UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

 

Commission file number: 1-3754

 

GMAC LLC
(Exact name of registrant as specified in its charter)

 

 

200 Renaissance Center
P.O. Box 200 Detroit, Michigan
48265-2000
(Address of principal executive offices)
(Zip Code)

 

(313) 556-5000
(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

Yes þ             No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o          No þ

 

 

GMAC LLC

 

INDEX

 

 

 

GMAC LLC

 

CONDENSED CONSOLIDATED STATEMENT OF INCOME (unaudited)

 

 

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

GMAC LLC

 

CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)

 

 

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

GMAC LLC

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

Three Months Ended March 31, 2008 and 2007

 

 

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

GMAC LLC

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

Three Months Ended March 31, 2008 and 2007

 

 

The Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

GMAC LLC

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1.    Basis of Presentation

 

GMAC LLC was founded in 1919 as a wholly owned subsidiary of General Motors Corporation (General Motors or GM). On November 30, 2006, GM sold a 51% interest in us (the Sale Transactions) to FIM Holdings LLC (FIM Holdings). FIM Holdings is an investment consortium led by Cerberus FIM Investors, LLC, the sole managing member. The consortium also includes Citigroup Inc., Aozora Bank Ltd., and a subsidiary of The PNC Financial Services Group, Inc. The terms “GMAC,” “the company,” “we,” “our,” and “us” refer to GMAC LLC and its subsidiaries as a consolidated entity, except where it is clear that the terms mean only GMAC LLC.

 

The Condensed Consolidated Financial Statements as of March 31, 2008, and for the three months ended March 31, 2008 and 2007, are unaudited but, in management’s opinion, include all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the results for the interim periods.

 

The interim-period consolidated financial statements, including the related notes, are condensed and are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim reporting. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These interim-period Condensed Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements, which are included in our Annual Report on Form 10-K for the year ended December 31, 2007, filed with the United States Securities and Exchange Commission (SEC) on February 27, 2008.

 

Residential Capital, LLC (ResCap), our mortgage subsidiary, actively manages its liquidity and capital position and has developed plans to address its liquidity needs, including debt maturing in 2008 and other identified risks and uncertainties. These plans include, but are not limited to the following: continue to work proactively and maintain an active dialog with all of ResCap’s key credit providers to optimize all available liquidity options including negotiating credit terms, refinancing term loans and other secured facilities; potential pursuit of strategic alternatives that will improve ResCap’s liquidity such as continued strategic reduction of assets and other dispositions, focused production on prime conforming products which currently provide more liquidity options, explore potential alliances and joint ventures with third-parties involving portions of ResCap’s business; potential utilization of available committed unsecured lines of credit; certain asset liquidations; and explore opportunities for GMAC to provide funding or capital support to ResCap (there can be no assurances, however, that GMAC will undertake any such actions). Asset liquidation initiatives may include, among other things, sale of retained interest in ResCap’s mortgage securitizations, marketing of loans secured by time-share receivables, marketing of ResCap’s United Kingdom and Continental Europe mortgage loan portfolios, and whole loan sales among other initiatives.

 

With respect to these plans, we are currently in negotiations with ResCap to provide it with a new 2-year $3.5 billion senior secured credit facility, which is conditioned on successfully completing the debt tender and exchange offer for ResCap’s outstanding unsecured notes. However, there can be no assurances that we will undertake any such actions. Additionally, ResCap is seeking amendments to substantially all of its secured bilateral facilities that would extend the maturities of such facilities or modify the tangible net worth covenant contained in such facilities. For further details with respect to the foregoing plans, refer to Note 13 — Subsequent Events.

 

While successful execution cannot be assured, management believes the plans are sufficient to meet ResCap’s liquidity requirements over the next twelve months. If unanticipated market factors emerge and/or ResCap is unable to successfully execute its plans, referenced above, it would have a material adverse effect on our business, results of operations and financial position.

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Share-Based Compensation Plans

 

In 2007, the Compensation Committee approved the Long-Term Phantom Interest Plan (LTIP) and a Management Profits Interest Plan (MPI). Both plans meet the definition of share-based compensation awards, and therefore are accounted for under Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS 123(R)). These compensation plans provide our executives with an opportunity to share in the future growth in value of GMAC, which is necessary to attract and retain key executives. The first grants of our plans were made in the first quarter of 2007. The Compensation Committee authorized additional LTIP and MPI awards during the first quarter of 2008.

 

The LTIP is an incentive plan for executives based on the appreciation of GMAC’s value in excess of 10% during a three-year performance period. The awards vest at the end of the performance period and are paid in cash following a valuation of GMAC performed by FIM Holdings. The awards do not entitle the participant to an equity-ownership interest in GMAC. At March 31, 2008, 329 units were issued and outstanding for the 2007-2009 performance period, and 467 units were issued and outstanding for the 2008-2010 performance period. Under SFAS 123(R), the awards require liability treatment and are remeasured quarterly at fair value until they are settled. The compensation cost related to these awards will be ratably charged to expense over the requisite service period, which are the vesting periods ending December 31, 2009 and 2010, for the respective awards. We utilize a Black-Scholes model to fair value the LTIP awards, which considers expected volatility, expected term of the awards, and changes in our performance, market, and industry. Changes in fair value relating to the portion of the awards that have vested will be recognized in earnings in the period in which the changes occur. The estimated fair value of the awards outstanding at March 31, 2008, was approximately $21 million. Compensation (income) expense recognized during the three months ended March 31, 2008 and 2007, was ($10) million and $4 million, respectively. We recognized compensation income for the three months ended March 31, 2008, due to a decline in the value of the liability mainly as a result of forfeitures and a change in assumptions due to information obtained during the same period.

 

The MPI is an incentive plan whereby Class C Membership interests in GMAC held by a management company are granted to senior executives. Series C-1 (C-1) awards were granted beginning in the first quarter of 2007; Series C-2 (C-2) and Series C-2A (C-2A) awards were granted beginning in the first quarter of 2008. The number of Class C Membership Interests available to be issued was also increased from 5,820 to 8,330. The total Class C Membership interests outstanding at March 31, 2008, were approximately 6,556, comprised of 3,873 C-1, 1,852 C-2, and 831 C-2A awards. Half of the awards vest based on a service requirement, and half vest based on meeting operating performance objectives. The service portion vests ratably over five years beginning November 30, 2007, for C-1 and C-2A awards and November 30, 2008, for C-2 awards, and on each of the next four anniversaries thereafter. The performance portion vests based on five separate annual targets beginning in 2007 for C-1 and C-2A awards and in 2008 for C-2 awards. If the performance objectives are met, that year’s pro rata share of the awards vest. If the current year objectives are not met but the annual performance objectives of a subsequent year are met, all unvested shares from previous years will vest. Any awards that do not vest during the five one-year performance periods will be forfeited. Under SFAS 123(R), the awards require equity treatment and are fair valued as of their grant date. We utilize a Black-Scholes model to determine the grant date fair value of the MPI awards, which considers expected volatility, expected term of the awards, and changes in our performance, market, and industry. Compensation expense for the MPI awards is ratably charged to expense over the five-year requisite service period for service-based awards and over each one-year requisite service period for the performance-based awards, both to the extent the awards actually vest. During the third quarter of 2007, the performance vesting for 2007 was not deemed probable. Accordingly, a portion of the expense for the 2007 performance vesting portion of the awards will be accrued throughout 2008. The value of the awards outstanding at March 31, 2008, based on their grant date estimated fair value, was approximately $34 million. Compensation expense of $1 million was recognized during both the three months ended March 31, 2008 and 2007.

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Recently Adopted Accounting Standards

 

SFAS No. 157 — On January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides a definition of fair value, establishes a framework for measuring fair value under accounting principles generally accepted in the United States (GAAP), and requires expanded disclosures about fair value measurements. The standard applies when GAAP requires or allows assets or liabilities to be measured at fair value and, therefore, does not expand the use of fair value in any new circumstance. We adopted SFAS 157 on a prospective basis. SFAS 157 required retrospective adoption of the rescission of Emerging Issues Task Force issue No. 02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities (EITF 02-3), and certain other guidance. The impact of adopting SFAS 157 and the rescission of EITF 02-3 on January 1, 2008, was an increase to beginning retained earnings through a cumulative effect of a change in accounting principle of approximately $23 million, related to the recognition of day-one gains on purchased mortgage servicing rights (MSRs) and certain residential loan commitments. Refer to Note 10 to the Condensed Consolidated Financial Statements for further detail.

 

SFAS No. 158 — In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158), which amends SFAS No. 87, Employers’ Accounting for Pensions; SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits; SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions; and SFAS No. 132(R), Employers’ Disclosures about Pensions and Other Postretirement Benefits (revised 2003). This Statement requires companies to recognize an asset or liability for the overfunded or underfunded status of their benefit plans in their financial statements. The asset or liability is the offset to accumulated other comprehensive income, consisting of previously unrecognized prior service costs and credits, actuarial gains or losses, and accumulated transition obligations and assets. SFAS 158 also requires the measurement date for plan assets and liabilities to coincide with the sponsor’s year-end. The standard provides two transition alternatives for companies to make the measurement-date provisions. During the year ended December 31, 2007, we adopted the recognition and disclosure elements of SFAS 158, which did not have a material effect on our consolidated financial position, results of operations, or cash flows. In addition, we will adopt the measurement elements of SFAS 158 for the year ending December 31, 2008. We do not expect the adoption of the measurement elements to have a material impact on our consolidated financial condition or results of operations.

 

SFAS No. 159 — On January 1, 2008, we adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. Subsequent changes in fair value for designated items are required to be reported in earnings in the current period. SFAS 159 also establishes presentation and disclosure requirements for similar types of assets and liabilities measured at fair value. We elected to measure at fair value certain financial assets and liabilities, including certain collateralized debt obligations and certain mortgage loans held for investment in financing securitization structures. The cumulative effect to beginning retained earnings was a decrease through a cumulative effect of a change in accounting principle of approximately $178 million on January 1, 2008. Refer to Note 10 to the Condensed Consolidated Financial Statements for further detail.

 

FASB Staff Position (FSP) FIN 39-1 — On January 1, 2008, we adopted FSP FIN 39-1, Amendment of FASB Interpretation No. 39. FSP FIN 39-1 defines “right of setoff” and specifies what conditions must be met for a derivative contract to qualify for this right of setoff. It also addresses the applicability of a right of setoff to derivative instruments and clarifies the circumstances in which it is appropriate to offset amounts recognized for those instruments in the statement of financial position. In addition, this FSP permits offsetting of fair value amounts recognized for multiple derivative instruments executed with the same counterparty under a master netting arrangement and fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) arising from the same master netting

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

arrangement as the derivative instruments. Upon adoption of FSP FIN 39-1, we increased December 31, 2007, other assets and other liabilities equally by approximately $1.2 billion.

 

SEC Staff Accounting Bulletin No. 109 — On January 1, 2008, we adopted Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings (SAB 109). SAB 109 provides the SEC staff’s views on the accounting for written loan commitments recorded at fair value under GAAP and revises and rescinds portions of SAB 105, Application of Accounting Principles to Loan Commitments (SAB 105). SAB 105 provided the views of the SEC staff regarding derivative loan commitments that are accounted for at fair value through earnings pursuant to SFAS 133. SAB 105 states that in measuring the fair value of a derivative loan commitment, the staff believed it would be inappropriate to incorporate the expected net future cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and expresses the current view of the SEC staff that, consistent with the guidance in SFAS No. 156, Accounting for Servicing of Financial Assets, and SFAS 159, the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. SAB 105 also indicated that the SEC staff believed that internally developed intangible assets (such as customer relationship intangible assets) should not be recorded as part of the fair value of a derivative loan commitment. SAB 109 retains that SEC staff view and broadens its application to all written loan commitments that are accounted for at fair value through earnings. The impact of adopting SAB 109 did not have a material impact on our consolidated financial condition or results of operations.

 

Recently Issued Accounting Standards

 

SFAS No. 141(R) — In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS 141(R)), which replaces FASB Statement No. 141, Business Combinations. SFAS 141(R) establishes principles and requirements for how an acquiring company recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R), effective for GMAC on January 1, 2009, applies to all transactions or other events in which GMAC obtains control in one or more businesses. Management will assess each transaction on a case-by-case basis as they occur.

 

SFAS No. 160 — In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (SFAS 160), which requires the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income. SFAS 160 will be effective for GMAC on January 1, 2009. SFAS 160 shall be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. Management is currently assessing the retrospective impacts of adoption and will assess new transactions as they occur.

 

SFAS No. 161 — In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 requires specific disclosures regarding the location and amounts of derivative instruments in the financial statements; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the financial position, financial performance, and cash flows. SFAS 161 will be effective for GMAC on January 1, 2009. Early adoption is permitted. Because SFAS 161 impacts the disclosure and not the accounting treatment for derivative instruments and related hedged items, the adoption of SFAS 161 will not have an impact on our consolidated financial condition or results of operations.

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

FSP FAS No. 140-3 — In February 2008, the FASB issued FSP FAS No. 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions, which provides a consistent framework for the evaluation of a transfer of a financial asset and subsequent repurchase agreement entered into with the same counterparty. FSP FAS No. 140-3 provides guidelines that must be met in order for an initial transfer and subsequent repurchase agreement to not be considered linked for evaluation. If the transactions do not meet the specified criteria, they are required to be accounted for as one transaction. This FSP will be effective for GMAC on January 1, 2009, and shall be applied prospectively to initial transfers and repurchase financings for which the initial transfer is executed on or after adoption. Management is currently assessing the impacts of adoption.

 

2.    Other Income

 

Details of other income were as follows:

 

		Three months ended
		March 31,
($ in millions)		2008				2007
Gain on retirement of debt			$488				$—
Real estate services			(28	)			131
Interest and service fees on transactions with GM (a)			63				74
Interest on cash equivalents			67				118
Other interest revenue			80				141
Full-service leasing fees			99				75
Late charges and other administrative fees			45				44
Mortgage processing fees and other mortgage income			4				32
Interest on restricted cash deposits			28				43
Real estate and other investments			(38	)			41
Insurance service fees			42				42
Factoring commissions			12				13
Specialty lending fees			13				11
Fair value adjustment on certain derivatives (b)			45				17
Changes in fair value for SFAS 159 elections, net (c)			(55	)			—
Other			32				84
Total other income			$897				$866

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

3.    Other Operating Expenses

 

Details of other operating expenses were as follows:

 

		Three months ended
		March 31,
($ in millions)		2008				2007
Insurance commissions			$237				$240
Technology and communications expense			153				145
Professional services			108				93
Advertising and marketing			53				70
Mortgage representation and warranty obligation			21				154
Premises and equipment depreciation			48				51
Rent and storage			52				54
Full-service leasing vehicle maintenance costs			90				70
Lease and loan administration			45				53
Auto remarketing and repossession			72				45
Restructuring expenses			34				—
Operating lease disposal loss			37				12
Other			313				259
Total other operating expenses			$1,263				$1,246

 

4.    Finance Receivables and Loans and Loans Held for Sale

 

The composition of finance receivables and loans outstanding was as follows:

 

		March 31, 2008												December 31, 2007
($ in millions)		Domestic				Foreign				Total				Domestic				Foreign				Total
Consumer
Retail automotive			$19,662				$26,345				$46,007				$20,030				$25,576				$45,606
Residential mortgages (a)			27,112				7,374				34,486				34,839				7,324				42,163
Total consumer			46,774				33,719				80,493				54,869				32,900				87,769
Commercial
Automotive:
Wholesale			14,529				8,940				23,469				14,689				8,272				22,961
Leasing and lease financing			319				1,016				1,335				296				930				1,226
Term loans to dealers and other			2,877				834				3,711				2,478				857				3,335
Commercial and industrial			6,720				2,764				9,484				6,431				2,313				8,744
Real estate construction and other			2,708				525				3,233				2,943				536				3,479
Total commercial			27,153				14,079				41,232				26,837				12,908				39,745
Total finance receivables and loans (b)			$73,927				$47,798				$121,725				$81,706				$45,808				$127,514

 

In addition to the finance receivables and loans held for investment as summarized in the table above, we had loans held for sale of $21.4 billion and $20.6 billion as of March 31, 2008, and December 31, 2007, respectively. As of March 31, 2008, loans held for sale by our Global Automotive Finance operations were $9.6 billion, compared to $8.5 billion as of December 31, 2007. The increase is attributable to a change in our funding strategy, as we have moved to an originate-to-distribute model. As of March 31, 2008, loans held for sale by Residential Capital, LLC (ResCap) were $11.9 billion, compared to $12.1 billion as of December 31, 2007.

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following tables present an analysis of the activity in the allowance for credit losses on finance receivables and loans.

 

		Three months ended March 31,
		2008												2007
($ in millions)		Consumer				Commercial				Total				Consumer				Commercial				Total
Allowance at January 1,			$2,141				$614				$2,755				$2,969				$607				$3,576
Provision for credit losses			450				24				474				499				182				681
Charge-offs
Domestic			(288	)			(110	)			(398	)			(426	)			(78	)			(504	)
Foreign			(136	)			(1	)			(137	)			(41	)			(51	)			(92	)
Total charge-offs			(424	)			(111	)			(535	)			(467	)			(129	)			(596	)
Recoveries
Domestic			53				2				55				57				—				57
Foreign			15				1				16				10				1				11
Total recoveries			68				3				71				67				1				68
Net charge-offs			(356	)			(108	)			(464	)			(400	)			(128	)			(528	)
Reduction of allowance due to fair value option election (a)			(489	)			—				(489	)			—				—				—
Impacts of foreign currency translation			14				2				16				2				2				4
Allowance at March 31,			$1,760				$532				$2,292				$3,070				$663				$3,733

 

5.    Mortgage Servicing Rights

 

The following table summarizes activity related to mortgage servicing rights (MSRs) carried at fair value.

 

		Three months ended
		March 31,
($ in millions)		2008				2007
Estimated fair value at January 1,			$4,703				$4,930
Additions obtained from sales of financial assets			370				441
Subtractions from sales of servicing assets			(174	)			—
Changes in fair value:
Due to changes in valuation inputs or assumptions used in the valuation model			(454	)			(104	)
Recognized day-one gains on previously purchased MSRs upon adoption of SFAS 157			11				—
Other changes in fair value			(176	)			(158	)
Other changes that affect the balance			(2	)			(1	)
Estimated fair value at March 31,			$4,278				$5,108

 

As of March 31, 2008, and December 31, 2007, we pledged MSRs of $2.7 billion as collateral for borrowings. For a description of MSRs and the related hedging strategy, refer to Notes 9 and 16 to our 2007 Annual Report on Form 10-K.

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Changes in fair value, due to changes in valuation inputs or assumptions used in the valuation models, include all changes due to reevaluation by a model or by a benchmarking analysis. This line item also includes changes in fair value resulting from a change in valuation assumptions or model calculations or both. Other changes in fair value primarily include the accretion of the present value of the discount related to forecasted cash flows and the economic run-off of the portfolio, foreign currency translation adjustments, and the extinguishment of MSRs related to clean-up calls of securitization transactions.

 

Key assumptions we use in valuing our MSRs are as follows:

 

		March 31,
		2008		2007
Range of prepayment speeds		0.7–49.6%			1.0–43.6%
Range of discount rates		4.1–30.5%			8.0–13.0%

 

The primary risk of our servicing rights is interest rate risk and the resulting impact on prepayments. A significant decline in interest rates could lead to higher-than-expected prepayments, which could reduce the value of the MSRs. Historically, we have economically hedged the income statement impact of these risks with both derivative and nonderivative financial instruments. These instruments include interest rate swaps, caps and floors, options to purchase these items, futures, and forward contracts or purchasing or selling U.S. Treasury and principal-only securities. At March 31, 2008, the fair value of derivative financial instruments used to mitigate these risks amounted to $1.3 billion. There were no nonderivative instruments used to mitigate these risks at March 31, 2008. The change in fair value of the derivative financial instruments amounted to a gain of $1.0 billion and a loss of $41 million for the three months ended March 31, 2008 and 2007, respectively, and is included in servicing asset valuation and hedge activities, net in the Condensed Consolidated Statement of Income.

 

The components of servicing fees on MSRs were as follows:

 

		Three months ended
		March 31,
($ in millions)		2008				2007
Contractual servicing fees, net of guarantee fees and including subservicing			$329				$380
Late fees			35				38
Ancillary fees			28				29
Total			$392				$447

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

6.    Debt

 

In the following table, we classify domestic and foreign debt on the basis of the location of the office recording the transaction.

 

		March 31, 2008												December 31, 2007
($ in millions)		Domestic				Foreign				Total				Domestic				Foreign				Total
Short-term debt
Commercial paper			$403				$1,254				$1,657				$440				$999				$1,439
Demand notes			5,918				178				6,096				6,382				202				6,584
Bank loans and overdrafts			545				6,669				7,214				563				6,619				7,182
Repurchase agreements and other (a)			5,969				9,402				15,371				7,920				10,681				18,601
Total short-term debt			12,835				17,503				30,338				15,305				18,501				33,806
Long-term debt
Due within one year			25,186				13,492				38,678				23,356				14,173				37,529
Due after one year			91,234				23,864				115,098				95,833				25,409				121,242
Total long-term debt (b)			116,420				37,356				153,776				119,189				39,582				158,771
Fair value adjustment (c)			1,192				(12	)			1,180				592				(21	)			571
Total debt			$130,447				$54,847				$185,294				$135,086				$58,062				$193,148

 

The following summarizes assets restricted as collateral for the payment of the related debt obligations primarily arising from securitization transactions accounted for as secured borrowings and repurchase agreements.

 

		March 31, 2008								December 31, 2007
						Related								Related
						secured								secured
($ in millions)		Assets				debt (a)				Assets				debt (a)
Loans held for sale			$9,135				$5,154				$10,437				$6,765
Mortgage assets held for investment and lending receivables			39,237				25,720				45,534				33,911
Retail automotive finance receivables			24,720				20,675				23,079				19,094
Commercial automotive finance receivables			11,522				9,528				10,092				7,709
Investment securities			469				376				880				788
Investment in operating leases, net			24,440				19,470				20,107				17,926
Real estate investments and other assets			13,722				4,547				14,429				4,616
Total			$123,245				$85,470				$124,558				$90,809

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

Liquidity Facilities

 

Liquidity facilities represent additional funding sources. The financial institutions providing the uncommitted facilities are not legally obligated to advance funds under them. The following table summarizes the liquidity facilities that we maintain. The unused capacity on these facilities can be accessed upon the pledge of available eligible assets or future acquisition of assets meeting the eligibility requirements.

 

		Total capacity								Unused capacity								Outstanding
		March 31,				Dec 31,				March 31,				Dec 31,				March 31,				Dec 31,
($ in billions)		2008				2007				2008				2007				2008				2007
Committed unsecured:
Global Automotive Finance operations			$8.9				$8.9				$6.9				$7.0				$2.0				$1.9
ResCap			3.6				3.6				1.8				1.8				1.8				1.8
Other			0.2				0.2				0.2				0.2				—				—
Committed secured:
Global Automotive Finance operations			80.8				88.7				49.6				57.8				31.2				30.9
ResCap			26.4				29.7				14.3				15.0				12.1				14.7
Other			22.2				22.8				7.7				11.5				14.5				11.3
Total committed facilities			142.1				153.9				80.5				93.3				61.6				60.6
Uncommitted unsecured:
Global Automotive Finance operations			8.7				9.7				0.6				1.4				8.1				8.3
ResCap			0.5				0.6				0.2				0.2				0.3				0.4
Other			0.2				0.2				—				—				0.2				0.2
Uncommitted secured:
ResCap			21.3				21.6				10.1				9.5				11.2				12.1
Other			0.5				—				0.5				—				—				—
Total uncommitted facilities			31.2				32.1				11.4				11.1				19.8				21.0
Total			$173.3				$186.0				$91.9				$104.4				$81.4				$81.6

 

7.    Derivative Instruments and Hedging Activities

 

We enter into interest rate and foreign-currency futures, forwards, options, and swaps in connection with our market risk management activities. In accordance with SFAS 133, as amended, we record derivative financial instruments on the balance sheet as assets or liabilities at fair value. Changes in fair value are accounted for depending on the use of the derivative financial instrument and whether it is part of a qualifying hedge accounting relationship.

 

Effective May 1, 2007, we designated certain interest rate swaps as fair value hedges of callable fixed-rate debt instruments funding our North American Automotive Finance operations. Prior to May 1, 2007, these swaps were economic hedges of this callable fixed-rate debt. Effectiveness of these hedges is assessed using regression of thirty quarterly data points for each relationship, the results of which must meet thresholds for R-squared, slope, F-statistic, and T-statistic. Any ineffectiveness measured in these relationships is recorded in earnings.

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

The following table summarizes the pretax earnings effect for each type of hedge classification, segregated by the asset or liability being hedged.

 

		Three months ended
		March 31,
($ in millions)		2008				2007				Income statement classification
Fair value hedge ineffectiveness gain (loss):
Debt obligations			$34				$—			Interest expense
Loans held for sale			—				(1	)		Loss on mortgage and automotive loans, net
Economic hedge change in fair value:
Off-balance sheet securitization activities:
Global Automotive Finance operations			116				11			Other income
Foreign-currency debt (a)			(2	)			6			Interest expense
Loans held for sale or investment			174				(35	)		Loss on mortgage and automotive loans, net
Mortgage servicing rights			1,040				(41	)		Servicing asset valuation and hedge activities, net
Mortgage related securities			(4	)			(14	)		Investment income
Callable debt obligations			23				47			Interest expense
Other			(86	)			(3	)		Other income, Interest expense, Other operating expenses
Net gains (losses)			$1,295				($30	)

 

8.    Income Taxes

 

Effective November 28, 2006, GMAC along with certain U.S. subsidiaries, became pass-through entities for U.S. federal income tax purposes (Pass-through entities). Subsequent to November 28, 2006, U.S. federal, state, and local income tax expense has generally not been incurred by these entities as they ceased to be taxable entities in all but a few local tax jurisdictions that continue to tax LLCs or partnerships. Our banking, insurance, and foreign subsidiaries are generally taxable corporations and continue to be subject to U.S. federal, state, local, and foreign income taxes (Taxable entities). The income tax expense or benefit related to the Taxable entities along with other miscellaneous state, local, and franchise taxes are included in our income tax expense in the Condensed Consolidated Statement of Income.

 

A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate is shown in the following table.

 

		Three months ended
		March 31,
		2008				2007
Statutory U.S. federal tax rate			35.0	%			35.0	%
Change in tax rate resulting from:
State and local income taxes, net of federal income tax benefit			—				1.9
Tax-exempt income			.5				11.4
Foreign income tax rate differential			(14.1	)			4.2
Other			4.1				(1.7	)
Effect of valuation allowance change			(38.5	)			—
LLC income (loss) not subject to federal or state income taxes			9.8				(148.2	)
Effective tax rate			(3.2	)%			(97.4	)%

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

Our results segregated by tax status are provided below.

 

		Three months ended March 31,
		2008												2007
		Pass-												Pass-
		through				Taxable								through				Taxable
($ in millions)		entities				entities				Consolidated				entities				entities				Consolidated
Pretax income (loss)			$122				($693	)			($571	)			($604	)			$449				($155	)
Tax expense			(4	)			22				18				(2	)			152				150
Net income (loss)			$126				($715	)			($589	)			($602	)			$297				($305	)
Effective tax rate			(3.3	)%			(3.2	)%			(3.2	)%			0.3	%			33.9	%			(97.4	)%

 

The effective rate of our Taxable entities was significantly lower for the three months ended March 31, 2008, compared to the same period in 2007. Our consolidated tax expense decreased 88% for the three months ended March 31, 2008, compared to the same period in 2007. This was primarily due to higher current period losses in ResCap’s international operations for which no tax benefit was recorded and new valuation allowances that were established with respect to prior year losses.

 

Gross unrecognized tax benefits totaled $157 million and $155 million as of March 31, 2008, and December 31, 2007, respectively. Also included in other liabilities as of March 31, 2008, was $257 million related to additional uncertain tax positions, which were classified as deferred tax liabilities as of December 31, 2007.

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

9.    Related Party Transactions

 

Balance Sheet

 

A summary of the balance sheet effect of transactions with GM, FIM Holdings, and affiliated companies follows:

 

		March 31,				December 31,
($ in millions)		2008				2007
Assets
Available-for-sale investment in asset-backed security (a)			$35				$35
Finance receivables and loans, net of unearned income:
Wholesale auto financing (b)			693				717
Term loans to dealers (b)			133				166
Lending receivables (c)			235				145
Investment in operating leases, net (d)			347				330
Notes receivable from GM (e)			1,927				1,868
Other assets:
Subvention receivables (rate and residual support)			466				365
Lease pull-ahead receivable			38				22
Other			40				60
Liabilities
Unsecured debt:
Notes payable to GM			615				585
Accrued expenses and other liabilities:
Wholesale payable			908				466
Other payables			40				55
Equity
Dividends paid to members (f)			1				—
Preferred interests (g)			—				1,052
Conversion of preferred membership interests (g)			—				1,121
Capital contributions received (h)			3				1,080
Preferred interest dividends			26				192

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

Income Statement

 

A summary of the income statement effect of transactions with GM, FIM Holdings, and affiliated companies follows:

 

		Three months ended
		March 31,
($ in millions)		2008				2007
Net financing revenue:
GM and affiliates lease residual value support (a)			$364				$219
GM and affiliates lease rate support			280				368
Wholesale subvention and service fees from GM			77				65
Interest (paid) received on loans with GM			(10	)			1
Interest on loans with FIM Holdings affiliates			3				7
Consumer lease payments from GM (b)			20				7
Insurance premiums earned from GM			50				67
Other income:
Interest on notes receivable from GM and affiliates			30				32
Interest on wholesale settlements (c)			29				38
Revenues from GM leased properties, net			4				3
Derivatives (d)			10				2
Other			2				—
Service fee income:
U.S. Automotive operating leases (e)			6				3
Expense:
Employee retirement plan costs allocated by GM			—				8
Off-lease vehicle selling expense reimbursement (f)			(8	)			(8	)
Payments to GM for services, rent, and marketing expenses (g)			46				38

 

Retail and Lease Programs

 

GM may elect to sponsor incentive programs (on both retail contracts and operating leases) by supporting financing rates below the standard market rates at which we purchase retail contracts and leases. These marketing incentives are also referred to as rate support or subvention. When GM utilizes these marketing incentives, it pays us the present value of the difference between the customer rate and our standard rate at contract inception, which we defer and recognize as a yield adjustment over the life of the contract.

 

GM may also sponsor lease residual support programs as a way to lower customer monthly payments. Under residual support programs, the customer’s contractual residual value is adjusted above our standard residual values. Historically, GM reimbursed us at the time of the vehicle’s disposal if remarketing sales

 

GMAC LLC

 

NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

proceeds were less than the customer’s contractual residual value limited to our standard residual value. In addition to residual support programs, GM also participated in a risk-sharing arrangement whereby GM shared equally in residual losses to the extent that remarketing proceeds were below our standard residual values (limited to a floor).

 

In connection with the Sale Transactions, GM settled its estimated liabilities with respect to residual support and risk sharing on a portion of our operating lease portfolio and on the entire U.S. balloon retail receivables portfolio in a series of lump-sum payments. A negotiated amount totaling approximately $1.4 billion was agreed to by GM under these leases and balloon contracts and was paid to us. The payments were recorded as a deferred amount in accrued expenses and other liabilities on our Condensed Consolidated Balance Sheet. As these contracts terminate and the vehicles are sold at auction, the payments are treated as a component of sales proceeds in recognizing the gain or loss on sale of the underlying assets. As of March 31, 2008, the remaining deferred amount is $564 million.

 

In addition, with regard to U.S. lease originations and all U.S. balloon retail contract originations occurring after April 30, 2006, that remained with us after the consummation of the Sale Transactions, GM agreed to begin payment of the present value of the expected residual support owed to us at the time of contract origination as opposed to after contract termination at the time of sale of the related vehicle. The residual support amount GM actually owes us is finalized as the leases actually terminate. Under the terms of the residual support program, in cases where the estimate was incorrect, GM may be obligated to pay us, or we may be obligated to reimburse GM. For the affected contracts originated during the three months ended March 31, 2008, GM paid or agreed to pay us a total of $245 million.

 

Based on the March 31, 2008, outstanding U.S. operating lease portfolio, the additional maximum amount that could be paid by GM under the residual support programs is approximately $1.25 billion and would only be paid in the unlikely event that the proceeds from the entire portfolio of lease assets were lower than both the contractual residual value and our standard residual rates. Based on the March 31, 2008, outstanding U.S. operating lease portfolio, the maximum amount that could be paid under the risk-sharing arrangements is approximately $1.3 billion and would only be paid in the unlikely event that the proceeds from all outstanding lease vehicles were lower than our standard residual rates.

 

Retail and lease contracts acquired by us that included rate and residual subvention from GM, payable directly or indirectly to GM dealers as a percent of total new retail and lease contracts acquired, were as follows:

 

		Three months ended
		March 31,
		2008		2007
GM and affiliates subvented contracts acquired:
North American operations		82%			85%
International operations		42%			39%