Ally Financial - 10-Q quarterly report FY

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004

FORM 10-Q

Commission file number: 1-3754

GENERAL MOTORS ACCEPTANCE CORPORATION
(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 x     No o

As of September 30, 2002, there were outstanding 10 shares of the issuer’s $.10 par value common stock.

Reduced Disclosure Format

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

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GENERAL MOTORS ACCEPTANCE CORPORATION

INDEX

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GENERAL MOTORS ACCEPTANCE CORPORATION

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME,
NET INCOME RETAINED FOR USE IN THE BUSINESS AND
COMPREHENSIVE INCOME
(unaudited)

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

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GENERAL MOTORS ACCEPTANCE CORPORATION

CONSOLIDATED BALANCE SHEETS
(unaudited)

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

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GENERAL MOTORS ACCEPTANCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

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

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GENERAL MOTORS ACCEPTANCE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 1. BASIS OF PRESENTATION

General Motors Acceptance Corporation (the Company or GMAC) is a wholly-owned subsidiary of General Motors Corporation (GM). In the opinion of management, the interim financial statements reflect all adjustments, consisting of only normal recurring items, which are necessary for a fair presentation of the results for the interim periods presented. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the GMAC Annual Report on Form 10-K for the year ended December 31, 2001 filed with the Securities and Exchange Commission (SEC) on March 11, 2002 and all other GMAC filings, including Current Reports on Form 8-K, filed with the SEC through the date of this report. Certain amounts for 2001 were reclassified to conform with the 2002 classifications.

In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets to Be Disposed Of. The statement retains the previously existing accounting requirements related to the recognition and measurement of the impairment of long-lived assets to be held and used, while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. It also expands on the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale. The Company adopted the accounting provisions of this standard on January 1, 2002. The effect of adopting this new standard, which primarily relates to the Company’s operating lease assets, was not material to the Company’s financial statements. Consistent with the provisions of this new standard, financial statements for prior years have not been restated.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
(unaudited)

NOTE 2. FINANCE RECEIVABLES

The composition of finance receivables outstanding is summarized as follows (in millions of dollars):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
(unaudited)

NOTE 3. DEBT

The composition of debt is summarized as follows:

NOTE 4. MORTGAGE SERVICING RIGHTS

For a further description of mortgage servicing rights (MSRs) and the related hedge strategy, see Note 13 to the 2001 Annual Report on Form 10-K. The following table summarizes the MSR activity for the period (in millions of dollars):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
(unaudited)

The Company has implemented risk management strategies to protect the value of the MSRs against changes in market influences, including use of actively managed derivatives and a portfolio of investment securities designated as available-for-sale that increase in value as interest rates decline. As such, unrealized changes in the value of the securities are reflected in other comprehensive income on the Consolidated Balance Sheets.

NOTE 5. DERIVATIVE FINANCIAL INSTRUMENTS

In managing the interest rate and foreign exchange exposures of a multinational finance entity, GMAC utilizes a variety of interest rate and currency derivative financial instruments. In accordance with SFAS No. 133, the Company records derivative financial instruments on the balance sheet as assets or liabilities, measured at fair value. Changes in fair value are accounted for depending on the use of the derivative financial instrument and whether it qualifies for hedge accounting treatment. In assessing hedge effectiveness for the three- and nine-month periods ended September 30, 2002, gains of $76 million and $165 million, respectively, on certain derivative financial instruments were excluded from the hedge effectiveness calculation as it relates to the portion of the instrument’s value that changes with the passage of time, compared with $15 million and $21 million for the respective periods in 2001. A more detailed description of GMAC’s use of and accounting for derivative financial instruments can be found in the Company’s 2001 Annual Report on Form 10-K.

The following table summarizes the amount of hedge ineffectiveness included in other operating expenses for the periods indicated (gains (losses) in millions of dollars):

GMAC recognized an immaterial amount of hedge ineffectiveness on cash flow hedges for the three- and nine-month periods ended September 30, 2002 and 2001.

NOTE 6. GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amounts of goodwill for the nine-month period ended September 30, 2002, were as follows (in millions of dollars):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
(unaudited)

The Company’s reported net income, exclusive of amortization expense recognized related to goodwill amortization required under previous accounting standards, on an after-tax basis was as follows (in millions of dollars):

The components of the Company’s intangible assets were as follows (in millions of dollars):

Aggregate amortization expense on intangible assets was $9 million and $15 million for the three- and nine-month periods ended September 30, 2002, respectively. Amortization expense is expected to approximate $10 million in each of the next five fiscal years. During the three-and nine-month periods ended September 30, 2002, there were no adjustments for changes in amortization periods for intangible assets.

NOTE 7. TRANSACTIONS WITH AFFILIATES

Other liabilities includes amounts due to GM and its affiliates of $454 million at September 30, 2002, and amounts due from GM and its affiliates of $219 million at December 31, 2001.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — continued
(unaudited)

NOTE 8. SEGMENT INFORMATION

GMAC’s reportable operating segments include GMAC North American Financing Operations (GMAC-NAO), GMAC International Automotive Financing Operations (GMAC-IO), the Insurance operations (GMACI) and the Mortgage Group (GMACMG). GMAC-NAO consists of automotive financing in the United States and Canada as well as the global operations of the commercial financing sector.

Financial results of GMAC’s operating segments are summarized below (in millions of dollars):

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PART I — FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company is a financial services corporation that principally provides consumer vehicle and automotive dealer financing. GMAC also provides commercial financing to other non-automotive industries. The principal markets for the Company’s automotive financing products and services are North America, Europe, Latin America and Asia-Pacific. The principal markets for the commercial financing products are North America and Europe. The Company conducts insurance operations primarily in North America, Latin America and Europe, through its subsidiary, GMAC Insurance Holdings, Inc. (GMACI). In addition, the Company’s mortgage subsidiary, GMAC Mortgage Group, Inc. (GMACMG), operates principally in North America and has operations in Latin America, Europe and Asia-Pacific.

CRITICAL ACCOUNTING POLICIES

The Company has identified critical accounting policies that, as a result of judgments, uncertainties, uniqueness and complexities of the underlying accounting standards and operations involved, could result in material changes to its financial condition or results of operations under different conditions or using different assumptions. The most critical accounting policies are:

Details regarding the Company’s use of these policies and the related estimates are described in the Company’s 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC). During the first nine months of 2002, there have been no material changes to the Company’s critical accounting policies that impacted the Company’s financial condition or results of operations. For a discussion of recent accounting standards refer to Note 1, “Basis of Presentation,” in the Notes to Consolidated Financial Statements.

BUSINESS SEGMENT RESULTS

Consolidated net income for the three-month period ended September 30, 2002 was $476 million, up $39 million from the third quarter earnings of $437 million reported in the same period a year ago. Net income for the first nine months of 2002 was $1,346 million, up $29 million from the $1,317 million reported in the same period a year ago, exclusive of the transition adjustment of $34 million representing the cumulative effect of accounting change, due to the January 1, 2001 adoption of SFAS No. 133. All comparisons to the quarter a year ago exclude the favorable impact of this 2001 transition adjustment.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — continued

Net income from automotive and other financing operations totaled $303 million, down $7 million from the $310 million earned in the three-month period ended September 30, 2001. The decline in earnings was attributable to higher credit provisions which more than offset the positive impact of higher retail asset levels.

Insurance operations generated net income of $20 million in the three-month period ended September 30, 2002, as compared to $49 million for the three-month period ended September 30, 2001. The reduction in earnings was attributable to securities with losses in value determined to be other than temporary primarily due to the prolonged decline in equity markets. This weak investment performance more than offset a continued improvement in underwriting results.

Mortgage operations earned $153 million in the three-month period ended September 30, 2002, up from the $78 million earned for the same period of 2001. The increase in earnings was attributable to increased production volumes and higher servicing fees. The results also reflect an improvement in hedge performance related to mortgage servicing rights.

AUTOMOTIVE AND OTHER FINANCING OPERATIONS

United States New Passenger Car and Truck Deliveries

U.S. deliveries of new General Motors vehicles during the three- and nine-month periods ended September 30, 2002, were higher than comparable 2001 levels, which is consistent with the increase in industry deliveries. The increase in financing penetration was primarily due to continued GM-sponsored low rate retail financing programs.

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Financing Volume

The number of new vehicle deliveries financed for GM and other dealers is summarized below (in thousands of units):

The number of new vehicles financed during the three- and nine-month periods of 2002 was higher than the comparable three- and nine-month periods of 2001, primarily due to increased GM-sponsored low rate retail financing programs. Additionally, the decrease in operating lease units for the year was attributable to a continued shift by GM from lease incentive programs to special rate retail finance programs.

In addition to retail and leasing products, GMAC provides inventory financing to GM dealers. In the United States, GMAC financed 888,000 and 2,742,000 new GM vehicle sales during the three- and nine-month periods ended September 30, 2002, respectively, compared with 850,000 and 2,516,000 new GM vehicles during the respective periods in 2001. GMAC’s wholesale financing represented 76.5% of all new GM vehicle sales to U.S. dealers during the first nine months of 2002, comparable to the 75.9% for the same period last year.

Financing Revenue and Asset Quality

Financing revenue totaled $3,706 million and $11,031 million in the three- and nine-month periods ended September 30, 2002, respectively, compared with $3,658 million and $11,318 million during the respective periods in 2001. The following represents significant changes in financing revenue:

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
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The following statistics, which include owned and sold automotive assets, summarize the Company’s delinquency, repossession and loss experience. The statistics are worldwide, unless otherwise indicated.

Losses for the three- and nine-month periods ended September 30, 2002 are higher than the same periods of last year due to the deterioration of economic conditions in North America.

The provision for credit losses, most of which relates to automotive finance receivables, totaled $400 million and $1,352 million for the three- and nine-month periods ended September 30, 2002, respectively, compared to $280 million and $816 million, respectively, for the same periods of last year. Higher outstanding finance receivables, along with the deterioration of economic conditions (in particular a softening of the used car market), contributed to the increase in the provision for credit losses.

CONSOLIDATED INCOME AND EXPENSES

The Company’s worldwide cost of borrowing, including the effects of derivative financial instruments, for both the three- and nine-month periods ended September 30, 2002 averaged 4.5%, compared to 5.2% and 5.8% for the comparable periods last year. The decrease in average borrowing costs for the year was mainly a result of a reduction in market rates beginning in 2001, somewhat offset by wider borrowing spreads on new debt, increased use of term funding and reduced reliance on commercial paper markets.

Consolidated interest and discount expense totaled $1,724 million and $5,046 million for the three- and nine-month periods ended September 30, 2002, respectively, compared to $1,720 million and $5,785 million for the same periods in 2001. The decrease in interest and discount for the year was a result of decreased borrowing costs due to lower market rates, which were partially offset by higher debt levels and wider borrowing spreads.

Consolidated salaries and benefits totaled $592 million and $1,731 million for the three- and nine-month periods ended September 30, 2002, respectively, compared to $522 million and $1,541 million for the comparable periods last year. The increase primarily reflected continued growth at GMACMG.

Amortization and valuation adjustments related to mortgage servicing rights (MSRs) totaled $601 million and $1,577 million for the three- and nine-month periods ended September 30, 2002, respectively, compared to $273 million and $717 million for the same periods in 2001. The increase reflects primarily larger impairment charges of $482 million and $1,155 million for the three- and nine-month periods ended September 30, 2002, resulting from a continued decline in interest rates and the corresponding increases in actual and expected levels of mortgage prepayments.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — continued

Other operating expenses totaled $975 million and $2,767 million for the three- and nine-month periods ended September 30, 2002, respectively, compared to $1,012 million and $2,979 million for the comparable periods last year. The decrease was primarily due to favorable fair value adjustments on the Company’s derivative positions.

The effective income tax rate was 37.8% and 38.1% for the three- and nine-month periods ended September 30, 2002, respectively, compared to 37.8% and 36.7% for the three- and nine-month periods ended September 30, 2001. The lower effective tax rate in the prior year was primarily a result of adjustments to deferred taxes related to reductions in Canadian federal and provincial income tax rates.

INSURANCE OPERATIONS

Net premiums and service revenue earned by GMACI and its subsidiaries totaled $697 million and $1,962 million for the three- and nine-month periods ended September 30, 2002, respectively, compared to $492 million and $1,497 million for the same periods during 2001. The increases were attributable to business acquisitions, higher average revenue per contract in extended service contracts and higher rates and volume in personal auto products.

Pre-tax capital gains and investment income at GMACI totaled $16 million and $128 million for the three- and nine-month periods ended September 30, 2002, respectively, compared to $77 million and $250 million for the three- and nine-month periods ended September 30, 2001. The change was primarily due to a $65 million and $126 million decrease in capital gains for the three- and nine-month periods ended September 30, 2002, respectively, stemming from a declining equity market environment, partially offset by investment income on assets attributable to business acquisitions and increased revenue. Pre-tax capital gains include recognized losses of $40 million and $60 million for three- and nine-month periods ended September 30, 2002, respectively, attributable to securities with losses in value determined to be other than temporary. Should market conditions continue to decline, additional unrealized losses attributable to equity investments may be considered to be other than temporary and be recognized as losses in future periods.

Insurance losses and loss adjustment expenses totaled $513 million and $1,505 million for the three- and nine-month periods ended September 30, 2002, respectively, compared to $394 million and $1,305 million for the same periods during 2001. The increases were primarily due to business acquisitions and increased business volume across most product lines during the three- and nine-month periods ended September 30, 2002.

MORTGAGE OPERATIONS

For the three- and nine-month periods ended September 30, 2002, net income was $153 million and $359 million, respectively, compared to $78 million and $224 million for the same periods in 2001. The increase in earnings reflects higher servicing fees associated with loan originations and purchases and higher interest income associated with increased levels of earning assets. Further, lower interest expense and improved hedge performance contributed to higher earnings. These improvements were partially offset by a reduction in the value of mortgage servicing rights given the changes in actual and expected levels of mortgage prepayments.

Mortgage revenue totaled $4,621 million for the nine-month period ended September 30, 2002, compared to $3,877 million for the same period in 2001, including gains on sales and securitizations of mortgage loans of $918 million and $1,011 million, respectively. The $744 million increase in revenue reflects primarily increased interest income of $303 million from higher mortgage loan inventory balances and $253 million of realized gains on securities designated as available for sale, held as an economic hedge for mortgage servicing rights.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
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During the three- and nine-month periods ended September 30, 2002, GMACMG loan originations and purchases, and mortgage servicing acquisitions totaled $38 billion and $125 billion, respectively, compared to $48 billion and $116 billion for the same period in 2001. Originations and purchases increased $6.7 billion and $23.9 billion for the three- and nine-month period ended September 30, 2002. These increases are attributed to the low interest rate environment and resulting higher level of refinance activity in the market. Servicing acquisitions for the three- and nine-month period ended September 30, 2002 decreased $16.3 billion and $14.8 billion, respectively.

The combined GMACMG servicing portfolio, excluding GMAC term loans to dealers, totaled $448 billion at September 30, 2002, compared to a servicing portfolio of $405 billion at December 31, 2001. The increase over year-end was primarily due to increased loan production in the declining interest rate environment experienced during the majority of the nine-month period ended September 30, 2002.

The Company estimates the fair value of its MSRs based on assumptions that market participants would use. Typically, those assumptions are derived from similar transactions that occur in the marketplace. Continued industry consolidation and other factors have led to a substantial reduction in relevant market transactions for certain residential mortgage products, particularly since April 2001. In assessing the fair value of its mortgage servicing rights, the Company relies, in part, on its own mortgage servicing rights cash flow history for certain assumptions and continues to use market driven earning rates, discounting factors and prepayment models.

The Company has an overall risk management program in place to protect against value changes in the MSR asset. The components of the risk management program include the utilization of derivative financial instruments as hedges of the MSR and a portfolio of investment securities designated as available for sale that increases in value as interest rates decline. The other component of the risk management program surrounding MSRs considers the expected increases in net income that the Company’s loan production business generates in periods of lower interest rates. The estimated amount of additional net income from loan production activities influences the level of derivative financial instruments used by the Company in executing its risk management program.

Interest rates, including those on originated loans for 15- and 30-year residential mortgages, declined for most of the three-month period ended September 30, 2002. This market activity increased actual and potential mortgage refinancing activity, resulting in a reduction in the expected future cash flows that support the carrying value of the mortgage servicing rights. As a result, for the three- and nine-month periods ended September 30, 2002, the Company recognized impairment charges of $482 million and $1,155 million, respectively, compared to $148 million and $264 million for the same periods of 2001. These higher impairment charges are primarily the result of increases in the actual and expected levels of mortgage prepayments, resulting from the continued decline in interest rates noted above, beyond those experienced in similar historical rate environments. The impairment charges for the three-month period ended September 30, 2002 were more than offset by realized gains and net interest income of $551 million on related derivative financial instruments designated as hedges and available for sale investment securities designated as economic hedges, compared to negligible offsetting hedge gains for the comparable period in 2001. The impairment charges for the nine-month period ended September 30, 2002 were partially offset by similar hedge gains of $811 million, compared to hedge losses for the comparable period in 2001. The Company has adjusted its hedge strategy to consider the increased mortgage prepayment sensitivity in the current interest rate environment. However, if interest rates continue at these low levels, and other factors favorable to mortgage refinancing continue, such as home price appreciation, the value of the mortgage servicing rights may deteriorate further, particularly if the hedges are ineffective.

CONSOLIDATED ASSETS

At September 30, 2002, the Company owned assets and serviced automotive receivables totaled $239 billion, $19.4 billion above December 31, 2001. The increase was primarily the result of an increase in serviced retail receivables, serviced wholesale receivables, mortgage loans held for investment, other

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assets and investments in securities. These increases were partially offset by a decrease in cash and cash equivalents, mortgage servicing rights, commercial and other loan receivables, notes receivable from GM, and operating lease assets. These changes are further discussed below.

Finance receivables serviced by the Company, including sold receivables, totaled $140 billion at September 30, 2002, $9 billion above December 31, 2001 levels. The increase was primarily a result of a $11 billion increase in serviced retail receivables due to increased GM-sponsored low rate retail financing programs.

Cash and cash equivalents totaled $7,303 million and $10,101 million at September 30, 2002 and December 31, 2001, respectively. The decrease was primarily attributable to decreased term funding activity during 2002.

Other assets totaled $18,868 million and $12,559 million at September 30, 2002 and December 31, 2001, respectively. The increase was primarily attributable to:

Investment securities totaled $12,690 million and $10,587 million at September 30, 2002 and December 31, 2001, respectively. The increase was primarily attributable to net purchases of approximately $2,240 million of available-for-sale U.S. Treasury securities, which are a part of the overall risk management strategy for mortgage servicing rights.

Mortgage loans held for investment totaled $12,196 million at September 30, 2002, $8,812 million above the balance at December 31, 2001. The increase was primarily attributed to approximately $8.9 billion of mortgage loans held for investment which were originated and securitized during 2002 but which remain on the balance sheet as collateral for a borrowing arrangement.

Mortgage lending receivables totaled $4,284 million at September 30, 2002, $236 million below the balance at December 31, 2001. The decrease was attributed to increased financing of warehouse loans in off-balance sheet funding facilities.

Mortgage servicing rights totaled $2,851 million and $4,840 million at September 30, 2002 and December 31, 2001, respectively. The decrease was attributable to amortization and valuation adjustments that exceeded purchases and originations of mortgage servicing rights in the nine-month period ended September 30, 2002.

Notes receivable from GM totaled $2,787 million at September 30, 2002, compared to $4,165 million at December 31, 2001. The decrease was primarily attributable to a $439 million net reduction in a revolving line of credit GM has available with GMAC and a net reduction of $918 million in other outstanding loans to GM.

LIQUIDITY

As of September 30, 2002, GMAC’s total borrowings were $168 billion, compared with $152 billion at December 31, 2001. GMAC’s ratio of consolidated debt to total stockholder’s equity at September 30, 2002, was 9.6:1, compared with 9.4:1 at December 31, 2001.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
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The Company and its subsidiaries maintain substantial bank lines of credit, which totaled $53.7 billion at September 30, 2002, compared to $48.8 billion at December 31, 2001. The unused portion of these credit lines increased by $4.5 billion from December 31, 2001, to $43.4 billion at September 30, 2002. Included in the unused credit lines at September 30, 2002, is a $14.7 billion syndicated multi-currency global credit facility available for use in the U.S. by GMAC and in Europe by GMAC International Finance B.V. and GMAC (UK) plc. The entire $14.7 billion is available to GMAC in the U.S., $1 billion is available to GMAC (UK) plc and $0.9 billion is available to GMAC International Finance B.V. The syndicated credit facility serves primarily as back-up for the Company’s unsecured commercial paper programs. Also included in the unused credit lines is $17.0 billion in U.S. asset-backed commercial paper liquidity and receivables facilities for two non-consolidated limited purpose statutory trusts, New Center Asset Trust (NCAT) and Mortgage Interest Networking Trust (MINT), established to issue asset-backed commercial paper.

The syndicated multi-currency global facility includes terms of five years on one-half of the facility (due to expire in June 2006) and a 364-day term with a one-year term-out option on the other half of the facility. In June 2002, the $7.35 billion, 364-day facility was extended for another 364 days and will expire in June 2003. It continues to include a one year term-out option. The Company, at its discretion, has the option to transfer up to $5.8 billion of the banks’ 364-day facility commitments to the liquidity and receivables facility for NCAT. On October 24, 2002, the Company transferred the $5.8 billion to the NCAT liquidity and receivables facility. Additionally, there is a leverage covenant restricting the ratio of consolidated debt to total stockholder’s equity to no greater than 11.0:1 under certain conditions. This covenant is only applicable on the last day of any fiscal quarter (other than the fiscal quarter during which a change in rating occurs) during such times as the Company has senior unsecured long-term debt outstanding, without third-party enhancement, which is rated BBB+ or less by Standard & Poor’s Ratings Services (S&P), or Baa1 or less by Moody’s Investors Service, Inc. (Moody’s). In October 2001, the Company’s rating was downgraded by S&P and these conditions became effective. The Company is in compliance with the covenant.

Included in the bank lines of credit is a $950 million secured master note program with a third-party financial institution. Under the terms of the agreement, the borrowing is currently unsecured; however, upon the request of the financial institution or any assignee, GMACMG is required to pledge as collateral mortgage servicing rights valued at 200% of the then current outstanding balance. The Company has guaranteed this note to the third-party financial institution and any assignee.

Under repurchase agreements, GMACMG has pledged $2.2 billion of U.S. Treasury securities as collateral for approximately the same amount of short-term debt.

Off-Balance Sheet Activities

The Company securitizes and transfers financial assets as an alternative funding source to borrowing. The Company’s securitization programs focus on mortgage loans and automotive finance receivables. A variety of special purpose entities including qualified special purpose entities and other structured facilities are used in order to achieve more efficient execution and provide additional funding sources. Securitization of assets allows the Company to diversify funding in an attempt to lower its overall cost of funds. Termination of the securitization activities of the entities would reduce the number of funding sources currently available to the Company. Any such reduction of funding sources presents the risk of increasing the Company’s cost of funds and reducing its net interest margins.

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The Company’s 2001 Annual Report on Form 10-K filed with the SEC provides a detailed description of GMAC’s off-balance sheet activities. There have been no material changes in the nature or type of off-balance sheet activities during 2002. The following summarizes assets in GMAC’s off-balance sheet facilities (in millions of dollars):

Debt Ratings

GMAC’s ability to access the capital markets for unsecured debt is linked to both its term debt and commercial paper ratings. These ratings are intended to provide guidance to investors in determining the credit risk associated with particular securities based on current information obtained by the rating organizations from the Company or other sources that such organizations consider to be reliable. Lower ratings generally result in higher borrowing costs as well as reduced access to capital markets. A security rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating. Substantially all of the Company’s short-term, medium-term and long-term debt has been rated by three nationally recognized rating organizations. As of November 14, 2002, all of the ratings assigned were within the investment grade category. To the best of our knowledge, GMAC is not under review by any of the following rating agencies.

Fitch Ratings (Fitch) has assigned ratings of A- and F2 to the Company’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 F2 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 F2. On October 31, 2002, Fitch affirmed the senior unsecured debt and commercial paper rating of the Company, and maintained a negative outlook.

Moody’s has assigned a rating of A2 to the Company’s senior debt. A2 rated debt possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. The Company’s commercial paper 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 a negative outlook.

On October 16, 2002, S&P downgraded the Company’s corporate credit rating from BBB+ to BBB. The outlook for GMAC 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 the Company’s commercial paper. The BBB

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS — continued

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.

FORWARD-LOOKING STATEMENTS

The foregoing Management’s Discussion and Analysis of Financial Condition and Results of Operations contains various forward-looking statements within the meaning of applicable federal securities laws and is based upon GMAC’s current expectations and assumptions concerning future events, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated.

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PART I — FINANCIAL INFORMATION

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods. Within 90 days prior to the date of this report, GMAC’s President and GMAC’s Chief Financial Officer evaluated, with the participation of GMAC’s management, the effectiveness of the Company’s disclosure controls and procedures. Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, GMAC’s President and GMAC’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company did not become a party to any material pending legal proceedings during the three-month period ended September 30, 2002, or during the period from September 30, 2002 to the filing date of this report.

ITEM 5. OTHER INFORMATION

RATIO OF EARNINGS TO FIXED CHARGES

The ratio of earnings to fixed charges has been computed by dividing earnings before income taxes and fixed charges by the fixed charges. This ratio includes the earnings and fixed charges of the Company and its consolidated subsidiaries. Fixed charges consist of interest, debt discount and expense and the portion of rentals for real and personal properties in an amount deemed to be representative of the interest factor.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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SIGNATURES

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

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CERTIFICATIONS OF DISCLOSURE

I, Eric A. Feldstein, certify that:

Date: November 14, 2002

/s/ Eric A. Feldstein

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CERTIFICATIONS OF DISCLOSURE — continued

I, William F. Muir, certify that:

Date: November 14, 2002

/s/ William F. Muir

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INDEX OF EXHIBITS

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INDEX OF EXHIBITS — continued