from
loans to dealers, GMCL and affiliates, primarily caused by a reduction in
interest rates and declining loan balances. Results were also negatively
impacted by wider borrowing spreads caused by rating agency downgrades, along
with overall pressure on corporate credit spreads.
Total financing revenue increased 2.5% as compared to 2001. Consumer revenue
increased 11.0% due to an increase in the consumer retail contract portfolio.
Operating lease revenue increased 29.9% as the Company's operating lease
portfolio increased substantially. The continued increase in the retail contract
and operating lease portfolio coincides with GMCL's aggressive marketing
programs. In addition, the Company substantially reduced the sales to GMCL of
vehicles subject to operating leases. Revenue from the commercial portfolio
(which is primarily floating rate) decreased 43.2% due to a decline in earning
rates consistent with the general decrease in market interest rates during the
period, combined with reduced loan balances including GMCL loans.
The decrease in interest and discount expense is consistent with the general
market decrease in interest rates, and a lower debt balance. However, the
favorable impact from these factors was partially offset by the widening of the
Company's borrowing spreads during 2002. Refer to further discussion later in
the Funding Sources and Strategy section.
In 2002, the provision for credit losses increased by 2.8%, reflecting growth in
the consumer retail contract portfolio.
Other income decreased 18% during the year. In 2001, the Company received $72
million of interest on income tax refunds related to a settlement with the
Canada Customs and Revenue Agency. No income related to this issue has been
recognized in 2002. Additionally, the decrease was caused by lower service fee
revenue on operating lease vehicles sold to GMCL. These negative impacts were
partially offset by higher securitization-related income due to greater
securitization activity and outstandings.
Total operating expenses increased by 5.7% year over year. The increased level
of expense is the result of costs associated with pension and post-retirement
benefits, enhancements to core operating systems and costs related to
significant growth in the Company's leasing portfolio.
The provision for income taxes decreased by 25.9% in the year. This decrease
was driven by a reduced operating profit before taxes and the recognition of
provincial minimum tax credits and tax rate reductions.
Factors Affecting Future Results
The profitability of the Company's financing operations is impacted by general
economic conditions. A downturn in economic conditions could result in a
reduction of loan volume, and increases in portfolio credit losses, which would
negatively affect profits. In addition, factors such as the liquidity of the
financial markets, interest rates, and the availability and cost of credit could
impact the Company's ability to effectively fund new business.
As the financing of GM manufactured vehicles comprises a substantial portion of
the Company's financing operations, any protracted reduction or suspension of
GM's production or sales resulting from a decline in demand, work stoppage,
governmental action, adverse publicity or other event could have a substantial
unfavorable effect on the Company's results of operations. Conversely, an
increase in production or a significant marketing program could positively
impact the Company's results.
The Company's financing operations operate in a highly competitive environment.
The Company's principal competitors for consumer automotive financing are a
large number of banks, commercial finance companies, and credit unions.
Commercial financing competitors are primarily comprised of other manufacturers'
affiliated finance companies, independent commercial finance companies and
banks.
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. Liquidity risk is
the risk that the Company will be unable to replace maturing obligations when
due or fund its assets at appropriate maturities and rates. Liquidity is managed
with the objective of preserving stable, reliable, and cost-effective sources of
cash to meet all current and future obligations.
Funding Sources and Strategy
GMACCL's strategy in managing liquidity risk has been to develop diversified
funding sources across a global investor base. 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. In
making funding decisions, management considers market conditions, prevailing
interest rates, liquidity needs, and the desired maturity profile of its
liabilities. This diversity of funding gives the Company the opportunity to
maintain liquidity despite capital market disruptions or adverse changes in the
Company's business.
As part of this diversified funding strategy, GMACCL regularly accesses the
following sources of funds:
* Commercial paper - These short-term promissory notes are obligations
of the Company that are offered to institutional and retail investors.
* Unsecured term debt - The Company issues debt obligations through medium
term note programs to institutional and retail investors. Medium term
notes are sold to institutional investors worldwide through dealer agents
in book-entry form for any maturity, generally ranging from one year to
ten years, and in physical form to retail investors for similar maturity
terms.
* Other retail debt programs - Demand Notes are short-term securities with
features similar to money market investments and are designed to provide
eligible GM Family members with an investment alternative.
* Securitization programs - The Company securitizes consumer automotive
finance retail contracts and wholesale receivables. These securitizations
comprise off-balance sheet fundings.
As an important part of its overall funding and liquidity strategy, the Company
has committed bank lines of credit. These bank lines of credit, which totaled
$1.25 billion at December 31, 2002, provide ''back-up'' liquidity and represent
additional funding sources if required.
The following summarizes GMACCL's funding sources and weighted average borrowing
costs (inclusive of guarantee fees) for the periods indicated:
Year Ended December 31,
2002 2001
Short-term debt 3.08% 4.98%
Medium and long-term debt 4.99% 5.68%
Overall cost of funds 4.71% 5.57%
Average Canadian prime rate 4.21% 6.01%
The Company was faced with unique funding challenges during 2002. A weak
corporate bond market, combined with downgrades in certain of GMACCL's credit
ratings increased the Company's unsecured borrowing spreads to higher levels. In
light of the weaker capital market environment and significantly wider unsecured
term spreads, GMACCL placed greater emphasis on securitization activities.
Management expects to continue to use a diverse set of funding sources to
maintain its financial flexibility.
Cash Flows
The Company's cash and cash equivalents totaled $781.0 million at December 31,
2002, which reflects a reduction of $521.0 million from December 31, 2001.
Cash generated from operations in 2002 was $763.1 million as compared to
$1,155.3 million in 2001. The decrease is mainly attributable to a reduction of
the Company's short-term liabilities. In addition, the Company's other assets
have increased by $245.4 million, driven by an increase in the interest
receivable from swap counterparties, as well as an increase in deferred
insurance and warranty premiums on lease contracts, associated with the
Company's growing lease portfolio. These factors have been partially offset by
increased depreciation on the Company's growing investment in operating leases
and an increase in accounts payable to GMCL and affiliates.
Cash used in financing activities totaled $5.9 million in 2002, as compared to
2001 when $1,105.4 million of cash was used. Investing activities used cash in
the amount of $1,278.2 million during 2002, primarily reflecting the growth in
the Company's finance receivable and operating lease portfolios, while $1,212.1
million was provided by investing activities in 2001.
Credit Ratings
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 as reduced access to capital markets.
Substantially all of GMAC and GMACCL's short-term, medium-term and long-term
debt has been rated by four nationally recognized statistical rating
organizations.
As of March 31, 2003, all of the ratings assigned were within the investment
grade category, as follows:
Senior Commercial
Rating Agency Debt Paper
Dominion Bond Rating Service Limited A R-1 (low)
Fitch, Inc. A- F-2
Moody's Investors Service, Inc. (Canadian) A2 Prime-1 (A)
Moody's Investors Service, Inc. (Global) A2 Prime-1
Standard & Poor's Ratings Services (Canadian) BBB A-2
Standard & Poor's Ratings Services (Global) BBB A-2
Dominion Bond Rating Service Limited affirmed its rating of A for GMAC and the
Company's senior debt and the outlook remains negative. The A rating indicates
satisfactory credit quality with substantial protection of interest and
principal. GMAC and the Company's commercial paper ratings were confirmed as
R-1 (low) with a stable outlook, indicating satisfactory credit quality.
Fitch, Inc. ("Fitch") has assigned ratings of A- and F-2 to GMAC's senior debt
and commercial paper, respectively. Fitch assigns the A- rating to bonds
considered to be high credit quality with the obligor's ability to pay interest
and repay principal considered to be very good. The F-2 rating is assigned to
short-term issues that possess a good credit quality based primarily on the
existence of liquidity necessary to meet the obligations in a timely manner. In
October 2001, Fitch downgraded the senior debt rating from A to A- and
downgraded the commercial paper rating to F-2. Fitch revised GMAC and the
Company's outlook to negative.
Moody's Investors Service, Inc. ("Moody's") has assigned a rating of A2 to GMAC
and the Company's senior debt. A2 rated debt possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. The
commercial paper of GMAC and the Company has received a rating of Prime-1 from
Moody's, reflecting superior ability for repayment of senior short-term debt
obligations and assured ability to access alternative sources of liquidity.
Additional repayment characteristics of commercial paper issues receiving this
premium rating include a leading market position in a well-established industry,
high rates of return on funds employed and broad margins in earnings coverage of
fixed financial charges. On October 15, 2002, Moody's confirmed its ratings on
the Company and maintained its negative outlook.
On October 16, 2002, Standard & Poor's Ratings Services ("S&P") downgraded GMAC
and the Company's corporate credit rating from BBB+ to BBB. The outlook was
assessed by S&P as stable, meaning that the rating is not likely to change over
the intermediate to long term. S&P affirmed its A-2 rating on GMAC and the
Company's commercial paper. The BBB rating is assigned to bonds considered to
have adequate capacity to pay interest and repay principal. A commercial paper
rating of A-2 indicates a satisfactory capacity for timely payment.
Subsequently, on October 17, 2002, S&P lowered the Company's Canadian national
scale commercial paper ratings on the Company to A-2 from A-1 (Low) following
the reduction in the long term debt ratings.
Derivative Financial Instruments
In managing the interest rate and foreign exchange exposures, the Company
utilizes a variety of interest rate and currency derivative financial
instruments. As an end-user of these financial instruments, GMACCL believes that
it is in a better position to expand its investor base and to minimize its
funding costs, enhancing its ability to offer attractive, competitive financing
rates to its customers. The Company's derivative financial instruments consist
primarily of interest rate swaps, currency swaps, and forwards used to hedge
related assets or funding obligations.
These financial instruments involve, to varying degrees, elements of credit risk
in the event a counterparty should default, and market risk, as the instruments
are subject to rate and price fluctuations. Credit risk is managed through
periodic monitoring and approval of financially sound counterparties and through
limiting the potential credit exposures to individual counterparties to
predetermined notional and exposure limits. Market risk is inherently limited by
the fact that the instruments are used for risk management purposes only, and
therefore generally designated as hedges of assets or liabilities. Market risk
is also managed on an ongoing basis by monitoring the estimated fair value of
each financial instrument position and further by measuring and monitoring the
volatility of such positions.
Securitization
As part of its ongoing operations and overall funding and liquidity strategy,
the Company securitizes consumer automotive finance retail contracts and
wholesale receivables. Securitization of assets allows the Company to diversify
funding sources and to support the core activities of the business.
Through its operating and funding activities, the Company uses off-balance sheet
securitization vehicles. The following table summarizes the outstanding
principal balance of these assets:
Year Ended December 31,
2002 2001
(in millions)
Securitization
Retail finance receivables $ 2,581.5 $ 2,340.2
Wholesale receivables 2,385.0 1,047.3
Total off-balance sheet receivables $ 4,966.5 $ 3,387.5
Market Risk
The Company's financing activities give rise to market risk, representing the
potential loss in the fair value of assets or liabilities caused by movements in
market variables, such as interest and foreign exchange rates.
GMACCL is primarily exposed to interest rate risk arising from changes in
interest rates related to its financing, investing and cash management
activities. More specifically, GMACCL has entered into contracts to provide
financing and to retain various assets related to securitization activities all
of which are exposed, in varying degrees, to changes in value due to movements
in interest rates. Interest rate risk arises from the mismatch between assets
and the related liabilities used for funding. The Company enters into various
financial instruments, including derivatives, to maintain the desired level of
exposure to the risk of interest rate fluctuations.
Operational and Business Risk
The Company defines operational risk as the risk of loss resulting from
inadequate or failed processes or systems, human factors, or external events.
Operational risk is an inherent risk element in each of the Company's businesses
and related support activities. Such risk can manifest in various ways,
including breakdowns, errors, business interruptions, and inappropriate behavior
of employees, and can potentially result in financial losses and other damage to
the Company.
To monitor and control such risk, GMAC maintains a system of policies and a
control framework designed to provide a sound and well-controlled operational
environment. The goal is to maintain operational risk at appropriate levels in
view of the Company's financial strength, the characteristics of the businesses
and the markets in which GMAC operates, and the related competitive and
regulatory environment.
Notwithstanding these risk and control initiatives, the Company may incur losses
attributable to operational risks from time to time, and there can be no
assurance that such losses will not be incurred in the future.
Forward Looking Statements
The foregoing Management's Discussion and Analysis contains various forward
looking statements within the meaning of applicable provincial securities laws
and is based upon GMACCL's current expectations and assumptions concerning
future events, which are subject to a number of risks and uncertainties that
could cause results to differ materially from those anticipated.
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. Financial information
contained elsewhere in this Annual Report is consistent with that in the
financial statements.
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: (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, 2002, provides reasonable assurance that the books and records
reflect the transactions of the Company and that it complies with its
established policies and procedure.
s/ Thomas E. Dickerson
Thomas E. Dickerson
Director
s/ Alan P. Franklin
Alan P. Franklin
Director
AUDITORS' REPORT Suite 1400
181 Bay Street, BCE Place
Toronto, Ontario M5J 2V1
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, 2002 and 2001, 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, 2002
and 2001, and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.
(Signed)
Deloitte & Touche LLP
Chartered Accountants
January 10, 2003
Consolidated Balance Sheets
ASSETS
December 31, December 31,
2002 2001
(in thousands)
Cash and cash equivalents $ 781,000 $ 1,302,001
Subordinated interests in securitization trusts (Note 3) 344,336 273,381
Finance receivables and loans, net (Note 2)
Consumer 5,556,658 4,802,620
Commercial 2,997,186 3,399,915
Allowance for credit losses (76,920) (66,988)
Total finance receivables and loans, net 8,476,924 8,135,547
Investment in operating leases, net (Note 4) 5,169,099 3,553,284
Notes receivable from affiliates (Note 12) 2,760,795 4,331,019
Investments (Note 5) 1,084,392 1,049,700
Other assets (Note 6) 575,804 332,415
TOTAL ASSETS $ 19,192,350 $ 18,977,347
Reference should be made to the Notes to Consolidated Financial Statements.
LIABILITIES AND SHAREHOLDER'S EQUITY
December 31, December 31,
2002 2001
(in thousands)
Liabilities
Debt payable within one year (Note 8) $ 6,394,603 $ 5,875,986
Accounts payable to GMCL and affiliates (Note 12) 146,460 6,029
Interest payable 184,766 211,356
Income and other taxes payable 74,635 99,007
Accrued expenses and other liabilities 478,106 577,768
Future income taxes (Note 13) 656,807 695,313
Debt payable after one year (Note 9) 9,432,215 9,991,423
Total Liabilities 17,367,592 17,456,882
Shareholder's Equity
Capital stock without par value (authorized - unlimited,
outstanding - 1,450,000 common shares) 50,000 50,000
Contributed surplus (Note 5) 129,692 95,000
Retained earnings 1,645,066 1,375,465
Total Shareholder's Equity 1,824,758 1,520,465
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 19,192,350 $ 18,977,347
Reference should be made to the Notes to Consolidated Financial Statements.
Consolidated Statements of Income and Retained Earnings
Year Ended December 31,
2002 2001
(in thousands)
Financing Revenue
Consumer $ 366,080 $ 329,695
Commercial 335,362 590,840
Operating leases 1,143,289 880,143
Total financing revenue 1,844,731 1,800,678
Interest and discount (Note 10) (738,909) (909,425)
Depreciation of operating leases (792,115) (596,494)
Net financing revenue 313,707 294,759
Other income (Note 11) 268,381 327,127
Net Financing Revenue and Other Income 582,088 621,886
Expenses
Operating expenses (183,747) (173,918)
Provision for credit losses (Note 2) (29,081) (28,297)
Total expenses (212,828) (202,215)
Income before income taxes 369,260 419,671
Provision for income taxes (Note 13) (99,659) (134,403)
Net Income 269,601 285,268
Retained earnings, beginning of year 1,375,465 1,090,197
Retained earnings, end of year $ 1,645,066 $ 1,375,465
Reference should be made to the Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
Year Ended December 31,
2002 2001
(in thousands)
Operating Activities
Net income $ 269,601 $ 285,268
Depreciation 794,076 598,452
Provision for credit losses 29,081 28,297
Gain on sale of finance receivables - Consumer (35,567) (33,868)
Net change in:
Other assets (245,350) 37,361
Accounts payable to GMCL and affiliates 140,431 5,535
Interest payable (26,590) 4,102
Income and other taxes payable (24,372) 76,405
Accrued expenses and other liabilities (99,662) 103,644
Future income taxes (38,506) 50,148
Cash provided by operating activities 763,142 1,155,344
Financing Activities
Net change in short-term debt 569,065 (2,160,404)
Issuance of long-term debt 3,103,736 3,858,351
Repayment of long-term debt (3,713,392) (2,803,356)
Increase in contributed surplus 34,692 -
Cash used in financing activities (5,899) (1,105,409)
Investing Activities
Acquisitions of finance receivables and loans (22,938,327) (19,554,787)
Liquidations of finance receivables and loans 19,938,506 18,154,430
Proceeds from sales of finance receivables 2,664,930 2,029,562
Purchases of operating lease assets (3,189,521) (1,914,586)
Disposals of operating lease assets 781,591 1,619,485
Net change in:
Notes receivable from affiliates 1,570,224 1,000,553
Investments (34,692) -
Subordinated interests in securitization trusts (70,955) (122,592)
Cash provided by (used in) investing activities (1,278,244) 1,212,065
Increase (decrease) in cash and cash equivalents (521,001) 1,262,000
Cash and cash equivalents at beginning of the year 1,302,001 40,001
Cash and cash equivalents at end of the year $ 781,000 $ 1,302,001
Supplemental disclosure
Cash paid for:
Interest $ 765,342 $ 905,185
Taxes $ 180,347 $ 27,072
Reference should be made to the Notes to Consolidated Financial Statements.
Notes to Consolidated Financial 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
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 subsidiary GMAC Leaseco Limited.
Use of estimates and assumptions
The preparation of the Company's financial statements, in accordance with
generally accepted accounting principles, requires management to make estimates
and assumptions that affect amounts reported therein. 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 the 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, at which time all past due revenue is recognized.
Impaired loans
Commercial loans are considered impaired when it is probable that the Company
will be unable to collect all amounts due according to the contractual terms of
the loan agreement and the recorded investment in the loan exceeds its 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 losses inherent in
the lending portfolios. A portion of the allowance for credit losses is
allocated to cover the estimated losses on commercial loans specifically
identified for impairment. The remaining or unallocated portion of the
allowance for credit losses is established to cover the estimated losses on the
homogeneous portfolios of finance receivables and loans collectively reviewed
for potential impairment. Additions to the allowance for credit losses are made
by charges to the provision for credit losses. Amounts deemed 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 their overall
collectibility. The unallocated allowance on the portfolios collectively
reviewed for impairment, generally consumer finance receivables and loans, is
based on aggregated portfolio evaluations by loan type. A variety of factors
are taken into consideration including, but not limited to, historical loss
experience, current economic conditions, anticipated repossessions based on
portfolio trends, delinquencies and credit scores, and expected loss factors by
loan type. The commercial portfolios are generally reviewed on an individual
loan basis and, if necessary, an allowance is established for individual loan
impairment. The evaluations for both consumer and commercial finance
receivables and loans involves complex and subjective judgments. Management
evaluates the adequacy of the allowance for credit losses based on the combined
total of the allocated and unallocated components.
Securitizations
The Company periodically sells retail and wholesale finance receivables to
securitization vehicles and remains as servicer.
Effective April 1, 2001, the Company adopted the new CICA Accounting Guideline
("AcG") 12 - "Transfers of Receivables" on a prospective basis. Under the new
guideline, the Company recognizes gains and losses on securitizations of retail
and wholesale receivables which qualify as sales at the date of transfer.
Transactions are accounted for as sales when the Company surrenders control of
the transferred assets and receives consideration other than beneficial
interests in those assets.
Pre-tax gains on sold receivables are recorded in other income. Gains or losses
on securitizations and sales depend on the previous carrying amount of the
finance receivables and loans involved in the transfer and are 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, the Company estimates fair value of these 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 and discount rates
commensurate with the risks involved and, if applicable, interest rates on
variable and adjustable contracts held by the securitization vehicle. Credit
loss assumptions are based upon historical experience related to similar assets.
Prepayment speed estimates are determined utilizing data obtained from market
participants, where available, or 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 held by the securitization vehicle are based on spreads
over the applicable benchmark interest rate.
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
certain cash deposits provided as credit enhancements for investors.
Appropriate limited recourse loss allowances are established for expected credit
losses on sold retail finance receivables. Retained cash collateral accounts
are included in other assets.
The receivables 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.
Prior to April 1, 2001, transactions were accounted for as sales if the
significant risks and rewards of ownership were transferred to the
securitization vehicles. Any gains related to these transactions were deferred
until realized. Losses were recorded in the period in which the sale occurred.
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, net of amortized 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 down to
estimated realizable value over a period of time consistent with the term of the
underlying operating lease agreement. The provision for depreciation is
adjusted for the difference between the net book value and the proceeds of sale
or salvage on disposal of the assets. The Company evaluates its depreciation
policy for leased vehicles on a regular basis.
The Company has significant investments in the residual values of vehicles in
its leasing portfolio. The residual values represent the estimate of the value
of the vehicles at the end of the lease contracts and are initially recorded
based on appraisals and estimates. Realization of the residual values is
dependent on the Company's future ability to market the vehicles under the then
prevailing market conditions. Management reviews residual values on a regular
basis to determine that recorded amounts are appropriate and that operating
lease assets have not been impaired.
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 other operating expenses. Gains and losses on the sales of
repossessed assets subject to operating leases are credited or charged to
depreciation expense. 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
The Company is party to derivative financial instruments with off-balance sheet
risk 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 instruments
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 regularly to ensure they remain effective as
hedges in managing interest rate exposure.
Foreign currency instruments
Foreign currency swaps are used to 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 accounted
for as hedges to the extent that they are designated, and are effective as,
hedges of foreign currency commitments. Foreign currency gains and losses
associated with these agreements offset the correlating foreign currency gains
and losses related to the designated liabilities.
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.
Reclassifications
Certain amounts for 2001 have been reclassified to conform to the 2002 financial
statement presentation.
Note 2. Finance Receivables and Loans
The composition of finance receivables and loans outstanding was as follows:
December 31,
2002 2001
(in thousands)
Consumer
Retail automotive $ 5,556,658 $ 4,802,620
Commercial
Automotive:
Wholesale 1,900,681 2,091,025
Leasing and lease financing 718,349 943,991
Term loans to dealers and other 378,156 364,899
Total commercial 2,997,186 3,399,915
Total finance receivables and loans(1)and (2) $ 8,553,844 $ 8,202,535
(1) Net of unearned income of $534,774 and $533,829 at December 31, 2002 and 2001.
(2)The aggregate amount of gross finance receivables and loans maturing in the
next five years is as follows (in millions):
$4,332.8 in 2003; $2,025.4 in 2004; $1,495.0 in 2005; $889.8 in 2006; $304.9
in 2007 and $40.7 in 2008 and thereafter.
The following table presents an analysis of the activity in the allowance for
credit losses on finance receivables and loans:
December 31,
2002 2001
(in thousands)
Balance at beginning of year $ 66,988 $ 55,393
Provisions charged to income 29,081 28,297
Charge-offs (14,608) (10,474)
Recoveries and other 1,048 1,950
Transfers to sold receivables allowance (5,589) (8,178)
Balance at end of year $ 76,920 $ 66,988
Note 3. Sale of Finance Receivables
The Company securitizes automotive financial assets as a funding source. The
Company sold retail finance receivables with contractual principal aggregating
$1,745.1 million in 2002 and $1,774.0 million in 2001. The outstanding principal
balance of sold retail finance receivables totaled $2,581.5 million and $2,340.2
million at December 31, 2002 and 2001, respectively.
The Company has also sold wholesale receivables on a revolving basis resulting
in a decrease in the balance of wholesale receivables outstanding of $2,385.0
million and $1,047.3 million at December 31, 2002 and 2001, respectively. The
Company is committed to sell eligible receivables arising in certain dealer
accounts. Sales levels may be adjusted from time to time to reflect
fluctuations in wholesale receivable levels. The fair value of retained
interests in wholesale securitizations is assumed to approximate cost due to the
short term nature of wholesale receivables.
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.
GMAC maintains cash collateral accounts for wholesale loan securitizations at
predetermined amounts for certain securitization activities 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 $78.8 million as of December 31, 2002 and $35 million as of December 31,
2001.
The following table summarizes pre-tax gains on securitizations and certain cash
flows received from and paid to securitization trusts related to receivables
sold post adoption of AcG-12 "Transfers of Receivables" on April 1, 2001:
December 31, 2002 December 31, 2001
Retail Wholesale Retail Wholesale
(in millions) (in millions)
Pre-tax gains on securitizations $ 35.6 $ - $ 33.9 $ -
Proceeds from new securitizations $ 1,555.1 $ 1,109.8 $ 792.3 $ 482.5
Other cash flows received on retained interests $ 11.4 n/a $ - n/a
Collections reinvested in revolving wholesale n/a $ 6,411.8 n/a $ 1,715.3
securitizations
Key economic assumptions used in measuring the estimated fair value of retained
interests in retail finance receivables1 sales completed subsequent to March 31,
2001, as of the dates of such sales, were as follows:
December 31,
2002 2001
Annual prepayment rate(2) 0.87% - 0.90% 0.82%
Weighted-average life (in years) 1.63 - 1.69 1.76
Expected credit losses(3) 0.75% 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
plus 4 to 5 basis points plus 5 basis points
(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 $14.4 million and $6.3 million at December 31, 2002 and
2001, 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 post-March
31, 2001 resulting from 10% and 20% adverse changes in the key economic
assumptions used to measure the fair value.
December 31, 2002
(in thousands)
Fair value of retained interests $ 158,623.0
Annual prepayment rate 0.70% - 0.87%
Impact of 10% adverse change(2) $ (172.0)
Impact of 20% adverse change(2) $ (232.1)
Discount rate 9.50%
Impact of 10% adverse change $ (1,548.5)
Impact of 20% adverse change $ (3,055.2)
Expected credit losses 0.75%
Impact of 10% adverse change $ (1,435.5)
Impact of 20% adverse change $ (2,871.0)
Variable returns to securitization investors (annual rate) 3.26% - 3.38%
Impact of 10% adverse change $ (5,858.0)
Impact of 20% adverse change $ (11,742.1)
(1)The fair value of retained interests in wholesale securitizations is assumed
to approximate carrying value due to the short-term nature of wholesale
receivables.
(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 a 10% variation 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 2002 and 2001 based on securitizations
occurring in that year. Static pool losses are not applicable to wholesale
finance receivables securitizations due to their short-term nature.
December 31,
2002 2001
Retail automotive 0.24% 0.23%
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 receivables Amount 60 days or Net credit losses
and loans more past due
2002 2001 2002 2001 2002 2001
(in millions) (in millions) (in millions)
Retail automotive $ 8,000.8 $ 7,007.8 $ 6.7 $ 3.9 $ 12.9 $ 10.7
Wholesale 4,285.7 3,138.3 0.5 - - -
Leasing and lease financing 718.3 944.0 2.5 1.4 1.9 -
Term loans to dealers and other 378.2 364.9 - - - -
Total managed portfolio(1) 13,383.0 11,455.0 $ 9.7 $ 5.3 $ 14.8 $ 10.7
Less: securitized finance 4,829.2 3,252.5
receivables and loans
Total finance receivables and $ 8,553.8 $ 8,202.5
loans
(1)Managed portfolio represents finance receivables and loans on the balance sheet
or that have been securitized.
Note 4. Investment in Operating Leases, Net
Investments in operating leases, including unamortized deferred lease
origination costs, were as follows:
December 31,
2002 2001
(in thousands)
Vehicles and other equipment, at cost $ 6,393,764 $ 4,345,709
Less: accumulated depreciation 1,224,665 792,425
Investment in operating leases, net $ 5,169,099 $ 3,553,284
The future lease payments due from customers for equipment on operating leases
at December 31, 2002 totaled $2,870.0 million and are due as follows: $1,189.9
million in 2003; $917.8 million in 2004; $596.1 million in 2005; $165.7 million
in 2006; and $0.5 million in 2007.
Note 5. 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. In addition, the Company has an agreement
with GMAC whereby GMAC unconditionally guarantees the Company's investment in
Commercial Finance and Interleasing. Accordingly, the Company has not
consolidated these investments and has recorded these investments on a cost
basis. Income associated with these investments will be recorded when received.
In January 2002, GMAC injected $34.7 million into the Company which has been
recorded as an increase to contributed surplus. These funds were invested in
Interleasing to maintain the Company's 60% ownership interest. The recorded
investment in Commercial Finance and Interleasing at December 31, 2002 is $797.5
and $286.9 million, respectively.
Commercial Finance had consolidated total assets of approximately $2.2 billion
at December 31, 2002 and $2.3 billion at December 31, 2001, the majority of
which represents loans receivable relating to the group's asset-based lending
activities (2002 - $1.8 billion, 2001 - $1.9 billion) and goodwill arising on
acquisition of subsidiaries (2002 and 2001 - $0.4 billion). Consolidated total
liabilities as at December 31, 2002 and December 31, 2001 are approximately $1.6
billion and $1.7 billion, respectively, substantially all of which relates to
financing with other GMAC affiliated companies.
Interleasing had consolidated total assets of approximately $1.7 billion at
December 31, 2002 and $1.4 billion at December 31, 2001, substantially all of
which relates to its operating lease vehicle assets. Consolidated total
liabilities as at December 31, 2002 and December 31, 2001 are approximately $1.6
billion and $1.4 billion, respectively, the majority of which relates to
financing with other GMAC affiliated companies.
Note 6. Other Assets
Other assets consisted of:
December 31,
2002 2001
(in thousands)
Property and equipment, at cost $ 9,672 $ 8,316
Less: accumulated depreciation 2,871 2,110
Net property and equipment 6,801 6,206
Unamortized debt cost 12,012 13,227
Non-performing assets, net of valuation reserves 6,015 5,858
Investment in used vehicles held for sale 24,320 18,586
Cash deposits held for securitization trusts 78,750 35,000
Accrued interest receivable from swap counterparties 310,749 123,541
Deferred insurance and warranty premiums on lease contracts 78,767 38,683
Prepaid pension asset 18,194 18,641
Other assets 40,196 72,673
Total other assets $ 575,804 $ 332,415
Note 7. Lines of Credit with Banks
Established committed revolving lines of credit with banks totaled $1.25 billion
at December 31, 2002 and 2001, of which $625 million will expire on June 16,
2003 and $625 million will expire on June 16, 2006.
Note 8. Debt Payable Within One Year
December 31, 2002 December 31, December 31,
Weighted 2002 2001
Average (in thousands)
Interest Rate
Short-term notes
Domestic 3.065% $ 2,657,598 $ 2,042,114
Foreign (1) 2.964% 87,113 145,620
Total principal amount 2,744,711 2,187,734
Unamortized discount (8,503) (5,114)
Total 2,736,208 2,182,620
Bank loans and overdrafts 4.500% 20,770 4,077
Other notes and debentures payable within one year
Domestic 5.892% 2,799,445 3,292,392
Foreign (2) 3.128% 838,180 396,897
Total 3,637,625 3,689,289
Total debt payable within one year $ 6,394,603 $ 5,875,986
(1) Denominated in U.S. dollars
(2) Denominated in Euro and Japanese Yen
The Company has entered into foreign currency swap agreements to hedge its
exposures related to notes and debentures payable in foreign currencies.
This debt, guaranteed by GMAC, is unsecured. Effective July 1, 2000, all new
guaranteed debt entered into by the Company is subject to a guarantee fee. In
respect of its guarantee of short-term notes, GMAC was paid $6.3 million in 2002
and $7.3 million in 2001. This fee is excluded from the weighted average
interest rates above.
Note 9. Debt Payable After One Year
Contract Denominated in December 31, December 31,
Maturity Date Rate Foreign Currency 2002 2001
(in millions) (in thousands)
February, 2003 (1) Euro 154 $ - $ 218,929
May, 2003 5.000% Euro 154 - 218,742
November, 2003 (2) Euro 10 - 14,652
December, 2003 5.125% Euro 128 - 181,351
December, 2003 6.000% - 100,000
March, 2004 6.500% GBP 100 250,194 228,190
June, 2004 6.000% NOK 400 90,876 71,130
June, 2004 5.500% 100,000 100,000
September, 2004 5.750% 100,000 100,000
September, 2004 1.480% Y 1,000 13,286 12,163
September, 2004 6.250% 100,000 100,000
December, 2004 6.500% 100,000 100,000
January, 2005 7.000% USD 200 315,640 318,520
February, 2005 (3) Y 6,000 79,721 72,976
February, 2005 8.250% NZD 100 82,746 66,204
February, 2005 (4) USD 30 47,346 47,778
March, 2005 7.000% 100,000 100,000
March, 2005 7.750% USD 250 394,550 398,150
April, 2005 (5) Euro 26 42,246 36,270
April, 2005 7.000% CZK 1,000 52,458 44,739
April, 2005 12.250% PLN 100 41,233 39,955
July, 2005 5.250% DKK 400 88,979 76,314
October, 2005 7.500% NZD 100 82,745 66,204
November, 2005 6.125% DKK 400 88,979 76,314
December, 2005 6.625% 100,000 100,000
February, 2006 6.125% DKK 600 133,469 114,470
March, 2006 6.250% 100,000 100,000
May, 2006 6.250% 100,000 100,000
September, 2006 6.125% 100,000 100,000
November, 2007 6.125% DKK 400 88,979 76,314
February, 2008 6.000% DKK 500 111,224 95,392
Notes with original maturities up to ten years with a weighted
average interest rate at December 31, 2002 of 5.91% 6,527,544 6,516,666
Total debt payable after one year $ 9,432,215 $ 9,991,423
(1) Interest at a rate of 0.15% above the 3 month EURIBOR rate
(2) Interest at a rate of 6% until 11/12/2001 and 6.5% until 11/12/2003
(3) Interest at a rate of 0.10% above the 3 month JPY LIBOR rate
(4) Interest at a rate of 0.21% above the 3 month US LIBOR rate
(5) Interest at a rate of 0.20% above the 3 month EURIBOR rate
The Company has entered into foreign currency swap agreements to hedge its
exposures related to notes and debentures payable in foreign currencies.
This debt, guaranteed by GMAC, is unsecured. Effective July 1, 2000, all new
guaranteed debt entered into by the Company is subject to a guarantee fee. In
respect of its guarantee of debt due after one year, GMAC was paid $25.0 million
in 2002 and $15.6 million in 2001.
The following table presents the maturity of long-term debt at December 31,
2002. The maturity of the debt is based on contractual terms, assuming that no
repurchases will occur.
(in millions)
2004 $ 3,272.7
2005 3,530.2
2006 1,609.6
2007 927.0
2008 111.9
2009 and thereafter 0.1
Long-term debt 9,451.5
Less: unamortized discount 19.3
Total long-term debt $ 9,432.2
Note 10. Interest and Discount
Interest and discount expense includes $641.9 million in 2002, and $757.9
million in 2001, applicable to indebtedness initially incurred for terms of more
than one year.
Note 11. Other Income
Details of other income were as follows:
December 31,
2002 2001
(in thousands)
Automotive receivable securitizations $ 169,546 $ 121,961
Service fee revenue from GMCL 78,580 111,456
Other 20,255 21,561
Interest on income tax refunds(1) - 72,149
Total other income $ 268,381 $ 327,127
(1)The Company reached a final settlement with the Canada Customs and Revenue
Agency in 2001 relating to prior years' reassessments. Other income of $72.1
million was recorded in the third quarter of 2001 reflecting final
settlement.
Note 12. Transactions with Affiliates
The amounts due to General Motors of Canada Limited ("GMCL"), which is wholly
owned by General Motors Corporation ("GM"), relate principally to current
wholesale financing of sales of GM products. The Company and GMCL have an
agreement for payment by the Company to GMCL for amounts in respect of the
Company's wholesale financing arrangements with GMCL and certain GM dealers.
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.
Included in commercial financing revenue in 2002 with respect to this
arrangement was $14.2 million and $17.1 million in 2001.
Agreements with GMCL provide for payment to the Company of residual value
support on certain consumer transactions. Amounts included in net financing
revenue for these transactions totaled $7.5 million and $39.3 million in 2002
and 2001, respectively.
The Company sold to GMCL, $512.4 million in 2002, and $1,342.7 million in 2001,
of vehicles subject to operating leases. The Company continues to service these
leases. Service fee revenue included in other income totaled $78.6 million in
2002 and $111.5 million in 2001. The Company also makes secured loans to GMCL
to fund GMCL's vehicle leasing program, under a loan agreement up to a cap of
$5.5 billion. Outstanding loans to GMCL totaled $2,336.4 million at December
31, 2002 and $3,899.0 million at December 31, 2001. 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. Total interest, included in commercial financing revenue,
amounted to $184.7 million and $320.5 million in 2002 and 2001, respectively.
The Company has agreements to provide funding to related Canadian corporations
wholly owned by GMAC. Advances to GMAC Commercial Credit Corporation - Canada
("GMACCC") are not to exceed $750 million in aggregate. At December 31, 2002,
outstanding advances to GMACCC were $407.8 million and $432.0 million at
December 31, 2001. GMAC Commercial Mortgage of Canada, Limited advances are to
be made in the form of a revolving line of credit or medium term loans in
amounts not to exceed $750 million in aggregate. No advances were outstanding
at December 31, 2002 or December 31, 2001. During 2002, the Company entered
into an agreement to provide funding to GMAC Residential Funding of Canada,
Limited ("GMACRFC"), a Canadian corporation wholly owned by GMAC. Advances to
GMACRFC are not to exceed $300 million. At December 31, 2002, outstanding
advances to GMACRFC were $16.6 million. 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. Included in commercial financing revenue
income was $14.0 million in 2002 and $21.8 million in 2001 with respect to these
funding agreements.
As part of the Company's re-marketing initiatives, $5.7 million of off-lease
vehicles were sold to GMAC in 2002, and $38.8 million in 2001.
The Company receives technical and administrative services from GMAC. Costs of
such services, which are included in operating expenses, amounted to $19.9
million and $15.3 million in 2002 and 2001, respectively.
The Company paid premiums of $0.1 million in 2002 and $1.0 million in 2001 for
insurance coverage provided to the Company by Motors Insurance Corporation, a
subsidiary of GMAC.
Effective July 1, 2000, all new guaranteed debt entered into by the Company is
subject to a guarantee fee. In respect of its guarantee, GMAC was paid $31.3
million in 2002 and $22.9 million in 2001.
The Company enters into transactions with related parties, in the normal course
of business, on the same basis as non-related parties.
Note 13. Income Taxes
The significant temporary differences giving rise to the Company's future net
income tax liability for 2002 and 2001 of $656.8 million and $695.3 million,
respectively, are detailed as follows:
December 31, 2002 December 31, 2001
Assets Liabilities Assets Liabilities
(in thousands) (in thousands)
Lease transactions $ 707,263 $ 712,993
756,987
Loss carryforwards and minimum tax credits $ 20,318 $ 2,125
Provision for financing losses 30,777 35,433
Pension and other post retirement benefits 4,549 5,406
Other 5,188 25,284
Total future income taxes $ 55,644 $ 712,451 $ 42,964 $ 738,277
The significant components of income tax expense are as follows:
December 31,
2002 2001
(in thousands)
Income taxes estimated to be currently payable (refundable): $ 102,599 $ 66,109
Federal
Provincial 35,566 24,662
Total current income taxes 138,165 90,771
Future income taxes:
Federal (25,280) 18,803
Provincial (13,226) 24,829
Total future income taxes (38,506) 43,632
Provision for income taxes $ 99,659 $ 134,403
The Company's combined federal and provincial statutory income tax rate was
38.5% in 2002 and 39.9% in 2001. A reconciliation of the statutory income tax
rate to the effective tax rate for the years 2002 and 2001 follows:
December 31,
2002 2001
% %
Combined federal and provincial statutory income tax rate 38.5 39.9
Large corporations tax 2.6 1.9
Change in tax rate for future income taxes (8.9) (7.8)
Corporate minimum tax credits (4.4) -
Other items (0.8) (2.0)
Effective tax rate 27.0 32.0
At December 31, 2002, the Company has provincial loss carryforwards and minimum
tax credits of $170.9 million for income tax purposes that expire as follows:
2005, $159 million; 2007, $0.7 million; 2008, $4.2 million; 2009, $4.1 million;
and 2010, $2.9 million. For financial reporting purposes, a future tax asset of
$20.3 million has been recognized in respect of these loss carryforwards and
minimum tax credits. Realization of the loss carryforwards and 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 14. Fair Value of Financial Instruments
The estimated fair values of financial instruments were as follows:
December 31, 2002 December 31, 2001
Book Estimated Book Estimated
Value Fair Value Value Fair Value
(in thousands) (in thousands)
Financial assets
Subordinated interests in securitization trusts $ 344,336 $ 391,822 $ 273,381 $ 413,129
Finance receivables and loans, net $ 8,476,924 $ 8,371,551 $ 8,135,547 $ 8,190,352
Notes receivable from affiliates $ 2,760,795 $ 2,710,538 $ 4,331,019 $ 4,280,332
Financial liabilities
Debt $ 15,826,818 $ 15,850,654 $ 15,867,409 $ 15,778,047
The Company has developed the above 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, 2002 and 2001. 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, 2002 and 2001 may differ significantly from these amounts.
The following captions describe the methodologies and assumptions used, by
financial instrument in the above table, to determine fair value.
Subordinated interests in securitization trusts
The fair value is 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 is estimated by discounting the expected future cash flows using
applicable spreads to approximate current rates.
Debt
The fair value of the debt payable within one year was determined by using
quoted market prices, if available, or calculating the estimated value of each
bank loan, note or debenture in the portfolio at the applicable rate in effect.
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. Debt payable beyond one year has an estimated fair
value based on quoted market prices for the same or similar issues or based on
the current rates offered to the Company for debt with similar remaining
maturities. Fair value of derivative instruments are excluded from these
amounts.
Interest rate swaps
The fair value of the existing interest rate swaps is estimated by discounting
expected cash flows using quoted market interest rates. The notional balances
of interest rate swap instruments of $10,777.6 million and $8,443.7 million at
December 31, 2002 and 2001, respectively, resulted in an unrealized gain of
$228.2 million in 2002 and $199.9 million in 2001.
Foreign currency swaps
The fair value of the existing foreign currency swaps is estimated by
discounting expected cash flows using quoted market exchange rates. The
notional balances of foreign currency swap instruments of $2,687.4 million and
$3,196.7 million at December 31, 2002 and 2001, respectively, resulted in an
unrealized gain of $231.8 million in 2002 and an unrealized loss of $52.2
million in 2001.
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 15. Commitments and Contingent Liabilities
Minimum future commitments under non-cancelable operating lease and service
agreements in excess of one year for premises and equipment aggregating $19.6
million, are payable $8.4 million in 2003; $4.9 million in 2004; $3.2 million in
2005; $1.7 million in 2006; $0.7 million in 2007; and $0.7 million in 2008 and
thereafter.
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, 2002. 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 16. 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.
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,
2002 2001 2002 2001
Change in benefit obligations (in thousands) (in thousands)
Benefit obligation at beginning of year $ 100,558 $ 90,532 $ 37,851 $ 41,715
Service cost 2,159 1,796 1,217 1,002
Interest cost 7,029 6,555 2,682 3,036
Plan participants' contributions 103 118 - -
Actuarial loss (gain) 4,353 8,327 644 884
Benefits paid (7,588) (6,840) - -
Plan amendments and other 3,354 70 7,578 (8,786)
Benefit obligation at end of year 109,968 100,558 49,972 37,851
Change in plan assets
Fair value of plan assets at beginning of year 90,311 99,655 - -
Actual return on plan assets (3,811) (2,746) - -
Employer contributions 2,589 - - -
Plan participants' contributions 103 118 - -
Benefits paid (7,399) (6,716) - -
Fair value of plan assets at end of year 81,793 90,311 - -
Funded status (28,175) (10,247) (49,972) (37,851)
Unrecognized actuarial loss (gain) 37,099 21,690 15,181 5,531
Past service cost 9,270 7,198 - -
Net amount recognized $ 18,194 $ 18,641 $ (34,791) $ (32,320)
December 31, December 31,
2002 2001 2002 2001
(in thousands) (in thousands)
Components of expense
Service cost $ 2,159 $ 1,796 $ 1,217 $ 1,002
Interest cost 7,029 6,555 2,682 3,036
Expected return on plan assets (8,139) (8,438) - -
Amortization of past service cost 1,060 1,053 - -
Recognized net actuarial loss 899 75 644 884
Amortization of transitional obligation 27 27 - -
Net expense $ 3,035 $ 1,068 $ 4,543 $ 4,922
Weighted-average assumptions
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected rate of return on plan assets 8.75% 9.00% - -
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
For measurement purposes, an approximate 7% annual rate of increase in per
capita cost of other covered benefits was assumed for 2000. The rate was
assumed to decrease on a linear basis to 4% through 2005 and level thereafter.
For measurement purposes, an approximate 7% annual rate of increase in per
capita cost of other covered benefits was assumed for 2002. The rate was
assumed to decrease on a linear basis to 4% through 2006 and remain at that
level thereafter.
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 one year or more. 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 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) 633-5065 Phone: (800) 268-2508
Prevailing rates for GMAC 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) 633-5065 Phone: (800) 268-2506
GENERAL MOTORS ACCEPTANCE CORPORATION OF CANADA, LIMITED
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFWFUISDSEEL