UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the fiscal year ended December 31, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-143
GENERAL MOTORS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
STATE OF DELAWARE 38-0572515
----------------- ----------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 Renaissance Center, Detroit, Michigan 48265-3000
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
---------------------------- -----------------------------
Common, $1-2/3 par value New York Stock Exchange, Inc.
Note: The $1-2/3 par value common stock of the Registrant is also listed for
trading or traded on the following exchanges:
Chicago Stock Exchange, Inc. Chicago, Illinois
Pacific Exchange, Inc. San Francisco, California
Philadelphia Stock Exchange, Inc. Philadelphia, Pennsylvania
Toronto Stock Exchange Toronto, Ontario, Canada
Frankfurter Wertpapierborse Frankfurt am Main, Germany
Borse Dusseldorf Dusseldorf, Germany
Bourse de Bruxelles Brussels, Belgium
Euronext Paris Paris, France
The London Stock Exchange London, England
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 .
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No .
----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No .
----
As of June 30, 2003, the aggregate market value of General Motors Corporation
(GM) $1-2/3 par value common stock held by nonaffiliates of GM was
approximately $20.2 billion. The closing price on June 30, 2003 as reported on
the New York Stock Exchange was $36.00 per share. As of June 30, 2003, the
number of shares outstanding of GM $1-2/3 par value common stock was
560,712,564 shares.
Documents incorporated by reference are as follows:
Part and Item Number of
Form 10-K into Which
Document Incorporated
-------------- -------------------------
General Motors Notice of Annual Meeting of
Stockholders and Proxy Statement for the
Annual Meeting of Stockholders to be
to be held June 2, 2004 Part III, Items 10 through 13
Website Access to Company's Reports
General Motor's (GM's) internet website address is www.gm.com. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to section
13(a) or 15(d) of the Exchange Act are available free of charge through our
website as soon as reasonably practicable after they are electronically filed
with, or furnished to, the Securities and Exchange Commission.
COVER PAGE
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
THE CORPORATION
General Motors Corporation, incorporated in 1916 under the laws of the State
of Delaware, is hereinafter sometimes referred to as the "Registrant", the
"Corporation", "General Motors", or "GM."
ITEM 1. Business
General
The following information is incorporated herein by reference to the
indicated pages in Part II:
Item Page(s)
---- ------------
Wholesale Sales II-6 through II-8
Employment and Payrolls II-15
Note 26 to the GM Consolidated Financial
Statements (Segment Reporting) II-68 through II-71
GM presents separate supplemental financial information for the following
businesses:
o Automotive and Other Operations
o Financing and Insurance Operations
GM participates in the automotive industry through the activities of its
automotive business operating segment General Motors Automotive (GMA) which
is comprised of four regions:
o GM North America (GMNA),
o GM Europe (GME),
o GM Latin America/Africa/Mid-East (GMLAAM), and
o GM Asia Pacific (GMAP)
GMNA designs, manufactures, and/or markets vehicles primarily in North
America under the following nameplates: Chevrolet, Pontiac, GMC, Oldsmobile,
Buick, Cadillac, Saturn, and HUMMER.
GME, GMLAAM, and GMAP primarily meet the demands of customers outside North
America with vehicles designed, manufactured, and/or marketed under the
following nameplates: Opel, Vauxhall, Holden, Saab, Buick, Chevrolet, GMC, and
Cadillac. GM's automotive regions also have equity ownership in Fiat Auto
Holdings (FAH), Fuji Heavy Industries Ltd., Suzuki Motor Corporation (Suzuki),
Isuzu Motors Ltd., Shanghai General Motors Corporation (SGM), SAIC-GM-Wuling
Automobile Company Ltd., and GM Daewoo Auto & Technology Company (GM Daewoo).
These investees design, manufacturer and market vehicles under the following
nameplates: Fiat, Lancia, Alfa Romeo, Subaru, Suzuki, Isuzu, Buick, Wuling,
Daewoo, and Chevrolet.
GM's other operations include the design, manufacturing and marketing of
locomotives, the elimination of intersegment transactions, certain non-segment
specific revenues and expenditures, and certain corporate activities.
GM's Financing and Insurance Operations primarily relate to General Motors
Acceptance Corporation (GMAC). GMAC provides a broad range of financial
services, including consumer vehicle financing, automotive dealership and other
commercial financing, residential and commercial mortgage services, automobile
service contracts, personal automobile insurance coverage and selected
commercial insurance coverage. See related business discussion in GMAC's Form
10-K, Item 1, which is incorporated herein by reference. GMAC's Form 10-K is
filed separately with the Securities and Exchange Commission (SEC).
Until its split-off on December 22, 2003, GM's business included Hughes
Electronics Corporation. Hughes' activities included digital entertainment,
information and communication services, and satellite-based private business
networks.
Substantially all automotive-related products are marketed through retail
dealers and distributors in the United States, Canada, and Mexico, and through
distributors and dealers overseas. At December 31, 2003, there were
approximately 7,700 GM vehicle dealers in the United States, 800 in Canada, and
260 in Mexico. Additionally, there were a total of approximately 15,500 outlets
overseas which include dealers and authorized sales, service, and parts outlets.
Raw Materials and Services
GM purchases materials, parts, supplies, freight transportation, energy, and
other services from numerous unaffiliated firms. Interruptions in production or
delivery of these goods or services could adversely affect GM.
I-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Backlog of Orders
Shipments of GM automotive products are made as promptly as possible after
receipt of firm sales orders; therefore, no significant backlog of unfilled
orders accumulates.
Competitive Position
GM's principal competitors in passenger cars and trucks in the United States
and Canada include Ford Motor Company, DaimlerChrysler Corporation, Toyota
Corporation (Toyota), Nissan Motor Corporation, Ltd., Honda Motor Company, Ltd.,
Mazda Motor Corporation, Mitsubishi Motors Corporation, Volkswagen A.G.
(Volkswagen), Hyundai Motor Company, Ltd. (Hyundai), and Bayerische Motoren
Werke AG (BMW). All but Volkswagen and Hyundai currently operate vehicle
manufacturing facilities in the United States or Canada. Toyota and GM operate
the New United Motor Manufacturing, Inc. facility in Fremont, California as a
joint venture which currently builds passenger cars and light-duty trucks.
Suzuki and GM operate CAMI Automotive Inc. in Ingersoll, Ontario as a joint
venture which currently builds light-duty trucks. Wholesale unit sales of GM
passenger cars and trucks during the three years ended December 31, 2003 are
summarized in Management's Discussion and Analysis of Financial Condition and
Results of Operations in Part II.
Total industry new motor vehicle (passenger cars, trucks, and buses) unit
sales of domestic and foreign makes and GM's competitive position during the
years ended December 31, 2003, 2002, and 2001 were as follows:
Vehicle Unit Sales (1)
Years Ended December 31,
2003 2002 2001
-----------------------------------------------------------------------------------
GM as GM as GM as
a % of a % of a % of
Industry GM Industry Industry GM Industry Industry GM Industry
-------- -- -------- -------- -- -------- -------- -- --------
United States (units in thousands)
Cars 7,630 1,961 25.7% 8,131 2,069 25.4% 8,455 2,272 26.9%
Trucks 9,336 2,796 29.9% 9,013 2,790 31.0% 9,020 2,633 29.2%
----- ----- ----- ----- ----- -----
Total United 16,966 4,757 28.0% 17,144 4,859 28.3% 17,475 4,905 28.1%
States
Canada, Mexico,
and Other 2,855 683 23.9% 2,974 762 25.6% 2,775 686 24.7%
----- --- ----- ----- ----- -----
Total GMNA 19,821 5,440 27.4% 20,118 5,621 27.9% 20,250 5,591 27.6%
GME 19,468 1,821 9.4% 19,172 1,765 9.1% 19,705 1,800 9.1%
GMLAAM 3,570 570 16.0% 3,673 565 15.7% 4,009 665 16.6%
GMAP 15,720 764 4.9% 14,373 674 4.6% 13,101 524 4.0%
------ ----- ------ ----- ------ -----
Total Worldwide 58,579 8,595 14.7% 57,336 8,625 15.0% 57,065 8,580 15.0%
(1) GM vehicle unit sales primarily represent vehicles manufactured by GM or
manufactured by GM's investees and sold either under a GM nameplate or
through a GM-owned distribution network. Consistent with industry practice,
vehicle unit sales information employs estimates of sales in certain
countries where public reporting is not legally required or otherwise
available on a consistent basis.
Research and Development
In 2003, GM spent $5.7 billion for research, manufacturing engineering,
product engineering, and development activities related primarily to the
development of new products or services or the improvement of existing products
or services, including activities related to vehicle emissions control, improved
fuel economy, and the safety of persons using GM products. Comparably, $5.7
billion and $6.1 billion were spent on company-sponsored research and other
product development activities in 2002 and 2001, respectively.
I-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Environmental Matters
Automotive Emissions Control
Both the U.S. Federal and California governments currently impose stringent
emission control requirements on motor vehicles sold in their respective
jurisdictions. These requirements include pre-production testing of vehicles,
testing of vehicles after assembly, the imposition of emission defect and
performance warranties, and the obligation to recall and repair customer-owned
vehicles determined to be non-compliant with emissions requirements.
Both the U.S. Environmental Protection Agency (EPA) and the California Air
Resources Board (CARB) continue to place great emphasis on compliance testing of
customer-owned vehicles. Failure to comply with the emission standards or
defective emission control systems or components discovered during such testing,
or discovered during government required defect reporting, can lead to
substantial cost for General Motors related to emissions recalls. New CARB and
Federal requirements will increase the time and mileage periods over which
manufacturers are responsible for a vehicle's emission performance.
Both the EPA and the CARB emission requirements will become even more
stringent in the future. A new tier of exhaust emission standards for cars and
light-duty trucks, the "Low-Emission Vehicles (LEV) II" standards, began phasing
in for California vehicles in the 2004 model year. Similar federal "Tier 2"
standards will also start in 2004. In addition, both the CARB and the EPA have
adopted more stringent standards applicable to future heavy-duty trucks.
California requires that a specified percentage of cars and certain
light-duty trucks be zero emission vehicles (ZEVs), such as electric vehicles or
hydrogen fuel cell vehicles. This requirement starts at 10% in model year 2003
and increases in future years. Manufacturers have the option of meeting a
portion of this requirement with partial ZEV credits, which are vehicles that
meet very stringent emission standards and have extended emission system
warranties. An additional portion of the ZEV requirement can be met with
vehicles that meet these partial ZEV requirements and incorporate advanced
technology, such as a hybrid electric propulsion system meeting specified
criteria. Currently California is in the process of further amending its ZEV
regulations, including delaying its start date until 2005. California is likely
to finalize these amendments sometime in the first quarter of 2004.
The Clean Air Act permits states that have areas with air quality problems to
adopt the California car and truck emission standards in lieu of the federal
requirements, and four states (New York, Massachusetts, Maine and Vermont) have
done so. Additional states could adopt the California standards in the future.
To provide states an alternative to the adoption of California standards, GM and
other auto manufacturers began selling LEVs in the remaining 45 states in 2001,
under the provisions of the National Low Emission Vehicle Program.
In addition to the above-mentioned exhaust emission programs, onboard
diagnostic (OBD) devices, used to diagnose problems with emission control
systems, were required both Federally and in California effective with the 1996
model year. This system has the potential of increasing warranty costs and the
chance for recall. OBD requirements become more challenging each year as
vehicles meet lower emission standards, and new diagnostics are required.
California has adopted more stringent OBD requirements beginning in the 2004
model year, including new design requirements and more stringent enforcement
procedures.
New evaporative emission control requirements for cars and trucks began
phasing in with the 1995 model year in California and the 1996 model year
Federally. Systems are being further modified to accommodate Federal onboard
refueling vapor recovery (ORVR) control standards. ORVR was phased-in on
passenger cars in the 1998 through 2000 model years, and is phasing-in on
light-duty trucks in the 2001 through 2006 model years. Beginning with the 2004
model year, even more stringent evaporative emission standards apply in
California, as well as Federally.
Starting in the 2001 model year, the test procedure for exhaust emissions has
become more complex with vehicles required to meet two additional test
requirements: 1) measuring exhaust emissions over a new test cycle with the air
conditioner operating; and 2) measuring exhaust emissions over a new high speed
(80 mph) and high load cycle.
Industrial Environmental Control
GM is subject to various laws relating to the protection of the environment
including laws regulating air emissions, water discharges, waste management, and
environmental cleanup.
I-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Industrial Environmental Control (concluded)
GM is in various stages of investigation or remediation for sites where
contamination has been alleged, and recorded a liability of $226 million at
December 31, 2003 and $219 million at December 31, 2002 for worldwide
environmental investigation and remediation as summarized below:
. GM has been identified as a potentially responsible party at sites
identified by the EPA and state regulatory agencies for
investigation and remediation under the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) and similar state
statutes. GM voluntarily and actively participates in cleanup
activity where such involvement has been verified. The total
liability for sites involving GM was estimated to be $85 million at
December 31, 2003. This compares with $86 million at December 31,
2002.
. For closed plants owned by the Corporation, an estimated liability for
environmental investigation and remediation is typically recognized at
the time of the closure decision. Such liability, which is based on an
environmental assessment of the plant property, was estimated at $22
million at December 31, 2003. This compares with $38 million at
December 31, 2002.
. GM is involved in investigation and remediation activities at
additional locations worldwide with an estimated liability of
approximately $119 million at December 31, 2003. This compares with
$95 million at December 31, 2002.
The cost impact of the Clean Air Act Amendments under Title V is the annual
emission fees of approximately $9 million per year. Additional programs under
the Clean Air Act, including Hazardous Air Pollutant standards, and Compliance
Assurance Monitoring and periodic monitoring requirements are estimated to cost
$300 million to $500 million in aggregate through the year 2007.
The Corporation currently estimates that future expenditures for industrial
environmental control facilities through 2007 will be approximately $125
million. Specific environmental expenses are difficult to isolate since
expenditures may be made for more than one purpose, making precise
classification difficult.
Vehicular Noise Control
Passenger cars and light-duty trucks are subject to state and local motor
vehicle noise regulations. General Motors Corporation is committed to designing
and developing all its products to meet these noise requirements. Addressing
specific vehicle noise regulations for all state and local regulations however,
is not practical or possible. The Corporation therefore compiles the most
stringent requirement for all regulated markets and validates to the composite
requirement. In instances where a state or local noise regulation is more
stringent than the composite requirement, a waiver of the requirement is
requested.
Medium to heavy-duty trucks are regulated at the Federal level. Federal truck
regulations preempt all state/local noise regulations for trucks over 10,000
lbs. gross vehicle weight rating (GVWR).
Automotive Fuel Economy
The Energy Policy and Conservation Act passed in 1975 provided for
production-weighted average fuel economy standards for passenger cars for 1978
and thereafter. Based on EPA combined city-highway test data, the GM 2003 model
year domestic passenger car fleet is projected to attain a Corporate Average
Fuel Economy (CAFE) of 28.7 miles per gallon (mpg) versus the standard of 27.5
mpg. GM's CAFE estimate for 2004 model year domestic passenger cars is projected
at 28.8 mpg versus the standard of 27.5 mpg.
For GM's imported passenger cars, 2003 model year CAFE is projected to attain
28.2 mpg versus a standard of 27.5 mpg. The CAFE estimate for 2004 model year
import passenger cars is 29.3 mpg versus the standard of 27.5 mpg.
Fuel economy standards for light-duty trucks became effective in 1979.
General Motors' light truck CAFE fleet average for the 2003 model year is
projected at 21.1 mpg versus a standard of 20.7 mpg. GM's 2004 model year truck
CAFE is projected at 21.2 mpg versus a standard of 20.7 mpg.
GM's ability to meet increased CAFE standards is contingent on various future
economic, consumer, legislative, and regulatory factors that GM cannot control
and cannot predict with certainty. If GM could not comply with any new CAFE
standards, GM could be subject to sizeable civil penalties and could have to
severely restrict product offerings or close plants to remain in compliance.
I-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
End of Life Vehicles
During September 2000, the European parliament passed a directive requiring
member states to adopt legislation regarding end-of-life vehicles and the
responsibility of manufacturers for dismantling and recycling vehicles they have
sold. European Union member states are required to transform the concepts
detailed in the directive into national law. Under the directive, manufacturers
are financially responsible for at least a portion of the cost of the take-back
of vehicles placed in service after July 2002 and all vehicles placed in service
prior to July 2002 that are still in operation in January 2007. The laws
developed in the individual national legislatures throughout Europe will effect
the amount ultimately paid by the manufacturers for this issue. GM does not
expect this legislation to have a material effect on its financial position,
cash flow or results of operations.
Seasonal Nature of Business
In the automotive business, there are retail sales fluctuations of a seasonal
nature, and production varies from month to month. Certain changeovers occur
throughout the year for reasons such as new market entries and new vehicle
changes; however, the changeover period related to the annual new model
introduction has traditionally occurred in the third quarter of each year.
Production is typically lower during the third quarter due to these annual
product changeovers and the fact that annual plant shutdowns are planned during
this time to facilitate product changes. For this reason, third quarter
operating results are, in general, less favorable than those in the other three
quarters of the year. The degree to which the third quarter results are
affected depends on the magnitude of the changeover needed to commence
production of new models incorporating, for example, design modifications
related to more fuel-efficient vehicle packaging, stricter government standards
for safety and emission controls, and consumer-oriented improvements in
performance, comfort, convenience, and style.
Segment Reporting Data
Operating segment and principal geographic area data for 2003, 2002, and 2001
are summarized in Note 26 to the GM Consolidated Financial Statements in Part
II.
* * * * * *
The Registrant makes no attempt herein to predict the future trend of its
business and earnings or the effect thereon of the results of changes in general
economic, industrial, regulatory, and international conditions.
ITEM 2. Properties
The Corporation, excluding its Financing and Insurance Operations, has
approximately 370 locations operating in approximately 40 states and
approximately 210 cities in the United States. Of these, approximately 20 are
engaged in the final assembly of GM cars and trucks; approximately 60 are
service parts operations responsible for distribution or warehousing; and the
remainder are offices or involved primarily in the testing of vehicles or the
manufacturing of automotive components and power products. In addition, the
Corporation has approximately 20 locations in Canada and assembly,
manufacturing, distribution, or warehousing operations in approximately 50 other
countries, including equity interests in associated companies which conduct
assembly, manufacturing, or distribution operations. The major facilities
outside the United States and Canada, which are principally vehicle
manufacturing and assembly operations, are located in Germany, the United
Kingdom, Brazil, Mexico, Australia, Sweden, Belgium, Spain, China, Thailand,
Argentina, Portugal, Poland and Korea.
Most facilities are owned by the Corporation or its subsidiaries. Leased
properties consist primarily of warehouses and administration, engineering, and
sales offices. The leases for warehouses generally provide for an initial period
of five years and contain renewal options. Leases for sales offices are
generally for shorter periods.
Properties of the Registrant and its subsidiaries include facilities which,
in the opinion of management, are suitable and adequate for the manufacture,
assembly, and distribution of their products.
Additional information regarding worldwide expenditures for plants and
equipment is presented in Note 26 to the GM Consolidated Financial Statements in
Part II.
I-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 3. Legal Proceedings
(a) Material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Corporation became,
or was, a party during the year ended December 31, 2003, or subsequent
thereto, but before the filing of this report are summarized below:
Environmental Matters
In March 2003, the Michigan Department of Environmental Quality (MDEQ)
asserted a claim for penalties in excess of $100,000 relating to various alleged
violations of air discharge regulations at the GM-Powertrain Saginaw Metal
Castings Plant. Officials of GM and the MDEQ continue to discuss resolution of
these matters.
* * *
The US EPA Region V filed an Administrative complaint against three General
Motor's facilities on October 17, 2003. The three GM assembly facilities named
in the complaint are Moraine, Ohio, Pontiac, Michigan, and Orion, Michigan. The
complaint alleges multiple violations of the hazardous waste rules as applied to
GM's painting and purge operations. EPA seeks unspecified penalties. GM believes
that the lawsuit is without merit because the purge material in question is not
a "waste" but instead is being used as intended in enclosed systems to clean,
suspend paint solids, and transport fluids. The purge material is thereafter
captured, reclaimed and reused by GM in its processes. The position being taken
by EPA Regional V is the subject of a lawsuit filed by GM on August 2, 2002 in
the DC Circuit Court of Appeals seeking an order by the Court declaring the
position an unlawful "rulemaking" by US EPA.
* * *
Other Matters
Six putative nationwide and statewide class actions are pending against
General Motors in state and federal courts alleging that the paint or paint
application process used on some GM vehicles was defective due to the omission
of a primer surfacer layer. Generally, plaintiffs allege that GM's failure to
disclose the alleged paint defect is a fraudulent omission and a violation of
various states' consumer protection laws. No determination has been made that
any case may proceed as a class action.
With respect to the suits relating to the primer surfacer issue described
above: Christian Amedee and Louis Fuxan v. General Motors Corporation, et al.,
Civil District Court for the Parish of New Orleans, State of Louisiana filed
March 24, 1995, Cherise Miller, et al., v. General Motors Corporation, United
States District Court for the Northern District of Illinois, filed on April 8,
1998 (the court determined that plaintiffs had not demonstrated that they could
meet the requirements for certification of a nationwide class ), and Rose Ann
Hayes v. General Motors Corporation et al. filed on May 22, 2001 in the Circuit
Court for Madison County Illinois are purported nationwide class actions; Eddie
Glorioso v. General Motors Corporation and Scott Arnold v. General Motors
Corporation, consolidated in Superior Court for the City and County of San
Francisco, California, both filed in July 1998, are purported California
statewide class actions; Scott Haverdink v. General Motors Corporation, Court of
Common Pleas of Philadelphia County, Pennsylvania, filed on May 16, 1999, is a
putative Pennsylvania statewide class action. Darryl Oshanek v. General Motors
Corporation and General Motors of Canada, Limited, filed in the Supreme Court of
British Columbia, Canada, on June 2, 1999, is a putative class action on behalf
of residents of British Columbia, has been dismissed. GM intends to vigorously
oppose class certification and defend these cases.
* * *
I-6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Seventy-nine purported class actions on behalf of all purchasers of new
motors vehicles in the United States since January 1, 2001, have been filed in
various state and federal courts against General Motors Corporation, General
Motors of Canada Ltd. and Ford, Daimler Chrysler, Toyota, Honda, Nissan and BMW
and their Canadian affiliates, the National Automobile Dealers Association and
the Canadian Automobile Dealers Association. The federal court actions have been
consolidated for coordinated pretrial proceedings in federal court in Main and
the more than 30 California cases have been consolidated in state court in San
Francisco.
The nearly identical complaints allege that the manufacture defendants, aided
by the association defendants, conspired among themselves and with their dealers
to prevent the sale to United States citizens of vehicles produced for the
Canadian market and sold by dealers in Canada. The complaints allege that new
vehicle prices in Canada are ten to thirty percent lower than those in the
United States and that preventing the sale of these vehicles to United States
citizens resulted in the payment of supracompetitive prices by United States
consumers. The complaints seek treble damages under the antitrust laws, but do
not specify damages. No determination has been made to certify any of these
cases as a class action. General Motors believes its actions have been lawful
and intends to vigorously defend these cases.
* * *
On April 11 and 14, 2003, two purported class actions (Young v. Pearce, et
al.; Silverstein v. Pearce, et al.) were filed in Delaware Chancery Court on
behalf of owners of GM Class H shares against Hughes Electronics Corporation,
General Motors Corporation, News Corporation and the Hughes directors. On April
11 and 15, 2003, two purported class actions (Matcovsky, et al., v. Hughes
Electronics Corporation, et al.; Brody v. Hughes Electronics Corporation, et
al.) were filed in Superior Court in Los Angeles, California, against Hughes, GM
and the Hughes and GM directors. Two purported stockholder class actions which
name only General Motors and the GM directors have been brought in Delaware
Chancery Court challenging the recently announced agreements with News Corp.,
Wyser-Pratte Management Company v. General Motors Corporation, et al., which was
filed April 18, 2003, and Robert LaMarche v. General Motors Corporation, et al.,
which was filed April 28, 2003. The Delaware cases have been consolidated in the
Delaware Chancery Court and the California cases have been consolidated in state
court in Los Angeles and plaintiffs in both cases have filed consolidated
complaints.
The Delaware cases allege that GM and the GM directors performed ultra vires
acts and that the GM directors breached their fiduciary duties by approving a
transaction that is more favorable to the holders of GM $1-2/3 par value common
stock than the holders of GM Class H Common stock. They claim that the holders
of GM Class H Common Stock will be treated unfairly because (i) GM will receive
mostly cash for its shares while the holders of GM Class H Common Stock will
receive News Corp. American Depositary Shares (ADSs) that may fluctuate in
value, (ii) GM will be receiving a $275 million payment from Hughes, (iii) a
substantial number of shares of GM Class H Common Stock were contributed to
various GM employee benefit plans prior to announcement of the deal to improve
the prospects of shareholder approval, and (iv) the transaction was announced
just prior to the announcement of improved financial results at Hughes and
PanAmSat to make it appear that holders of GM Class H Common Stock would receive
a premium that would exceed the 20 percent recapitalization premium provided
for in the GM Restated Certificate of Incorporation, as amended. The California
cases allege that the proposed transactions involving News Corp.'s acquisition
of a 34% interest in Hughes provides benefits to GM not available to all GM
Class H shareholders, in violation of fiduciary duties. The new consolidated
complaints are similar to the original complaints, except that the Delaware
complaint adds allegations challenging the adequacy of the disclosures in the
Consent Solicitation and only names GM and members of the GM board of directors
as defendants. Plaintiffs in both cases seek unspecified damages. GM has moved
to dismiss the Delaware cases and plaintiffs are seeking to amend their
complaint. In the California cases, the claims against directors without any
connection to California have been dismissed and the consolidated case has been
stayed pending a ruling on the motion to dismiss the Delaware consolidated
complaint. GM, Hughes and the director defendants believe these actions are
without merit and intend to vigorously defend the lawsuits.
(b) Previously reported legal proceedings which have been terminated, either
during the year ended December 31, 2003, or subsequent thereto, but
before the filing of this report are summarized below:
On January 20, 2003, the Georgia Department of Natural Resources (GDNR)
delivered a proposed consent order with respect to alleged violations of
hazardous waste regulations at GM's plant in Doraville, Georgia seeking fines in
excess of $100,000. GM denies the alleged violations, but amicably resolved them
by entering into and administrative consent order No. EPD-HW-1534 with the GDNR.
A $50,000 settlement was paid by GM to the State of Georgia under this consent
order, effective October 23, 2003.
* * * * * * * * *
I-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
ITEM 4A. Executive Officers of the Registrant
The names and ages of all executive officers of the Registrant and their
positions and offices with the Registrant are as follows:
Name and (Age) Positions and Offices
------------- ---------------------
G. Richard Wagoner, Jr. (51) Chairman and Chief Executive Officer
John M. Devine (59) Vice Chairman and Chief Financial
Officer
Robert A. Lutz (72) Vice Chairman of Product Development,
Chairman of GM North America,
Interim President of GM Europe
Thomas A. Gottschalk (61) Executive Vice President, Law and
Public Policy
The following information pertains to all other officers of the Registrant
who file reports pursuant to Section 16(b) of the Securities Exchange Act of
1934, as amended:
Name and (Age) Positions and Offices
------------- ---------------------
Troy A. Clarke (48) Group Vice President, Manufacturing and
Labor Relations
Gary Cowger (56) Group Vice President and President,
GM North America
Eric A. Feldstein (44) Group Vice President and Chairman,
General Motors Acceptance
Corporation
Frederick A. Henderson (45) Group Vice President and President,
GM Asia Pacific
Maureen Kempston-Darkes (55) Group Vice President and President,
GM Latin America, Africa and
Middle East
Thomas G. Stephens (55) Group Vice President, GM Powertrain
Ralph J. Szygenda (55) Group Vice President,
Information Systems, and
Chief Information Officer
Kathleen S. Barclay (49) Vice President, Global Human Resources
Lawrence D. Burns (52) Vice President, Research & Development
and Planning
Thomas J. Kowaleski (52) Vice President, Communications
Peter R. Bible (45) Chief Accounting Officer
Walter G. Borst (42) Treasurer
Paul W. Schmidt (59) Controller
There are no family relationships, as defined, between any of the officers
named above, and there is no arrangement or understanding between any of the
officers named above and any other person pursuant to which he or she was
selected as an officer. Each of the officers named above was elected by the
Board of Directors to hold office until the next annual election of officers and
until his or her successor is elected and qualified or until his or her earlier
resignation or removal. The Board of Directors elects the officers in
conjunction with each annual meeting of the stockholders.
I-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4A. Executive Officers of the Registrant - continued
Mr. G. Richard Wagoner, Jr. has been associated with General Motors since
1977. Mr. Wagoner was elected Vice President in charge of finance for General
Motors Europe in June 1989. In July 1991, he was elected President and Managing
Director of General Motors do Brasil. In November 1992, he was elected Executive
Vice President and Chief Financial Officer of General Motors. In July 1994, he
was named President of North American Operations. In October 1998, he was
elected a director, President and Chief Operating Officer of General Motors. On
June 1, 2000, Mr. Wagoner was named Chief Executive Officer and became Chairman
of the Board of Directors on May 1, 2003. Mr. Wagoner is Chairman of the
Automotive Strategy Board.
Mr. John M. Devine was named Vice Chairman and Chief Financial Officer of
General Motors Corporation, effective January 1, 2001. He has responsibility for
GM's Worldwide Financial Operations and GM Asset Management. He is a member of
the GM Automotive Strategy Board and serves as its global process leader for
finance. Mr. Devine was Chairman and Chief Executive Officer of Fluid Ventures,
LLC, immediately prior to his GM appointment. He retired from Ford Motor Company
in October 1999, after a 32 year career, as the company's Executive Vice
President and Chief Financial Officer.
Mr. Robert A. Lutz was named Vice Chairman of Product Development of General
Motors Corporation, effective September 1, 2001. He was named Chairman of GM
North America on November 13, 2001, and was appointed interim president of GM
Europe on March 1, 2004 until June 1, 2004. He serves as global process leader
for Product Development and is a member of the Automotive Strategy Board and the
North America Strategy Board. Mr. Lutz was Chairman and Chief Executive Officer
of Exide Technologies, immediately prior to his GM appointment. He continues to
serve as a member of Exide's board of directors. He also has held a number of
executive positions with Ford Motor Company until 1986 and the former Chrysler
Corporation from which he retired in 1998.
Mr. Thomas A. Gottschalk has been associated with General Motors since 1994.
He previously held the position of Senior Vice President and General Counsel. He
was elected to the position of Executive Vice President of General Motors with
primary responsibility for Law and Public Policy on May 25, 2001. He retains the
General Counsel responsibility in his current position and is also responsible
for the Office of the Secretary. He is a member of the Automotive Strategy Board
and is the global process leader for Law and Public Policy. Prior to General
Motors, he was a partner and member of the management committee of the law firm
of Kirkland & Ellis in Washington, D.C.
Mr. Troy A. Clarke was appointed Group Vice President and Executive Vice
President, GM Asia Pacific on February 4, 2004, and President of GM Asia
Pacific, effective June 1, 2004. Mr. Clarke was named GM group vice president of
manufacturing and labor relations in June 2002. Mr. Clarke had been vice
president of labor relations since January 2001 and was appointed president and
managing director of GM de Mexico and a GM corporate vice president in December
1997, after having served as director of manufacturing for GM de Mexico since
June 1997. Mr. Clarke is a member of the Automotive Strategy Board.
Mr. Gary L. Cowger has been associated with General Motors since 1965. Mr.
Cowger was elected a Vice President of General Motors Corporation, effective
October 1, 1994. On September 1, 1994, he was appointed President and Managing
Director of General Motors de Mexico. Mr. Cowger was then named Vice President,
Manufacturing, General Motors Europe, on January 1, 1998 and Chairman and
Managing Director of Adam Opel AG effective June 19, 1998. Mr. Cowger became
Group Vice President - Labor Relations, on November 1, 1998 and Group Vice
President in charge of GM Manufacturing and Labor Relations on January 1, 2001.
He was named GM Group Vice President and President of General Motors North
America on November 13, 2001. He is a member of the Automotive Strategy Board,
global process leader for Manufacturing, and Chairman of the North America
Strategy Board.
Mr. Eric A. Feldstein has been associated with General Motors since 1981. Mr.
Feldstein was named GM Vice President and Treasurer in 1997 and GM Vice
President of Finance and Treasurer in 2001. He was named GM Group Vice President
and Chairman of General Motors Acceptance Corporation (GMAC) in November 2002.
He is a member of the Automotive Strategy Board and Chairman and President of
the GMAC Mortgage Group.
I-9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4A. Executive Officers of the Registrant - concluded
Mr. Frederick A. Henderson has been associated with General Motors since
1984. From 1997 to 2000, Mr. Henderson was GM Vice President and Managing
Director of GM do Brasil, and from June 1, 2000 served as Group Vice President
and President of the GM Latin America, Africa and Middle East (LAAM) region. He
was named GM Group Vice President and President of General Motors Asia Pacific
effective January 1, 2002. Effective June 1, 2004, he was appointed Group Vice
President and President of GM Europe. He is currently a member of the Automotive
Strategy Board and Chairman of the Asia Pacific Strategy Board.
Ms. Maureen Kempston-Darkes has been associated with General Motors since
1975. Ms. Kempston-Darkes was GM Vice President and President and General
Manager of General Motors of Canada Limited from 1994 to 2001. She was named GM
Group Vice President and President of GM LAAM effective January 1, 2002. She is
a member of the Automotive Strategy Board and Chairman of the Latin America,
Africa, and Middle East Strategy Board.
Mr. Thomas G. Stephens is the Group Vice President responsible for GM
Powertrain. He is a member of the Automotive Strategy Board and Chairman of GM's
Energy and Environmental Strategy Board. From May 1996 through December 2000,
Mr. Stephens was GM vice president and group director of engineering operations
for the GM Truck Group. He was appointed vice president of vehicle integration
in January 2001 and held this position prior to being named group vice president
for GM Powertrain in 2001.
Mr. Ralph J. Szygenda was named Group Vice President and Chief Information
Officer on January 7, 2000. He is a member of the Automotive Strategy Board and
is responsible for the Information Systems & Services organization. Mr. Szygenda
is a member of the board of directors of the Handleman Company. He joined GM in
1996 as Vice President and Chief Information Officer.
Ms. Kathleen S. Barclay has been associated with General Motors since 1985.
She was elected Vice President in charge of global human resources and General
Motors University in 1998. Prior to that she was general director of human
resource management at GM North America Operations since 1996. She is a member
of the Automotive Strategy Board.
Mr. Lawrence D. Burns has been associated with General Motors since 1969. He
was named Vice President of Research & Development and Planning in May 1998. He
is a member of the Automotive Strategy Board and serves as global process leader
for R&D and Planning.
Mr. Thomas J. Kowaleski was elected Vice President in charge of global GM
communications, effective January 1, 2004. He is a member of the GM Automotive
Strategy Board and directs GM's corporate, product, brand, and internal
communications around the world. Mr. Kowaleski joined General Motors in March
1999 as executive director product and brand communications. He became GM North
America vice president of communications in June 2001. He is a member of the
Automotive Strategy Board.
Mr. Peter R. Bible joined General Motors as Chief Accounting Officer in
December 1996. He is responsible for worldwide accounting, financial reporting
and forecasting; Securities and Exchange Commission (SEC) reporting; financial
controls; financial systems development; and government contract accounting.
Mr. Walter G. Borst assumed the role of General Motors Treasurer in February
2003. Prior to that assignment, Mr. Borst was executive director of finance and
chief financial officer for GM's German subsidiary, Adam Opel AG. Borst was
named chief financial officer of Adam Opel AG, based in Russelsheim, Germany, in
October 2000. Prior to that, he served as assistant treasurer in the GM
Treasurer's Office from 1997 to 2000.
Mr. Paul W. Schmidt has been associated with General Motors since 1969. He
was named Controller in 2002. Mr. Schmidt had been executive-in-charge of GM's
investor relations since August 2001. Prior to that, he was executive-in-charge
of GM North America Finance since 1994.
I-10
PART II
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
General Motors (GM) lists its common stock on the stock exchanges specified
on the cover page of this Form 10-K under the trading symbol "GM". On December
22, 2003, General Motors completed the split-off of Hughes by distributing
Hughes common stock to the holders of GM Class H (GMH)common stock in exchange
for all the outstanding shares of GM Class H common stock. Simultaneously,
GM sold its 19.8 percent economic interest in Hughes to News Corporation in
exchange for cash and News Corporation Preferred American Depositary Shares
(Preferred ADSs).
All GMH stock ceased to be outstanding and accordingly was delisted from
exchanges specified on the cover page of this report. GM's Dividend Policy is
described in the Management's Discussion and Analysis (MD&A) in Part II. As of
December 31, 2003, there were 418,540 holders of record of GM $1-2/3 par value
common stock and no shares of GMH. As of December 31, 2002, there were
429,767 holders of record of GM $1-2/3 par value common stock and 177,355
holders of record of GM Class H common stock. The following table sets forth the
high and low sale prices of GM's common stocks as reported on the Composite Tape
and the quarterly dividends declared for the last two years.
2003 Quarters
-------------
1st 2nd 3rd 4th
--- --- --- ---
Cash dividends per share of common stocks
$1-2/3 par value $0.50 $0.50 $0.50 $0.50
Class H $- $- $- $-
Price range of common stocks
$1-2/3 par value (1): High $41.12 $39.50 $43.23 $54.39
Low $29.75 $32.84 $35.00 $40.04
Class H (1): High $12.41 $13.56 $15.10 $16.72
Low $9.40 $10.17 $12.74 $14.25
2002 Quarters
-------------
1st 2nd 3rd 4th
--- --- --- ---
Cash dividends per share of common stocks
$1-2/3 par value $0.50 $0.50 $0.50 $0.50
Class H $- $- $- $-
Price range of common stocks
$1-2/3 par value (1): High $62.01 $68.17 $54.08 $41.50
Low $47.92 $50.00 $38.11 $30.80
Class H (1): High $17.55 $17.00 $11.25 $12.00
Low $12.50 $8.49 $8.35 $8.00
--------------------
(1) The principal market is the New York Stock Exchange, and prices are based on
the Composite Tape.
The table below contains information about securities authorized for issuance
under equity compensation plans. The features of these plans are described
further in Note 23 to the Consolidated Financial Statements in Part II.
II-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters (concluded)
Number of Number of
securities to be Weighted average securities
issued upon exercise price remaining
exercise of of outstanding available for
Plan Category outstanding options, future issuance
options, warrants and under equity
warrants and rights compensation
rights plans (1)
-------------------------------------------------------------------------------
Equity compensation plans
approved by security
holders:
GMSIP 74,485,566 $54.38 17,194,942
Equity compensation plans
not approved by security
holders (2):
GMSSOP 24,390,056 $55.33 3,626,225
-------------------------------------------------------------------------------
Total 98,875,622 $54.61 20,821,167
-------------------------------------------------------------------------------
(1) Excludes securities reflected in the first column, "Number of securities to
be issued upon exercise of outstanding options, warrants and rights."
(2) All equity compensation plans except the GMSSOP were approved by the
shareholders. The GMSSOP was adopted by the Board of Directors in 1998 and
expires December 31, 2007. The purpose of the plans is to recognize the
importance and contribution of GM employees in the creation of stockholder
value, to further align compensation with business success and to provide
employees with the opportunity for long-term capital accumulation through
the grant of options to acquire shares of General Motors common stock.
II-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. Selected Financial Data
Years Ended December 31
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(dollars in millions except per share amounts)
Total net sales and revenues $185,524 $177,324 $169,051 $173,943 $168,964
======= ======= ======= ======= =======
Income from continuing
operations $2,862 $1,975 $1,222 $3,639 $5,867
Income (loss) from
discontinued
operations (219) (239) (621) 813 135
Gain from sale of
discontinued operations 1,179 - - - -
----- ----- --- ----- -----
Net income (1) $3,822 $1,736 $601 $4,452 $6,002
===== ===== === ===== =====
$1-2/3 par value common stock
Basic earnings per share
(EPS) from continuing
operations $5.10 $3.53 $2.21 $6.23 $9.08
Basic earnings (losses) per
share from discontinued
operations $2.14 $(0.16) $(0.42) $0.59 $0.29
Diluted EPS from continuing
operations $5.03 $3.51 $2.20 $6.12 $8.91
Diluted earnings (losses)
per share from discontinued
operations $2.11 $(0.16) $(0.43) $0.58 $0.28
Cash dividends declared per
share $2.00 $2.00 $2.00 $2.00 $2.00
Class H common stock (2)
Basic earnings (losses) per
share from discontinued
operations $(0.22) $(0.21) $(0.55) $0.55 $(0.27)
Diluted earnings (losses)
per share from
discontinued operations $(0.22) $(0.21) $(0.55) $0.54 $(0.27)
Cash dividends declared per
share $ - $ - $ - $ - $ -
Total assets $448,507 $369,053 $322,412 $301,129 $273,729
Notes and loans payable $271,756 $200,168 $165,361 $144,783 $129,547
GM-obligated mandatorily
redeemable preferred
securities of
subsidiary trusts $ - $ - $ - $139 $218
Stockholders' equity $25,268 $6,814 $19,707 $30,175 $20,644
-----------------
Reference should be made to the notes to GM's consolidated financial statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations.
(1) On January 1, 2002, the Corporation implemented Statement of Financial
Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets,"
which ceased the amortization method of accounting for goodwill and changed
to an impairment only approach. Accordingly, goodwill is no longer amortized
and is tested for impairment at least annually.
(2) Adjusted to reflect the three-for-one stock split of the GM Class H common
stock, in the form of a 200% stock dividend, paid on June 30, 2000.
* * * * * *
II-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the General
Motors Acceptance Corporation (GMAC) Annual Report on Form 10-K for the period
ended December 31, 2003, filed separately with the Securities and Exchange
Commission (SEC). All earnings per share amounts included in the MD&A are
reported on a fully diluted basis.
GM presents separate supplemental financial information for the following
businesses: Automotive and Other Operations (Auto & Other) and Financing and
Insurance Operations (FIO).
GM's reportable operating segments within its Auto & Other business consist
of:
- GM Automotive (GMA), which is comprised of four regions: GM North America
(GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM
Asia Pacific (GMAP); and
- Other, which includes the design, manufacturing and marketing of
locomotives, the elimination of intersegment transactions, certain
non-segment specific revenues and expenditures, and certain corporate
activities.
GM's reportable operating segments within its FIO business consist of GMAC
and Other Financing, which includes financing entities that are not consolidated
by GMAC.
The disaggregated financial results for GMA have been prepared using a
management approach, which is consistent with the basis and manner in which GM
management internally disaggregates financial information for the purpose of
assisting in making internal operating decisions. In this regard, certain common
expenses were allocated among regions less precisely than would be required for
stand-alone financial information prepared in accordance with accounting
principles generally accepted in the U.S. (GAAP). The financial results
represent the historical information used by management for internal
decision-making purposes; therefore, other data prepared to represent the way in
which the business will operate in the future, or data prepared in accordance
with GAAP, may be materially different.
II-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated Results
GM's total net sales and revenues were $186 billion, $177 billion and $169
billion for 2003, 2002 and 2001, respectively, and GM's net income was $3.8
billion, $1.7 billion and $601 million for 2003, 2002 and 2001, respectively.
Years Ended December 31,
---------------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
Total net sales and revenues $185,524 $177,324 $169,051
Income from continuing operations $2,862 $1,975 $1,222
Net income $3,822 $1,736 $601
Net margin from continuing operations 1.5% 1.1% 0.7%
The increase in 2003 total net sales and revenues, compared with 2002, was
due to increases in GMA revenue of $5.2 billion, despite lower GMNA and global
volumes and worldwide pricing competitiveness, and increases in FIO revenue of
$2.6 billion. The increase in 2002 total net sales and revenues, compared with
2001, was largely due to an increase in wholesale sales at GMA.
Despite increased revenues, cost savings, and strong equity income in 2003
compared to 2002, continued automotive pricing pressures, higher pension and
other postretirement employee benefit (OPEB) expenses in the U.S., and
unfavorable foreign currency exchange resulted in GMA net income decreasing in
2003 compared to 2002. GMAC had record net income of $2.8 billion in 2003,
compared to $1.9 billion in the prior year, due primarily to income growth from
GMAC's mortgage operations. The increase in 2002 net income compared to 2001 was
primarily due to increased volumes at GMA offset partially by pricing pressures
in North America and Europe.
2003 highlights included:
o Market share increased in three of four automotive regions;
o Strong cash flow was generated;
o GM fully funded the combined U.S. hourly and salaried pension plans
with $18.5 billion in total contributions;
o Pension plans earned an approximate 22% return on assets;
o Completed the Hughes transactions (1);
o GMAC and GMAP each generated strong net income; and
o GM completed the sale of its defense business
(1)In the Hughes transactions, GM split off Hughes by distributing Hughes
common stock to the holders of GM Class H common stock in exchange for all
the outstanding shares of GM Class H common stock. Simultaneously, GM sold
its 19.8 percent economic interest in Hughes to News Corporation in exchange
for cash and News Corporation Preferred American Depositary Shares (Preferred
ADSs).
II-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive Financial Review
GMA's total net sales and revenues were $155 billion, $149 billion and $142
billion for 2003, 2002 and 2001, respectively, and GMA's net income was $553
million, $2.0 billion and $445 million for 2003, 2002 and 2001, respectively.
Years Ended December 31,
-------------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
GMA total net sales and revenues $154,513 $149,355 $141,939
GMA net income $553 $1,988 $445
GMA net margin 0.4% 1.3% 0.3%
Net income (loss) by region
GMNA $811 $2,992 $1,348
GME (504) (1,011) (765)
GMLAAM (331) (181) (81)
GMAP 577 188 (57)
---- ------ ----
Net income $553 $1,988 $445
=== ===== ===
GM global market share 14.7% 15.0% 15.0%
The increase in 2003 total net sales and revenues, compared with 2002, was
largely due to favorable product mix and a weaker U.S. dollar, partially offset
by unfavorable pricing pressures in North America and Europe and lower wholesale
volumes. The increase in 2002 total net sales and revenues, compared with 2001,
was largely due to an increase in wholesale sales volumes partially offset by
unfavorable pricing pressures in North America and Europe. GM's global market
share was 14.7% and 15.0% for the years ended 2003, and 2002, respectively.
Market share gains were recognized in three out of four automotive regions (see
discussion below under each region) with GMNA posting a 0.5 percentage point
decline, to 27.4%. As GM introduces several new models for 2004 and overall
economic conditions improve, GM's goal is to achieve market share growth in all
regions during 2004.
The decrease in GMA's 2003 net income compared with 2002 was a result of
lower wholesale sales, continued pricing pressures in North America and Europe,
increased pension and OPEB expense in the U.S., and unfavorable foreign
exchange, partially offset by continued strong product mix, material cost
savings and strong equity results at GMAP. The increase in 2002 net income,
compared with 2001, was primarily due to an increase in wholesale sales volume,
favorable product mix, and reduced structural and material costs. These
favorable conditions more than offset the unfavorable effect of pricing
pressures experienced in North America and Europe.
GM Automotive Regional Results.
GM North America
Years Ended December 31,
----------------------------------
2003 2002 2001
---- ---- ----
GMNA: (dollars in millions)
Net income $811 $2,992 $1,348
Net margin 0.7% 2.6% 1.2%
Wholesale sales (volumes in thousands)
Cars 2,340 2,547 2,441
Trucks 3,267 3,174 2,746
----- ----- -----
Total GMNA 5,607 5,721 5,187
Vehicle unit sales
Industry - North America 19,821 20,118 20,250
GM as a percentage of industry 27.4% 27.9% 27.6%
Industry - U.S. 16,966 17,144 17,475
GM as a percentage of industry 28.0% 28.3% 28.1%
GM cars 25.7% 25.4% 26.9%
GM trucks 29.9% 31.0% 29.2%
II-6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive Financial Review (continued)
GM North America (continued)
North American industry vehicle unit sales decreased to 19.8 million units
during 2003. With this decrease in industry sales, GMNA's market share decreased
by 0.5 percentage points. GMNA ended the year with a market share of 27.4% for
2003, compared to 27.9% for 2002.
During 2003, industry vehicle unit sales in the United States decreased
slightly to 17.0 million units. In conjunction with this slight decrease in
industry volume, GM's U.S. market share decreased by 0.3 percentage points. GM
ended the year with a market share of 28.0% for 2003, versus 28.3% for 2002.
U.S. car market share rose modestly by 0.3 percentage points to 25.7%, while
U.S. truck market share ended the year at 29.9%, down 1.1 percentage points,
contributing to the slight decline in overall U.S. market share. As GM
introduces several new models in North America during 2004, GM anticipates
increasing market share in the United States and North America during 2004.
Net income from GMNA totaled $811 million, $3.0 billion, and $1.3 billion in
2003, 2002, and 2001, respectively. The decrease in GMNA's 2003 net income from
2002 was primarily due to unfavorable pricing, increased pension and OPEB
expense in the U.S., and higher currency-exchange losses. During 2003, GMNA
incurred charges of $448 million, after tax, related to the October 2003
contract with the United Auto Workers, which provided for lump-sum payments and
vehicle discount vouchers for retirees and adjusted a previously established
reserve for idled workers, primarily related to the Janesville, Wisconsin plant,
resulting in $103 million of income, after tax. Also, GMNA incurred various
structural cost adjustments, asset impairment and other charges, favorable
interest income from settlements of prior year tax matters, and income related
to the market valuation of XM Satellite Radio warrants. These items netted to
approximately $90 million of income for the year.
Vehicle revenue per unit was $18,992 for 2003, compared with $18,698 for
2002. Even though trucks as a percent of total sales were flat, mix remained
strong during 2003, as customers continued to buy upgraded vehicles which
resulted in revenue per unit growth of $294.
The increase in 2002 net income from 2001 was primarily due to an increase in
wholesale sales volume, improved product mix, material and structural costs
reductions, and interest income from the resolution of certain prior tax years,
partially offset by an increase in pension expense, OPEB expense and unfavorable
price. In addition, during 2002, GMNA incurred charges of $116 million, after
tax, primarily related to costs associated with the transfer of commercial truck
production from Janesville, Wisconsin, to Flint, Michigan.
GM Europe
Years Ended December 31,
----------------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
GME net loss $(504) $(1,011) $(765)
GME net margin (1.8%) (4.2%) (3.2%)
Wholesale sales (volumes in thousands)
Cars 1,563 1,545 1,666
Trucks 94 100 94
------ ------ ------
Total GME 1,657 1,645 1,760
Vehicle unit sales
Industry 19,468 19,172 19,705
GM as a percentage of industry 9.4% 9.1% 9.1%
GM market share - Germany 10.5% 10.3% 11.4%
GM market share - United Kingdom 13.7% 13.1% 12.7%
While industry vehicle unit sales remained relatively flat in Europe during
2003 (an increase of approximately 300,000 units over 2002), GME increased its
total market share to 9.4%, up 0.3 percentage points from 2002. In two of GM's
largest markets in Europe, GM continued to perform well with increased market
share gain: market share increased to 10.5% in Germany, a 0.2 percentage point
increase over 2002, and 13.7% in the United Kingdom, an increase of 0.6
percentage points over 2002.
II-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive Financial Review (continued)
GM Europe (concluded)
Net loss from GME totaled $504 million, $1.0 billion, and $765 million in
2003, 2002, and 2001, respectively. The decrease in GME's 2003 net loss from
2002 was primarily due to favorable product mix, and reduced material and
structural costs. These favorable conditions were partially offset by
unfavorable pricing and foreign currency translation as the euro and Swedish
krona strengthened relative to the U.S. dollar during 2003. GME's net loss
included a restructuring charge in 2003 of $218 million, after tax, related to
an initiative to improve the competitiveness of GM's automotive operations in
Europe (see Note 25 to the Consolidated Financial Statements).
The increase in GME's 2002 net loss from 2001 was primarily due to a decrease
in wholesale sales volumes driven by a weak European industry, continuing
competitive pricing pressures and a restructuring initiative implemented in the
first quarter of 2002, which resulted in a charge of $407 million, after tax.
These decreases were partially offset by improved material and structural cost
performance.
GM Latin America/Africa/Mid-East
Years Ended December 31,
-----------------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
GMLAAM net loss $(331) $(181) $(81)
GMLAAM net margin (6.1%) (3.5%) (1.4%)
Wholesale sales (volumes in thousands)
Cars 438 443 463
Trucks 123 197 203
---- ---- ----
Total GMLAAM 561 640 666
Vehicle unit sales
Industry 3,570 3,673 4,009
GM as a percentage of industry 16.0% 15.7% 16.6%
GM market share - Brazil 23.3% 23.0% 22.6%
Despite unfavorable economic conditions in Latin America, GM was able to
increase overall GMLAAM vehicle market share to 16.0% in 2003.
Net loss from GMLAAM totaled $331 million, $181 million, and $81 million in
2003, 2002, and 2001, respectively. The increase in GMLAAM's 2003 net loss from
2002 was primarily due to continued economic weakness in the region as industry
vehicle sales decreased 100,000 units to 3.6 million for 2003. In 2003, GMLAAM
incurred asset impairment charges and unfavorable exchange impacts, which were
partially offset by net price increases. The increase in GMLAAM's 2002 net loss
from 2001 was primarily due to political unrest and economic uncertainty in
Argentina, Brazil, and Venezuela, which caused a significant deterioration in
the industry for the region.
GM Asia Pacific
Years Ended December 31,
----------------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
GMAP net income (loss) $577 $188 $(57)
GMAP net margin 10.8% 4.2% (1.4%)
Wholesale sales (volumes in thousands)
Cars 203 185 202
Trucks 70 220 258
---- ---- ----
Total GMAP 273 405 460
Vehicle unit sales
Industry 15,720 14,373 13,101
GM as a percentage of industry 4.9% 4.6% 4.0%
GM market share - Australia 20.4% 23.1% 22.4%
GM market share - China 8.5% 7.8% 4.1%
II-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive Financial Review (concluded)
GM Asia Pacific (concluded)
GMAP increased its total market share to 4.9%, up 0.3 percentage points from
2002 and GM's market share in China increased to 8.5%, an increase of 0.7
percentage points over 2002. China is now the third largest automotive market in
the world and is GM's fourth largest market.
Net income (loss) from GMAP totaled $577 million, $188 million, and $(57)
million in 2003, 2002, and 2001, respectively. The increase in GMAP's net
income, compared with 2002, was primarily due to strong equity earnings from
Shanghai GM and other equity investees, as well as earnings at Holden in
Australia. The increase in GMAP's 2002 net income, compared with 2001, was
primarily due to equity income improvements from several joint ventures, led by
significantly improved results at Shanghai GM. Results from equity investments
in 2001 included a restructuring charge of $133 million, after tax, with respect
to GM's portion of severance payments and asset impairments that were part of
the restructuring of its affiliate Isuzu Motors, Ltd. In 2002, these
improvements were partially offset by a decrease in wholesale sales volumes and
increases in structural and other costs.
Other Operations
Other Operations' total net sales and revenues include a pre-tax gain of
approximately $814 million, or approximately $505 million after-tax ($0.90 per
diluted share), related to the sale of GM's Defense operations (light armored
vehicle business) to General Dynamics Corporation on March 1, 2003. The sale
generated net proceeds of approximately $1.1 billion in cash.
Also, Other Operations' includes charges of approximately $277 million ($0.49
per diluted share) related to the October 2003 contract with the UAW which
provided for lump-sum payments and vehicle vouchers for Delphi retirees, as well
as net interest expense of approximately $200 million related to 2003 debt
issuances.
In 2002, GM completed a review of the carrying value of its investment in
Fiat Auto S.p.A. (Fiat Auto) which resulted in a non-cash impairment charge of
$2.2 billion ($1.4 billion, after-tax), recorded in cost of sales. The
write-down decreased the carrying value of GM's investment in Fiat Auto
Holdings, B.V. (FAH) from $2.4 billion to $220 million with the remaining $220
million being attributable to the investment of FAH in certain joint ventures
with GME.
Discontinued Operations
As of the completion of the Hughes transactions on December 22, 2003, the
results of operations, cash flows, and the assets and liabilities of Hughes
Electronics Corporation were classified as discontinued operations for all
periods presented in GM's consolidated financial statements. The transactions
resulted in an after-tax gain of approximately $1.2 billion which is classified
as gain on sale of discontinued operations in GM's consolidated statement of
income for the year ended December 31, 2003. See Note 2 to the Consolidated
Financial Statements for further discussion.
GMAC Financial Review
GMAC's net income was $2.8 billion, $1.9 billion, and $1.8 billion for 2003,
2002 and 2001 respectively.
Years Ended December 31,
----------------------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
Financing operations $1,360 $1,239 $1,254
Mortgage operations 1,254 544 331
Insurance operations 179 87 201
----- ------ ------
Net income $2,793 $1,870 $1,786
===== ===== =====
Net income from financing operations totaled $1.4 billion, $1.2 billion, and
$1.3 billion in 2003, 2002, and 2001, respectively. The increase in net income
in 2003, compared with 2002, was primarily due to lower credit loss provisions
and increased revenues from higher asset levels, which more than offset the
unfavorable effect of lower net interest margins. The decrease in 2002 net
income compared with 2001 was due to a combination of higher credit loss
provisions and wider borrowings spreads which was offset by income from higher
asset levels. In addition, 2001 results reflect a favorable impact from the
cumulative effect of adopting SFAS 133.
II-9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC Financial Review (continued)
Net income from mortgage operations totaled $1.3 billion, $544 million, and
$331 million in 2003, 2002, and 2001, respectively. The increase in net income
in 2003, compared with 2002, was primarily due to higher production and
securitization volumes in both the residential and commercial mortgage sectors.
The increase in net income in 2002, compared with 2001, was primarily due to
increased loan production volumes, higher servicing levels, and improved hedging
results, which was partially offset by a decrease in the value of mortgage
servicing rights.
Net income from insurance operations totaled $179 million, $87 million, and
$201 million in 2003, 2002, and 2001, respectively. The increase in net income
in 2003, compared with 2002, primarily relates to increased underwriting volume
and increased investment income resulting from reduced levels of impairments in
2003, as compared to 2002, related to the Insurance Group's investment
portfolio. The decrease in net income in 2002, compared with 2001, reflects a
write-down of certain investment securities primarily due to the prolonged
decline in equity markets, partially offset by improved underwriting results and
a favorable tax settlement.
2004 Priorities/Targets
For 2004, GM has established certain operating priorities and financial
targets including:
o Attaining earnings per share between $6.00 and $6.50 at current dilution
levels;
o Generating $5.0 billion of operating cash flow;
o Increasing automotive market share in all regions;
o Reducing structural and material costs;
o Capital spending of $7.0 billion; and
o Regional/sector income targets, as follows:
Income target
-------------
(dollars in
millions)
GMNA $1,000 - $1,400
GME $0 - $ 100
GMLAAM $ (200) - $ (100)
GMAP $ 700 - $ 800
GMAC Greater than $2,000
Cash flow, cost savings and regional income targets are formulated using a
management approach which is consistent with the basis and manner in which GM
management internally disaggregates financial information for the purposes of
assisting in making internal operating decisions.
LIQUIDITY AND CAPITAL RESOURCES
Financing Structure
In 2003, GM and GMAC experienced adequate access to the capital markets as GM
and GMAC were able to issue various securities to raise capital and extend
borrowing terms consistent with GM's need for financial flexibility. On June 13,
2003, Moody's lowered GM's long-term rating to Baa1 from A3 and GMAC's to A3
from A2 with a rating outlook of negative. Moody's also reduced GMAC's
short-term rating to Prime-2 from Prime-1 and reaffirmed GM's short-term rating
at Prime-2. On October 21, 2003 Standard & Poor's affirmed GM and GMAC's
long-term ratings at BBB and short-term ratings at A2, with a rating outlook of
negative. On November 14, 2003 Fitch affirmed GM and GMAC's long-term ratings at
BBB+ and the commercial paper ratings at F2 with a rating outlook of negative.
On December 10, 2003 Dominion Bond Rating Service (DBRS) confirmed GM and GMAC's
senior debt ratings at A (low) and the commercial paper ratings at R1 (low) with
a stable outlook. These rating actions are not expected to have a significant
adverse effect on GM's and GMAC's ability to obtain bank credit or to sell
asset-backed securities. The table below summarizes GM's and GMAC's credit
ratings as of December 31, 2003.
GM GMAC GM GMAC GM GMAC
------------------------------------------------------
Rating Agency Senior Debt Commercial Paper Outlook
------------- ------------------------------------------------------
DBRS A (low) A (low) R1 (low) R1 (low) Stable Stable
Fitch BBB+ BBB+ F2 F2 Negative Negative
Moody's Baa1 A3 Prime-2 Prime-2 Negative Negative
S&P BBB BBB A2 A2 Negative Negative
II-10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Financing Structure (concluded)
GM's and GMAC's access to the capital markets remained sufficient to meet the
Corporation's capital needs. In the second quarter of 2003, GM issued
approximately $1.5 billion of senior notes. In the beginning of the third
quarter of 2003, in a combined single event financing, GM issued approximately
$13.5 billion of GM senior notes and convertible debentures and GMAC issued
approximately $4.4 billion of short-term senior notes and debt. In addition, GM
and GMAC expect that they will continue to have adequate access to the capital
markets sufficient to meet the corporation's needs for financial flexibility.
In 2003, GM contributed to its Voluntary Employees' Beneficiary Association
(VEBA) trust a total $3.3 billion (including $0.3 billion in GM Class H common
stock) and $18.5 billion (including $0.9 billion in GM Class H common stock) to
its U.S. pension plans. At December 22, 2003, under terms of the Hughes
transactions, the shares of GM H common stock contributed to the VEBA trust in
2003 were converted into or were exchanged for approximately 34 million shares
of Hughes Electronics Corporation common stock and approximately 4 million News
Corporation Preferred ADSs. Similarly, the shares of GM Class H common stock
contributed to the pension plans in 2003 were converted into or were exchanged
for approximately 89 million shares of Hughes Electronics Corporation common
stock and approximately 10 million News Corporation Preferred ADSs.
Pension plan assets for GM's U.S. hourly and salaried pension plans earned
returns of approximately 22% in 2003. In addition, as a result of the $18.5
billion 2003 pension contributions, the combined U.S. hourly and salaried
pension plans were $0.3 billion overfunded at year-end 2003 using a 6.00%
discount rate.
As an additional source of funds, GM currently has unrestricted access to a
$5.6 billion line of credit with a syndicate of banks which is committed through
June 2008. GM also has an additional $0.8 billion in undrawn committed
facilities with various maturities and undrawn uncommitted lines of credit of
$1.7 billion. Similarly, GMAC currently has a $4.2 billion syndicated line of
credit committed through June 2004, $4.3 billion committed through June 2008,
$4.7 billion of bilateral committed lines with various maturities, and
uncommitted lines of credit of $18.0 billion. In addition, New Center Asset
Trust (NCAT) has $19.2 billion of liquidity facilities committed through June
2004. Mortgage Interest Networking Trust (MINT) has $3.4 billion of liquidity
facilities committed through April 2004. NCAT and MINT are non-consolidated
qualified special purpose entities administered by GMAC for the purpose of
purchasing assets as part of GMAC's securitization and mortgage warehouse
funding programs. These entities fund the purchases of assets through the
issuance of asset-backed commercial paper and represent an important source of
liquidity to the Corporation.
Stockholders' equity increased to $25.3 billion at December 31, 2003 from
$6.8 billion at December 31, 2002. This increase was primarily due to the
decrease in the minimum pension liability adjustment that was favorably effected
by the much improved funded status of the pension plans recorded as of December
31, 2003 and partly offset by the split-off of Hughes. (See Note 19 to the
Consolidated Financial Statements).
Automotive and Other Operations
At December 31, 2003, cash, marketable securities, and $3.4 billion of assets
of the Voluntary Employees' Beneficiary Association (VEBA) trust invested in
fixed-income securities totaled $26.9 billion, compared with cash, marketable
securities, and $3.0 billion of assets of the VEBA trust invested in
fixed-income securities totaling $17.3 billion at December 31, 2002. The
increase of approximately 55% from December 31, 2002 was primarily due to strong
cash flow from operations, proceeds from the Hughes transactions and sale of the
GM Defense business in the aggregate amount of $5.3 billion, and net proceeds
from debt issuances totaling $14.5 billion offset by U.S. hourly and salaried
pension and VEBA cash contributions of $20.6 billion in 2003 by GM. Total assets
in the VEBA trust used to pre-fund part of GM's other postretirement benefits
liability approximated $10.0 billion at December 31, 2003, compared with $5.8
billion at December 31, 2002, an increase of approximately 72%. Strong cash
flows from operations during 2003 enabled GM to make a cash contribution of $3.0
billion to its VEBA trust in August 2003, which was in addition to the $0.3
billion of Class H stock contributed to the VEBA in March 2003. These
contributions to the VEBA trust were converted into or exchanged for
approximately 34 million shares of Hughes Electronics Corporation common stock
and approximately 4 million News Corporation Preferred ADSs.
Long-term debt was $29.6 billion at December 31, 2003, compared with $14.3
billion at December 31, 2002. As mentioned above, the proceeds from the issuance
of debt securities were used to fund GM's U.S. hourly and salaried pension
plans. The ratio of long-term debt to the total of long-term debt and GM's net
assets of Automotive and Other Operations was 85.2% at December 31, 2003,
compared with 433.2% at December 31, 2002. The ratio of long-term debt and
short-term loans payable to the total of this debt and GM's net assets of
Automotive and Other Operations was 86.4% at December 31, 2003,
II-11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive and Other Operations (concluded)
compared with 307.5% at December 31, 2002. The decrease in these ratios was due
to the improvement in GM's net asset position resulting from the improved funded
status of GM's U.S. hourly and salaried pension plans.
Net liquidity, calculated as cash, marketable securities, and $3.4 billion of
assets of the VEBA trust invested in fixed-income securities less the total of
loans payable and long-term debt, was a negative $5.5 billion at December 31,
2003, compared with $1.1 billion, including $3.0 billion of assets of the VEBA,
at December 31, 2002.
In order to provide financial flexibility to GM and its suppliers, GM
maintains a trade payables program through GECC under which GECC pays
participating GM suppliers the amount due to them from GM in advance of their
contractual original due dates. In exchange for the early payment, these
suppliers accept a discounted payment. On the original due date of the payables,
GM pays GECC the full amount. At December 31, 2003 and 2002, GM owed
approximately $1.2 billion, to GECC under this program, which is classified as
short-term debt in GM's consolidated financial statements. In addition, GM has
the right under the agreement to defer payment to GECC with respect to all or a
portion of receivables which it has paid on behalf of GM. The permissible
deferral periods range from 10 days to 40 days and would also be classified as
short-term debt in GM's financial statements. Deferred payments are subject to
interest during the deferral period. As of December 31, 2003, GM had elected
not to defer payment on any such payables. The maximum amount permitted under
both parts of the program is $2.0 billion. If any of GM's long-term unsecured
debt obligations become subject to a rating by S&P of BBB-, with a negative
outlook (GM's current rating is BBB, with a negative outlook) or below BBB-, or
a rating by Moody's of Baa3, with a negative outlook (GM's current rating is
Baa1, with a negative outlook) or below Baa3, GECC would be permitted to
immediately terminate continued access to the program by GM and its suppliers.
GM does not anticipate that discontinuance of the future availability of the
GECC program would result in a material disruption to the supply of parts and
materials to GM, nor would it have a material adverse effect on GM's financial
position, results of operations or cash flows.
Financing and Insurance Operations
GMAC's consolidated assets totaled $288.2 billion at December 31, 2003,
representing a 26.6% increase from the $227.7 billion outstanding at December
31, 2002. The increase in total assets was primarily due to an increase in
finance receivables and loans, from $134.1 billion at December 31, 2002 to
$172.7 billion at December 31, 2003. The increased use of securitizations
structured as financing transactions (primarily in mortgage operations) combined
with the continued use of GM sponsored special rate financing programs,
resulted in an increase in consumer finance receivables and loans. Additional
asset growth was the result of an increase in wholesale receivables outstanding
due to higher dealer inventories.
Consistent with the growth in assets, GMAC's total debt increased to $238.9
billion at December 31, 2003, as compared to $183.2 billion at December 31,
2002. GMAC's 2003 year-end ratio of total debt to total stockholder's equity was
11.8:1 compared to 10.3:1 at December 31, 2002. GMAC's liquidity, as well as its
ability to profit from ongoing activity, is in large part dependent upon its
timely access to capital and the costs associated with raising funds in
different segments of the capital markets. Liquidity is managed to preserve
stable, reliable and cost effective sources of cash to meet all current and
future obligations. GMAC's strategy in managing liquidity risk has been to
develop diversified funding sources across a global investor base. In 2003, GMAC
continued to experience a difficult funding environment caused by high funding
requirements (due to continued growth in assets levels), negative credit rating
agency activity, and general instability in the corporate bond markets. The
challenges presented by this environment resulted in GMAC's funding effort
continuing to reach beyond traditional unsecured debt sources and increase the
emphasis on securitization (including transactions accounted for as secured
financings) and retail debt programs. Management expects that based on the
Corporation's current financial position, its funding strategy and diversified
financing sources will provide sufficient access to the capital markets to meet
the Corporations' funding needs.
Investment in Fiat Auto Holdings
At the April 23, 2003, Annual General Shareholders Meeting of FAH, FAH
adopted a euro 5 billion recapitalization plan that provides shareholders the
option to make pro-rata capital contributions over the eighteen months following
adoption of the plan. When the plan was adopted, Fiat held 80% of FAH and GM
20%. Fiat participated in the recapitalization by making a euro 3 billion
contribution, which FAH used to repay inter-company debts owed to Fiat or its
affiliates. Currently, GM does not plan to participate. Due to Fiat's
participation in the recapitalization, and GM's non-participation, Fiat has
reported that GM's interest in FAH has been reduced from 20% to 10%.
II-12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Investment in Fiat Auto Holdings (concluded)
As discussed in GM's Annual Report on Form 10-K for the period ended
December 31, 2002, the Master Agreement provides that, from January 24, 2004 to
July 24, 2009, Fiat may seek to exercise a put option (the "Put") to require GM
to purchase Fiat's FAH shares at their fair market value. Whether and when Fiat
may seek to exercise the Put is unknown, although Fiat stated in its 2002 Annual
Report on Form 20F, filed with the U.S. Securities and Exchange Commission, that
it views the exercise of the Put only as a secondary possibility. Fiat also
stated in its Form 20F that it believes that the put is enforceable in
accordance with the terms of the Master Agreement. GM has, however, asserted to
Fiat that the sale of certain assets of the financing business of Fiat Auto and
the recapitalization of FAH represent material breaches of the Master Agreement,
with the result that the Master Agreement, including the Put, is terminable by
GM. Notwithstanding these different views, GM is continuing to build on the
cooperation the parties have worked on for the past several years in the joint
ventures and other cooperative contractual arrangements they have entered into
which are independent of the Master Agreement, and is pursuing a resolution of
these different views. Towards that end, Fiat and GM entered into a standstill
agreement on October 26, 2003, the provisions of which enable GM to defer until
December 15, 2004, the necessity of electing the remedy of termination of the
Master Agreement, and with it the Put, without such deferral prejudicing the
right of GM to elect that remedy after December 15, 2004. On October 26, 2003,
Fiat and GM also entered into an amendment to the Master Agreement that shifts
the Put period by one year, so that it begins on January 24, 2005 and runs to
July 24, 2010.
If the Put were implemented, the fair market value of FAH shares would be
determined by the averaging of the three closest of four valuations that would
be prepared by four investment banks after conducting due diligence under
procedures set forth in the Master Agreement and based upon terms and conditions
to be incorporated in a purchase agreement which, at this time, the parties have
not prepared. Unless such a process and valuation is completed, the amount, if
any, that GM might have to pay for Fiat's FAH shares if there were to be a valid
exercise of the Put, is not quantifiable.
If there were a valid exercise of the Put, GM would have the option to pay
for Fiat's FAH shares entirely in shares of GM $1-2/3 par value common stock,
entirely in cash, or in whatever combination thereof GM may choose. Under such
circumstances, if and to the extent GM chose to pay in cash, that portion of the
purchase price could be paid to Fiat in four installments over a three-year
period and GM would expect to fund any such payments from normal operating cash
flows or financing activities.
If and when GM were to acquire Fiat's FAH shares, and thus become the sole
owner of FAH, GM would decide what, if any, additional capitalization would
then be appropriate for FAH and Fiat Auto. Specifically, if Fiat Auto were to
need additional funding, GM would have to decide whether or not to provide such
funding and under what conditions it might do so.
Unless FAH or Fiat Auto were subject to liquidation or insolvency, FAH's
consolidated financial statements would be required for financial reporting
purposes to be consolidated with those of GM. Any indebtedness, losses and
capital needs of FAH and Fiat Auto after their acquisition by GM are not
presently determinable, but they could have a material adverse effect on GM if
GM chooses to fund such needs or allows the consolidation of GM's financial
statements with those of FAH and Fiat Auto.
GM has discussed with Fiat potential alternatives to the Master Agreement and
expects to have further discussions regarding the relationship between the
parties.
Off-Balance Sheet Arrangements
GM and GMAC use off-balance sheet arrangements where the economics and sound
business principles warrant their use. GM's principal use of off-balance sheet
arrangements occurs in connection with the securitization and sale of financial
assets generated or acquired in the ordinary course of business by GMAC and its
subsidiaries and, to a lesser extent, by GM. The assets securitized and sold by
GMAC and its subsidiaries consist principally of mortgages, and wholesale and
retail loans secured by vehicles sold through GM's dealer network. The assets
sold by GM consist principally of trade receivables.
In addition, GM leases real estate and equipment from various off-balance
sheet entities that have been established to facilitate the financing of those
assets for GM by nationally prominent lessors that GM believes are creditworthy.
These assets consist principally of office buildings, warehouses, and machinery
and equipment. The use of such entities allows the parties providing the
financing to isolate particular assets in a single entity and thereby syndicate
the financing to multiple third parties. This is a conventional financing
technique used to lower the cost of borrowing and, thus, the lease cost to a
lessee such as GM.
There is a well-established market in which institutions participate in the
financing of such property through their purchase of ownership interests in
these entities and each is owned by institutions that are independent of, and
not affiliated with, GM. GM believes that no officers, directors or employees of
GM, GMAC, or their affiliates hold any direct or indirect equity interests in
such entities.
II-13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Off-Balance Sheet Arrangements (concluded)
The amounts outstanding in off-balance sheet facilities used by the Financing
and Insurance Operations have decreased since December 31, 2002 as GMAC
continues to use securitization transactions that, while similar in legal
structure to off-balance sheet securitizations, are accounted for as secured
financings and are recorded as receivables and debt on the balance sheet.
Assets in off-balance sheet entities were as follows (dollars in millions):
December 31
-----------
Automotive and Other Operations 2003 2002
------------------------------- ---- ----
Assets leased under operating leases $2,287 $2,126
Trade receivables sold (1) 759 725
------- ------
Total $3,046 $2,851
===== =====
Financing and Insurance Operations
----------------------------------
Receivables sold or securitized:
- Mortgage loans $80,798 $106,520
- Retail finance receivables 9,548 16,164
- Wholesale finance receivables 21,142 17,415
------- -------
Total $111,488 $140,099
======= =======
(1) In addition, trade receivables were sold to GMAC for $553 million in 2003
and $434 million in 2002.
Contractual Obligations and Other Long-Term Liabilities
GM has the following minimum commitments under contractual obligations,
including purchase obligations, as defined by the U.S. Securities and Exchange
Commission. A "purchase obligation" is defined as an agreement to purchase goods
or services that is enforceable and legally binding on GM and that specifies all
significant terms, including: fixed or minimum quantities to be purchased;
fixed, minimum or variable price provisions; and the approximate timing of the
transaction. Other long-term liabilities are defined as long-term liabilities
that are reflected on GM's balance sheet under GAAP. Based on this definition,
the tables below include only those contracts, which include fixed or minimum
obligations. It does not include normal purchases, which are made in the
ordinary course of business.
The following table provides aggregated information about Auto & Other
outstanding contractual obligations and other long-term liabilities as of
December 31, 2003.
Payments due by period
---------------------------------------------------
2009 and
(in millions) 2004 2005-2006 2007-2008 after Total
-------------------------------------------------------------------------------
Debt $1,090 $1,116 $1,798 $26,800 $30,804
Capital lease obligations 105 205 459 649 1,418
Operating lease obligations 668 1,191 1,638 1,763 5,260
Contractual commitments for
capital expenditures 1,223 137 - - 1,360
Other contractual
commitments:
Postretirement benefits(1) 3,005 6,459 3,416 - 12,880
Less: VEBA assets (2) (3,005) (6,459) (534) - (9,998)
----- ----- ----- -------
Net - - 2,882 - 2,882
Material 901 1,613 1,447 605 4,566
Information technology 161 147 11 - 319
Marketing 171 181 8 3 363
Facilities 201 270 99 396 966
Rental car repurchases 8,204 - - - 8,204
Policy, product warranty
and recall campaigns
liability 3,593 3,837 825 419 8,674
------ ----- ----- ------ ------
Total contractual
commitments $16,317 $8,697 $9,167 $30,635 $64,816
====== ===== ===== ====== ======
Remaining balance
postretirement benefits $734 $1,527 $5,170 $43,154 $50,585
=== ===== ===== ====== ======
(1)Amounts include postretirement benefits under the current contractual labor
agreements in North America. The remainder of the estimated liability, for
benefits beyond the current labor agreement and for essentially all salaried
employees, is classified under remaining balance of postretirement benefits.
(2)Total VEBA assets were allocated based on projected spending requirements.
II-14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Contractual Obligations and Other Long-Term Liabilities (concluded)
The combined U.S. hourly and salaried pension plans were $0.3 billion
overfunded at year-end 2003. GM does not expect any contribution to its U.S.
hourly and salaried pension plans until the next decade to meet ERISA (legal)
Minimum funding requirements or to avoid Variable Rate Premiums to the Pension
Benefit Guaranty Corporation.
The following table provides aggregated information about FIO outstanding
contractual obligations and other long-term liabilities as of December 31, 2003.
Payments due by period
---------------------------------------------------
2009 and
(in millions) 2004 2005-2006 2007-2008 after Total
-------------------------------------------------------------------------------
Debt $77,424 $64,555 $19,996 $75,455 $237,430
Operating lease
obligations 142 220 136 184 682
Mortgage purchase and sale
commitments 16,021 3,057 - - 19,078
Lending commitments 13,496 1,222 954 5,206 20,878
Commitments to provide
capital to equity
method investees 109 2 16 28 155
Purchase obligations 49 46 19 1 115
------- ------ ------ ------ -------
Total contractural
commitments $107,241 $69,102 $21,121 $80,874 $278,338
======= ====== ====== ====== =======
BOOK VALUE PER SHARE
Book value per share was determined based on the liquidation rights of the
common stockholders. Book value per share of GM $1-2/3 par value common stock
increased to $44.96 at December 31, 2003, from $9.06 at December 31, 2002.
DIVIDENDS
Dividends may be paid on common stock only when, as, and if declared by GM's
Board of Directors in its sole discretion. At December 31, 2003, the amount
available for the payment of dividends on GM $1-2/3 par value was $27.9 billion.
GM's policy is to distribute dividends on its $1-2/3 par value common stock
based on the outlook and indicated capital needs of the business. Cash dividends
per share of GM $1-2/3 par value common stock were $2.00 in 2003, 2002, and
2001.
EMPLOYMENT AND PAYROLLS
Worldwide employment at December 31,
(in thousands) 2003 2002 2001
---- ---- ----
GMNA 190 198 207
GME 62 66 73
GMLAAM 23 24 24
GMAP 14 11 11
GMAC 32 32 29
Other 5 7 8
--- --- ---
Total employees 326 338 352
=== === ===
Worldwide payrolls (in billions) $20.9 $20.4 $19.1
U.S. hourly payrolls (in billions) (1) $8.9 $9.1 $8.5
Average labor cost per active hour
worked U.S. hourly (2) $78.39 $62.78 $57.76
----------------------
(1)Includes employees "at work" (excludes laid-off employees receiving
benefits).
(2)Includes U.S. hourly wages and benefits divided by the number of
hours worked.
II-15
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CRITICAL ACCOUNTING ESTIMATES
Accounting policies are integral to understanding this MD&A. The consolidated
financial statements of GM are prepared in conformity with GAAP, which requires
the use of estimates, judgments, and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented. GM's
accounting policies are described in Note 1 to the Consolidated Financial
Statements. Critical accounting estimates are described in this section. An
accounting estimate is considered critical if: the estimate requires management
to make assumptions about matters that were highly uncertain at the time the
estimate was made; different estimates reasonably could have been used; or if
changes in the estimate that would have a material impact on the Corporation's
financial condition or results of operations are reasonably likely to occur from
period to period. Management believes that the accounting estimates employed are
appropriate and resulting balances are reasonable; however, actual results could
differ from the original estimates, requiring adjustments to these balances in
future periods. The Corporation has discussed the development, selection and
disclosures of these critical accounting estimates with the Audit Committee of
GM's Board of Directors, and the Audit Committee has reviewed the Corporation's
disclosures relating to these estimates.
Sales Allowances
At the later of the time of sale or the time an incentive is announced to
dealers (applies to vehicles sold by GM and in dealer inventory), GM records as
a reduction of revenue the estimated impact of sales allowances in the form of
dealer and customer incentives. There may be numerous types of incentives
available at any particular time. Some factors used in estimating the cost of
incentives include the volume of vehicles that will be affected by the incentive
programs offered by product and the rate of customer acceptance of any incentive
program. If the actual number of vehicles differs from this estimate, or if a
different mix of incentives occurs, the sales allowances could be affected.
Policy and Warranty
Provisions for estimated expenses related to product warranties are made at
the time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims.
Management actively studies trends of warranty claims and takes action to
improve vehicle quality and minimize warranty claims.
Impairment of Long-Lived Assets
GM periodically reviews the carrying value of its long-lived assets held and
used, other than goodwill and intangible assets with indefinite lives, and
assets to be disposed of when events and circumstances warrant such a review.
This review is performed using estimates of future cash flows. If the carrying
value of a long-lived asset is considered impaired, an impairment charge is
recorded for the amount by which the carrying value of the long-lived asset
exceeds its fair value.
Pension and Other Postretirement Employee Benefits (OPEB)
Pension and OPEB costs and obligations are dependent on assumptions used in
calculating such amounts. These assumptions include discount rates, health care
cost trend rates, benefits earned, interest cost, expected return on plan
assets, mortality rates, and other factors. In accordance with GAAP, actual
results that differ from the assumptions are accumulated and amortized over
future periods and, therefore, generally affect recognized expense and the
recorded obligation in future periods. While management believes that the
assumptions used are appropriate, differences in actual experience or changes in
assumptions may affect GM's pension and other postretirement obligations and
future expense.
GM has established for its U.S. pension plans a discount rate of 6.00% for
year-end 2003, which represents a 75 basis point reduction from the 6.75%
discount rate used at year-end 2002. GM's U.S. pre-tax pension expense is
forecasted to decrease from approximately $2.6 billion in 2003, excluding
curtailments and settlements, to approximately $1.4 billion in 2004 due to the
$18.5 billion 2003 pension contribution and the approximately 22% 2003 actual
return on assets, partially offset by a lower 2003 year-end discount rate.
The following information illustrates the sensitivity to a change in certain
assumptions for U.S. pension plans (as of December 31, 2003 the Projected
Benefit Obligation (PBO) for U.S. pension plans was $87 billion and the minimum
pension liability charged to equity with respect to U.S. pension plans was $125
million net of tax):
II-16
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CRITICAL ACCOUNTING ESTIMATES (continued)
Effect on
Effect on 2004 December 31, 2003
Change in Assumption Pre-Tax Pension Expense PBO
--------------------------------------------------------------------------
25 basis point decrease
in discount rate +$150 million +$2.1 billion
25 basis point increase
in discount rate -$150 million -$2.1 billion
25 basis point decrease
in expected return on
assets +$220 million -
25 basis point increase
in expected return on
assets -$220 million -
The above sensitivities reflect the impact of changing one assumption at a
time. It should be noted that economic factors and conditions often affect
multiple assumptions simultaneously and the effects of changes in key
assumptions are not necessarily linear.
These changes in assumptions would have no effect on GM's funding
requirements. In addition, at December 31, 2003, a 25 basis point decrease in
the discount rate would decrease stockholders' equity by $14.0 billion, net of
tax; a 25 basis point increase in the discount rate would increase stockholders'
equity by $20.0 million, net of tax. With a 25 basis point decrease in the
discount rate, certain pension plans would become Accumulated Benefit Obligation
(ABO) underfunded resulting in a significantly larger impact on equity compared
to a 25 basis point increase in the discount rate. In addition, the impact of
greater than a 25 basis point decrease in discount rate would not be
proportional to the first 25 basis point decrease in the discount rate.
GM has established for its U.S. OPEB plans a discount rate of 6.25% for
year-end 2003, which represents a 50 basis point reduction from the 6.75%
discount rate used at year-end 2002.
The following table illustrates the sensitivity to a change in the discount
rate assumption related to GM's U.S. OPEB plans (the U.S. Accumulated
Postretirement Benefit Obligation [APBO] was a significant portion of GM's
worldwide APBO of $67.5 billion as of December 31, 2003):
Effect on 2004 Effect on
Pre-Tax OPEB December 31, 2003
Change in Assumption Expense APBO
-------------------------------------------------------------------------------
25 basis point decrease in
discount rate +$170 million +$1.9 billion
25 basis point increase in
discount rate -$170 million -$1.9 billion
The above sensitivities reflect the impact of changing one assumption at a
time. It should be noted that economic factors and conditions often affect
multiple assumptions simultaneously and the effects of changes in key
assumptions are not necessarily linear.
Postemployment Benefits
GM establishes reserves for termination and other postemployment benefit
liabilities to be paid pursuant to union or other contractual agreements in
connection with closed plants. The reserve is based on a comprehensive study
that considers the impact of the annual production and labor forecast
assumptions as well as redeployment scenarios.
II-17
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CRITICAL ACCOUNTING ESTIMATES (concluded)
Allowance for Credit Losses
The allowance for credit losses is management's estimate of incurred losses
in GMAC's consumer and commercial finance receivable and loan portfolios held
for investment. Management periodically performs detailed reviews of these
portfolios to determine if impairment has occurred and to assess the adequacy of
the allowance for credit losses, based on historical and anticipated trends and
other factors affecting credit quality. These factors include the historical
trends of repossessions, charge-offs, recoveries, and credit losses; the careful
monitoring of portfolio credit quality, including the impact of acquisitions;
and current and projected economic and market conditions. Different assumptions
or changes in economic circumstances could result in changes to the allowance
for credit losses.
Investments in Operating Leases
GMAC's investments in residual values of its leasing portfolio represent an
estimate of the values of the assets at the end of the lease contract and are
initially recorded based on appraisals and estimates. Management reviews
residual values periodically to determine that recorded amounts are appropriate
and the operating lease assets have not been impaired. GMAC actively manages the
remarketing of off-lease vehicles to maximize the realization of their value.
Changes in the value of the residuals or other external factors impacting GMAC's
future ability to market the vehicles under prevailing market conditions may
impact the realization of residual values.
Mortgage Servicing Rights
The Corporation capitalizes mortgage servicing rights associated with loans
sold with servicing retained and servicing rights acquired through bulk and flow
purchase transactions. The Corporation capitalizes the cost of originated
mortgage servicing rights based upon the relative fair market value of the
underlying mortgage loans and mortgage servicing rights at the time of sale of
the underlying mortgage loan. The Corporation capitalizes purchased mortgage
servicing rights at cost, an amount not exceeding the estimated fair market
value of those purchased mortgage servicing rights.
Accounting for Derivatives and Other Contracts at Fair Value
The Corporation uses derivatives in the normal course of business to manage
its exposure to fluctuations in commodity prices and interest and foreign
currency rates. Effective January 1, 2001, the Corporation accounts for its
derivatives on the Consolidated Balance Sheet as assets or liabilities at fair
value in accordance with SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Such accounting is complex, evidenced by significant
interpretations of the primary accounting standard, which continues to evolve,
as well as the significant judgments and estimates involved in the estimating of
fair values in the absence of quoted market prices.
NEW ACCOUNTING STANDARDS
Beginning January 1, 2003, the Corporation began expensing the fair market
value of newly granted stock options and other stock based compensation awards
to employees pursuant to Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation." The fair value of stock option
grants are estimated on the date of grant using the Black-Scholes option-pricing
model. The fair value of other stock compensation awards is determined by the
market price of GM $1-2/3 common stock on the date of grant. The total expense
for 2003 was $229 million ($142 million net of tax), recorded in cost of sales
and other expenses. For 2002, as permitted by SFAS No. 123, GM applied the
intrinsic value method of recognition and measurement under Accounting
Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to
Employees," to its stock options and other stock-based employee compensation
awards. No compensation expense related to employee stock options is reflected
in net income for these periods, as all options granted had an exercise price
equal to the market value of the underlying common stock on the date of the
grant. Refer to Note 1 to the Consolidated Financial Statements for the effect
on net income and earnings per share if compensation cost for all outstanding
and unvested stock options and other stock-based employee compensation awards
had been determined based on their fair values at the grant date.
In December 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45).
FIN 45 requires that at the time a company issues a guarantee, the company must
recognize an initial liability for the fair value of the obligations it assumes
under that guarantee. This interpretation is applicable on a prospective basis
to guarantees issued or modified after December 31, 2002. FIN 45 also contains
disclosure provisions surrounding existing guarantees, which are effective for
financial statements of interim or annual periods ending after December 15,
2002. See Note 18 to the Consolidated Financial Statements.
II-18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NEW ACCOUNTING STANDARDS (concluded)
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46), which requires the consolidation of
certain entities considered to be variable interest entities (VIEs). An entity
is considered to be a VIE when it has equity investors who lack the
characteristics of having a controlling financial interest, or its capital is
insufficient to permit it to finance its activities without additional
subordinated financial support. Consolidation of a VIE by an investor is
required when it is determined that the investor will absorb a majority of the
VIE's expected losses or residual returns if they occur. FIN 46 provides certain
exceptions to these rules, relating to qualifying special purpose entities
(QSPEs) subject to the requirements of SFAS No. 140. Upon its original issuance,
FIN 46 required that VIEs created after January 31, 2003 would be consolidated
immediately, while VIEs created prior to February 1, 2003 were to be
consolidated as of July 1, 2003.
In October 2003, the FASB deferred the effective date for consolidation of
VIEs created prior to February 1, 2003 to December 31, 2003 for calendar
year-end companies, with earlier application encouraged. GM adopted FIN 46 as of
its original effective date of July 1, 2003 for entities created prior to
February 1, 2003. The application of the consolidation provisions of FIN 46
resulted in an increase in assets and debt of approximately $4.6 billion ($917
million in Auto & Other, and $3.7 billion in FIO), and a cumulative effect of
accounting change recorded in cost of sales of $27 million after-tax, related to
Auto & Other and no net income impact at FIO. Refer to Note 7 to the
Consolidated Financial Statements for further discussion of GM's involvement in
variable interest entities.
In December 2003, the FASB published a revision to FIN 46 (FIN 46R) to
clarify some of the provisions of the original interpretation and to exempt
certain entities from its requirements. FIN 46R provides special effective date
provisions to enterprises that fully or partially applied FIN 46 prior to the
issuance of the revised interpretation. In particular, entities that have
already adopted FIN 46 are not required to adopt FIN 46R until the quarterly
reporting period ended March 31, 2004. The Corporation is currently reviewing
the provisions of FIN 46R and will adopt FIN 46R for the quarterly reporting
period ending March 31, 2004.
In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. The Statement
is effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The adoption of this
standard did not have a material effect on the Corporation's financial condition
or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which provides
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. The Statement
is effective for financial instruments entered into or modified after May 31,
2003 and for pre-existing instruments as of the beginning of the first interim
period beginning after June 15, 2003. The adoption of this standard did not have
a material effect on the Corporation's financial condition or results of
operations.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits." The revisions to
SFAS 132 are intended to improve financial statement disclosures for defined
benefit plans and was initiated in 2003 in response to concerns raised by
investors and other users of financial statements about the need for greater
transparency of pension information. In particular the standard requires that
companies provide more details about their plan assets, benefit obligations,
cash flows, benefit costs and other relevant quantitative and qualitative
information. The guidance is effective for fiscal years ending after December
15, 2003. Refer to Note 17 to the Consolidated Financial Statements for further
discussion of GM's pension and other postretirement benefits obligations.
ADDITIONAL MATTERS
Like most domestic and foreign automobile manufacturers, over the years GM
has used some brake products each of which incorporated small amounts of
encapsulated asbestos. These products, generally brake linings, are known as
asbestos-containing friction products. There is a significant body of scientific
data demonstrating that these asbestos-containing friction products are not
unsafe and do not create an increased risk of asbestos-related disease. GM
believes that the use of asbestos in these products was appropriate.
II-19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ADDITIONAL MATTERS (concluded)
As with other companies that have used asbestos, there has been an increase
in the number of claims against GM related to allegations concerning the use of
asbestos-containing friction products in recent years. A growing number of auto
mechanics are filing suit seeking recovery based on their alleged exposure to
the small amount of asbestos used in brake components. These claims almost
always identify numerous other potential sources for the claimant's alleged
exposure to asbestos which do not involve GM or even asbestos-containing
friction products and many of these other potential sources would place users at
much greater risk. The vast majority of these claimants do not have an
asbestos-related illness and may never develop one. This is consistent with the
experience reported by other automotive manufacturers and other end users of
asbestos.
Two other types of claims related to alleged asbestos exposure are being
asserted against GM, representing a significantly lower exposure than the
automotive friction product claims. Like other locomotive manufacturers, GM used
a limited amount of asbestos in locomotive brakes and in the insulation used in
the manufacturing of some locomotives. These uses have been the basis of
lawsuits being filed against GM by railroad workers seeking relief based on
their alleged exposure to asbestos. These claims almost always identify numerous
other potential sources for the claimant's alleged exposure to asbestos, which
do not involve GM or even locomotives. Many of these claimants do not have an
asbestos-related illness and may never develop one. In addition, like many other
manufacturers, a relatively small number of claims are brought by contractors
who are seeking recovery based on alleged exposure to asbestos-containing
products while working on premises owned by GM. These claims almost always
identify numerous other potential sources for the claimant's alleged exposure to
asbestos which do not involve GM. The vast majority of these claimants do not
have an asbestos-related illness and may never develop one.
While General Motors has resolved many of these cases over the years and
continues to do so for conventional strategic litigation reasons (avoiding
defense costs and possible exposure to runaway verdicts), GM, as stated above,
believes the vast majority of such claims against GM are without merit. Only a
small percentage of the claims pending against GM allege the contraction of a
malignant disease associated with asbestos exposure. The vast majority of
claimants do not have an asbestos-related illness and may never develop one. In
addition, GM believes that it has very strong defenses based upon a number of
published epidemiological studies prepared by highly respected scientists.
Indeed, GM believes there is compelling evidence warranting the dismissal of
virtually all of these claims against GM. GM will vigorously press this evidence
before judges and juries whenever possible. The West Virginia Supreme Court and
an Ohio trial court have ruled that Federal law preempts asbestos tort claims
asserted on behalf of railroad workers. Such preemption means that Federal law
entirely eliminates the possibility that railroad workers could maintain claims
against GM.
GM's annual expenditures associated with the resolution of these claims have
increased in nonmaterial amounts in recent years, but the amount expended in any
year is highly dependent on the number of claims filed, the amount of pretrial
proceedings conducted, and the number of trials and settlements which occur
during the period. While over time GM anticipates annual expenditures relating
to these claims may increase somewhat as a function of the number of claims
increasing, it is management's belief, based upon consultation with legal
counsel, that the claims will not result in a material adverse effect upon the
financial condition or results of operations of GM.
FORWARD-LOOKING STATEMENTS
In this report, in reports subsequently filed by GM with the SEC on Form 10-Q
and filed or furnished on Form 8-K, and in related comments by management of GM
our use of the words "expect," "anticipate," "estimate," "forecast,"
"objective," "plan," "goal," "project," "priorities/targets," and similar
expressions is intended to identify forward-looking statements. While these
statements represent our current judgment on what the future may hold, and we
believe these judgments are reasonable, actual results may differ materially due
to numerous important factors that are described below and other factors that
may be described in subsequent reports which GM may file with the SEC on Form
10-Q and filed or furnished on Form 8-K:
. Changes in economic conditions, currency exchange rates or political
stability;
. Shortages of and price increase for fuel, labor strikes or work
stoppages, market acceptance of the Corporation's new products;
. Significant changes in the competitive environment
. Changes in the laws, regulations, and tax rates; and
. The ability of the Corporation to achieve reductions in cost and employment
levels, to realize production efficiencies, and to implement capital
expenditures, all at the levels and times planned by management.
* * * * * *
II-20
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
GM is exposed to market risk from changes in foreign currency exchange rates,
interest rates, and certain commodity and equity security prices. GM enters into
a variety of foreign exchange, interest rate, and commodity forward contracts
and options, primarily to maintain the desired level of exposure arising from
these risks. A risk management control system is utilized to monitor foreign
exchange, interest rate, commodity and equity price risks, and related hedge
positions.
A discussion of GM's accounting policies for derivative financial instruments
is included in Note 1 to the GM Consolidated Financial Statements. Further
information on GM's exposure to market risk is included in Notes 19 and 21 to
the Consolidated Financial Statements.
The following analyses provide quantitative information regarding GM's
exposure to foreign currency exchange rate risk, interest rate risk, and
commodity and equity price risk. GM uses a model to evaluate the sensitivity of
the fair value of financial instruments with exposure to market risk that
assumes instantaneous, parallel shifts in exchange rates, interest rate yield
curves, and commodity and equity prices. For options and instruments with
nonlinear returns, models appropriate to the instrument are utilized to
determine the impact of market shifts. There are certain shortcomings inherent
in the sensitivity analyses presented, primarily due to the assumption that
exchange rates change in a parallel fashion and that interest rates change
instantaneously. In addition, the analyses are unable to reflect the complex
market reactions that normally would arise from the market shifts modeled.
Foreign Exchange Rate Risk
GM has foreign currency exposures related to buying, selling, and financing
in currencies other than the local currencies in which it operates. More
specifically, GM is exposed to foreign currency risk related to the uncertainty
to which future earnings or asset and liability values are exposed as the result
of operating cash flows and various financial instruments that are denominated
in foreign currencies. At December 31, 2003, the net fair value liability of
financial instruments with exposure to foreign currency risk was approximately
$3.2 billion compared to a net fair value asset of $4.1 billion at December 31,
2002. The potential loss in fair value for such financial instruments from a 10%
adverse change in quoted foreign currency exchange rates would be approximately
$323 million and $411 million for 2003 and 2002, respectively.
Interest Rate Risk
GM is subject to market risk from exposure to changes in interest rates due
to its financing, investing, and cash management activities. More specifically,
the Corporation is exposed to interest rate risk associated with long-term debt
and contracts to provide commercial and retail financing, retained mortgage
servicing rights, and retained assets related to mortgage securitizations. In
addition, GM is exposed to prepayment risk associated with its capitalized
mortgage servicing rights and its retained assets. This risk is managed with
U.S. Treasury options and futures, exposing GM to basis risk since the
derivative instruments do not have identical characteristics to the underlying
mortgage servicing rights. At December 31, 2003 and 2002, the net fair value
liability of financial instruments held for purposes other than trading with
exposure to interest rate risk was approximately $51.5 billion and $26.6
billion, respectively. The potential loss in fair value resulting from a 10%
adverse shift in quoted interest rates would be approximately $2.7 billion and
$1.6 billion for 2003 and 2002, respectively. At December 31, 2003 and 2002, the
net fair value asset of financial instruments held for trading purposes with
exposure to interest rate risk was approximately $4.1 billion and $4.4 billion,
respectively. The potential loss in fair value resulting from a 10% adverse
shift in quoted interest rates would be approximately $11 million and $26
million for 2003 and 2002, respectively. This analysis excludes GM's operating
lease portfolio. A fair value change in the debt that funds this portfolio would
potentially have a different impact on the fair value of the portfolio itself.
As such, the overall effect to the fair value of financial instruments from a
hypothetical change in interest rates may be overstated.
II-21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk (concluded)
Commodity Price Risk
GM is exposed to changes in prices of commodities used in its Automotive
business, primarily associated with various non-ferrous metals used in the
manufacturing of automotive components. GM enters into commodity forward and
option contracts to offset such exposure. At December 31, 2003 the net fair
value asset of such contracts was approximately $194 million. At December 31,
2002 the net fair value liability of such contracts was $40 million. The
potential loss in fair value resulting from a 10% adverse change in the
underlying commodity prices would be approximately $190 million and $189 million
for 2003 and 2002, respectively. This amount excludes the offsetting impact of
the price risk inherent in the physical purchase of the underlying commodities.
Equity Price Risk
GM is exposed to changes in prices of various available-for-sale equity
securities in which it invests. At December 31, 2003 and 2002, the fair value of
such investments was approximately $2.2 billion and $1.6 billion, respectively.
The potential loss in fair value resulting from a 10% adverse change in equity
prices would be approximately $216 million and $157 million for 2003 and 2002,
respectively.
II-22
Independent Auditors' Report
General Motors Corporation, its Directors, and Stockholders:
We have audited the accompanying Consolidated Balance Sheets of General Motors
Corporation and subsidiaries (the Corporation) as of December 31, 2003 and 2002,
and the related Consolidated Statements of Income, Cash Flows, and Stockholders'
Equity for each of the three years in the period ended December 31, 2003. Our
audits also included the Supplemental Information to the Consolidated Balance
Sheets and Consolidated Statements of Income and Cash Flows and the financial
statement schedule listed at Item 15 (collectively, the financial statement
schedules). These financial statements and financial statement schedules are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of General Motors Corporation and
subsidiaries at December 31, 2003 and 2002, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2003, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in Note 1 to the Consolidated Financial Statements, the
Corporation: (1) effective July 1, 2003, began consolidating certain variable
interest entities to conform to FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities," (2) effective January 1, 2003, began expensing the
fair market value of newly granted stock options and other stock-based
compensation awards issued to employees to conform to Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation"
and (3) effective January 1, 2002, changed its method of accounting for
goodwill and other intangible assets to conform to SFAS No. 142, "Goodwill and
Other Intangible Assets."
/s/DELOITTE & TOUCHE LLP
------------------------
DELOITTE & TOUCHE LLP
Detroit, Michigan
March 10, 2004
II-23
ITEM 8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
------------------------
2003 2002 2001
---- ---- ----
(dollars in millions except
per share amounts)
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Total net sales and revenues (Notes 1 and 24) $185,524 $177,324 $169,051
------- ------- -------
Cost of sales and other expenses (Note 5) 152,071 146,793 138,847
Selling, general, and administrative expenses 21,008 20,690 19,433
Interest expense (Note 16) 9,464 7,503 8,317
------- ------- -------
Total costs and expenses 182,543 174,986 166,597
------- ------- -------
Income from continuing operations before
income taxes, equity income
and minority interests 2,981 2,338 2,454
Income tax expense (Note 11) 731 644 1,094
Equity income (loss) and minority interests 612 281 (138)
----- ----- -----
Income from continuing operations 2,862 1,975 1,222
Loss from discontinued operations (Note 2) (219) (239) (621)
Gain on sale of discontinued operations 1,179 - -
----- ----- -----
Net income 3,822 1,736 601
Dividends on preference stocks - (46) (99)
----- ----- -----
Earnings attributable to common stocks
(Note 20) $3,822 $1,690 $502
===== ===== ===
Basic earnings (loss) per share attributable to
common stocks
$1-2/3 par value
Continuing operations $5.10 $3.53 $2.21
Discontinued operations $2.14 $(0.16) $(0.42)
---- ---- ----
Earnings per share attributable to
$1-2/3 par value $7.24 $3.37 $1.79
==== ==== ====
Losses per share from discontinued operations
attributable to Class H $(0.22) $(0.21) $(0.55)
==== ==== ====
Earnings (loss) per share attributable to
common stocks assuming dilution
$1-2/3 par value
Continuing operations $5.03 $3.51 $2.20
Discontinued operations $2.11 $(0.16) $(0.43)
---- ---- ----
Earnings per share attributable to $1-2/3
par value $7.14 $3.35 $1.77
==== ==== ====
Losses per share from discontinued operations
attributable to Class H $(0.22) $(0.21) $(0.55)
==== ==== ====
Reference should be made to the notes to consolidated financial statements.
II-24
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
AUTOMOTIVE AND OTHER OPERATIONS
Total net sales and revenues (Notes 1 and 24) $155,831 $150,250 $143,173
------- ------- -------
Cost of sales and other expenses (Note 5) 143,464 138,359 130,158
Selling, general, and administrative expenses 11,863 11,749 12,430
------- ------- -------
Total costs and expenses 155,327 150,108 142,588
------- ------- -------
Interest expense (Note 16) 1,780 479 572
Net expense from transactions with
Financing and Insurance Operations (Note 1) 232 296 435
--- --- ---
(Loss) from continuing operations before
income taxes, equity income,
and minority interests (1,508) (633) (422)
Income tax (benefit) expense (Note 11) (869) (378) 56
Equity income (loss) and minority interests 674 348 (68)
--- --- -----
Income (loss) from continuing operations 35 93 (546)
(Loss) from discontinued operations (Note 2) (219) (239) (621)
Gain on sale of discontinued operations 1,179 - -
----- --- -----
Net income (loss) - Automotive and Other
Operations $995 $(146) $(1,167)
=== === =====
FINANCING AND INSURANCE OPERATIONS
Total revenues $29,693 $27,074 $25,878
------ ------ ------
Interest expense (Note 16) 7,684 7,024 7,745
Depreciation and amortization expense (Note 12) 6,032 5,541 5,857
Operating and other expenses 8,529 8,306 7,308
Provisions for financing and insurance losses
(Note 1) 3,191 3,528 2,527
------ ------ ------
Total costs and expenses 25,436 24,399 23,437
------ ------ ------
Net income from transactions with Automotive
and Other Operations (Note 1) (232) (296) (435)
----- ----- -----
Income before income taxes, equity income and
minority interests 4,489 2,971 2,876
Income tax expense (Note 11) 1,600 1,022 1,038
Equity income (loss) and minority interests (62) (67) (70)
----- ----- -----
Net income - Financing and Insurance
Operations $2,827 $1,882 $1,768
===== ===== =====
The above Supplemental Information is intended to facilitate analysis of
General Motors Corporation's businesses: (1) Automotive and Other
Operations; and (2) Financing and Insurance Operations.
Reference should be made to the notes to consolidated financial statements.
II-25
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
------------
2003 2002
ASSETS (dollars in millions)
Cash and cash equivalents (Note 1) $32,554 $20,320
Other marketable securities (Note 6) 22,215 16,825
------ ------
Total cash and marketable securities 54,769 37,145
Finance receivables - net (Note 8) 173,137 134,643
Loans held for sale 19,609 15,720
Accounts and notes receivable (less allowances) 20,532 16,337
Inventories (less allowances) (Note 9) 10,960 9,737
Assets of discontinued operations - 18,653
Deferred income taxes (Note 11) 27,190 39,767
Net equipment on operating leases
(less accumulated depreciation) (Note 10) 34,383 31,026
Equity in net assets of nonconsolidated affiliates 6,032 5,097
Property - net (Note 12) 38,211 35,956
Intangible assets - net (Notes 1 and 13) 4,760 10,796
Other assets (Note 14) 58,924 14,176
------- -------
Total assets $448,507 $369,053
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable (principally trade) $25,422 $21,138
Notes and loans payable (Note 16) 271,756 200,168
Liabilities of discontinued operations - 7,956
Postretirement benefits other than pensions (Note 17) 36,292 38,152
Pensions (Note 17) 8,024 22,679
Deferred income taxes (Notes 11 and 15) 7,508 6,523
Accrued expenses and other liabilities (Note 15) 73,930 65,344
------- -------
Total liabilities 422,932 361,960
Minority interests 307 279
Stockholders' equity (Note 19)
$1-2/3 par value common stock (outstanding,
561,997,725 and 560,447,797 shares) 937 936
Class H common stock (outstanding,
958,284,272 shares in 2002) - 96
Capital surplus (principally additional paid-in capital) 15,185 21,583
Retained earnings 12,752 10,031
------ ------
Subtotal 28,874 32,646
Accumulated foreign currency translation adjustments (1,815) (2,784)
Net unrealized gains (losses) on derivatives 51 (205)
Net unrealized gains on securities 618 372
Minimum pension liability adjustment (2,460) (23,215)
----- ------
Accumulated other comprehensive loss (3,606) (25,832)
----- ------
Total stockholders' equity 25,268 6,814
------- -------
Total liabilities and stockholders' equity $448,507 $369,053
======= =======
Reference should be made to the notes to consolidated financial statements.
II-26
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED BALANCE SHEETS
December 31,
GENERAL MOTORS CORPORATION AND SUBSIDIARIES 2003 2002
---- ----
ASSETS (dollars in millions)
Automotive and Other Operations
Cash and cash equivalents (Note 1) $14,424 $12,162
Marketable securities (Note 6) 9,067 2,174
------ ------
Total cash and marketable securities 23,491 14,336
Accounts and notes receivable (less allowances) 5,380 4,735
Inventories (less allowances) (Note 9) 10,960 9,737
Assets of discontinued operations - 18,653
Net equipment on operating leases (less accumulated
depreciation) (Note 10) 7,173 5,305
Deferred income taxes and other current assets (Note 11) 10,851 9,631
------ ------
Total current assets 57,855 62,397
Equity in net assets of nonconsolidated affiliates 6,032 5,097
Property - net (Note 12) 36,071 34,135
Intangible assets - net (Notes 1 and 13) 1,479 7,453
Deferred income taxes (Note 11) 18,086 31,431
Other assets (Note 14) 42,262 1,461
------- ------
Total Automotive and Other Operations assets 161,785 141,974
Financing and Insurance Operations
Cash and cash equivalents (Note 1) 18,130 8,158
Investments in securities (Note 6) 13,148 14,651
Finance receivables - net (Note 8) 173,137 134,643
Loans held for sale 19,609 15,720
Net equipment on operating leases (less accumulated
depreciation) (Note 10) 27,210 25,721
Other assets (Note 14) 35,488 28,186
Net receivable from Automotive and Other Operations
(Note 1) 1,492 1,089
------- -------
Total Financing and Insurance Operations assets 288,214 228,168
------- -------
Total assets $449,999 $370,142
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive and Other Operations
Accounts payable (principally trade) $21,542 $17,919
Loans payable (Note 16) 2,813 1,994
Liabilities of discontinued operations - 7,956
Accrued expenses (Note 15) 45,417 39,113
Net payable to Financing and Insurance Operations (Note 1) 1,492 1,089
------ ------
Total current liabilities 71,264 68,071
Long-term debt (Note 16) 29,593 14,261
Postretirement benefits other than pensions (Note 17) 32,285 34,244
Pensions (Note 17) 7,952 22,633
Other liabilities and deferred income taxes
(Notes 11 and 15) 15,567 13,734
------- -------
Total Automotive and Other Operations liabilities 156,661 152,943
Financing and Insurance Operations
Accounts payable 3,880 3,219
Debt (Note 16) 239,350 183,913
Other liabilities and deferred income taxes
(Note 11 and 15) 24,533 22,974
------- -------
Total Financing and Insurance Operations liabilities 267,763 210,106
------- -------
Total liabilities 424,424 363,049
Minority interests 307 279
Total stockholders' equity 25,268 6,814
------- -------
Total liabilities and stockholders' equity $449,999 $370,142
======= =======
The above Supplemental Information is intended to facilitate analysis of
General Motors Corporation's businesses: (1) Automotive and Other
Operations; and (2) Financing and Insurance Operations.
Reference should be made to the notes to consolidated financial statements.
II-27
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31,
2003 2002 2001
---- ---- ----
Cash flows from operating activities (dollars in millions)
Income from continuing operations $2,862 $1,975 $1,222
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities
Depreciation and amortization expenses 13,978 11,865 11,764
Mortgage servicing rights
amortization 1,602 3,871 948
Provision for financing losses 1,608 2,028 1,472
Other postretirement employee benefit
(OPEB) expense 4,599 4,108 3,720
OPEB payments (3,536) (3,334) (3,120)
VEBA (contributions)/ withdrawls (3,000) (1,000) 1,300
Pension expense 3,412 1,780 540
Pension contributions (18,168) (5,156) (317)
Retiree lump sum and vehicle voucher
expense, net of payments 923 (254) (136)
Net change in mortgage loans 456 (4,715) (4,615)
Net change in mortgage securities 236 (656) (777)
Change in other investments and
miscellaneous assets 1,741 1,335 180
Change in other operating assets and
liabilities (Note 1) 792 4,477 (234)
Other 95 (842) 233
----- ------ ------
Net cash provided by operating activities $7,600 $15,482 $12,180
----- ------ ------
Cash flows from investing activities
Expenditures for property (7,330) (6,871) (7,832)
Investments in marketable securities -
acquisitions (28,660) (39,386) (38,248)
Investments in marketable securities -
liquidations 24,253 35,688 37,560
Net change in mortgage servicing rights (2,557) (1,711) (2,075)
Increase in finance receivables (149,419) (143,024) (107,566)
Proceeds from sale of finance receivables 107,505 117,276 95,949
Proceeds from sale of business units 4,148 - -
Operating leases - acquisitions (11,761) (16,624) (12,938)
Operating leases - liquidations 9,952 13,994 11,892
Investments in companies, net of cash
acquired (Note 1) (201) (870) (1,283)
Other (1,422) 1,004 126
------ ------- -------
Net cash used in investing activities (55,492) (40,524) (24,415)
------ ------- -------
Cash flows from financing activities
Net increase (decrease) in loans payable 235 770 (21,740)
Long-term debt - borrowings 97,391 51,411 62,956
Long-term debt - repayments (38,963) (24,365) (19,789)
Repurchases of common and preference stocks - (97) (264)
Proceeds from issuing common stocks - 62 100
Proceeds from sales of treasury stocks 60 19 418
Cash dividends paid to stockholders (1,121) (1,121) (1,105)
Other 1,320 333 924
------ ------ ------
Net cash provided by financing activities 58,922 27,012 21,500
------ ------ ------
Net cash provided by discontinued operations 275 - -
Effect of exchange rate changes on
cash and cash equivalents 929 495 (96)
------ ------ ------
Net increase in cash and cash equivalents 12,234 2,465 9,169
Cash and cash equivalents at beginning of
the year 20,320 17,855 8,686
------ ------ ------
Cash and cash equivalents at end
of the year $32,554 $20,320 $17,855
====== ====== ======
Reference should be made to the notes to consolidated financial statements.
II-28
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31,
2003 2002 2001
-------------------------------------------------------------------------
Automotive Financing Automotive Financing Automotive Financing
and Other and and Other and and Other and
Operations Insurance Operations Insurance Operations Insurance
---------- --------- ---------- --------- ---------- ---------
Cash flows from operating (dollars in millions)
activities
Income (loss) from continuing
operations $35 $2,827 $93 $1,882 $(546) $1,768
Adjustments to reconcile income
(loss) from continuing
operations to net cash provided
by operating activities
Depreciation and amortization
expenses 7,946 6,032 6,324 5,541 5,907 5,857
Mortgage servicing rights
amortization - 1,602 - 3,871 - 948
Provision for financing losses - 1,608 - 2,028 - 1,472
Postretirement benefits other
than pensions,
net of payments and VEBA
contributions (1,957) 20 (241) 15 1,893 7
Pension expense, net of
contributions (13,869) 36 (3,639) 9 74 13
Net change in mortgage loans - 456 - (4,715) - (4,615)
Net change in mortgage
securities - 236 - (656) - (777)
Change in other investments
and miscellaneous assets (200) 1,941 2,064 (729) 591 (411)
Change in other operating
assets and liabilities (Note 1) 3,067 (2,275) 3,808 669 (1,152) 918
Other (348) 443 (398) (444) 1,020 (787)
------ ------ ------ ------ ----- -----
Net cash (used in) provided by
operating activities $(5,326) $12,926 $8,011 $7,471 $7,787 $4,393
----- ------ ----- ----- ----- -----
Cash flows from investing
activities
Expenditures for property (6,616) (714) (6,414) (457) (7,812) (20)
Investments in marketable
securities - acquisitions (13,138) (15,522) (2,228) (37,158) (767) (37,481)
Investments in marketable
securities - liquidations 7,109 17,144 873 34,815 1,228 36,332
Net change in mortgage servicing
rights - (2,557) - (1,711) - (2,075)
Increase in finance receivables - (149,419) - (143,024) - (107,566)
Proceeds from sales of finance
receivables - 107,505 - 117,276 - 95,949
Proceeds from sale of business
units 4,148 - - - - -
Operating leases - acquisitions - (11,761) - (16,624) - (12,938)
Operating leases - liquidations - 9,952 - 13,994 - 11,892
Investments in companies, net of
cash acquired (Note 1) (57) (144) (688) (182) (741) (542)
Net investing activity with
Financing and Insurance Operations 1,000 - 400 - (500) -
Other 332 (1,754) 1,513 (509) 244 (118)
----- ----- ----- ------ ----- ------
Net cash provided by in
investing activities (7,222) (47,270) (6,544) (33,580) (8,348) (16,567)
----- ------ ----- ------ ----- ------
Cash flows from financing
activities
Net (decrease) increase in loans
payable (234) 469 (335) 1,105 (1,440) (20,300)
Long-term debt - borrowings 14,785 82,606 4,562 46,849 4,435 58,521
Long-term debt - repayments (19) (38,944) (145) (24,220) (884) (18,905)
Net financing activity with
Automotive and Other
Operations - (1,000) - (400) - 500
Repurchases of common and
preference stocks - - (97) - (264) -
Proceeds from issuing common
stocks - - 62 - 100 -
Proceeds from sales of treasury
stocks 60 - 19 - 418 -
Cash dividends paid to
stockholders (1,121) - (1,121) - (1,105) -
Other - 1,320 - 333 - 924
------ ------ ----- ------ ----- ------
Net cash provided by financing
activities 13,471 44,451 2,945 23,667 1,260 20,740
------ ------ ----- ------ ----- ------
Net cash provided by
discontinued operations 275 - - - - -
Effect of exchange rate changes
on cash and cash equivalents 661 268 485 10 (74) (22)
Net transactions with
Automotive/Financing
Operations 403 (403) (467) 467 (414) 414
------ ----- ------ ------ --- -----
Net increase (decrease) in cash
and cash equivalents 2,262 9,972 4,430 (1,965) 211 8,958
Cash and cash equivalents at
beginning of the year 12,162 8,158 7,732 10,123 7,521 1,165
------ ------ ------ ------ ----- ------
Cash and cash equivalents at end
of the year $14,424 $18,130 $12,162 $8,158 $7,732 $10,123
====== ====== ====== ===== ===== ======
The above Supplemental Information is intended to facilitate analysis of
General Motors Corporation's businesses: (1) Automotive and Other
Operations; and (2) Financing and Insurance Operations.
Reference should be made to the notes to consolidated financial statements.
II-29
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, and 2001
Accumulated
Total Other Total
Capital Capital Comprehensive Retained Comprehensive Stockholders'
Stock Surplus Income (Loss) Earnings Loss Equity
----- ------- ------------- -------- ---- ------
(dollars in millions)
Balance at January 1, 2001 $1,002 $21,020 $10,119 $(1,966) $30,175
Shares reacquired - (125) - - (125)
Shares issued 18 624 - - 642
Comprehensive income:
Net income - - $601 601 - 601
---
Other comprehensive income (loss):
Foreign currency translation
adjustments - - (417) - - -
Unrealized losses on derivatives - - (307) - - -
Unrealized losses on securities - - (69) - - -
Minimum pension liability
adjustment - - (9,536) - - -
-----
Other comprehensive loss - - (10,329) (10,329) (10,329)
------
Comprehensive loss - - $(9,728) - - -
=====
Delphi spin-off adjustment (a) - - (56) - (56)
Cash dividends - - (1,201) - (1,201)
----- ------ ----- ------ ------
Balance at December 31, 2001 1,020 21,519 9,463 (12,295) 19,707
Shares reacquired - (2,086) - - (2,086)
Shares issued 12 2,150 - - 2,162
Comprehensive income:
Net income - - $1,736 1,736 - 1,736
-----
Other comprehensive income (loss):
Foreign currency translation
adjustments - - 135 - - -
Unrealized gains on derivatives - - 102 - - -
Unrealized losses on securities - - (140) - - -
Minimum pension liability
adjustment - - (13,634) - - -
------
Other comprehensive loss - - (13,537) - (13,537) (13,537)
------
Comprehensive loss - - $(11,801) - - -
======
Cash dividends - - (1,168) - (1,168)
----- ------ ------ ------ -----
Balance at December 31, 2002 $1,032 $21,583 $10,031 $(25,832) $6,814
Shares issued 16 1,324 - - 1,340
Comprehensive income:
Net income - - $3,822 3,822 - 3,822
-----
Other comprehensive income:
Foreign currency translation
adjustments - - 969 - - -
Unrealized gains on derivatives - - 256 - - -
Unrealized losses on securities - - 246 - - -
Minimum pension liability
adjustment - - 20,755 - - -
------
Other comprehensive income - - 22,226 - 22,226 22,226
------
Comprehensive income - - $26,048 - - -
======
Effect of Hughes transactions
(Note 2) (111) (8,056) (8,167)
Stock Options 334 334
Delphi spin-off adjustment (b) - - 20 - 20
Cash dividends - - (1,121) - (1,121)
--- ------ ------ ----- ------
Balance at December 31, 2003 $937 $15,185 $12,752 $(3,606) $25,268
=== ====== ====== ===== ======
(a) Resolution of workers' compensation, pension, and other postemployment
liabilities owed to GM by Delphi Automotive Systems, which GM spun off in
1999.
(b) Write off deferred taxes related to the 1999 spin-off of Delphi
Automotive Systems.
Reference should be made to the notes to consolidated financial statements.
II-30
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of General Motors
Corporation and domestic and foreign subsidiaries that are more than 50% owned,
principally General Motors Acceptance Corporation and Subsidiaries (GMAC),
(collectively referred to as the "Corporation," "General Motors" or "GM"). In
addition, GM consolidates variable interest entities (VIEs) for which it is
deemed to be the primary beneficiary. General Motors' share of earnings or
losses of associates, in which at least 20% of the voting securities is owned,
is included in the consolidated operating results using the equity method of
accounting, except for investments where GM is not able to exercise significant
influence over the operating and financial decisions of the investee, in which
case, the cost method of accounting is used. GM encourages reference to the GMAC
Annual Report on Form 10-K for the period ended December 31, 2003, filed
separately with the U.S. Securities and Exchange Commission (SEC).
Certain amounts for 2002 and 2001 have been reclassified to conform with the
2003 classifications.
Nature of Operations, Financial Statement Presentation, and Supplemental
Information
GM presents its primary financial statements on a fully consolidated basis.
Transactions between businesses have been eliminated in the Corporation's
consolidated financial statements. These transactions consist principally of
borrowings and other financial services provided by Financing and Insurance
Operations (FIO) to Automotive and Other Operations (Auto & Other).
To facilitate analysis, GM presents supplemental information to the
statements of income, balance sheets, and statements of cash flows for the
following businesses: (1) Auto & Other, which consists of the design,
manufacturing, and marketing of cars, trucks, locomotives, and related parts and
accessories; and (2) FIO, which consists primarily of GMAC. GMAC provides a
broad range of financial services, including consumer vehicle financing,
full-service leasing and fleet leasing, dealer financing, car and truck extended
service contracts, residential and commercial mortgage services, vehicle and
homeowners' insurance, and asset-based lending.
Use of Estimates in the Preparation of the Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect amounts reported therein. Due to the
inherent uncertainties involved in making estimates, actual results reported in
future periods may differ from those estimates.
Revenue Recognition
Sales generally are recorded when products are shipped (when title and risks
and rewards of ownership have passed), or when services are rendered to
independent dealers or other third parties. Provisions for dealer and customer
sales incentives, allowances, and rebates are made at the time of vehicle sales.
Incentives, allowances, and rebates related to vehicles previously sold are
recognized as reductions of sales when announced.
Financing revenue is recorded over the terms of the receivables using the
interest method. Income from operating lease assets is recognized on a
straight-line basis over the scheduled lease terms.
Insurance premiums are earned on a basis related to coverage provided over
the terms of the policies. Commissions, premium taxes, and other costs incurred
in acquiring new business are deferred and amortized over the terms of the
related policies on the same basis as premiums are earned.
Advertising and Research and Development
Advertising, research and development, and other product-related costs are
charged to expense as incurred. Advertising expense was $4.7 billion in 2003,
$4.4 billion in 2002, and $4.1 billion in 2001. Research and development expense
was $5.7 billion in 2003 and 2002, and $6.1 billion in 2001.
Depreciation and Amortization
Expenditures for special tools placed in service after January 1, 2002 are
amortized using the straight-line method over their estimated useful lives.
Expenditures for special tools placed in service prior to January 1, 2002, are
amortized over their estimated useful lives, primarily using the units of
production method. Replacements of special tools for reasons other than changes
in products are charged directly to cost of sales. As of January 1, 2001, the
Corporation adopted the straight-line method of depreciation for real estate,
plants, and equipment placed in service after that date. Assets placed in
service before January 1, 2001, continue generally to be depreciated using
accelerated methods. The accelerated methods accumulate depreciation of
approximately two-thirds of the depreciable cost during the first half
II-31
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (continued)
Depreciation and Amortization (concluded)
of the estimated useful lives of property groups as compared to the
straight-line method, which allocates depreciable costs equally over the
estimated useful lives of property groups. Management believes the adoption of
the straight-line amortization/depreciation method for special tools placed into
service after January 1, 2002, and real estate, plants, and equipment placed
into service after January 1, 2001, better reflects the consistent use of these
assets over their useful lives.
Equipment on operating leases is depreciated using the straight-line method
over the term of the lease agreement. The difference between the net book value
and the proceeds of sale or salvage on items disposed of is accounted for as a
charge against or credit to the provision for depreciation.
Valuation of Long-Lived Assets
GM periodically evaluates the carrying value of long-lived assets to be held
and used in the business, other than goodwill and intangible assets with
indefinite lives, and assets held for sale when events and circumstances
warrant, generally in conjunction with the annual business planning cycle. If
the carrying value of a long-lived asset is considered impaired, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value for assets to be held and used. For assets held for sale, such loss
is further increased by costs to sell. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. Long-lived assets to be disposed of other than by sale are considered
held and used until disposed of.
Goodwill and Other Intangible Assets
Prior to January 1, 2002, goodwill was amortized using the straight-line
method over 20 to 40 year periods. On January 1, 2002, the Corporation
implemented Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets," which ceased the amortization method of
accounting for goodwill and changed to an impairment-only approach. Accordingly,
goodwill is no longer amortized and is tested for impairment at least annually.
GM's reported income and earnings per share from continuing operations
information, exclusive of amortization expense recognized related to goodwill
required under previous accounting standards on an after-tax basis, is as
follows (dollars in millions except per share amounts):
Years-Ended December 31,
----------------------------
2003 2002 2001
---- ---- ----
Net Income from continuing operations, as
reported $2,862 $1,975 $1,222
Add:
Goodwill amortization - - 107
----- ----- ------
Adjusted net income $2,862 $1,975 $1,329
Basic earnings per share from continuing
operations attributable to GM $1-2/3 par
value
Reported $5.10 $3.53 $2.21
Adjusted $5.10 $3.53 $2.41
Earnings per share from continuing
operations attributable to GM $1-2/3 par
value assuming dilution
Reported $5.03 $3.51 $2.20
Adjusted $5.03 $3.51 $2.39
Foreign Currency Transactions and Translation
Foreign currency exchange transaction and translation losses, including the
effect of derivatives, net of taxes, included in consolidated net income in
2003, 2002, and 2001, pursuant to SFAS No. 52, "Foreign Currency Translation,"
amounted to $122 million, $103 million, and $129 million, respectively.
Policy and Warranty
Provisions for estimated expenses related to product warranties are made at
the time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims.
Management actively studies trends of warranty claims and takes action to
improve vehicle quality and minimize warranty claims. (See Note 15.)
II-32
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (continued)
Cash and Cash Equivalents
Cash equivalents are defined as short-term, highly-liquid investments with
original maturities of 90 days or less.
Statements of Cash Flows Supplementary Information
Years Ended December 31,
-----------------------------
Automotive and Other Operations 2003 2002 2001
------------------------------- ---- ---- ----
(dollars in millions)
Increase (decrease) in cash due to changes in
other operating assets and liabilities was as
follows:
Accounts receivable $(575) $(93) $76
Prepaid expenses and other deferred charges (578) 268 (93)
Inventories (518) 221 545
Accounts payable 2,400 1,053 545
Deferred taxes and income taxes payable 2,219 (1,825) (1,404)
Accrued expenses and other liabilities 3,049 5,517 (1,384)
Fleet rental - acquisitions (7,761) (5,595) (4,997)
Fleet rental - liquidations 4,831 4,262 5,560
----- ----- -----
Total $3,067 $3,808 $(1,152)
===== ===== =====
Cash paid for interest $1,398 $1,033 $700
During 2003, Auto & Other made investments in companies, net of cash
acquired, of approximately $60 million.
During 2002, Auto & Other made investments in companies, net of cash
acquired, of approximately $700 million. This amount consists primarily of GM's
purchase of a 44.6% equity interest in GM Daewoo Auto & Technology Company (GM
Daewoo) for approximately $251 million and GM's investments in Isuzu-related
entities for $180 million.
During 2001, the majority of the $740 million of investments made by Auto &
Other consisted of GM's purchase of an additional 10% ownership in Suzuki Motor
Corporation (Suzuki) for approximately $520 million.
Years Ended December 31,
----------------------------
Financing and Insurance Operations 2003 2002 2001
---------------------------------- ---- ---- ----
(dollars in millions)
Increase (decrease) in cash due to changes in
other
Operating assets and liabilities was as follows:
Other receivables $(1,050) $(278) $(736)
Accounts payable and other liabilities 733 264 1,306
Deferred taxes and income taxes payable (1,958) 683 348
----- --- ---
Total $(2,275) $669 $918
===== === ===
Cash paid for interest $6,965 $6,333 $6,932
FIO made investments in companies, net of cash acquired, of approximately
$140 million, $180 million, and $540 million, in 2003, 2002, and 2001,
respectively. The 2001 investments were primarily for a mortgage warehouse
lending business.
II-33
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (continued)
Derivative Instruments
GM is party to a variety of foreign exchange rate, interest rate and
commodity forward contracts, and options entered into in connection with the
management of its exposure to fluctuations in foreign exchange rates, interest
rates, and certain commodity prices. These financial exposures are managed in
accordance with corporate policies and procedures.
All derivatives are recorded at fair value on the consolidated balance sheet.
Effective changes in fair value of derivatives designated as cash flow hedges
and hedges of a net investment in a foreign operation are recorded in net
unrealized gain / (loss) on derivatives, a separate component of other income
(loss). Amounts are reclassified from accumulated other comprehensive loss when
the underlying hedged item affects earnings and all ineffective changes in fair
value are recorded currently in earnings. Changes in fair value of derivatives
designated as fair value hedges are recorded currently in earnings offset to the
extent the derivative was effective by changes in fair value of the hedged item.
Changes in fair value of derivatives not designated as hedging instruments are
recorded currently in earnings.
New Accounting Standards
Beginning January 1, 2003, the Corporation began expensing the fair market
value of newly granted stock options and other stock based compensation awards
to employees pursuant to SFAS No. 123, "Accounting for Stock-Based
Compensation." The fair value of stock option grants are estimated on the date
of grant using the Black-Scholes option-pricing model. The fair value of other
stock compensation awards is determined by the market price of GM $1-2/3 common
stock on the date of grant. The total expense for 2003 was $229 million ($142
million net of tax), recorded in cost of sales and other expenses. For 2002 and
prior years, as permitted by SFAS No. 123, GM applied the intrinsic value method
of recognition and measurement under Accounting Principles Board Opinion No. 25
(APB No. 25), "Accounting for Stock Issued to Employees," to its stock options
and other stock-based employee compensation awards. No compensation expense
related to employee stock options is reflected in net income for these periods,
as all options granted had an exercise price equal to the market value of the
underlying common stock on the date of the grant.
In accordance with the disclosure requirements of SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure," since GM adopted the
fair value based method of accounting for stock-based employee compensation
pursuant to SFAS No. 123 effective January 1, 2003 for newly granted stock based
compensation awards only, the following table illustrates the effect on net
income and earnings per share if compensation cost for all outstanding and
unvested stock options and other stock-based employee compensation awards had
been determined based on their fair values at the grant date (dollars in
millions except per share amounts):
Year-Ended December 31,
-----------------------
2003 2002 2001
---- ---- ----
Net income from continuing operations, as
reported $2,862 $1,975 $1,222
Add: stock-based compensation expense,
included in reported net income, net of
related tax effects 142 44 18
Deduct: total stock-based compensation
expense determined under fair value based
method for all awards, net of related tax
effects (195) (187) (156)
----- ----- -----
Pro forma net income from continuing
operations $2,809 $1,832 $1,084
===== ===== =====
Earnings from continuing operations
attributable to
GM $1-2/3 par value common stock
- as reported $2,862 $1,975 $1,220
- pro forma $2,809 $1,832 $1,082
Basic earnings per share from continuing
operations attributable to
GM $1-2/3 par value
- as reported $5.10 $3.53 $2.21
- pro forma $5.01 $3.27 $1.96
Diluted earnings per share from continuing
operations attributable to
GM $1-2/3 par value
- as reported $5.03 $3.51 $2.20
- pro forma $4.93 $3.26 $1.95
II-34
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (continued)
New Accounting Standards (continued)
In December 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45).
FIN 45 requires that at the time a company issues a guarantee, the company must
recognize an initial liability for the fair value of the obligations it assumes
under that guarantee. This interpretation is applicable on a prospective basis
to guarantees issued or modified after December 31, 2002. FIN 45 also contains
disclosure provisions surrounding existing guarantees, which are effective for
financial statements of interim or annual periods ending after December 15,
2002. See Note 18.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46), which requires the consolidation of
certain entities considered to be variable interest entities (VIEs). An entity
is considered to be a VIE when it has equity investors who lack the
characteristics of having a controlling financial interest, or its capital is
insufficient to permit it to finance its activities without additional
subordinated financial support. Consolidation of a VIE by an investor is
required when it is determined that the investor will absorb a majority of the
VIE's expected losses or residual returns if they occur. FIN 46 provides certain
exceptions to these rules, relating to qualifying special purpose entities
(QSPEs) subject to the requirements of SFAS No. 140. Upon its original issuance,
FIN 46 required that VIEs created after January 31, 2003 would be consolidated
immediately, while VIEs created prior to February 1, 2003 were to be
consolidated as of July 1, 2003.
In October 2003, the FASB deferred the effective date for consolidation of
VIEs created prior to February 1, 2003 to December 31, 2003 for calendar
year-end companies, with earlier application encouraged. GM adopted FIN 46 as of
its original effective date of July 1, 2003 for entities created prior to
February 1, 2003. The application of the consolidation provisions of FIN 46
resulted in an increase in assets and debt of approximately $4.6 billion ($917
million in Auto & Other, and $3.7 billion in FIO), and a cumulative effect of
accounting change recorded in cost of sales of $27 million after-tax, related to
Auto & Other and no net income effect at FIO. Refer to Note 7 for further
discussion of GM's involvement in variable interest entities.
In December 2003, the FASB published a revision to FIN 46 (FIN 46R) to
clarify some of the provisions of the original interpretation and to exempt
certain entities from its requirements. FIN 46R provides special effective date
provisions to enterprises that fully or partially applied FIN 46 prior to the
issuance of the revised interpretation. In particular, entities that have
already adopted FIN 46 are not required to adopt FIN 46R until the quarterly
reporting period ended March 31, 2004. The Corporation is currently reviewing
the provisions of FIN 46R and will adopt FIN 46R for the quarterly reporting
period ending March 31, 2004.
In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. The Statement
is effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The adoption of this
standard did not have a material effect on the Corporation's financial condition
or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which provides
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. The Statement
is effective for financial instruments entered into or modified after May 31,
2003 and for pre-existing instruments as of the beginning of the first interim
period beginning after June 15, 2003. The adoption of this standard did not have
a material effect on the Corporation's financial condition or results of
operations.
In December 2003, the FASB issued SFAS No. 132 (revised 2003),"Employers'
Disclosures about Pensions and Other Postretirement Benefits." The revisions to
SFAS 132 are intended to improve financial statement disclosures for defined
benefit plans and was initiated in 2003 in response to concerns raised by
investors and other users of financial statements about the need for greater
transparency of pension information. In particular the standard requires that
companies provide more details about their plan assets, benefit obligations,
cash flows, benefit costs and other relevant quantitative and qualitative
information. The guidance is effective for fiscal years ending after December
15, 2003. Refer to Note 17 for further discussion of GM's pension and other
postretirement benefits obligations.
II-35
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (concluded)
Labor Force
GM, on a worldwide basis, has a concentration of its labor supply in
employees working under union collective bargaining agreements, of which certain
contracts expired in 2003.
The 2003 United Auto Workers (UAW) labor contract was ratified on October 6,
2003 covering a four-year term from 2003-2007. The contract included a $3,000
lump sum payment per UAW employee paid in October 2003, and a 3% performance
bonus per UAW employee to be paid in October 2004. GM will amortize these
payments over the 12-month period following the respective payment dates. UAW
employees will receive a gross wage increase of 2% in 2005 and 3% in 2006.
Active UAW employees were also granted pension benefit increases. There were no
pension benefit increases granted to current retirees and surviving spouses.
However, the contract does provide for four lump sum payments and two vehicle
discount vouchers for current retirees and surviving spouses. The retiree lump
sum payments and vehicle discount vouchers resulted in a charge to GM's 2003
fourth quarter cost of sales of approximately $1.2 billion ($725 million
after-tax).
NOTE 2. Discontinued Operations
On December 22, 2003 GM completed a series of transactions that resulted in
the split-off of Hughes from GM and the simultaneous sale of GM's approximately
19.8 percent economic interest in Hughes to the News Corporation, Ltd. (News
Corporation).
In the transactions, GM split-off Hughes by distributing Hughes common stock
to the holders of GM Class H common stock in exchange for all outstanding shares
of GM Class H common stock. Simultaneously, GM sold its 19.8 percent economic
interest in Hughes to News Corporation in exchange for cash and News Corporation
Preferred American Depositary Shares (Preferred ADSs). All shares of GM Class H
common stock were then cancelled. News Corporation then acquired from the former
GM Class H common stockholders an additional 14.2 percent of the outstanding
shares of Hughes common stock in exchange for News Corporation Preferred ADSs.
GM sold 80 percent of its 19.8 percent retained economic interest in Hughes
to News Corporation for a total of approximately $3.1 billion in cash. GM sold
the remaining 20 percent of its retained economic interest in Hughes to News
Corporation for approximately 28.6 million News Corporation Preferred ADSs,
valued at $819 million at December 22, 2003. Including Hughes' transaction
expenses of approximately $90 million, GM recorded a net gain of $1.2 billion
from the sale of GM's approximately 19.8% economic interest in Hughes, reported
as gain on sale of discontinued operations in GM's Consolidated Statement of
Income for 2003. In addition, as a result of the transactions, there was a net
reduction to GM's stockholders' equity of approximately $7.0 billion.
All News Corporation Preferred ADSs were sold by GM in January 2004.
The financial data related to GM's investment in Hughes through December 22,
2003 is classified as discontinued operations for all periods presented. The
financial data of Hughes reflect the historical results of operations and cash
flows of the businesses that were considered part of the Hughes business
segment of GM during each respective period, and the assets and liabilities of
Hughes as of the respective dates.
Hughes' net sales included in discontinued operations were $9.8 billion, $9.5
billion and $8.3 billion for 2003, 2002 and 2001, respectively, and Hughes' net
losses from discontinued operations were $219 million, $239 million and $621
million for 2003, 2002 and 2001, respectively.
The Hughes amounts reported as assets and liabilities of discontinued
operations were as follows (in millions):
December 31,
2002
----
Current assets $3,670
Property and equipment - net 1,558
Intangible assets -net 7,158
Other assets 6,267
------
Assets of discontinued operations $18,653
======
Current liabilities $3,177
Long-term debt 2,390
Other liabilities 2,389
-----
Liabilities of discontinued
operations $7,956
=====
II-36
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. Asset Impairments
GM recorded pre-tax charges against income for asset impairments of $835
million ($533 million after-tax, or $0.94 per diluted share) in 2003, $254
million ($158 million after-tax, or $0.28 per diluted share) in 2002 and $140
million ($90 million after-tax, or $0.16 per diluted share) in 2001. These
charges were recorded in cost of sales and other expenses in the income
statement.
In 2003, the pre-tax charges were comprised of $767 million ($491 million
after-tax) related to special tools and other assets related to product lines
and $68 million ($42 million after-tax) related to real estate.
In 2002 the charges were related to production facilities and special tools.
The 2001 charges related to the write-down of equipment as a result of the
announcement of the closing of the Ste. Therese, Quebec, assembly plant in 2002
and the write-down of certain equipment on operating leases that was determined
to be impaired in GMNA.
NOTE 4. Investment in Nonconsolidated Affiliates
Nonconsolidated affiliates are those investees of GM for which GM uses the
equity method of accounting, because GM has the ability to exert significant
influence over the operating and financial decisions of the affiliate. GM's
significant affiliates and GM's ownership percentage include the following:
Italy - GM-Fiat Powertrain (50% in 2003, 2002, 2001); Japan - Fuji Heavy
Industries Ltd. (20% in 2003, 21% in 2002, 2001), Suzuki Motor Corporation
(20.1%, 20.2% and 20.3% in 2003, 2002, 2001, respectively); China - Shanghai
General Motors Corporation (50% in 2003, 2002, 2001); Korea - GM Daewoo (44.6%
in 2003 and 2002, 0% in 2001).
Further information regarding the book value of GM's investments and its
share of income for all affiliates, as well as the total assets and liabilities
of the above significant affiliates, is included in the table below:
2003 Italy Japan China Korea
----
---------------------------------
Book value of GM's investments in
affiliates $946 $2,781 $964 $200
GM's share of affiliates' net income
(loss) $95 $196 $437 $(74)
Total assets of significant
affiliates (1) $7,939 $29,622 $2,723 $3,263
Total liabilities of significant
affiliates (1) $5,309 $17,764 $1,175 $2,892
2002
----
Book value of GM's investments in
affiliates $753 $2,322 $659 $252
GM's share of affiliates' net income
(loss) $80 $133 $142 $(45)
Total assets of significant
affiliates (1) $6,589 $24,579 $1,698 $2,277
Total liabilities of significant
affiliates (1) $4,479 $14,966 $634 $1,771
2001
----
Book value of GM's investment in
affiliates $699 $2,214 $486 $0
GM's share of affiliates' net income
(loss) $32 $(102) $38 $0
Total assets of significant
affiliates (1) $5,361 $23,960 $1,374 $0
Total liabilities of significant
affiliates (1) $3,936 $14,911 $530 $0
(1) As defined above.
II-37
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 5. Postemployment Benefit Costs
GM records liabilities for termination and other post-employment benefits to
be paid pursuant to the union or other contractual agreements in connection with
closed plants in North America. GM reviews the adequacy and continuing need for
these liabilities on an annual basis in conjunction with its year-end production
and labor forecasts. Furthermore, GM reviews the reasonableness of these
liabilities on a quarterly basis.
The liability for post-employment benefits as of December 31, 2003 totals
approximately $384 million relating to 9 plants and approximately 2,900
employees, with anticipated spending of approximately 96% over the next three
years. The liability for post-employment benefits was $613 million relating to
11 plants and approximately 3,400 employees as of December 31, 2002. The
liability for post-employment benefits was $626 million relating to 12 plants
and approximately 5,800 employees as of December 31, 2001. The following table
summarizes the activity from December 31, 2001 through December 31, 2003 for
this liability (dollars in millions):
Balance at December 31, 2001 $626
Spending (182)
Interest accretion 47
Additions 281
Adjustments (159)
---
Balance at December 31, 2002 $613
Spending (189)
Interest accretion 31
Additions -
Adjustments (71)
---
Balance at December 31, 2003 $384
===
In 2003, GM recognized adjustments of $71 million to reduce the liability
balance of existing closed plants ($44 million after tax, or $0.08 per share of
GM $1-2/3 par value common stock), recorded in cost of sales. The adjustments
are primarily the result of the reversal of the remaining post-employment
liabilities for employees at the Janesville, Wisconsin plant location, a
reduction of the respective liabilities for employees at the Oklahoma City,
Oklahoma plant, and an increase to the respective liabilities at the Wilmington,
Delaware plant. The Janesville charge was established in 2002, relating to 772
employees impacted by the transfer of commercial truck production from
Janesville, to Flint, Michigan. The reversal is primarily due to earlier than
anticipated retirements of 479 employees. The adjustments also include a
reduction in the reserve for the Oklahoma City plant, as employees have been
absorbed into the continuing workforce due to increased manpower requirements.
The Wilmington plant reserve is increased to account for increased duration that
employees will not be absorbed into the continuing workforce due to a change in
the production plan.
In 2002, GM recognized post-employment benefit liabilities of $281 million
($174 million after tax, or $0.31 per share of GM $1-2/3 par value common stock)
primarily related to the transfer of commercial truck production from
Janesville, to Flint. The Janesville charge related to 772 employees and was
included in cost of sales. The adjustments of $159 million ($99 million after
tax of $0.18 per share of GM $1-2/3 par value common stock), recorded in cost of
sales, are primarily the result of a reversal of post-employment benefit
liabilities for employees at the Spring Hill, Tennessee, plant. This reversal
was recorded due to approximately 400 employees, who had been included in the
planned production capacity reduction but were instead absorbed into the
continuing workforce due to a change in the plan.
NOTE 6. Marketable Securities
Marketable securities held by GM are classified as available-for-sale, except
for certain mortgage-related securities, which are classified as
held-to-maturity or trading securities, and News Corporation ADSs, which are
classified as trading securities. Unrealized gains and losses, net of related
income taxes, for available-for-sale and held-to-maturity securities are
included as a separate component of stockholders' equity. Unrealized gains and
losses for trading securities are included in income on a current basis. GM
determines cost on the specific identification basis.
II-38
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 6. Marketable Securities (continued)
Automotive and Other Operations
-------------------------------
Investments in marketable securities were as follows (dollars in millions):
Book/Fair Unrealized Unrealized
Cost Value Gains Losses
---- ----- ----- ------
December 31, 2003
------------------------------------------
Type of security
Corporate debt securities and other $5,246 $5,246 $9 $9
U.S. government and agencies 2,865 2,867 9 7
Mortgage backed securities 90 90 - -
----- -----
Total debt securities available
for sale 8,201 8,203 - -
News Corporation ADSs 819 864 - -
----- ----- -- --
Total marketable securities $9,020 $9,067 $18 $16
===== ===== == ==
December 31, 2002
-------------------------------------------
Type of security
Corporate debt securities and other $1,456 $1,469 $18 $5
U.S. government and agencies 606 612 6 -
Mortgage backed securities 93 93 - -
----- ----- -- --
Total marketable securities $2,155 $2,174 $24 $5
===== ===== == =
Debt securities totaling $752 million mature within one year and $7.1 billion
mature after one through five years, $79 million mature after five through ten
years and $247 million mature after ten years. Proceeds from sales of marketable
securities totaled $7.1 billion in 2003, $4.7 billion in 2002, and $373 million
in 2001. The gross gains related to sales of marketable securities were $7
million, $3 million, and $3 million in 2003, 2002, and 2001, respectively. The
gross losses related to sales of marketable securities were $11 million in 2003,
$1 million in 2002 and $7 million in 2001.
Financing and Insurance Operations
----------------------------------
Investments in marketable securities were as follows (dollars in millions):
Book/Fair Unrealized Unrealized
Cost Value Gains Losses
---- ----- ----- ------
December 31, 2003
------------------------------------------
Type of security
Bonds, notes, and other securities
United States government and
agencies $716 $722 $7 $1
States and municipalities 595 647 52 -
Foreign government securities 543 550 8 1
Mortgage and asset-backed
securities 1,806 1,949 150 7
Corporate debt securities
and other 3,078 3,200 129 7
----- ----- --- -
Total debt securities
available-for-sale 6,738 7,068 346 16
Mortgage-backed securities
held-to-maturity 240 240 - -
Mortgage-backed securities held for
trading purposes 4,483 4,142 - 341
------ ------ --- ---
Total debt securities 11,461 11,450 346 357
Equity securities 1,185 1,698 522 9
------ ------ --- ---
Total investment in marketable
securities $12,646 $13,148 $868 $366
====== ====== === ===
Total consolidated other
marketable securities $21,666 $22,215 $886 $382
====== ====== === ===
II-39
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 6. Marketable Securities (concluded)
Book/Fair Unrealized Unrealized
Cost Value Gains Losses
---- ----- ----- ------
December 31, 2002
------------------------------------------
Type of security
Bonds, notes, and other securities
United States government and
agencies $2,836 $2,875 $39 $-
States and municipalities 599 650 52 1
Foreign government securities 479 497 19 1
Mortgage and asset-backed
securities 2,529 2,761 296 64
Corporate debt securities
and other 1,836 1,933 106 9
----- ----- --- -
Total debt securities
available-for-sale 8,279 8,716 512 75
Mortgage-backed securities
held-to-maturity 305 305 - -
Mortgage-backed securities held for
trading purposes 5,176 4,378 - 798
------ ------ --- ---
Total debt securities 13,760 13,399 512 873
Equity securities 1,224 1,252 163 135
------ ------ --- -----
Total investment in marketable
securities $14,984 $14,651 $675 $1,008
====== ====== === =====
Total consolidated other
marketable securities $17,139 $16,825 $699 $1,013
====== ====== === =====
Debt securities available-for-sale totaling $1.1 billion mature within one
year, $2.0 billion mature after one through five years, $1.6 billion mature
after five years through 10 years, and $2.4 billion mature after 10 years.
Proceeds from sales of marketable securities totaled $7.6 billion in 2003, $12.8
billion in 2002, and $5.1 billion in 2001. The gross gains related to sales of
marketable securities were $270 million, $402 million, and $228 million in 2003,
2002, and 2001, respectively. The gross losses related to sales of marketable
securities were $202 million, $121 million and $145 million in 2003, 2002, and
2001, respectively.
NOTE 7. Variable Interest Entities
As discussed in Note 1, GM applied the provisions of FIN 46 to all variable
interest entities beginning July 1, 2003. In connection with the application of
FIN 46, GM is providing information below concerning variable interest entities
that: (1) are consolidated by GM because GM is deemed to be the primary
beneficiary and (2) those entities that GM does not consolidate because,
although GM has significant interests in such variable interest entities, GM is
not the primary beneficiary.
Automotive and Other Operations
Synthetic Leases -- GM leases real estate and equipment from various special
purpose entities (SPEs) that have been established to facilitate the financing
of those assets for GM by nationally prominent, creditworthy lessors. These
assets consist principally of office buildings, warehouses, and machinery and
equipment. The use of SPEs allows the parties providing the financing to isolate
particular assets in a single entity and thereby syndicate the financing to
multiple third parties. This is a conventional financing technique used to lower
the cost of borrowing and, thus, the lease cost to a lessee such as GM. There is
a well-established market in which institutions participate in the financing of
such property through their purchase of interests in these SPEs. Certain of
these SPEs were determined to be VIEs under FIN 46. For those leases where GM
provides a residual value guarantee of the leased property and is considered the
primary beneficiary under FIN 46, GM consolidated these entities as of July 1,
2003. This resulted, for Auto & Other, in an initial increase in assets and debt
of $917 million and a cumulative effect of accounting change recorded in cost of
sales of $27 million after-tax. As of December 31, 2003, the carrying amount of
assets and liabilities consolidated under FIN 46 amounted to $878 million and
$945 million respectively. Assets consolidated are classified as "Property" in
GM's consolidated financial statements. GM's maximum exposure to loss related to
consolidated VIEs amounts to $795 million. For other such lease arrangements
involving VIEs, GM holds significant variable interests but is not considered
the primary beneficiary under FIN 46. GM's maximum exposure to loss related to
VIE's where GM has a significant variable interest, but does not consolidate the
entity, amounts to $557 million.
II-40
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 7. Variable Interest Entities (concluded)
Financing and Insurance Operations
Mortgage warehouse funding -- GMAC's Mortgage operations sell commercial and
residential mortgage loans through various structured finance arrangements in
order to provide funds for the origination and purchase of future loans. These
structured finance arrangements include sales to off-balance sheet warehouse
funding entities, including GMAC- and bank-sponsored commercial paper conduits.
Transfers of assets from GMAC into each facility are accounted for as sales
based on the provisions of SFAS 140 and as such creditors of these facilities
have no recourse to the general credit of GMAC. Some of these warehouse funding
entities represent variable interest entities under FIN 46. For certain mortgage
warehouse entities, management determined that GMAC does not have the majority
of the expected losses or returns and, as such, consolidation is not appropriate
under FIN 46. The assets in these entities totaled $2.4 billion, of which $0.8
billion represents GMAC's maximum exposure to loss. The maximum exposure would
only occur in the unlikely event that there was a complete loss on the
underlying assets of the entities. In other entities, GMAC was considered the
primary beneficiary, and the activities of these entities were either terminated
prior to July 1, 2003 or GMAC consolidated these entities pursuant to FIN 46. As
of December 31, 2003 the consolidated entities had no assets remaining and had
been terminated.
Interests in Real Estate Partnerships -- The Corporation's Mortgage
operations syndicate investments in real estate partnerships to unaffiliated
investors and, in certain partnerships, guarantee the timely payment of a
specified return to those investors. Returns to investors in the partnerships
syndicated by the Corporation are derived from tax credits and tax losses
generated by underlying operating partnership entities that develop, own, and
operate affordable housing properties throughout the United States. Syndicated
tax credit partnerships that contain a guarantee are reflected in the
Corporation's financial statements under the financing method. In addition, the
Corporation has variable interests in the underlying operating partnerships
(primarily in the form of limited partnership interests). The results of the
Corporation's variable interest analysis indicated that GMAC is not the primary
beneficiary of these partnerships and, as a result, is not required to
consolidate these entities under FIN 46. Assets outstanding in these
partnerships approximated $3 billion at December 31, 2003. GMAC's exposure to
loss at such time was $675 million, representing the amount payable to investors
in the event of liquidation of the partnerships. The Corporation's exposure to
loss increases as unaffiliated investors place additional guaranteed commitments
with the Corporation. Considering such committed amounts, the Corporation's
exposure to loss in future periods is not expected to exceed $1.2 billion.
Collateralized debt obligations (CDOs) -- GMAC's Mortgage operations sponsor,
purchase subordinate and equity interests in, and serve as collateral manager
for CDOs. Under CDO transactions, a trust is established that purchases a
portfolio of securities and issues debt and equity certificates, representing
interests in the portfolio of assets. In addition to receiving variable
compensation for managing the portfolio, the Corporation sometimes retains
equity investments in the CDOs. The majority of the CDOs sponsored by the
Corporation were initially structured or have been restructured (with approval
by the senior beneficial interest holders) as qualifying special purpose
entities, and are therefore exempt from FIN 46. For the Corporation's remaining
CDOs, the results of the primary beneficiary analysis support the conclusion
that consolidation is not appropriate under FIN 46 because GMAC does not have
the majority of the expected losses or returns. The assets in these CDOs totaled
$2.0 billion of which GMAC's maximum exposure to loss is $40 million,
representing GMAC's retained interests in these entities. The maximum exposure
to loss would only occur in the unlikely event that there was a complete loss on
the underlying assets of the entities.
Automotive Finance Receivables -- In certain securitization transactions,
GMAC securitizes consumer and commercial finance receivables into bank-sponsored
multi-seller commercial paper conduits. These conduits provide a funding source
to GMAC (as well as other sellers into the conduit) as they fund the purchase of
the receivables through the issuance of commercial paper. Total assets
outstanding in these bank-sponsored conduits approximated $13 billion as of
December 31, 2003. While GMAC has a variable interest in these conduits, the
Corporation is not deemed to be the primary beneficiary, as GMAC does not retain
the majority of the expected losses or returns. GMAC's maximum exposure to loss
as a result of its involvement with these non-consolidated variable interest
entities is $179 million and would only be realized in the event of a complete
loss on the assets that GMAC sold.
II-41
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 8. Finance Receivables and Securitizations
Finance Receivables - Net
Finance receivables - net included the following (dollars in millions):
December 31,
-----------------------
Consumer: 2003 2002
---- ----
Retail automotive $87,163 $78,857
Residential mortgages 46,307 15,238
------- ------
Total consumer 133,470 94,095
Commercial:
Automotive:
Wholesale 25,517 21,459
Leasing and lease financing 1,465 5,910
Term loans to dealers and others 3,912 4,190
Commercial and industrial 9,783 9,464
Commercial real estate:
Commercial mortgage 180 621
Construction 2,053 1,963
------- -------
Total commercial 42,910 43,607
------- -------
Total finance receivables and loans 176,380 137,702
Allowance for financing losses (3,243) (3,059)
------- -------
Total consolidated finance receivables -
net (1) $173,137 $134,643
======= =======
(1) Net of unearned income of $7.2 billion and $6.5 billion at December 31, 2003
and 2002, respectively.
Finance receivables that originated outside the United States were $29.1
billion and $23.1 billion at December 31, 2003 and 2002, respectively. The
aggregate amounts of total finance receivables maturing in each of the five
years following December 31, 2003, is as follows: 2004-$64.0 billion; 2005-$25.6
billion; 2006-$22.0 billion; 2007-$15.0 billion; 2008-$7.3 billion; and 2009 and
thereafter-$49.1 billion. Actual maturities may differ from those scheduled due
to prepayments.
Securitizations of Finance Receivables and Mortgage Loans
The Corporation securitizes automotive and mortgage financial assets as a
funding source. GMAC sells retail finance receivables, wholesale loans,
residential mortgage loans, commercial mortgage loans and commercial investment
securities.
The Corporation retains servicing responsibilities and subordinated interests
for all of its securitizations of retail finance receivables and wholesale
loans. Servicing responsibilities are retained for the majority of its
residential and commercial mortgage loan securitizations and the Corporation may
retain subordinated interests in some of these securitizations. GMAC also holds
subordinated interests and acts as collateral manager in the securitizations of
its commercial investment securities. As of December 31, 2003, the weighted
average servicing fees for GM's primary servicing activities were 200 basis
points, 100 basis points, 27 basis points and 8 basis points of the outstanding
principal balance for sold retail finance receivables, wholesale loans,
residential mortgage loans and commercial mortgage loans, respectively.
Additionally, the Corporation retains the rights to cash flows remaining after
the investors in most securitization trusts have received their contractual
payments.
The Corporation maintains cash reserve accounts at predetermined amounts for
certain securitization activities in the unlikely event that deficiencies occur
in cash flows owed to the investors. The amounts available in such cash reserve
accounts totaled $162 million, $1.2 billion, $6 million, $5 million, and $70
million as of December 31, 2003 related to securitizations of retail finance
receivables, wholesale loans, residential mortgage loans, commercial mortgage
loans and commercial investment securities, respectively, and $280 million, $937
million, $21 million, $4 million and $20 million as of December 31, 2002,
respectively.
II-42
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 8. Finance Receivables and Securitizations (continued)
The following table summarizes pre-tax gains on securitizations and certain
cash flows received from and paid to securitization trusts for sales of finance
receivables and loans that were completed during 2003, 2002 and 2001:
2003
--------------------------------------------------
Retail Mortgage loans
Year ended December 31, finance Wholesale ------------------------
(in millions) receivables loans Residential Commercial
------------- ----------- ----- ----------- ----------
Pre-tax gains on
securitizations $37 $ - $522 $75
Cash flow information:
Proceeds from new
securitizations 1,604 3,625 29,566 3,342
Servicing fees received 228 164 250 20
Other cash flows received
on retained interests 753 174 955 317
Purchases of delinquent
or foreclosed assets (275) - (262) (5)
Pool buyback cash flows (885) - (1,953) -
Servicing advances (118) - (1,944) (117)
Repayments of servicing
advances 114 - 2,017 116
Proceeds from collections
reinvested in revolving
securitizations 862 97,829 - 5
2002
--------------------------------------------------
Retail Mortgage loans
Year ended December 31, finance Wholesale ------------------------
(in millions) receivables loans Residential Commercial
------------- ----------- ----- ----------- ----------
Pre-tax gains on
securitizations $239 $ - $562 $30
Cash flow information:
Proceeds from new
securitizations 9,982 2,327 28,241 1,848
Servicing fees received 247 146 201 17
Other cash flows received
on retained interests 1,361 318 1,044 86
Purchases of delinquent
or foreclosed assets (299) - (504) -
Pool buyback cash flows (289) (55) (216) -
Servicing advances (117) - (1,582) (122)
Repayments of servicing
advances 117 - 1,447 116
Proceeds from collections
reinvested in revolving
securitizations 482 104,485 - -
2001
--------------------------------------------------
Retail Mortgage loans
Year ended December 31, finance Wholesale ------------------------
(in millions) receivables loans Residential Commercial
------------- ----------- ----- ----------- ----------
Pre-tax gains on
securitizations $210 $ - $966 $24
Cash flow information:
Proceeds from new
securitizations 7,331 7,055 35,137 2,934
Servicing fees received 168 124 256 16
Other cash flows received
on retained interests 1,282 417 844 60
Purchases of delinquent
or forecloed assets (240) - (34) -
Pool buyback cash flows (270) - (390) -
Servicing advances (88) - (1,861) (95)
Repayments of servicing
advances 66 - 1,817 71
Proceeds from collections
reinvested in revolving
securitizations - 81,563 364 -
--------------------------------------------------------------------------------
In addition to the information presented in the preceding table, pre-tax
gains recognized on commercial investment securities were $14 million, $18
million and $17 million for the years ended December 31, 2003, 2002 and 2001,
respectively. Cash proceeds from new securitizations of commercial investment
securities were $1.9 billion, $439 million and $643 million for the years ended
December 31, 2003, 2002 and 2001, respectively. In addition, cash flows received
on retained interests of commercial investment securities aggregated $69
million, $37 million and $16 million for the years ended December 31, 2003, 2002
and 2001, respectively.
Key economic assumptions used in measuring the estimated fair value of
retained interests of sales completed during 2003 and 2002, as of the dates of
such sales, were as follows:
2003
-----------------------------------------------------
Retail Mortgage loans Commercial
Year ended December 31, finance ----------------------- investment
receivables(a) Residential(b) Commercial securities
---------------------- ----------- ----------- ----------- ----------
Key assumptions (c)
(rates per annum):
Annual prepayment rate (d) 0.9% 3.1-59.9% 0.0-50.0% 0.0%
Weighted average life
(in years) 1.6 1.7-5.9 1.4-6.2 2.5-25.1
Expected credit losses (e) 0.0-7.3% 0.0-0.8% 0.0-1.6%
Discount rate 9.5% 6.5-14.5% 2.6-10.8% 8.6-10.0%
2002
-----------------------------------------------------
Retail Mortgage loans Commercial
Year ended December 31, finance ----------------------- investment
receivables(a) Residential(b) Commercial securities
---------------------- ----------- ----------- ----------- ----------
Key assumptions (c)
(rates per annum):
Annual prepayment rate (d) 0.8-1.3% 6.6-54.7% 0.0-50.0% 0.0-90.0%
Weighted average life
(in years) 1.5-2.6 1.3-4.5 1.0-7.8 3.0-36.0
Expected credit losses (e) 0.0-24.8% 0.0-1.5% 0.0-0.9%
Discount rate 9.5-12.0% 6.5-13.5% 2.8-20.1% 3.6-12.7%
------------------------------------------------------------------------------
(a)The fair value of retained interests in wholesale securitizations
approximates cost because of the short-term and floating rate nature of
wholesale loans.
(b)Included within residential mortgage loans are home equity loans and lines,
high loan-to-value loans and residential first and second mortgage loans.
(c)The assumptions used to measure the expected yield on variable rate
retained interests are based on a benchmark interest rate yield curve,
plus a contractual spread, as appropriate. The actual yield curve utlized
varies depending on the specific retained interests.
(d)Based on the weighted average maturity (WAM) for finance receivables and
constant prepayment rate (CPR) for mortgage loans and commercial investment
securities.
(e)A reserve totaling $83 million and $127 million at December 31, 2003 and
2002, respectively, has been established for expected credit losses on
finance receivables securitized in off-balance sheet transactions.
II-43
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 8. Finance Receivables and Securitizations (continued)
The table below outlines the key economic assumptions and the sensitivity of
the estimated fair value of retained interests at December 31, 2003 to immediate
10% and 20% adverse changes in those assumptions.
-----------------------------------------------------
Retail Mortgage loans Commercial
($ in millions) finance ----------------------- investment
receivables(a) Residential(b) Commercial securities
-------------------------------------------------------------------------------
Carrying value/fair
value of retained
interests $1,045 (b) $1,171 $620 $318
Weighted average life
(in years) 0.1-1.0 1.1-5.9 0.1-18.4 0.5-25.1
Annual prepayment rate 0.7-1.6% WAM 7.0-65.0%CPR 0.0-50.0% CPR 0.0-37.0% CPR
Impact of 10% adverse
change $-- $(69) $(2) $(2)
Impact of 20% adverse
change (1) (132) (3) (3)
-------------------------------------------------------------------------------
Loss assumption (b) 0.0-26.1% 0.0-6.6% 0.9-33.7%
Impact of 10% adverse
change $(8) $(123) $(5) $(10)
Impact of 20% adverse
change (17) (252) (10) (19)
-------------------------------------------------------------------------------
Discount rate 9.5-12.0% 6.5-14.5% 2.5-20.1% 3.6-13.2%
Impact of 10% adverse
change $(5) $(31) $(8) $(18)
Impact of 20% adverse
change (10) (61) (16) (34)
-------------------------------------------------------------------------------
Market rate (d) 2.1-3.2% (c) (c) (c)
Impact of 10% adverse
change $(6) $(19) $-- $--
Impact of 20% adverse
change (11) (39) -- --
-------------------------------------------------------------------------------
(a)The fair value of retained interests in wholesale securitizations
approximates cost because of the short-term and floating rate nature of
wholesale receivables.
(b The fair value of retained interests in securitizations is net of a reserve
for expected credit losses totaling $83 million at December 31, 2003.
(c)Forward benchmark interest rate yield curve plus contractual spread.
(d)Represents the rate of return paid to the investors.
These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a 10% variation in assumptions
generally cannot be extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear. Also, in this table,
the effect of a variation in a particular assumption on the fair value of the
retained interest is calculated without changing any other assumption. In
reality, changes in one factor may result in changes in another, which may
magnify or counteract the sensitivities. Additionally, the Corporation hedges
interest rate and prepayment risks associated with certain of the retained
interests; the effects of such hedge strategies have not been considered herein.
Expected static pool net credit losses include actual incurred losses plus
projected net credit losses divided by the original balance of the outstandings
comprising the securitization pool. The table below displays the expected static
pool net credit losses based on securitizations completed each year.
Loans securitized in
(a)
------------------------------------------------
December 31, 2003 2002 2001
---------------------------------------------------------------
Retail automotive 0.4% 0.6% 0.7%
Residential mortgage 0.0-26.0% 0.0-24.8% 0.0-22.9%
Commercial mortgage 0.0-6.6% 0.0-4.1% 0.0-2.3%
Commercial investment
securities 0.9-33.7% 0.3-36.8% 0.0-17.0%
---------------------------------------------------------------
(a) Static pool losses not applicable to wholesale finance receivable
securitizations because of their short-term nature.
II-44
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 8. Finance Receivables and Securitizations (concluded)
The following table presents components of securitized financial assets and
other assets managed, along with quantitative information about delinquencies
and net credit losses.
Total finance Amount 60 days
receivables and or
loans more past due Net credit losses
---------------------------------------------------------
December 31, (in millions) 2003 2002 2003 2002 2003 2002
------------------------------------------------------------------------------------
Retail automotive $99,196 $93,848 $749 $637 $1,179 $844
Residential mortgage 104,378 93,955 4,974 3,973 682 644
------------------------------------------------------------------------------------
Total consumer 203,574 187,803 5,723 4,610 1,861 1,488
------------------------------------------------------------------------------------
Wholesale 46,644 38,722 46 88 5 (15)
Commercial mortgage 22,621 19,513 652 350 66 8
Other automotive and
commercial 17,364 21,678 167 317 194 176
------------------------------------------------------------------------------------
Total commercial 86,629 79,913 865 755 265 169
------------------------------------------------------------------------------------
Total managed portfolio (a) 290,203 267,716 $6,588 $5,365 $2,126 $1,657
=====================================
Securitized finance
receivables and loans (94,622) (114,767)
Loans held for sale
(unpaid principal) (19,609) (15,756)
----------------------------------------------
Total finance receivables
and loans $175,972 $137,193
==============================================
(a)Managed portfolio represents finance receivables and loans on the balance
sheet or that have been securitized, excluding securitized finance
receivables and loans that GMAC continues to service but has no other
continuing involvement (i.e., in which GMAC retains an interest or risk of
loss in the underlying receivables).
NOTE 9. Inventories
Inventories included the following for Automotive and Other Operations
(dollars in millions):
December 31,
--------------------
2003 2002
---- ----
Productive material, work in process, and supplies $4,899 $4,803
Finished product, service parts, etc. 7,642 6,741
------ ------
Total inventories at FIFO 12,541 11,544
Less LIFO allowance 1,581 1,807
------ -----
Total inventories (less allowances) $10,960 $9,737
====== =====
Inventories are stated generally at cost, which is not in excess of market.
The cost of approximately 92% of U.S. inventories is determined by the last-in,
first-out (LIFO) method. Generally, the cost of all other inventories is
determined by either the first-in, first-out (FIFO) or average cost methods.
During 2003, U.S. LIFO eligible inventory quantities were reduced. This
reduction resulted in a liquidation of LIFO inventory quantities carried at
lower costs prevailing in prior years as compared with the cost of 2003
purchases, the effect of which decreased cost of goods sold by approximately
$200 million, pre-tax.
NOTE 10. Equipment on Operating Leases
The Corporation has significant investments in the residual values of its
leasing portfolios. The residual values represent the estimate of the values of
the assets at the end of the lease contracts and are initially recorded based on
appraisals and estimates. Realization of the residual values is dependent on the
Corporation's future ability to market the vehicles under then prevailing market
conditions. Management reviews residual values periodically to determine that
recorded amounts are appropriate.
Automotive and Other Operations
-------------------------------
Equipment on operating leases and accumulated depreciation was as follows
(dollars in millions):
December 31,
---------------------
2003 2002
---- ----
Equipment on operating leases $7,994 $5,729
Less accumulated depreciation (821) (424)
------ ------
Net book value $7,173 $5,305
===== =====
II-45
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 10. Equipment on Operating Leases (concluded)
Financing and Insurance Operations
----------------------------------
Equipment on operating leases and accumulated depreciation was as follows
(dollars in millions):
December 31,
---------------------
2003 2002
---- ----
Equipment on operating leases $35,800 $33,422
Less accumulated depreciation (8,590) (7,701)
------ ------
Net book value $27,210 $25,721
====== ======
Total consolidated net book value $34,383 $31,026
====== ======
The lease payments to be received related to equipment on operating leases
maturing in each of the five years following December 31, 2003, are as follows:
Auto & Other - none, as the payment is received upfront and the income is
deferred over the lease period; FIO - 2004 $6.4 billion; 2005-$4.3 billion; 2006
- $2.4 billion; 2007 - $711 million; and 2007-$54 million. There are no leases
maturing after 2008.
NOTE 11. Income Taxes
Income from continuing operations before income taxes and minority interests
included the following (dollars in millions):
Years Ended December 31,
-----------------------------
2003 2002 2001
---- ---- ----
U.S. income (loss) $1,786 $126 $(329)
Foreign income 1,195 2,212 2,783
----- ----- -----
Total $2,981 $2,338 $2,454
===== ===== =====
The provision for income taxes was estimated as follows (dollars in
millions):
Years Ended December 31,
----------------------------
2003 2002 2001
---- ---- ----
Income taxes estimated to be payable
currently
U.S. federal $123 $48 $34
Foreign 1,701 1,394 1,292
U.S. state and local 414 325 45
----- ----- -----
Total payable currently 2,238 1,767 1,371
----- ----- -----
Deferred income tax expense (credit) - net
U.S. federal 239 81 86
Foreign (1,712) (958) (400)
U.S. state and local (34) (246) 37
----- ----- ------
Total deferred (1,507) (1,123) (277)
----- ----- -----
Total income taxes $731 $644 $1,094
=== === =====
II-46
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 11. Income Taxes (continued)
Annual tax provisions include amounts considered sufficient to pay
assessments that may result from examination of prior year tax returns. Cash
paid for income taxes in 2003, 2002, and 2001 was $1.7 billion, $2.2 billion,
and $2.1 billion, respectively.
Provisions are made for estimated U.S. and foreign income taxes, less
available tax credits and deductions, which may be incurred on the remittance of
the Corporation's share of subsidiaries' undistributed earnings not deemed to be
permanently reinvested. Taxes have not been provided on foreign subsidiaries'
earnings, which are deemed permanently reinvested, of $11.6 billion at December
31, 2003, and $11.8 billion at December 31, 2002. Quantification of the deferred
tax liability, if any, associated with permanently reinvested earnings is not
practicable.
A reconciliation of the provision for income taxes compared with the amounts
at the U.S. federal statutory rate was as follows (dollars in millions):
Years Ended December 31,
----------------------------
2003 2002 2001
---- ---- ----
Tax at U.S. federal statutory income tax rate $1,043 $818 $859
State and local tax expense 261 91 56
Foreign rates other than 35% (31) 16 131
Taxes on unremitted earnings of subsidiaries 6 (13) 29
Tax credits (52) (82) (57)
Raytheon settlement (1) - - 180
Settlement of prior year tax matters (194) 18 -
ESOP dividend deduction (2) (53) (85) -
Stock contribution to pension plans (3) (87) - -
Other adjustments (162) (119) (104)
--- --- -----
Total income tax $731 $644 $1,094
=== === =====
(1) Non-tax deductible settlement with the Raytheon Company on a purchase
price adjustment related to Raytheon's 1997 merger with Hughes Defense.
(2) Deduction for dividends paid on GM $1-2/3 par value common stock held
under the employee stock ownership portion of the GM Savings Plans,
pursuant to the Economic Growth and Tax Relief Reconciliation Act of 2001.
(3) Additional tax benefit related to the GM Class H Common Stock contribution
to the pension and VEBA plans.
Deferred income tax assets and liabilities for 2003 and 2002 reflect the
effect of temporary differences between amounts of assets, liabilities, and
equity for financial reporting purposes and the bases of such assets,
liabilities, and equity as measured by tax laws, as well as tax loss and tax
credit carryforwards.
Temporary differences and carryforwards that gave rise to deferred tax assets
and liabilities included the following (dollars in millions):
December 31,
--------------------------------------
2003 2002
Deferred Tax Deferred Tax
------------ ------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Postretirement benefits other
than pensions $15,280 $ - $14,945 $ -
Pension and other employee
benefit plans 4,060 12,521 8,009 461
Warranties, dealer and customer
allowances, claims,
and discounts 6,541 108 6,047 -
Depreciation and amortization 3,901 2,832 2,386 2,967
Tax carryforwards 3,313 - 3,707 -
Lease transactions 10 4,297 - 4,732
Miscellaneous foreign 6,363 2,602 5,165 2,007
Other 7,136 2,885 8,277 3,942
------ ------ ------ ------
Subtotal 46,604 25,245 48,536 14,109
Valuation allowances (1,677) - (1,183) -
------ ------ ------ ------
Total deferred taxes $44,927 $25,245 $47,353 $14,109
------ ------ ------ ------
Net deferred tax assets $19,682 $33,244
====== ======
II-47
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 11. Income Taxes (concluded)
Deferred tax detail above is included in the consolidated balance sheet and
supplemental information as follows:
2003 2002
---- ----
Current deferred tax assets $9,104 $8,336
Current deferred tax liabilities (5,671) (5,348)
Non-current deferred tax assets 18,086 31,431
Non-current deferred tax liabilities (1,837) (1,175)
------ ------
Total $19,682 $33,244
====== ======
Of the tax carryforwards, approximately 17.2% relates to the alternative
minimum tax credit (which can be carried forward indefinitely) and approximately
17.7% relates to the U.S. state net operating loss carryforwards, which will
expire in the years 2004-2022 if not used. However, a substantial portion of the
U.S. state net operating loss carryforwards will not expire until after the year
2006. The other tax credit carryforwards, consisting primarily of research and
experimentation credits, will expire in the years 2019-2022 if not used. The
valuation allowance principally relates to U.S. state and certain foreign
operating loss carryforwards.
NOTE 12. Property - Net
Property - net was as follows (dollars in millions):
Estimated December 31,
Useful --------------
Lives (Years) 2003 2002
-------------- --------------
Automotive and Other Operations
-------------------------------
Land - $1,004 $913
Buildings and land improvements 2-40 15,272 13,912
Machinery and equipment 3-30 44,851 41,500
Construction in progress - 2,722 2,757
------ ------
Real estate, plants, and equipment 63,849 59,082
Less accumulated depreciation (37,535) (34,182)
------ ------
Real estate, plants, and equipment - net 26,314 24,900
Special tools - net 9,757 9,235
------ ------
Total property - net $36,071 $34,135
------ ------
Financing and Insurance Operations
----------------------------------
Equipment and other 2-10 $3,160 $2,329
Less accumulated depreciation (1,020) (508)
----- ------
Total property - net $2,140 $1,821
----- -----
Total consolidated property - net $38,211 $35,956
====== ======
Depreciation and amortization expense was as follows (dollars in millions):
Years Ended December 31,
---------------------------
Automotive and Other Operations 2003 2002 2001
------------------------------- ---- ---- ----
Depreciation $4,526 $3,675 $3,533
Amortization of special tools 3,391 2,648 2,360
Amortization of intangible assets 29 1 14
----- ----- -----
Total $7,946 $6,324 $5,907
===== ===== =====
Financing and Insurance Operations
----------------------------------
Depreciation $6,021 $5,522 $5,684
Amortization of intangible assets 11 19 173
----- ----- -----
Total $6,032 $5,541 $5,857
===== ===== =====
II-48
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 13. Goodwill and Intangible Assets
The components of the Corporation's intangible assets as of December 31, 2003
and 2002 were as follows (dollars in millions):
Gross Accumulated Net
December 31, 2003 Carrying Amortization Carrying
Amount Amount
-----------------------------------
Automotive and Other Operations
-------------------------------
Amortizing intangible assets:
Patents and intellectual property rights $303 $31 $272
Non-amortizing intangible assets:
Goodwill 567
Prepaid pension asset (Note 17) 640
-----
Total goodwill and intangible assets $1,479
-----
Financing and Insurance Operations
----------------------------------
Amortizing intangible assets:
Customer lists and contracts $65 $31 $34
Trademarks and other 40 16 24
Covenants not to compete 18 18 -
--- -- --
Total $123 $65 $58
=== ==
Non-amortizing intangible assets:
Goodwill 3,223
-----
Total goodwill and intangible assets 3,281
-----
Total consolidated goodwill and intangible assets $4,760
=====
December 31, 2002
Automotive and Other Operations
-------------------------------
Amortizing intangible assets:
Patents and intellectual property rights $305 $28 $277
Non-amortizing intangible assets:
Goodwill 477
Prepaid pension asset (Note 17) 6,699
-----
Total goodwill and intangible assets $7,453
-----
Financing and Insurance Operations
----------------------------------
Amortizing intangible assets:
Customer lists and contracts $67 $24 $43
Trademarks and other 39 12 27
Covenants not to compete 18 18 -
--- -- --
Total $124 $54 $70
=== ==
Non-amortizing intangible assets:
Goodwill 3,273
-----
Total goodwill and intangible assets 3,343
-----
Total consolidated goodwill and intangible assets $10,796
======
Aggregate amortization expense on existing acquired intangible assets was $37
million for the year ended December 31, 2003. Estimated amortization expense in
each of the next five years is as follows: 2004 - $38 million; 2005 - $38
million; 2006 - $37 million; 2007 - $37 million; and 2008 - $34 million.
II-49
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 13. Goodwill and Intangible Assets (concluded)
The changes in the carrying amounts of goodwill for the year ended December
31, 2003, were as follows (dollars in millions):
Total
Auto &
GMNA GME Other GMAC Total GM
---- --- ----- ---- --------
Balance as of December 31, 2001 $29 $283 $312 $3,144 $3,456
Goodwill acquired during the period 118 - 118 96 214
Goodwill written off related to
sale of business units (8) - (8) (9) (17)
Effect of foreign currency - 55 55 42 97
--- --- --- ----- -----
translation
Balance as of December 31, 2002 139 338 477 3,273 3,750
Goodwill acquired during the period - - - 18 18
Goodwill written off related to
sale of business units (4) - (4) - (4)
Effect of foreign currency
translation 6 75 81 51 132
Impairment/Other 13 - 13 (119)(1) (106)
--- --- --- ----- -----
Balance as of December 31, 2003 $154 $413 $567 $3,223 $3,790
=== === === ===== =====
(1)In September 2003, GMAC received $110 million related to a settlement of a
claim involving the 1999 acquisition of the asset-based lending and factoring
business of The Bank of New York. Of the settlement amount, $109 million was
considered a purchase price adjustment, reducing the related goodwill; the
remainder represented a reimbursement of tax claims paid on behalf of The
Bank of New York.
NOTE 14. Other Assets
Automotive and Other Operations
Other assets included the following (dollars in millions):
December 31,
-----------------------
2003 2002
---- ----
Investments in equity securities $470 $334
U.S. prepaid pension benefit cost (Note 17) 39,904 -
Other 1,888 1,127
------- -----
Total other assets $42,262 $1,461
====== =====
Investments in equity securities at December 31, 2003 and 2002 includes the
fair value of investments in equity securities classified as available-for-sale
for all periods presented. It is GM's intent to hold these securities for longer
than one year. Balances include historical costs of $114 million and $60 million
with unrealized gains of $142 million and $75 million and unrealized losses of
$6 million and $21 million at December 31, 2003 and 2002, respectively.
Also included in investments in equity securities is GM's investment in the
common stock of Fiat Auto Holdings B.V. (FAH), the entity that is the sole
shareholder of Fiat Auto S.p.A. (Fiat Auto), acquired for $2.4 billion in 2000.
Subsequent to that acquisition, unfavorable European market conditions and other
factors led to deterioration in the performance of Fiat Auto. Accordingly, GM
commenced a review of the appropriate carrying value of GM's investment in FAH,
completed in the third quarter of 2002, which resulted in a non-cash charge of
$2.2 billion ($1.4 billion after-tax), recorded in cost of sales and other
expenses in the Other segment of Auto & Other. This write-down brought the
carrying value of GM's investment in FAH from $2.4 billion to $220 million. The
carrying value is based on GM's interest in the estimated market value of FAH
equity, which comprises FAH's ownership of Fiat Auto, including 50% ownership
interests in the purchasing and powertrain joint ventures between GM and Fiat
Auto. GM's investment in FAH was reduced from 20% to 10% when Fiat recapitalized
FAH in 2003.
II-50
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 14. Other Assets (concluded)
Financing and Insurance Operations
Other assets included the following (dollars in millions):
December 31,
--------------------
2003 2002
---- ----
Mortgage servicing rights $3,720 $2,683
Premiums and other insurance receivables 1,960 1,742
Deferred policy acquisition costs 1,038 584
Derivative assets 10,026 7,185
Repossessed and foreclosed assets, net 786 418
Equity investments 1,560 587
Intangible assets (Note 13) 3,281 3,343
Property (Note 12) 2,140 1,821
Cash deposits held for securitization trusts 1,922 1,481
Restricted cash collections for securitization trusts 2,291 1,244
Accrued interest and rent receivable 767 673
Real estate investments 788 819
Debt issuance costs 716 508
Servicer advances 946 838
Other 3,547 4,260
------ ------
Total other assets $35,488 $28,186
====== ======
Reclassification for Consolidated Balance Sheet Presentation
December 31,
--------------------
2003 2002
---- ----
AO - other assets, as detailed above $42,262 $1,461
FIO - other assets, as detailed above 35,488 28,186
------ ------
Subtotal 77,750 29,647
------ ------
Prepaid assets and other 1,747 1,295
Accounts and notes receivable (15,152) (11,602)
Intangible assets (Note 13) (3,281) (3,343)
Property (Note 12) (2,140) (1,821)
------ ------
Total consolidated other assets $58,924 $14,176
====== ======
NOTE 15. Accrued Expenses, Other Liabilities, and Deferred Income Taxes
Automotive and Other Operations
-------------------------------
Accrued expenses, other liabilities, and deferred income taxes included the
following (dollars in millions):
December 31,
--------------------
2003 2002
---- ----
Dealer and customer allowances, claims, and discounts $11,145 $10,388
Deferred revenue, principally sales of vehicles to rental
companies 13,157 10,311
Policy, product warranty, and recall campaigns 8,674 8,850
Payrolls and employee benefits (excludes postemployment) 5,081 4,283
Unpaid losses under self-insurance programs 2,027 1,990
Taxes 3,437 1,670
Interest 932 669
Postemployment benefits (including extended disability
benefits) 1,212 1,251
Other 8,492 7,576
------ ------
Total accrued expenses and other liabilities $54,157 $46,988
Pensions 72 46
Postretirement benefits 3,210 3,142
Deferred income taxes 3,545 2,671
------ ------
Total accrued expenses, other liabilities, and deferred
income taxes $60,984 $52,847
====== ======
Current $45,417 $39,113
Non-current 15,567 13,734
------ ------
Total accrued expenses, other liabilities, and deferred
income taxes $60,984 $52,847
====== ======
II-51
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 15. Accrued Expenses, Other Liabilities, and Deferred Income Taxes
(continued)
Automotive and Other Operations (concluded)
-------------------------------------------
December 31,
-----------------
2003 2002
---- ----
Policy, product warranty and recall campaigns liability
Beginning balance $8,850 $8,171
Payments (4,435) (4,182)
Increase in liability (warranties issued during period) 4,390 4,418
Adjustments to liability (pre-existing warranties) (367) 323
Effect of foreign currency translation 236 120
----- -----
Ending balance $8,674 $8,850
===== =====
Financing and Insurance Operations
----------------------------------
Other liabilities and deferred income taxes included the following (dollars
in millions):
December 31,
--------------------
2003 2002
---- ----
Unpaid insurance losses, loss adjustment expenses, and
unearned insurance premiums $6,568 $5,637
Income taxes 139 1,659
Interest 3,135 2,741
Deposits 5,074 3,732
Interest rate derivatives 1,121 843
Other 3,736 3,744
------ ------
Total other liabilities $19,773 $18,356
Postretirement benefits 797 766
Deferred income taxes 3,963 3,852
------ ------
Total other liabilities and deferred income taxes $24,533 $22,974
====== ======
Total consolidated accrued expenses and other
liabilities $73,930 $65,344
====== ======
Total consolidated deferred income tax liability
(Note 11) $7,508 $6,523
===== =====
NOTE 16. Long-Term Debt and Loans Payable
Automotive and Other Operations
-------------------------------
Long-term debt and loans payable were as follows (dollars in millions):
Weighted-Average
Interest Rate December 31,
------------- ------------
2003 2002 2003 2002
---- ---- ---- ----
Long-term debt and loans payable
Payable within one year
Current portion of long-term debt (1) 1.4% 3.8% $1,090 $424
All other 3.3% 2.9% 1,723 1,570
----- -----
Total loans payable 2,813 1,994
Payable beyond one year (1) 6.8% 6.0% 29,632 14,234
Unamortized discount (108) (21)
Mark to market adjustment (2) 69 48
------ -----
Total long-term debt and loans payable $32,406 $16,255
(1) The weighted-average interest rates include the impact of interest rate swap
agreements.
(2) Effective January 1, 2001, the Corporation began recording its hedged debt
at fair market value on the balance sheet due to the implementation of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities".
II-52
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 16. Long-Term Debt and Loans Payable (continued)
Long-term debt payable beyond one year at December 31, 2003 included
maturities as follows: 2005 - $575 million; 2006 - $541 million; 2007 - $198
million; 2008 - $1.6 billion; 2009 and after - $26.8 billion.
To protect against foreign exchange risk, GM has entered into cross currency
swap agreements. The notional amounts of such agreements as of December 31, 2003
for Auto & Other were approximately $2.4 billion. The notional amounts of such
agreements as of December 31, 2002 for Auto & Other were approximately $238
million.
Amounts payable beyond one year after cross currency swaps at December 31,
2003 included $2.3 billion in currencies other than the U.S. dollar, primarily
the euro ($1.9 billion), the Brazilian real ($197 million) and the Australian
dollar ($186 million)
At December 31, 2003 and 2002, long-term debt and loans payable for Auto &
Other included $27.4 billion and $14.8 billion, respectively, of obligations
with fixed interest rates and $5.0 billion and $1.5 billion, respectively, of
obligations with variable interest rates (predominantly LIBOR), after interest
rate swap agreements.
To achieve its desired balance between fixed and variable rate debt, GM has
entered into interest rate swap and swaption agreements. The notional amount of
pay variable swap agreements as of December 31, 2003 for Auto & Other was
approximately $ 3.5 billion. There were no such swaption agreements as of
December 31, 2003. The notional amount of such agreements as of December 31,
2002 for Auto & Other was approximately $745 million ($645 million pay variable
swap agreements and $100 million relating to pay variable swaption agreements).
GM's Auto & Other business maintains substantial lines of credit with various
banks that totaled $8.6 billion at December 31, 2003, of which $2.6 billion
represented short-term credit facilities and $6.0 billion represented long-term
credit facilities. At December 31, 2002, bank lines of credit totaled $8.5
billion, of which $2.6 billion represented short-term credit facilities and $5.9
billion represented long-term credit facilities. The unused short-term and
long-term portions of the credit lines totaled $2.1 billion and $5.9 billion at
December 31, 2003, compared with $1.8 billion and $5.8 billion at December 31,
2002. Certain bank lines of credit contain covenants with which the Corporation
and applicable subsidiaries were in compliance throughout the year ended
December 31, 2003.
Financing and Insurance Operations
----------------------------------
Debt was as follows (dollars in millions):
Weighted-Average
Interest Rate December 31,
------------- ------------
2003 2002 2003 2002
---- ---- ---- ----
Debt
Payable within one year
Current portion of long-term debt (1) 3.1% 3.5% $34,284 $27,344
Commercial paper (1) 2.1% 2.5% 13,182 13,425
All other 2.6% 3.0% 30,344 22,063
------ ------
Total loans payable 77,810 62,832
Payable beyond one year (1) 5.0% 5.1% 160,108 118,678
Unamortized discount (679) (717)
Mark to market adjustment (2) 2,111 3,120
------- -------
Total debt $239,350 $183,913
------- -------
Total consolidated notes and loans payable $271,756 $200,168
======= =======
---------------------
(1) The weighted-average interest rates include the impact of interest rate
swap agreements.
(2) Effective January 1, 2001, the Corporation began recording its hedged debt
at fair market value on the balance sheet due to the implementation of
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities."
Debt payable beyond one year at December 31, 2003 included maturities as
follows: 2005 - $33.6 billion; 2006 - $30.9 billion; 2007 - $11.9 billion; 2008
- $8.1 billion; 2009 and after - $75.6 billion. Amounts payable beyond one year
after consideration of foreign currency swaps at December 31, 2003 included
$19.6 billion in currencies other than the U.S. dollar, primarily the Canadian
dollar ($8.7 billion), the euro ($3.9 billion), the U.K. pound sterling ($3.8
billion), and the Australian dollar ($1.3 billion).
II-53
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 16. Long-Term Debt and Loans Payable (concluded)
At December 31, 2003 and 2002, debt for FIO included $96.9 billion and $71.5
billion, respectively, of obligations with fixed interest rates and $142.5
billion and $112.4 billion, respectively, of obligations with variable interest
rates (predominantly LIBOR), after considering the impact of interest rate swap
agreements.
To achieve its desired balance between fixed and variable rate debt, GM has
entered into interest rate swap, cap, and floor agreements. The notional amounts
of such agreements as of December 31, 2003 for FIO were approximately $94.4
billion relating to swap agreements ($70.9 billion pay variable and $23.5
billion pay fixed). The notional amounts of such agreements as of December 31,
2002 for FIO were approximately $56.4 billion relating to swap agreements ($53.7
billion pay variable and $2.7 billion pay fixed).
GM's FIO business maintains substantial lines of credit with various banks
that totaled $54.4 billion at December 31, 2003, of which $18.5 billion
represented short-term credit facilities and $35.9 billion represented long-term
credit facilities. At December 31, 2002, bank lines of credit totaled $53.0
billion, of which $17.8 billion represented short-term credit facilities and
$35.2 billion represented long-term credit facilities. The unused short-term and
long-term portions of the credit lines totaled $6 billion and $35.2 billion at
December 31, 2003 compared with $7.4 billion and $34.7 billion at December 31,
2002. Certain bank lines of credit contain covenants with which the Corporation
and applicable subsidiaries were in compliance throughout the year ended
December 31, 2003.
NOTE 17. Pensions and Other Postretirement Benefits
GM sponsors a number of defined benefit pension plans covering substantially
all U.S. and Canadian employees. Plans covering U.S. and Canadian represented
employees generally provide benefits of negotiated, stated amounts for each year
of service as well as significant supplemental benefits for employees who retire
with 30 years of service before normal retirement age. The benefits provided by
the plans covering U.S. and Canadian salaried employees and employees in certain
foreign locations are generally based on years of service and compensation
history. GM also has certain nonqualified pension plans covering executives that
are based on targeted wage replacement percentages and are unfunded.
GM's funding policy with respect to its qualified pension plans is to
contribute annually not less than the minimum required by applicable law and
regulations. GM made pension contributions to the U.S. hourly and salaried
pension plans of $18.5 billion in 2003, $4.8 billion in 2002, and no pension
contributions in 2001. In addition, GM made pension contributions to all other
U.S. plans of $117 million, $98 million, and $93 million in 2003, 2002, and
2001, respectively. GM does not have any contributions due in 2004 for its U.S.
hourly and salaried pension plans to meet ERISA minimum funding requirements or
to avoid paying variable rate premiums to the Pension Benefit Guaranty
Corporation. It also does not anticipate any discretionary contributions to its
U.S. hourly and salaried pension plans. GM expects to contribute approximately
$120 million to its other U.S. pension plans during 2004.
Additionally, GM maintains hourly and salaried benefit plans that provide
postretirement medical, dental, vision, and life insurance to most U.S. retirees
and eligible dependents. The cost of such benefits is recognized in the
consolidated financial statements during the period employees provide service to
GM. Certain of the Corporation's non-U.S. subsidiaries have postretirement
benefit plans, although most participants are covered by government-sponsored or
administered programs. The cost of such programs generally is not significant to
GM. GM has contributed $3.3 billion and $1.0 billion to its Voluntary Employees'
Beneficiary Association (VEBA) trust for other postretirement employee benefit
plans (OPEB) during 2003 and 2002, respectively, and made no contributions in
2001. GM has also contributed $5.0 billion to its VEBA trust in the first
quarter of 2004. Contributions by participants to the other OPEB plans were $84
million and $55 million for the years ended December 31, 2003, and 2002,
respectively.
II-54
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 17. Pensions and Other Postretirement Benefits (continued)
GM uses a December 31 measurement date for the majority of its U.S.
pension plans and a September 30 measurement date for U.S. OPEB plans.
U.S. Plans Non-U.S. Plans
Pension Benefits Pension Benefits Other Benefits
---------------------------------------------------
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
Change in benefit (dollars in millions)
obligations
Benefit obligation at
beginning of year $79,617 $75,927 $12,129 $9,950 $57,195 $52,461
Service cost 919 864 228 194 537 505
Interest cost 5,162 5,273 803 700 3,798 3,686
Plan participants'
contributions 22 23 23 25 84 55
Amendments 2,244 83 - 31 - -
Actuarial losses 5,684 3,652 222 1,040 9,026 3,796
Benefits paid (6,501) (6,420) (732) (641) (3,621) (3,389)
Exchange rate movements - - 2,398 776 - -
Curtailments,
settlements, and other 138 215 17 54 523 81
------ ------ ------ ------ ------ ------
Benefit obligation at
end of year 87,285 79,617 15,088 12,129 67,542 57,195
------ ------ ------ ------ ------ ------
Change in plan assets
Fair value of plan assets
at beginning of year 60,498 66,906 5,943 6,340 5,794 4,944
Actual return on plan
assets 13,452 (4,911) 703 (329) 865 (150)
Employer contributions 18,621 4,898 442 258 3,339 1,000
Plan participants'
contributions 22 23 23 25 - -
Benefits paid (6,501) (6,420) (732) (641) - -
Exchange rate movements - - 1,181 259 - -
Curtailments,
settlements, and other 77 3 - 31 - -
------ ------ ----- ----- ----- ------
Fair value of plan
assets at end of year 86,169 60,499 7,560 5,943 9,998 5,794
------ ------ ----- ----- ------ ------
Funded status (1) (1,116) (19,118) (7,528) (6,186) (57,544) (51,401)
Unrecognized actuarial
loss 32,997 36,105 4,401 3,802 21,821 13,542
Unrecognized prior
service cost 7,087 5,981 694 691 (569) (293)
Unrecognized transition
obligation - - 43 46 - -
------ ------ ----- ----- ------ ------
Net amount recognized $38,968 $22,968 $(2,390)$(1,647)$(36,292)$(38,152)
====== ====== ===== ===== ====== ======
Amounts recognized in the
consolidated balance
sheets consist of:
Prepaid benefit cost $39,904 $ - $344 $218 $ - $ -
Accrued benefit
liability (1,139) (17,163) (6,885) (5,525) (36,292) (38,152)
Intangible asset 1 6,009 639 690 - -
Accumulated other
comprehensive income 202 34,122 3,512 2,970 - -
------ ------ ----- ----- ------ ------
Net amount recognized $38,968 $22,968 $(2,390)$(1,647)$(36,292)$(38,152)
====== ====== ===== ===== ====== ======
(1)Includes overfunded status of the combined U.S. hourly and salaried pension
plans of $0.3 billion as of December 31, 2003.
II-55
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 17. Pensions and Other Postretirement Benefits (continued)
The accumulated benefit obligation for all pension plans was $99 billion as
of December 31, 2003 and $89 billion as of December 31, 2002. The accumulated
benefit obligation and fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets were $15 billion and $7
billion respectively as of December 31, 2003, and $89 billion and $66 billion
respectively as of December 31, 2002. The projected benefit obligation and fair
value of plan assets for pension plans with projected benefit obligations in
excess of plan assets were $45 billion and $35 billion respectively as of
December 31, 2003, and $91 billion and $66 billion respectively as of December
31, 2002.
U.S. Plans Non-U.S. Plans
Pension Benefits Pension Benefits Other Benefits
--------------------------------------------------------------
2003 2002 2001 2003 2002 2001 2003 2002 2001
--------------------------------------------------------------
Components of expense (dollars in millions)
Service cost $919 $864 $885 $228 $194 $176 $537 $505 $480
Interest cost 5,162 5,273 5,261 803 700 638 3,798 $3,686 3,731
Expected return on plan
assets (6,374)(7,096) (7,480)(573) (580) (605) (444) (390) (542)
Amortization of prior
service cost 1,148 1,253 1,323 101 93 93 (12) (14) (45)
Amortization of transition
obligation/(asset) - - - 11 25 3 - - -
Recognized net actuarial
loss/(gain) 1,744 730 82 167 62 (1) 717 321 96
Curtailments, settlements,
and other 27 211 65 49 51 100 3 - -
----- ----- --- --- --- --- ----- ----- -----
Net expense $2,626 $1,235 $136 $786 $545 $404 $4,599 $4,108 $3,720
===== ===== === === === === ===== ===== =====
Weighted-average
assumptions used to
determine benefit
obligations at December 31(1)
Discount rate 6.00% 6.75% 7.25% 6.12% 6.23% 6.81% 6.25% 6.75% 7.25%
Rate of compensation
increase 5.0% 5.0% 5.0% 3.4% 3.4% 3.8% 4.1% 4.3% 4.7%
Weighted-average
assumptions used to
determine net expense for
years ended December 31 (2)
Discount rate 6.75% 7.25% 7.25% 6.23% 6.81% 7.06% 6.75% 7.25% 7.75%
Expected return on plan
assets 9.0% 10.0% 10.0% 8.5% 8.8% 8.9% 7.0% 7.9% 8.1%
Rate of compensation
increase 5.0% 5.0% 5.0% 3.4% 3.8% 4.0% 4.3% 4.7% 4.3%
(1) Determined as of end of year
(2) Determined as of beginning of year
GM sets the discount rate assumption annually for each of its
retirement-related benefit plans at their respective measurement dates to
reflect the yield of a portfolio of high quality, fixed-income debt instruments
matched against the timing and amounts of projected future benefits.
Assumed Health Care Trend Rates at December 31 2003 2002
---------------------------------------------------------------------
Initial Health Care Cost Trend Rate 8.5% 7.2%
Ultimate Health Care Cost Trend Rate 5.0% 5.0%
Number of Years to Ultimate Trend Rate 6 6
A one percentage point increase in the assumed health care trend rate would
have increased the Accumulated Postretirement Benefit Obligation (APBO) by $7.6
billion at December 31, 2003 and the aggregate service and interest cost
components of non-pension postretirement benefit expense for 2003 by $539
million. A one percentage point decrease would have decreased the APBO by $6.4
billion and the aggregate service and interest cost components of non-pension
postretirement benefit expense for 2003 by $444 million.
GM's expected return on assets assumption is derived from a detailed periodic
study conducted by GM's actuaries and GM's asset management group. The study
includes a review of the asset allocation strategy, anticipated future long-term
performance of individual asset classes, risks (standard deviations) and
correlations for each of the asset classes that comprise the funds' asset mix.
While the study gives appropriate consideration to recent fund performance and
historical returns, the assumption is primarily a long-term, prospective rate.
II-56
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 17. Pensions and Other Postretirement Benefits (concluded)
Based on a study performed in 2002, GM revised its expected long-term return
assumption for its U.S. plans effective January 1, 2003 to 9%, a reduction from
its previous level of 10%. In anticipation of 2003 contributions, GM's asset
management group in conjunction with GM's actuaries, studied alternatives to
lower asset return volatility of U.S. pension plans. As a result of the study,
the GM U.S. pension plans have approved and commenced implementation of certain
changes in the long-run strategic allocations of the pension funds in the second
half of 2003. In setting the strategic mix, the ability of the selected mix to
fund the pension plan liabilities effectively, meet the long-term asset return
target of 9% and align the selected mix with the risk tolerance of the plans'
fiduciaries were taken into account.
The current strategic mix for U.S. pension plans has reduced exposure to
equity market risks and increased allocation to asset classes which are not
highly correlated as well as asset classes where active management has
historically generated excess returns and places greater emphasis on manager
skills to produce excess return while employing various risk mitigation
strategies to reduce volatility. When fully implemented, GM pension assets will
have the following allocations: global equity: 41%-49%, global bonds: 32%-36%,
real estate: 8%-12%, and alternatives: 9%-13%. Overall, the current strategic
policy mix is expected to result in comparable but less volatile returns than
GM's prior asset mix.
VEBA assets are managed with a short-term portion, which is intended to
maintain adequate liquidity for benefit payments, and a long-term portion, which
targets achieving long-term asset returns through following investment
strategies similar to the U.S. pension plans. Based on the asset allocation to
short-term and long-term portion, the blended expected return on assets
assumption for the VEBA was 7.0% in 2003.
U.S. pension plans and OPEB plans have the following asset allocations, as of
their respective measurement dates in 2002 and 2003:
Plan Assets
U.S. Pension Plans Plan Assets OPEB
---------------------------------------------
Actual Percentage of Actual Percentage of
Plan Assets at Plan Assets at
December 31, September 30,
---------------------------------------------
Asset Category 2003 2002 2003 2002
-------------- ---- ---- ---- ----
Equity Securities 49% 55% 38% 23%
Debt Securities 31% 34% 58% 71%
Real Estate 8% 10% 1% 2%
Other 12% 1% 3% 4%
--- --- --- ---
Total 100% 100% 100% 100%
=== === === ===
Equity securities include GM common stock in the amounts of $41 million (less
than 1% of total pension plan assets) and $30 million (less than 1% of total
pension plan assets) at December 31, 2003, and 2002, respectively.
On December 8, 2003, President Bush signed into law the Medicare Prescription
Drug Improvement and Modernization Act of 2003. The Act introduces a
prescription drug benefit beginning in 2006 under Medicare (Medicare Part D) as
well as a federal subsidy to sponsors of retiree health care benefit plans that
provide a benefit that is at least actuarially equivalent to Medicare Part D.
Due to the levels of benefits provided under GM's U.S. health care plans,
management has concluded that GM's U.S. health care plans are at least
actuarially equivalent to Medicare Part D.
GM has elected not to defer accounting for the effects of the Act and has
remeasured GM's postretirement benefit obligation as of December 8, 2003. The
remeasurement will reduce GM's APBO by approximately 6% to $63.4 billion,
increase plan assets by $0.4 billion, and decrease the unrecognized actuarial
loss by $4.3 billion. The impact of this remeasurement will be amortized over
the average working life of GM's employees eligible for postretirement benefits
beginning January 1, 2004. Despite this favorable impact, GM expects 2004 OPEB
expense to be consistent with 2003 expense due to changes in the discount rate
and healthcare trend rate.
In accordance with GAAP, the impact of the Act is not reflected in the table
above. Specific authoritative guidance on the accounting for the Act is pending
and guidance, when issued, could result in an adjustment to the accounting
treatment described above.
II-57
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 18. Commitments and Contingent Matters
Commitments
GM had the following minimum commitments under noncancelable capital leases
having remaining terms in excess of one year, primarily for property
(dollars in millions):
2009
2004 2005 2006 2007 2008 and after
---- ---- ---- ---- ---- ----------
Minimum commitments $119 $117 $116 $121 $366 $816
Sublease income (14) (14) (14) (14) (14) (167)
----------------------------------------------
Net minimum
commitments $105 $103 $102 $107 $352 $649
==============================================
GM had the following minimum commitments under noncancelable operating leases
having remaining terms in excess of one year, primarily for property
(dollars in millions):
2009
2004 2005 2006 2007 2008 and after
---- ---- ---- ---- ---- ----------
Minimum commitments $918 $850 $811 $778 $1,326 $4,628
Sublease income (250) (235) (235) (233) (233) (2,865)
----------------------------------------------
Net minimum
commitments $668 $615 $576 $545 $1,093 $1,763
==============================================
Certain of these minimum commitments fund the obligations of non-consolidated
SPEs. Certain of the leases contain escalation clauses and renewal or purchase
options. Rental expenses under operating leases were $926 million, $985 million,
and $849 million in 2003, 2002, and 2001, respectively.
GM sponsors a credit card program, entitled the GM Card program, which offers
rebates that can be applied primarily against the purchase or lease of GM
vehicles. The amount of rebates available to qualified cardholders (net of
deferred program income) was $4.1 billion, $4.0 billion, and $3.9 billion at
December 31, 2003, 2002 and 2001, respectively.
GM has guarantees related to its performance under operating lease
arrangements and the residual value of leased assets totaling $604 million.
Expiration dates vary, and certain leases contain renewal options. The fair
value of the underlying assets is expected to fully mitigate GM's obligations
under these guarantees. Accordingly, no liabilities were recorded with respect
to such guarantees.
The Corporation has guaranteed certain amounts related to the securitization
of mortgage loans. In addition, GMAC issues financial standby letters of credit
as part of their financing and mortgage operations. At December 31, 2003
approximately $51 million was recorded with respect to these guarantees, the
maximum exposure under which is approximately $2.9 billion.
In connection with certain divestitures prior to January 1, 2003, GM has
provided guarantees with respect to benefits for former GM employees relating to
income protection, pensions, postretirement healthcare and life insurance. Due
to the nature of these indemnities, the maximum exposure under these agreements
cannot be estimated. No amounts have been recorded for such indemnities as the
Corporation's obligations under them are not probable and estimable.
In addition to guarantees, GM has entered into agreements indemnifying
certain parties with respect to environmental conditions pertaining to ongoing
or sold GM properties. Due to the nature of the indemnifications, GM's maximum
exposure under these agreements cannot be estimated. No amounts have been
recorded for such indemnities as the Corporation's obligations under them are
not probable and estimable.
In addition to the above, in the normal course of business GM periodically
enters into agreements that incorporate indemnification provisions. While the
maximum amount to which GM may be exposed under such agreements cannot be
estimated, it is the opinion of management that these guarantees and
indemnifications are not expected to have a material adverse effect on the
Corporation's consolidated financial position or results of operations.
II-58
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 18. Commitments and Contingent Matters (concluded)
Contingent Matters
Litigation is subject to uncertainties and the outcome of individual
litigated matters is not predictable with assurance. Various legal actions,
governmental investigations, claims, and proceedings are pending against the
Corporation, including those arising out of alleged product defects;
employment-related matters; governmental regulations relating to safety,
emissions, and fuel economy; product warranties; financial services; dealer,
supplier, and other contractual relationships; and environmental matters.
GM has established reserves for matters in which losses are probable and can
be reasonably estimated. Some of the matters may involve compensatory, punitive,
or other treble damage claims, or demands for recall campaigns, environmental
remediation programs, or sanctions, that if granted, could require the
Corporation to pay damages or make other expenditures in amounts that could not
be estimated at December 31, 2003. After discussion with counsel, it is the
opinion of management that such liability is not expected to have a material
adverse effect on the Corporation's consolidated financial condition or results
of operations.
Investment in Fiat Auto Holdings
At the April 23, 2003, Annual General Shareholders Meeting of FAH, FAH
adopted a euro 5 billion recapitalization plan that provides shareholders the
option to make pro-rata capital contributions over the eighteen months following
adoption of the plan. When the plan was adopted, Fiat S.p.A. (Fiat) held 80% of
FAH and GM 20%. Fiat participated in the recapitalization by making a euro 3
billion contribution, which FAH used to repay inter-company debts owed to Fiat
or its affiliates. Currently, GM does not plan to participate. Due to Fiat's
participation in the recapitalization, and GM's non-participation, Fiat has
reported that GM's interest in FAH has been reduced from 20% to 10%.
As discussed in GM's Annual Report on Form 10-K for the period ended
December 31, 2002, the Master Agreement provides that, from January 24, 2004 to
July 24, 2009, Fiat may seek to exercise a put option (the "Put") to require GM
to purchase Fiat's FAH shares at their fair market value. Whether and when Fiat
may seek to exercise the Put is unknown, although Fiat stated in its 2002 Annual
Report on Form 20F, filed with the U.S. Securities and Exchange Commission, that
it views the exercise of the Put only as a secondary possibility. Fiat also
stated in its Form 20F that it believes that the Put is enforceable in
accordance with the terms of the Master Agreement. GM has, however, asserted to
Fiat that the sale of certain assets of the financing business of Fiat Auto and
the recapitalization of FAH represent material breaches of the Master Agreement,
with the result that the Master Agreement, including the Put, is terminable by
GM. Notwithstanding these different views, GM is continuing to build on the
cooperation the parties have worked on for the past several years in the joint
ventures and other cooperative contractual arrangements they have entered into
which are independent of the Master Agreement, and is pursuing a resolution of
these different views. Towards that end, Fiat and GM entered into a standstill
agreement on October 26, 2003, the provisions of which enable GM to defer until
December 15, 2004, the necessity of electing the remedy of termination of the
Master Agreement, and with it the Put, without such deferral prejudicing the
right of GM to elect that remedy after December 15, 2004. On October 26, 2003,
Fiat and GM also entered into an amendment to the Master Agreement that shifts
the Put period by one year, so that it begins on January 24, 2005 and runs to
July 24, 2010.
If the Put were implemented, the fair market value of FAH shares would be
determined by the averaging of the three closest of four valuations that would
be prepared by four investment banks after conducting due diligence under
procedures set forth in the Master Agreement and based upon terms and conditions
to be incorporated in a purchase agreement which, at this time, the parties have
not prepared. Unless such a process and valuation is completed, the amount, if
any, that GM might have to pay for Fiat's FAH shares if there were to be a valid
exercise of the Put, is not quantifiable.
If there were a valid exercise of the Put, GM would have the option to pay
for Fiat's FAH shares entirely in shares of GM $1-2/3 par value common stock,
entirely in cash, or in whatever combination thereof GM may choose. Under such
circumstances, if and to the extent GM chose to pay in cash, that portion of the
purchase price could be paid to Fiat in four installments over a three-year
period and GM would expect to fund any such payments from normal operating cash
flows or financing activities.
If and when GM were to acquire Fiat's FAH shares, and thus become the sole
owner of FAH, GM would decide what, if any, additional capitalization would then
be appropriate for FAH and Fiat Auto. Specifically, if Fiat Auto were to need
additional funding, GM would have to decide whether or not to provide such
funding and under what conditions it might do so.
Unless FAH or Fiat Auto were subject to liquidation or insolvency, FAH's
consolidated financial statements would be required for financial reporting
purposes to be consolidated with those of GM. Any indebtedness, losses and
capital needs of FAH and Fiat Auto after their acquisition by GM are not
presently determinable, but they could have a material adverse effect on GM if
GM chooses to fund such needs or allows the consolidation of GM's financial
statements with those of FAH and Fiat Auto.
GM has discussed with Fiat potential alternatives to the Master Agreement and
expects to have further discussions regarding the relationship between the
parties.
II-59
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 19. Stockholders' Equity
The following table presents changes in capital stock for the period from
January 1, 2001 to December 31, 2003 (dollars in millions):
Common Stocks
----------------- Total
$1-2/3 Capital
Par Value Class H Stock
--------- ------- -----
Balance at January 1, 2001 $914 $88 $1,002
Shares issued 18 - 18
--- --- -----
Balance at December 31, 2001 932 88 1,020
Shares issued 4 8 12
--- --- -----
Balance at December 31, 2002 936 96 1,032
Shares issued 1 15 16
Hughes split-off - (111) (111)
--- --- -----
Balance at December 31, 2003 $937 $ - $937
=== === ===
GM split off Hughes by distributing Hughes common stock to the holders of GM
Class H common stock in exchange for all outstanding shares of GM Class H common
stock. All shares of GM Class H common stock were then cancelled.
Preference Stock
On June 24, 2002, approximately 2.7 million shares of GM Series H 6.25%
Automatically Convertible Preference Stock held by AOL Time Warner (AOL)
mandatorily converted into approximately 80 million shares of GM Class H common
stock as provided for pursuant to the terms of the preference stock. GM
originally issued the shares of preference stock to AOL in 1999 in connection
with AOL's $1.5 billion investment in, and its strategic alliance with, Hughes.
The preference stock accrued quarterly dividends at a rate of 6.25% per year. No
GM preference stock has been issued or outstanding since.
Common Stocks
The liquidation rights of the GM $1-2/3 par value common stock are subject to
certain adjustments if outstanding common stock is subdivided, by stock split or
otherwise.
Convertible Debentures
As of December 31, 2003, GM had $8.1 billion of convertible senior debentures
of outstanding, including $1.2 billion principal amount of 4.5% Series A
convertible senior debentures (Series A) due 2032, $2.6 billion principal amount
of 5.25% Series B convertible senior debentures (Series B) due 2032 and $4.3
billion principal amount of GM 6.25% Series C convertible senior debentures
(Series C) due 2033. The securities are convertible into shares of GM's $1-2/3
par value common stock, at investors' option, under any of the following
circumstances:
(1) The closing sale price of GM's $1-2/3 par value common stock exceeds
120% of the conversion price ($70.20 for Series A, $64.90 for Series
B, and $47.62 for Series C, respectively) for at least 20 trading
days in the 30 consecutive trading days ending on the last trading
day of the preceding fiscal quarter; or
(2) During the five business day period after any nine consecutive
trading day period in which the trading price of the debentures for
each day of such period was less than 95% of the product of the
closing sale price of GM's $1-2/3 par value common stock multiplied
by the number of shares issuable upon conversion of $25.00 principal
amount of the debentures; or
(3) The debentures have been called for redemption; or
(4) Upon the occurrence of specified corporate events.
The number of shares potentially convertible is 16,380,600 for Series A,
40,060,800 for Series B, and 90,300,000 for Series C. The contingently
convertible shares are not included in diluted earnings per share as of December
31, 2003 as they have not met the requirements for conversion.
II-60
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 19. Stockholders' Equity (concluded)
Other Comprehensive Income
The changes in the components of other comprehensive income (loss) are
reported net of income taxes, as follows (dollars in millions):
Years Ended December 31,
-----------------------------------------------------------------------------------
2003 2002 2001
-----------------------------------------------------------------------------------
Pre-tax Tax Exp. Net Pre-tax Tax Exp. Net Pre-tax Tax Epx. Net
Amount (Credit) Amount Amount (Credit) Amount Amount (Credit) Amount
------ ------ ------ ------ ------ ------ ------ ------ ------
Foreign currency
translation
adjustments $1,642 $673 $969 $67 $(18) $85 $(504) $(148) $(356)
Unrealized (loss) gain
on securities:
Unrealized holding
(loss) gain 465 166 299 (501) (166) (335) 162 56 106
Reclassification
adjustment (84) (31) (53) 611 220 391 (176) (66) (110)
--- --- --- --- --- --- --- -- ---
Net unrealized
(loss) gain 381 135 246 110 54 56 (14) (10) (4)
Minimum pension
liability adjustment 33,378 12,623 20,755 (21,746) (8,127) (13,619) (15,317) (5,783) (9,534)
Net unrealized gain
(loss) on derivatives 329 73 256 151 49 102 (387) (80) (307)
Amounts attributable to
Hughes - - - (300) (139) (161) (172) (44) (128)
------ ------ ------ ------ ----- ------ ------ ----- ------
Other comprehensive
(loss) income $35,730 $13,504 $22,226 $(21,718) $(8,181) $(13,537) $(16,394) $(6,065) $(10,329)
====== ====== ====== ====== ===== ====== ====== ===== ======
NOTE 20. Earnings Per Share Attributable to Common Stocks
Earnings per share (EPS) attributable to each class of GM common stock was
determined based on the attribution of earnings to each such class of common
stock for the period divided by the weighted-average number of common shares for
each such class outstanding during the period. Diluted EPS attributable to each
class of GM common stock considers the effect of potential common shares, unless
the inclusion of the potential common shares would have an antidilutive effect.
The attribution of earnings to each class of GM common stock was as follows
(dollars in millions):
Years Ended December 31,
----------------------------
2003 2002 2001
---- ---- ----
Earnings attributable to common stocks
$1-2/3 par value
Continuing operations $2,862 $1,975 $1,220
Discontinued operations (48) (90) (234)
Gain on sale of discontinued operations 1,249 - -
----- ----- -----
Earnings attributable to $1-2/3 par value $4,063 $1,885 $986
Earnings from discontinued operations
attributable to Class H $(241) $(195) $(484)
--- --- ---
Total earnings attributable to common stocks $3,822 $1,690 $502
===== ===== ===
Earnings attributable to GM $1-2/3 par value common stock for each period
represent the earnings attributable to all GM common stocks, reduced by the
Available Separate Consolidated Net Income (ASCNI) of Hughes for the respective
period.
In 2001 and prior years, losses attributable to GM Class H common stock
represent the ASCNI of Hughes, reduced by the amount of dividends accrued on the
Series A Preferred Stock of Hughes (as an equivalent measure of the effect that
GM's payment of dividends on the GM Series H 6.25% Automatically Convertible
Preference Stock would have if paid by Hughes).
II-61
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 20. Earnings Per Share Attributable to Common Stocks (concluded)
The calculated losses used for computation of the ASCNI of Hughes are then
multiplied by a fraction, the numerator of which is equal to the
weighted-average number of shares of GM Class H common stock outstanding (1.1
billion as of December 22, 2003, 920 million as of December 31, 2002, and 876
million as of December 31, 2001) and the denominator of which is a number equal
to the weighted-average number of shares of GM Class H common stock which if
issued and outstanding would represent a 100% interest in the earnings of Hughes
(the "Average Class H dividend base"). The Average Class H dividend base was 1.4
billion at December 22, 2003 and 1.3 billion as of December 31, 2002 and 2001.
The reconciliation of the amounts used in the basic and diluted earnings per
share computations for income from continuing operations was as follows (dollars
in millions except per share amounts):
$1-2/3 Par Value Common Stock
-------------------------------
Per Share
Income Shares Amount
------ ------ ------
Year ended December 31, 2003
Basic EPS
Income from continuing operations
attributable to common stocks $2,862 561 $5.10
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 8
----- --
Diluted EPS
Adjusted income attributable to common
stocks $2,862 569 $5.03
===== === ====
Year ended December 31, 2002
Basic EPS
Income from continuing operations
attributable to common stocks $1,975 560 $3.53
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 2
----- ---
Diluted EPS
Adjusted income attributable to common
stocks $1,975 562 $3.51
===== === ====
Year ended December 31, 2001
Income from continuing operations $1,222
Less: Dividends on preference stocks 2
-----
Basic EPS
Income from continuing operations
attributable to common stocks $1,220 551 $2.21
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 5
----- ---
Diluted EPS
Adjusted income attributable to common
stocks $1,220 556 $2.20
===== === ====
Certain stock options and convertible securities were not included in the
computation of diluted earnings per share for the periods presented since the
instruments' underlying exercise prices were greater than the average market
prices of GM $1-2/3 par value common stock and inclusion would be antidilutive.
Such shares not included in the computation of diluted earnings per share were
176 million, 66 million, and 29 million as of December 31, 2003, 2002 and 2001,
respectively.
NOTE 21. Derivative Financial Instruments and Risk Management
Effective January 1, 2001, GM adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended and interpreted,
which requires that all derivatives be recorded at fair value on the balance
sheet and establishes criteria for designation and effectiveness of derivative
transactions for which hedge accounting is applied. GM assesses the initial and
ongoing effectiveness of its hedging relationships in accordance with its
documented policies. As a result of the adoption of this standard as of January
1, 2001, GM recorded a transition adjustment representing a one-time after-tax
charge to income totaling $15 million, as well as an after-tax unrealized gain
of $4 million to other comprehensive income.
II-62
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 21. Derivative Financial Instruments and Risk Management (concluded)
GM is exposed to market risk from changes in foreign currency exchange rates,
interest rates, and certain commodity and equity security prices. In the normal
course of business, GM enters into a variety of foreign exchange, interest rate,
and commodity forward contracts, swaps, and options, with the objective of
minimizing exposure arising from these risks. A risk management control system
is utilized to monitor foreign exchange, interest rate, commodity and equity
price risks, and related hedge positions.
Cash Flow Hedges
GM uses financial instruments designated as cash flow hedges to hedge the
Corporation's exposure to foreign currency exchange risk associated with buying,
selling, and financing in currencies other than the local currencies in which it
operates, and to variability in cash flows related to floating rate debt, and
its exposure to commodity price risk associated with changes in prices of
commodities used in its automotive business, primarily non ferrous metals used
in the manufacture of automotive components. For transactions denominated in
foreign currencies, GM typically hedges forecasted and firm commitment exposure
up to one year in the future. For commodities, GM hedges exposures up to five
years in the future. For the year ended December 31, 2003, hedge ineffectiveness
associated with instruments designated as cash flow hedges decreased cost of
sales and other expenses by $50 million. For the year ended December 31, 2002,
hedge ineffectiveness associated with instruments designated as cash flow hedges
increased cost of sales and other expenses by $0.1 million; changes in time
value of the instruments (which are excluded from the assessment of hedge
effectiveness and exclude transition adjustment) increased cost of sales and
other expenses by $30 million and $19 million, respectively. Derivative gains
and losses included in other comprehensive income are reclassified into earnings
at the time that the associated hedged transactions impact the income statement.
For the year ended December 31, 2003, net derivative gains of $245 million were
reclassified to cost of sales and other expenses. For the year ended December
31, 2002, net derivative losses of $65 million were likewise reclassified. These
net losses/gains were offset by net gains/losses on the transactions being
hedged. Approximately $91 million of net derivative gains included in other
comprehensive income at December 31, 2003, will be reclassified into earnings
within 12 months from that date.
Fair Value Hedges
GM uses financial instruments designated as fair value hedges to manage
certain of the Corporation's exposure to interest rate risk. GM is subject to
market risk from exposures to changes in interest rates due to its financing,
investing, and cash management activities. A variety of instruments is used to
hedge GM's exposure associated with its fixed rate debt and mortgage servicing
rights (MSR's). For the year ended December 31, 2003, hedge ineffectiveness
associated with instruments designated as fair value hedges, primarily due to
hedging of MSRs, decreased selling, general, and administrative expenses by $390
million and increased selling, general, and administrative expenses by $458
million in 2002. Changes in time value of the instruments (which are excluded
from the assessment of hedge effectiveness) decreased selling, general, and
administrative expenses by $175 million in 2003 and $212 million in 2002.
Undesignated Derivative Instruments
Forward contracts and options not designated as hedging instruments under
SFAS No. 133 are also used to hedge certain foreign currency, commodity, and
interest rate exposures. Unrealized gains and losses on such instruments are
recognized currently in earnings.
NOTE 22. Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined using
available market information or other appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value; therefore, the estimates are not necessarily
indicative of the amounts that could be realized or would be paid in a current
market exchange. The effect of using different market assumptions and/or
estimation methodologies may be material to the estimated fair value amounts.
II-63
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 22. Fair Value of Financial Instruments (concluded)
Book and estimated fair values of financial instruments, for which it is
practicable to estimate fair value, were as follows (dollars in millions):
December 31,
---------------------------------------------
2003 2002
---------------------------------------------
Automotive and Other Operations Book Value Fair Value Book Value Fair Value
------------------------------- ---------- ---------- ---------- ----------
Assets
Other assets (1) $771 $500 $496 $327
Derivative assets $1,234 $1,234 $364 $364
Liabilities
Long-term debt (2) $29,593 $31,859 $14,261 $13,832
Other liabilities (1) $528 $571 $531 $580
Derivative liabilities $356 $356 $298 $298
Financing and Insurance Operations
----------------------------------
Assets
Finance receivables - net (3) $172,423 $174,547 $133,964 $135,890
Derivative assets $10,026 $10,026 $7,185 $7,185
Liabilities
Debt (2) $239,350 $244,642 $183,913 $186,360
Derivative liabilities $1,196 $1,196 $843 $843
(1) Other assets include various financial instruments (e.g., long-term
receivables and certain investments) that have fair values based on
discounted cash flows, market quotations, and other appropriate valuation
techniques. The fair values of retained subordinated interests in trusts
and excess servicing assets (net of deferred costs) were derived by
discounting expected cash flows using current market rates. Estimated
values of Industrial Development Bonds, included in other liabilities,
were based on quoted market prices for the same or similar issues.
(2) Long-term debt has an estimated fair value based on quoted market prices
for the same or similar issues or based on the current rates offered to
GM for debt of similar remaining maturities.
(3) The fair value was estimated by discounting the future cash flows using
applicable spreads to approximate current rates applicable to each
category of finance receivables.
Due to their short-term nature, the book value approximates fair value for
cash and marketable securities, accounts and notes receivable (less allowances),
accounts payable (principally trade), Auto & Other loans payable and FIO debt
payable within one year for the periods ending December 31, 2003 and 2002.
NOTE 23. Stock Incentive Plans
GM's stock incentive plans consist of the General Motors 2002 Stock Incentive
Plan, formerly the 1997 General Motors Amended Stock Incentive Plan (GMSIP), the
General Motors 1998 Salaried Stock Option Plan (GMSSOP), the General Motors 1997
Performance Achievement Plan (GMPAP), and the General Motors 2002 Long Term
Incentive Plan (GMLTIP). The GMSIP, the GMPAP, and the GMLTIP are administered
by the Executive Compensation Committee of the GM Board. The GMSSOP is
administered by the Vice President of Global Human Resources.
Under the GMSIP, 27.4 million shares of GM $1-2/3 par value common stock may
be granted from June 1, 2002, through May 31, 2007, of which approximately 17.2
million were available for grants at December 31, 2003. Any shares granted and
undelivered under the GMSIP, due primarily to expiration or termination, become
again available for grant. Options granted prior to 1997 under the GMSIP
generally are exercisable one-half after one year and one-half after two years
from the dates of grant. Stock option grants awarded since 1997 vest ratably
over three years from the date of grant. Option prices are 100% of fair market
value on the dates of grant and the options generally expire 10 years from the
dates of grant, subject to earlier termination under certain conditions.
II-64
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 23. Stock Incentive Plans (continued)
Under the GMSSOP, which commenced January 1, 1998 and ends December 31, 2007,
the number of shares of GM $1-2/3 par value common stock that may be granted
each year is determined by management. Approximately 3.6 million shares of GM
$1-2/3 par value common stock were available for grants at December 31, 2003.
Stock options vest one year following the date of grant and are exercisable two
years from the date of grant. Option prices are 100% of fair market value on the
dates of grant and the options generally expire 10 years and two days from the
dates of grant subject to earlier termination under certain conditions.
The GMPAP and the GMLTIP consist of award opportunities granted to
participants that are based on the achievement of specific corporate business
criteria. The target number of shares of GM $1 2/3 par value common stock that
may be granted each year is determined by management. These grants are subject
to a two- or three-year performance period and the final award payout may vary
based on the achievement of those criteria. As of December 31, 2003, a total of
3.8 million shares had been granted as award opportunities under the GMPAP and
the GMLTIP. This is the targeted number of shares that would finally be granted
should all corporate business criteria be achieved.
Number of Number of
securities to be Weighted average securities
issued upon exercise price remaining
exercise of of outstanding available for
Plan Category outstanding options, future issuance
options, warrants and under equity
warrants and rights compensation
rights plans (1)
-------------------------------------------------------------------------------
Equity compensation plans
approved by security
holders:
GMSIP 74,485,566 $54.38 17,194,942
Equity compensation plans
not approved by security
holders (2):
GMSSOP 24,390,056 $55.33 3,626,225
-------------------------------------------------------------------------------
Total 98,875,622 $54.61 20,821,167
-------------------------------------------------------------------------------
(1)Excludes securities reflected in the first column, "Number of securities to
be issued upon exercise of outstanding options, warrants and rights."
(2)All equity compensation plans except the GMSSOP were approved by the
shareholders. The GMSSOP was adopted by the Board of Directors in 1998 and
expires December 31, 2007. The purpose of the plans is to recognize the
importance and contribution of GM employees in the creation of stockholder
value, to further align compensation with business success and to provide
employees with the opportunity for long-term capital accumulation through the
grant of options to acquire shares of General Motors common stock.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
2003 2002 2001
------------------------------------------------------
GM GM GM GM GM GM
SIP SSOP SIP SSOP SIP SSOP
--- ---- --- ---- --- ----
Interest rate 2.9% 2.9% 4.3% 4.3% 4.6% 4.6%
Expected life
(years) 5.0 5.0 5.0 5.0 5.0 5.0
Expected volatility 35.4% 35.4% 34.6% 34.6% 31.2% 31.1%
Dividend yield 5.0% 5.0% 4.0% 4.0% 3.8% 3.8%
II-65
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 23. Stock Incentive Plans (concluded)
Changes in the status of outstanding options were as follows:
GMSIP GMSSOP
$1-2/3 Par Value $1-2/3 Par Value
Common Common
-----------------------------------------------
Weighted- Weighted-
Shares Average Shares Average
under Exercise under Exercise
Option Price Option Price
-------------------------------------------------------------------------------
Options outstanding at
January 1, 2001 43,125,106 $58.49 10,367,464 $67.30
-------------------------------------------------------------------------------
Granted 13,141,725 $52.49 3,902,862 $52.35
Exercised 1,682,731 $39.66 37,655 $46.59
Terminated 1,641,974 $61.08 154,690 $66.27
-------------------------------------------------------------------------------
Options outstanding at
December 31, 2001 52,942,126 $57.52 14,077,981 $63.22
-------------------------------------------------------------------------------
Granted 17,294,937 $50.53 5,015,553 $50.46
Exercised 2,729,511 $40.46 71,663 $46.59
Terminated 1,685,392 $55.28 64,672 $62.39
-------------------------------------------------------------------------------
Options outstanding at
December 31, 2002 65,822,160 $56.45 18,957,199 $59.91
Granted 11,148,605 $40.06 5,666,127 $40.05
-------------------------------------------------------------------------------
Exercised 1,489,170 $42.28 - -
-------------------------------------------------------------------------------
Terminated 996,029 $55.06 233,270 $56.92
-------------------------------------------------------------------------------
Options outstanding at
December 31, 2003 74,485,566 $54.38 24,390,056 $55.33
===============================================================================
-------------------------------------------------------------------------------
Options exercisable at
December 31, 2001 29,890,175 $53.93 6,148,695 $61.97
-------------------------------------------------------------------------------
December 31, 2002 38,094,946 $58.18 10,098,994 $67.48
-------------------------------------------------------------------------------
December 31, 2003 48,932,216 $58.56 13,825,058 $63.29
-------------------------------------------------------------------------------
The following table summarizes information about GM's stock option plans at
December 31, 2003:
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Options Contractual Exercise Options Exercise
Exercise Prices Outstanding Life (yrs.) Price Exercisable Price
-------------------------------------------------------------------------------
GMSIP $1-2/3 Par Value Common
$21.00 to $39.99 886,116 2.0 $33.51 804,179 $33.24
40.00 to 49.99 24,860,743 5.9 $42.80 13,971,139 $44.93
50.00 to 59.99 28,259,174 7.6 $51.42 13,696,365 $51.78
60.00 to 83.50 20,479,533 5.5 $73.40 20,460,533 $73.41
-------------------------------------------------------------------------------
$21.00 to $83.50 74,485,566 6.4 $54.38 48,932,216 $58.56
-------------------------------------------------------------------------------
GMSSOP $1-2/3 Par Value Common
$40.05 5,631,365 9.1 $40.05 - $-
46.59 2,264,335 4.0 $46.59 2,264,335 $46.59
50.46 4,933,633 8.0 $50.46 - $-
52.35 3,824,905 7.0 $52.35 3,824,905 $52.35
71.53 3,739,403 5.0 $71.53 3,739,403 $71.53
75.50 3,996,415 6.0 $75.50 3,996,415 $75.50
-------------------------------------------------------------------------------
$40.05 to $75.50 24,390,056 6.9 $55.33 13,825,058 $63.29
-------------------------------------------------------------------------------
II-66
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 24. Other Income
Other income (included in total net sales and revenues) consisted of the
following (dollars in millions):
Years Ended December 31,
--------------------------
2003 2002 2001
---- ---- ----
Automotive and Other Operations
Other income
Interest income $1,389 $905 $714
Rental car lease revenue 1,460 1,214 1,424
Claims, commissions, and grants 916 846 767
Gain on sale of GM Defense 814 - -
Other 400 239 369
----- ----- -----
Total other income $4,979 $3,204 $3,274
===== ===== =====
Years Ended December 31,
--------------------------
2003 2002 2001
---- ---- ----
Financing and Insurance Operations
Other income
Interest income $684 $2,951 $2,269
Insurance premiums 2,544 2,188 1,524
Mortgage banking income 2,696 2,064 1,862
Automotive securitization income 1,057 1,357 1,183
Other 3,419 3,034 2,840
------ ------ -----
Total other income $10,400 $11,594 $9,678
====== ====== =====
NOTE 25. European Matters
During 2001, GM Europe announced its plan to turn around its business with
the implementation of Project Olympia. The initial stages of Project Olympia
sought to identify initiatives that could deliver:
. Solid and profitable business performance as of 2003
. A strengthened and optimized sales structure
. A revitalized Opel/Vauxhall brand
. Further market growth opportunities
. Continuous improvement by refocusing the organizational structure
The project identified several initiatives which aim to address the goals
mentioned above. These initiatives include, among other things, reducing GME's
manufacturing capacity, restructuring the dealer network in Germany, and
redefining the way vehicles are marketed. These initiatives resulted in a
decrease to GM's pre-tax earnings and were recorded in the GME region in the
first quarter of 2002 as follows: (1) $298 million related to employee
separation costs for approximately 4,000 employees; (2) $235 million related to
asset write-downs; and (3) $108 million related to the dealer network
restructuring in Germany. The net income impact of these charges in the first
quarter of 2002 was $407 million, or $0.72 per diluted share of GM $1-2/3 par
value common stock ($553 million included in cost of sales and other expenses;
$88 million included in selling, general, and administrative expenses; and
$(234) million included in income tax expense).
In 2003, GME recorded a $311 million pre-tax ($218 million after-tax) charge
to improve the competitiveness of GM's automotive operations in Europe. This
charge was comprised of the following: $207 million related to employee
separation costs for approximately 2,900 employees; and $104 million related to
asset write-downs and other costs. These charges were recorded in cost of sales
and other expenses.
II-67
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 26: Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", established standards for reporting information about operating
segments in financial statements. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance. GM's
chief operating decision maker is the Chief Executive Officer. The operating
segments are managed separately because each operating segment represents a
strategic business unit that offers different products and serves different
markets.
GM's reportable operating segments within its Auto & Other business consist
of General Motors Automotive (GMA) (which is comprised of four regions: GMNA,
GME, GMLAAM, GMAP), and Other. GMNA designs, manufactures, and/or markets
vehicles primarily in North America under the following nameplates: Chevrolet,
Pontiac, GMC, Oldsmobile, Buick, Cadillac, Saturn, and HUMMER. GME, GMLAAM, and
GMAP primarily meet the demands of customers outside North America with vehicles
designed, manufactured, and marketed under the following nameplates: Opel,
Vauxhall, Holden, Saab, Buick, Chevrolet, GMC, and Cadillac. The Other segment
includes the design, manufacturing, and marketing of locomotives, the
elimination of intersegment transactions, certain non-segment specific revenues
and expenditures, and certain corporate activities. GM's reportable operating
segments within its FIO business consist of GMAC and Other. GMAC provides a
broad range of financial services, including consumer vehicle financing,
full-service leasing and fleet leasing, dealer financing, car and truck extended
service contracts, residential and commercial mortgage services, commercial and
vehicle insurance, and asset-based lending. The Financing and Insurance
Operations' Other segment includes financing entities that are not consolidated
by GMAC.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that the
disaggregated financial results have been prepared using a management approach,
which is consistent with the basis and manner in which GM management internally
disaggregates financial information for the purposes of assisting in making
internal operating decisions. GM evaluates performance based on stand-alone
operating segment net income and generally accounts for intersegment sales and
transfers as if the sales or transfers were to third parties, that is, at
current market prices. Revenues are attributed to geographic areas based on the
location of the assets producing the revenues.
II-68
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 26. Segment Reporting (continued)
Auto & Other Total
GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing
---- --- ------ ---- --- ---- ----- ---- --------- ---------
2003 (dollars in millions)
Manufactured products sales and revenues:
External customers $114,756 $25,960 $4,755 $4,578 $150,049 $803 $150,852 $ - $ - $ -
Intersegment (2,044) 946 555 543 - - - - - -
------- ------ ----- ----- ------- --- ------- -- -- --
Total manufactured products 112,712 26,906 5,310 5,121 150,049 803 150,852 - - -
Financing revenue - - - - - - - 18,663 630 19,293
Other income 3,598 572 77 217 4,464 515 4,979 10,962 (562) 10,400
------- ------ ----- ----- ------- ----- ------- ------ --- ------
Total net sales and revenues $116,310 $27,478 $5,387 $5,338 $154,513 $1,318 $155,831 $29,625 $68 $29,693
======= ====== ===== ===== ======= ===== ======= ====== === ======
Depreciation and amortization $6,199 $1,211 $248 $233 $7,891 $55 $7,946 $5,744 $288 $6,032
Interest income (a) $1,445 $375 $36 $4 $1,860 $(471) $1,389 $937 $(253) $684
Interest expense $1,762 $343 $119 $11 $2,235 $(455) $1,780 $7,564 $120 $7,684
Income tax expense (benefit) $171 $(303) $(149) $44 $(237) $(632) $(869) $1,591 $9 $1,600
Earnings (losses) of
nonconsolidated associates $113 $102 $7 $560 $782 $(48) $734 $(3) $(4) $(7)
Net income (loss) from
continuing operations $811 $(504) $(331) $577 $553 $(518) $35 $2,793 $34 $2,827
Investments in nonconsolidated
affiliates $462 $1,139 $431 $3,944 $5,976 $56 $6,032 $50 $(50) -
Segment assets $130,279 $23,835 $3,039 $3,349 $160,502 $1,283 $161,785 $288,163 $51 $288,214
Expenditures for property $4,650 $1,202 $110 $576 $6,538 $78 $6,616 $712 $2 $714
2002
Manufactured products sales and revenues:
External customers $115,041 $22,409 $4,698 $3,663 $145,811 $1,253 $147,064 $ - $ - $ -
Intersegment (2,038) 1,057 327 654 - (18) (18) - - -
------- ------ ----- ----- ------- ----- ------- ----- --- ------
Total manufactured products 113,003 23,466 5,025 4,317 145,811 1,235 147,046 - - -
Financing revenue - - - - - - - 14,758 726 15,484
Other income 2,806 446 85 207 3,544 (340) 3,204 12,083 (493) 11,590
------- ------ ----- ----- ------- ----- ------- ----- --- ------
Total net sales and revenues $115,809 $23,912 $5,110 $4,524 $149,355 $895 $150,250 $26,841 $233 $27,074
======= ====== ===== ===== ======= === ======= ====== === ======
Depreciation and amortization $4,853 $1,080 $178 $143 $6,254 $70 $6,324 $5,136 $405 $5,541
Interest income (a) $1,003 $316 $24 $12 $1,355 $(450) $905 $3,221 $(270) $2,951
Interest expense $738 $304 $145 $8 $1,195 $(716) $479 $6,834 $190 $7,024
Income tax expense (benefit) $1,213 $(436) $(76) $55 $756 $(1,134) $(378) $1,071 $(49) $1,022
Earnings (losses) of
nonconsolidated associates $46 $76 $(3) $231 $350 $11 $361 $(1) $(7) $(8)
Net income (loss) from
continuing operations $2,992 $(1,011) $(181) $188 $1,988 $(1,895) $93 $1,870 $12 $1,882
Investments in nonconsolidated
affiliates $534 $890 $397 $3,233 $5,054 $43 $5,097 $237 $(237) -
Segment assets $105,382 $20,344 $3,035 $1,689 $130,450 $(7,129) $141,974(b) $227,728 $440 $228,168
Expenditures for property $4,448 $1,448 $200 $263 $6,359 $55 $6,414 $451 $6 $457
See notes on next page
II-69
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 26. Segment Reporting (continued)
Auto & Other Total
GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing
---- --- ------ ---- --- ---- ----- ---- --------- ---------
2001 (dollars in millions)
Manufactured products sales and revenues:
External customers $107,087 $22,249 $5,615 $3,262 $138,213 $1,711 $139,924 $ - $ - $ -
Intersegment (1,772) 820 200 752 - (25) (25) - - -
------- ------ ----- ----- ------- ----- ------- ------ ----- ------
Total manufactured products 105,315 23,069 5,815 4,014 138,213 1,686 139,899 - - -
Financing revenue - - - - - - - 15,189 1,011 16,200
Other income 2,859 631 49 187 3,726 (452) 3,274 10,392 (714) 9,678
------- ------ ----- ----- ------- ----- ------- ------ ----- ------
Total net sales and revenues $108,174 $23,700 $5,864 $4,201 $141,939 $1,234 $143,173 $25,581 $297 $25,878
======= ====== ===== ===== ======= ===== ======= ====== === ======
Depreciation and amortization $4,597 $994 $146 $117 $5,854 $53 $5,907 $5,305 $552 $5,857
Interest income (a) $831 $369 $27 $14 $1,241 $(527) $714 $2,696 $(427) $2,269
Interest expense $986 $349 $95 $8 $1,438 $(866) $572 $7,755 $(10) $7,745
Income tax expense (benefit) $468 $(282) $(18) $24 $192 $(136) $56 $1,047 $(9) $1,038
(Losses) earnings of
nonconsolidated associates $(37) $41 $(6) $(61) $(63) $(5) $(68) $(5) $3 $(2)
Net income (loss) from
continuing operations $1,348 $(765) $(81) $(57) $445 $(991) $(546) $1,786 $(18) $1,768
Investments in nonconsolidated
affiliates $665 $886 $614 $2,700 $4,865 $30 $4,895 $1,062 $(1,062) $ -
Segment assets $91,086 $18,552 $4,181 $896 $114,715 $(3,659) $130,210(b) $192,855 $904 $193,759
Expenditures for property $5,914 $1,476 $125 $194 $7,709 $103 $7,812 $13 $7 $20
(a)Interest income is included in net sales and revenues from external
customers.
(b)Includes assets of discontinued operations of $18,653 and $19,154 at
December 31, 2002 and 2001 respectively.
II-70
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 26. Segment Reporting (concluded)
Information concerning principal geographic areas was as follows (dollars in
millions):
2003 2002 2001
------------------------------------------------------------------
Net Sales Long Net Sales Long Net Sales Long
& Lived & Lived & Lived
Revenues Assets(1) Revenues Assets (1) Revenues Assets (1)
---------- -------- --------- -------- -------- --------
North America
United States $133,897 $47,594 $129,781 $45,964 $124,543 $46,908
Canada and Mexico 14,619 8,529 15,023 6,897 11,712 6,087
------- ------- ------- ------ ------- ------
Total North America 148,516 56,123 144,804 52,861 136,255 52,995
Europe
France 2,429 216 2,078 183 1,825 130
Germany 6,361 5,593 5,824 4,605 5,901 4,165
Spain 2,143 1,256 1,744 1,076 1,771 738
United Kingdom 6,474 2,275 5,672 2,096 5,062 1,549
Other 12,350 3,537 10,565 2,953 10,602 2,500
------ ------ ------ ------ ------ -----
Total Europe 29,757 12,877 25,883 10,913 25,161 9,082
Latin America
Brazil 2,319 584 2,479 619 2,889 946
Other Latin America 1,674 186 2,265 185 2,285 278
----- --- ----- --- ----- -----
Total Latin America 3,993 770 4,744 804 5,174 1,224
All Other 3,258 2,824 1,893 2,404 2,461 3,529
------- ------ ------- ------ ------- ------
Total $185,524 $72,594 $177,324 $66,982 $169,051 $66,830
======= ====== ======= ====== ======= ======
(1) Consists of property (Note 12), equipment on operating leases (Note 10), net
of accumulated depreciation.
Il-71
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
Selected Quarterly Data (Unaudited) (1)
2003 Quarters
-------------
1st (2) 2nd 3rd 4th (3)
--- --- --- ---
(dollars in millions except
per share amounts)
Total net sales and revenues $47,146 $45,944 $43,351 $49,084
Income (losses) from continuing
operations before income taxes and
minority interests $2,198 $931 $387 $(536)
Income tax expense (benefit) 682 244 134 (329)
Minority interests (20) (11) 19 (103)
Earnings of nonconsolidated associates 41 203 176 308
----- --- --- - ----
Income (losses) from continuing operations 1,537 879 448 (2)
Income (losses) from discontinued operations (54) 22 (23) (164)
Gain from sale of discontinued operations - - - 1,179
----- --- --- -----
Net income $1,483 $901 $425 $1,013
===== === === =====
Earnings (losses) attributable to
$1-2/3 par value
Continuing operations $1,537 $879 $448 $(2)
Discontinued operations (16) 5 (5) 1,218
----- --- --- -----
Earnings attributable to
$1-2/3 par value $1,521 $884 $443 $1,216
===== === === =====
Earnings (losses) from discontinued
operations attributable to Class H $(38) $17 $(18) $(203)
Basic earnings (losses) per share
attributable to common stocks
$1-2/3 par value
Continuing operations $2.74 $1.57 $0.80 $-
Discontinued operations (0.03) 0.01 (0.01) 2.17
---- ---- ---- ----
Earnings per share attributable to
$1-2/3 par value $2.71 $1.58 $0.79 $2.17
==== ==== ==== ====
Earnings (losses) per share from
discontinued operations
attributable to Class H $(0.04) $0.02 $(0.02) $(0.18)
Average number of shares of common
stocks outstanding - basic (in millions)
$1-2/3 par value 561 561 561 561
Class H 990 1,108 1,108 1,109
Earnings (loss) per share attributable to
common stocks assuming dilution
$1-2/3 par value
Continuing operations $2.74 $1.57 $0.80 $-
Discontinued operations (0.03) 0.01 (0.01) 2.13
---- ---- ---- ----
Earnings per share attributable to
$1-2/3 par value $2.71 $1.58 $0.79 $2.13
==== ==== ==== ====
Earnings (losses) per share from
discontinued operations
attributable to Class H $(0.04) $0.02 $(0.02) $(0.18)
Average number of shares of common
stocks outstanding - diluted (in millions)
$1-2/3 par value 561 561 561 571
Class H 990 1,111 1,108 1,109
II-72
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
Selected Quarterly Data (Unaudited) - continued
(1) Previously reported quarters have been restated to reflect the results of
Hughes as discontinued operations.
(2) First quarter 2003 results include a $505 million after-tax gain from the
sale of GM's light armored vehicle business (GM Defense) to General
Dynamics Corporation. Net proceeds were approximately $1.1 billion.
(3) Fourth quarter 2003 results include the following:
o A $725 million after-tax charge for lump-sum payments and vehicle
discount vouchers for retirees as provided by the October 2003 contract
with the United Auto Workers;
o A $103 million after-tax favorable adjustment related primarily to
previously established reserves for idled workers at the Janesville,
Wisconsin plant; and
o A $218 million after-tax charge for an initiative implemented to improve
competitiveness of GM's automotive operations in Europe.
II-73
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
Selected Quarterly Data (Unaudited) - continued (4)
2002 Quarters
-------------
1st (5) 2nd (6) 3rd (7) 4th
--- --- --- ---
(dollars in millions except
per share amounts)
Total net sales and revenues $44,210 $46,113 $41,417 $45,584
Income (losses) from continuing
operations before income taxes and
minority interests $585 $2,011 $(1,410) $1,152
Income tax expense 217 656 (546) 317
Minority interests (15) (16) (28) (13)
Earnings of nonconsolidated associates 31 109 101 112
---- ----- --- -----
Income from continuing operations 384 1,448 (791) 934
Income (loss) from discontinued operations (156) (156) (13) 86
--- ----- ---- -----
Net income (loss) 228 1,292 (804) 1,020
Dividends on preference stocks (24) (23) - -
--- ----- --- ------
Earnings (losses) attributable to
common stocks $204 $1,269 $(804) $1,020
=== ===== === =====
Earnings (losses) attributable to $1-2/3
par value
Continuing operations $384 $1,448 $(791) $934
Discontinued operations (59) (59) (4) 27
-- -- - --
Earnings (losses) attributable to
$1-2/3 par value $325 $1,389 $(795) $961
=== ===== === ===
Earnings (losses) from discontinued
operations attributable to Class H $(121) $(120) $(9) $59
Basic earnings (losses) per share
attributable to Common stocks
$1-2/3 par value
Continuing operations $0.69 $2.58 $(1.41) $1.67
Discontinued operations (0.11) (0.10) (0.01) 0.04
---- ---- ---- ----
Earnings per share attributable to $1-2/3
par value $0.58 $2.48 $(1.42) $1.71
==== ==== ==== ====
(Losses) earnings per share from
discontinued operations attributable to
Class H $(0.14) $(0.14) $(0.01) $0.06
Average number of shares of common
stocks outstanding - basic (in millions)
$1-2/3 par value 559 560 560 560
Class H 878 884 958 958
Earnings (losses) per share attributable
to Common stocks assuming dilution
$1-2/3 par value
Continuing operations $0.67 $2.53 $(1.41) $1.67
Discontinued operations (0.10) (0.10) (0.01) 0.04
---- ---- ---- ----
Earnings (losses) per share attributable to
$1-2/3 par value $0.57 $2.43 $(1.42) $1.71
==== ==== ==== ====
(Losses) earnings per share from
discontinued operations attributable to
Class H $(0.14) $(0.14) $(0.01) $0.06
Average number of shares of common
stocks outstanding - diluted (in millions)
$1-2/3 par value 570 572 560 561
Class H 878 884 958 959
II-74
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
Selected Quarterly Data (Unaudited) - concluded
(4) Previously reported quarters have been restated to reflect the results of
Hughes as discontinued operations.
(5) First quarter 2002 results include a $407 million after-tax restructuring
charge related to severance payments and asset impairments at GME that
were part of the restructuring of GM's automotive operations in Europe;
(6) Second quarter 2002 results include a $55 million after-tax charge at GME
related to the European Union's directive requiring member states to enact
legislation regarding end-of-life vehicles to be the responsibility of
manufacturers for dismantling and recycling vehicles they have sold.
(7) Third quarter 2002 results include the following:
o A $1.4 billion after-tax charge related to the write-down of GM's
investment in Fiat Auto Holdings, B.V. as a result of the completion
of an impairment study of the carrying value of GM's investment; and
o A $116 million after-tax charge primarily related to GM's costs
associated with the transfer of commercial truck production from
Janesville, Wisconsin, to Flint, Michigan.
II-75
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 9. Changes in and disagreements with accountants on accounting and
financial disclosure
None
* * * * * * *
ITEM 9A. Controls and Procedures
The Corporation 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. As of the end of the period
covered by this report, the Corporation's Chief Executive Officer and Chief
Financial Officer evaluated, with the participation of GM's management, the
effectiveness of the Corporation's disclosure controls and procedures. Based on
the evaluation, which disclosed no significant deficiencies or material
weaknesses, the Corporation's Chief Executive Officer and Chief Financial
Officer concluded that the Corporation's disclosure controls and procedures are
effective. There were no changes in the Corporation's internal control over
financial reporting that occurred during the Corporation's most recent fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Corporation's internal control over financial reporting.
* * * * * * *
II-76
PART III
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 10. Code of Ethics for Senior Executives
General Motors Corporation has adopted a code of ethics that applies to the
Corporation's directors, officers, and employees, including the Chief Executive
Officer, Chief Financial Officer, Controller, Chief Accounting Officer, and any
other persons performing similar functions. The text of GM's code of ethics,
"Winning With Integrity," has been posted on the Corporation's Internet website
at http://investor.gm.com at "Investor Information - Corporate Governance."
* * * * * * *
ITEMS 10, 11, 12, 13, and 14
Information required by Part III (Items 10, 11, 12, 13, and 14) of this Form
10-K is incorporated by reference from General Motors Corporation's definitive
Proxy Statement for its 2004 Annual Meeting of Stockholders, which will be filed
with the Securities and Exchange Commission, pursuant to Regulation 14A, not
later than 120 days after the end of the fiscal year, all of which information
is hereby incorporated by reference in, and made part of, this Form 10-K, except
that the information required by Item 10 with respect to executive officers of
the Registrant is included in Item 4A of Part I of this report.
* * * * * * *
III-1
PART IV
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
Page
Number
------
(a) 1. All Financial Statements See Part II
2. Financial Statement Schedule II - Allowances for
the Years Ended December 31, 2003, 2002, and 2001 IV-3
3. Exhibits (Including Those Incorporated by Reference)
Exhibit
Number
---------
(3)(i) Restated Certificate of Incorporation filed March 1, 2004 N/A
(3)(ii) Bylaws, of General Motors Corporation, as amended,
February 29, 2004 N/A
(4)(a) Form of Indenture relating to the $500,000,000 8-1/8%
Debentures Due April 15, 2016 dated as of April 1, 1986
between General Motors Corporation and Citibank, N.A.,
Trustee, incorporated by reference to Exhibit 4 to
Amendment No. 1 to Form S-3 Registration Statement
No. 33-4452 and resolutions adopted by the Special
Committee on April 15, 1986, incorporated by reference
to Exhibit 4(a) to the Current Report on Form 8-K of
General Motors Corporation dated April 24, 1986. N/A
(4)(c) Form of Indenture relating to the $377,377,000 7.75%
Debentures Due March 15, 2036 dated as of December 7,
1995 between General Motors Corporation and Citibank,
N.A., Trustee, filed as Exhibit 4(a) to Amendment No. 1
to Form S-3 Registration Statement No. 33-64229. N/A
(4)(d) Instruments defining the rights of holders of nonregistered
debt of the Registrant have been omitted from this
exhibit index because the amount of debt authorized
under any such instrument does not exceed 10% of the
total assets of the Registrant and its subsidiaries.
The Registrant agrees to furnish a copy of any such
instrument to the Commission upon request. N/A
(4)(f)(i) Indenture between General Motors Corporation and Wilmington
Trust Company, incorporated by reference to Exhibit
4(d)(i) to the Current Report on Form 8-K
of General Motors Corporation dated July 1, 1997. N/A
(4)(f)(ii)First Supplemental Indenture, dated March 4, 2002, between
General Motors Corporation and Citibank, N.A. With Respect
To The 4.50% Series A Convertible Senior Debentures
due 2032 and 5.25% Series B Convertible Senior Debentures
due 2032, incorporated by reference to Exhibit 2 to the
Current Report on Form 8-K of General Motors Corporation
dated March 6, 2002. N/A
(10)(a)** General Motors 2002 Annual Incentive Plan, incorporated by
reference to Exhibit A to the Proxy Statement of General
Motors Corporation dated April 18, 2002. N/A
(10)(b)** General Motors 2002 Stock Incentive Plan, incorporated by
reference to Exhibit A to the Proxy Statement of General
Motors Corporation dated April 18, 2002. N/A
(10)(c)** General Motors 2002 Long-term Incentive Plan, incorporated
by reference to Exhibit A to the Proxy Statement of
General Motors Corporation dated April 18, 2002. N/A
(10)(d)** Compensation Plan for Nonemployee Directors, incorporated by
reference to Exhibit A to the Proxy Statement of General
Motors Corporation dated April 16,1997. N/A
(10)(f) Employment Contract with Robert A. Lutz dated September 1,
2001, incorporated by reference. N/A
(10)(g) Extension to Employment Contract with Robert A. Lutz dated
December 20, 2002. N/A
(12) Computation of Ratios of Earnings to Fixed Charges
for the Years Ended December 31, 2003, 2002, and 2001. IV-6
(21) Subsidiaries of the Registrant as of December 31, 2003 IV-7
(23) Consent of Independent Auditors IV-12
(31.1) Section 302 Certification of the Chief Executive Officer IV-13
(31.2) Section 302 Certification of the Chief Financial Officer IV-14
(32.1) Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. IV-15
(32.2) Certification of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. IV-16
* The registrant hereby undertakes to furnish supplementally a copy of
any omitted schedule or other attachment to the Securities and
Exchange Commission upon request.
** Required to be filed as an exhibit pursuant to Item 15 of Form 10-K.
IV-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART IV - continued
ITEM 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(concluded)
(b) Reports on Form 8-K
Thirteen reports on Form 8-K, were filed October 1, 2003, October 15, 2003*
(2), October 27, 2003, November 3, 2003, November 21, 2003, December 2, 2003,
December 3, 2003, December 12, 2003*, December 15, 2003*, December 22, 2003 (2),
and December 30, 2003 during the quarter ended December 31, 2003 reporting
matters under Item 5, Other Events, reporting certain agreements under Item 7,
Financial Statements, Pro Forma Financial Information, and Exhibits.
--------------------------
* This asterisk indicates Reports submitted to the Securities and Exchange
Commission which include information "furnished" pursuant to Items 9 and 12 of
Form 8-K, which pursuant to General Instruction B of Form 8-K is not deemed to
be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934.
The information furnished pursuant to Items 9 and 12 in such reports is not
subject to the liabilities of Section 18 of the Securities Exchange Act of 1934,
is not incorporated into this Report on Form 10-K and GM does not intend to
incorporate these reports by reference into any filing under the Securities Act
or the Exchange Act.
IV-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SCHEDULE II - ALLOWANCES
Additions Additions
Balance at charged to charged to
beginning costs and other Balance at
of year expenses accounts Deductions end of year
------- -------- -------- ---------- -----------
Description (dollars in millions)
-----------
For the Year Ended December 31, 2003
Allowances Deducted from Assets
Allowance for credit losses $3,059 $1,608 $90 $1,514(b) $3,243
Accounts and notes receivable (for doubtful
receivables) 166 63 15(a) 32(b) 212
Inventories (principally for obsolescence of
service parts) 255 138(c) - - 393
Other investments and miscellaneous assets
(receivables and other) 26 - 58 - 84
Miscellaneous allowances (mortgage and other) 225 135 9 52 317
----- ----- --- ----- -----
Total Allowances Deducted from Assets $3,731 $1,944 $172 $1,598 $4,249
===== ===== === ===== =====
For the Year Ended December 31, 2002
Allowances Deducted from Assets
Allowance for credit losses $2,167 $2,028 $- $1,136(b) $3,059
Accounts and notes receivable (for doubtful
receivables) 159 57 - 50(b) 166
Inventories (principally for obsolescence of
service parts) 220 35(c) - - 255
Other investments and miscellaneous assets
(receivables and other) 8 - 18 - 26
Miscellaneous allowances (mortgage and other) 176 108 16 75 225
----- ----- -- ----- -----
Total Allowances Deducted from Assets $2,730 $2,228 $34 $1,261 $3,731
===== ===== == ===== =====
For the Year Ended December 31, 2001
Allowances Deducted from Assets
Allowance for credit losses $1,493 $1,472 $32 $830(b) $2,167
Accounts and notes receivable (for doubtful
receivables) 151 76 - 68(b) 159
Inventories (principally for obsolescence of
service parts) 265 - - 45(c) 220
Other investments and miscellaneous assets
(receivables and other) 6 - 2 - 8
Miscellaneous allowances (mortgage and other) 102 98 5 29 176
----- ----- -- --- -----
Total Allowances Deducted from Assets $2,017 $1,646 $39 $972 $2,730
===== ===== == === =====
-----------------------
Notes: (a) Primarily reflects the recovery of accounts previously written-off.
(b) Accounts written off.
(c) Represents net change of inventory allowances.
Reference should be made to the notes to the GM consolidated financial
statements.
IV-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
GENERAL MOTORS CORPORATION
(Registrant)
Date: February 29, 2004 By: /s/G. RICHARD WAGONER, JR.
--- --------------------------
G. Richard Wagoner, Jr.
Chairman and Chief Executive Offier
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on this 29th day of February 2004 by the following
persons on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/G. RICHARD WAGONER, JR. Chairman and Chief Executive Officer
--------------------------
(G. Richard Wagoner, Jr.)
/s/JOHN M. DEVINE Vice Chairman and
----------------- Chief Financial Officer
(John M. Devine)
/s/WALTER G. BORST Treasurer
------------------
(Walter G. Borst)
/s/PAUL W. SCHMIDT Controller
------------------
(Paul W. Schmidt)
/s/PETER R. BIBLE Chief Accounting Officer
-----------------
(Peter R. Bible)
IV-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES - concluded
Signature Title
----------- -----------
/s/PERCY BARNEVIK Director
-----------------
(Percy Barnevik)
/s/JOHN H. BRYAN Director
----------------
(John H. Bryan)
/s/ARMANDO M. CODINA Director
--------------------
(Armando Codina)
/s/GEORGE M.C. FISHER Director
---------------------
(George M.C. Fisher)
/s/KAREN KATEN Director
--------------
(Karen Katen)
/s/KENT KRESA Director
--------------
(Kent Kresa)
/s/ Director
-----------------
(Alan G. Lafley)
/s/PHILIP A. LASKAWY Director
--------------------
(Philip A. Laskawy)
/s/E. STANLEY O'NEAL Director
--------------------
(E. Stanley O'Neal)
/s/ECKHARD PFEIFFER Director
-------------------
(Eckhard Pfeiffer)
IV-5