Ally Financial
Transactions with Ally Financial
The following tables summarize the financial statement effects of and maximum obligations under agreements with Ally Financial (dollars in millions):
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| | | | | | | |
| June 30, 2012 | | December 31, 2011 |
Residual support(a) | | | |
Receivables (liabilities) recorded | $ | (19 | ) | | $ | 6 |
|
Maximum obligation | $ | 87 |
| | $ | 40 |
|
Risk sharing(a) | | | |
Liabilities recorded | $ | 8 |
| | $ | 66 |
|
Maximum obligation | $ | 17 |
| | $ | 88 |
|
Vehicle repurchase obligations(b) | | | |
Maximum obligations | $ | 21,989 |
| | $ | 19,779 |
|
Fair value of guarantee | $ | 16 |
| | $ | 17 |
|
__________
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(a) | Represents receivables and liabilities recorded and maximum obligations for agreements entered into prior to December 31, 2008. Agreements entered into after December 31, 2008 have not included residual support or risk sharing programs. In the six months ended June 30, 2012 and 2011 favorable adjustments to our residual support and risk sharing liabilities of $73 million and $323 million were recorded in the U.S. due to increases in estimated and actual residual values at contract termination. |
| |
(b) | The maximum potential amount of future payments required to be made to Ally Financial under this guarantee is based on the repurchase value of total eligible vehicles financed by Ally Financial in dealer stock. If vehicles are required to be repurchased under this arrangement, the total exposure would be reduced to the extent vehicles are able to be resold. |
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2012 | | June 30, 2011 | | June 30, 2012 | | June 30, 2011 |
U.S. marketing incentives and lease residual payments | $ | 477 |
| | $ | 425 |
| | $ | 811 |
| | $ | 970 |
|
Exclusivity fee income | $ | 18 |
| | $ | 22 |
| | $ | 38 |
| | $ | 46 |
|
Balance Sheet
The following table summarizes the balance sheet effects of transactions with Ally Financial (dollars in millions):
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| | | | | | | |
| June 30, 2012 | | December 31, 2011 |
Assets | | | |
Accounts and notes receivable, net(a) | $ | 257 |
| | $ | 243 |
|
Liabilities | | | |
Accounts payable(b) | $ | 31 |
| | $ | 59 |
|
Short-term debt and current portion of long-term debt(c) | $ | 925 |
| | $ | 1,068 |
|
Accrued liabilities and other liabilities(d) | $ | 833 |
| | $ | 650 |
|
Long-term debt(e) | $ | 8 |
| | $ | 8 |
|
Other non-current liabilities(f) | $ | 27 |
| | $ | 35 |
|
__________
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(a) | Represents wholesale settlements due from Ally Financial and receivables for exclusivity fees and royalties. |
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(b) | Represents amounts billed to us and payable related to incentive programs. |
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(c) | Represents wholesale financing, sales of receivable transactions and the short-term portion of term loans provided to certain dealerships which we own or in which we have an equity interest. |
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(d) | Represents accruals for marketing incentives on vehicles which are sold, or anticipated to be sold, to customers or dealers and financed by Ally Financial in North America. This includes the estimated amount of residual and rate support accrued, capitalized cost reduction incentives and amounts owed under lease pull-ahead programs. |
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(e) | Represents the long-term portion of term loans from Ally Financial to certain consolidated dealerships. |
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(f) | Represents the long-term portion of liabilities for marketing incentives on vehicles financed by Ally Financial. |
Statement of Operations
The following table summarizes the income statement effects of transactions with Ally Financial (dollars in millions):
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| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2012 | | June 30, 2011 | | June 30, 2012 | | June 30, 2011 |
Total net sales and revenue (decrease)(a) | $ | (535 | ) | | $ | (43 | ) | | $ | (1,285 | ) | | $ | (617 | ) |
Automotive cost of sales and other automotive expenses(b) | $ | 3 |
| | $ | 4 |
| | $ | 7 |
| | $ | 8 |
|
Interest income and other non-operating income, net(c) | $ | 20 |
| | $ | 29 |
| | $ | 42 |
| | $ | 85 |
|
Automotive interest expense(d) | $ | 14 |
| | $ | 19 |
| | $ | 8 |
| | $ | 37 |
|
__________
| |
(a) | Represents marketing incentives on vehicles which were sold, or anticipated to be sold, to customers or dealers and financed by Ally Financial. This includes the estimated amount of residual and rate support accrued, capitalized cost reduction incentives and costs under lease pull-ahead programs. This amount is offset by net sales for vehicles sold to Ally Financial for employee and governmental lease programs and third party resale purposes. |
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(b) | Represents cost of sales on the sale of vehicles to Ally Financial for employee and governmental lease programs and third party resale purposes. |
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(c) | Represents income on investments in Ally Financial preferred stock (through March 31, 2011) and exclusivity and royalty fee income. Included in this amount is rental income related to Ally Financial's primary executive and administrative offices located in the Renaissance Center in Detroit, Michigan. The lease agreement expires in November 2016. |
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(d) | Represents interest incurred on notes payable and wholesale settlements. In January 2012 we received $21 million from Ally Financial as part of a settlement of previously overcharged interest. |
Fair Value of Ally Financial Common Stock
At June 30, 2012 and December 31, 2011 we held a 9.9% common equity ownership in Ally Financial. Our entire equity ownership is held indirectly through an independent trust which has the sole authority to vote the shares and is required to dispose of all Ally Financial common stock by December 24, 2013.
We estimated the fair value of Ally Financial common stock using a market approach that applies the average price to tangible book value multiples of comparable companies to the consolidated Ally Financial tangible book value. The significant inputs used in our fair value analyses included Ally Financial's June 30, 2012 and December 31, 2011 financial statements, financial statements and price to tangible book value multiples of comparable companies in the banking and finance industry, and the effects of certain Ally Financial shareholder rights described below. The measurement of Ally Financial common stock is a Level 3 fair value measurement.
At December 31, 2011 we determined the carrying amount of our investment in Ally Financial common stock exceeded our estimate of its fair value. Our estimate of fair value resulted from broader macroeconomic uncertainties and volatility in the financial markets including the eurozone debt crisis, continued heightened risk of recession and concerns about Ally Financial's mortgage related operations. Our estimate considered the potential effect of contractual provisions held by the United States Department of the Treasury who may receive incremental ownership interest in Ally Financial depending upon Ally Financial's equity value at the time of a successful public offering or private sale. These contractual provisions could result in significant dilution of our ownership interest. Based on an evaluation of the duration and severity of this decline in fair value, we concluded the impairment was other-than-temporary. As a result we recorded an impairment charge of $555 million in Interest income and other non-operating income, net to reduce our investment to its estimated fair value of $403 million.
The following table summarizes the carrying amount and estimated fair value of Ally Financial common stock (dollars in millions):
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| | | | | | | |
| June 30, 2012 | | December 31, 2011 |
Carrying amount | $ | 404 |
| | $ | 403 |
|
Fair value | $ | 436 |
| | $ | 403 |
|
Ally Financial Preferred Stock
In March 2011 our investment in Ally Financial preferred stock was sold through a public offering for net proceeds of $1.0 billion. The gain of $339 million related to the sale was recorded in Interest income and other non-operating income, net.