UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 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
----------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 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 whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No .
--- ---
As of April 30, 2004, there were outstanding 564,617,724 shares of the
issuer's $1-2/3 par value common stock.
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.
1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income for the
Three Months Ended March 31, 2004 and 2003 3
Supplemental Information to the Consolidated
Statements of Income for the Three Months
Ended March 31, 2004 and 2003 4
Consolidated Balance Sheets as of March 31, 2004,
December 31, 2003, and March 31, 2003 5
Supplemental Information to the Consolidated Balance
Sheets as of March 31, 2004, December 31, 2003,
and March 31, 2003 6
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2004 and 2003 7
Supplemental Information to the Condensed Consolidated
Statements of Cash Flows for the Three Months Ended
March 31, 2004 and 2003 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 28
Item 4. Controls and Procedures 28
Part II - Other Information (Unaudited)
Item 1. Legal Proceedings 29
Item(2e). Purchase of equity securities 29
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 30
Certifications
Exhibit 31.1 Section 302 Certification of the
Chief Executive Officer 31
Exhibit 31.2 Section 302 Certification of the
Chief Financial Officer 32
Exhibit 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 33
Exhibit 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 34
2
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------
2004 2003
---- ----
(dollars in millions
except per share
amounts)
Total net sales and revenues $47,779 $47,146
------ ------
Cost of sales and other expenses 38,663 37,762
Selling, general, and administrative expenses 5,048 5,106
Interest expense 2,767 2,080
------ ------
Total costs and expenses 46,478 44,948
Income from continuing operations before income taxes,
equity income and minority interests 1,301 2,198
Income tax expense 273 682
Equity income (loss) and minority interests 252 21
----- -----
Income from continuing operations 1,280 1,537
Loss from discontinued operations (Note 2) - (54)
----- -----
Net income $1,280 $1,483
===== =====
Basic earnings (loss) per share attributable to common
stocks (Note 9)
$1-2/3 par value
Continuing Operations $2.27 $2.74
Discontinued Operations $ - $(0.03)
---- ----
Earnings per share attributable to $1-2/3 par value $2.27 $2.71
==== ====
Losses per share from discontinued operations
attributable to Class H $ - $(0.04)
==== ====
Earnings (loss) per share attributable to common stocks
assuming dilution (Note 9)
$1-2/3 par value
Continuing Operations $2.25 $2.74
Discontinued Operations $ - $(0.03)
---- ----
Earnings per share attributable to $1-2/3 par value $2.25 $2.71
==== ====
Losses per share from discontinued operations
attributable to Class H $ - $(0.04)
==== ====
Reference should be made to the notes to consolidated financial statements.
3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------
2004 2003
---- ----
(dollars in millions)
AUTOMOTIVE AND OTHER OPERATIONS
Total net sales and revenues $40,137 $39,815
------ ------
Cost of sales and other expenses 36,440 35,824
Selling, general, and administrative expenses 3,036 2,625
------ ------
Total costs and expenses 39,476 38,449
------ ------
Interest expense 562 249
Net expense from transactions with
Financing and Insurance Operations 35 41
--- -----
Income from continuing operations before income taxes,
equity income, and minority interests 64 1,076
Income tax expense (benefit) (176) 252
Equity income (loss) and minority interests 254 31
--- -----
Income from continuing operations 494 855
Loss from discontinued operations (Note 2) - (54)
--- ---
Net income - Automotive and Other Operations $494 $801
=== ===
FINANCING AND INSURANCE OPERATIONS
Total revenues $7,642 $7,331
----- -----
Interest expense 2,205 1,831
Depreciation and amortization expense 1,455 1,506
Operating and other expenses 1,943 2,161
Provisions for financing and insurance losses 837 752
----- -----
Total costs and expenses 6,440 6,250
----- -----
Net income from transactions with Automotive
and Other Operations (35) (41)
----- -----
Income before income taxes, equity income,
and minority interests 1,237 1,122
Income tax expense 449 430
Equity income (loss) and minority interests (2) (10)
----- -----
Net income - Financing and Insurance Operations $786 $682
=== ===
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.
4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Mar. 31, Mar. 31,
2004 Dec.31, 2003
(Unaudited) 2003 (Unaudited)
--------- ---- ---------
ASSETS (dollars in millions)
Cash and cash equivalents $28,535 $32,554 $24,020
Marketable securities 21,036 22,215 16,841
------ ------ ------
Total cash and marketable securities 49,571 54,769 40,861
Finance receivables - net 184,563 173,137 140,764
Loans held for sale 18,285 19,609 12,496
Accounts and notes receivable (less allowances) 19,515 20,532 16,784
Inventories (less allowances) (Note 3) 11,718 10,960 10,479
Assets of discontinued operations - - 20,414
Deferred income taxes 27,357 27,190 38,915
Net equipment on operating leases - (less 33,624 34,383 35,068
accumulated depreciation)
Equity in net assets of nonconsolidated 6,054 6,032 5,027
affiliates
Property - net 37,664 38,211 36,133
Intangible assets - net (Note 4) 4,727 4,760 10,821
Other assets 61,149 58,924 14,729
------- ------- -------
Total assets $454,227 $448,507 $382,491
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable (principally trade) $27,163 $25,422 $22,489
Notes and loans payable 278,972 271,756 208,151
Liabilities of discontinued operations - - 9,773
Postretirement benefits other than pensions 31,512 36,292 38,205
Pensions 7,795 8,024 22,446
Deferred income taxes 7,660 7,508 6,738
Accrued expenses and other liabilities 74,440 73,930 65,052
------- ------- -------
Total liabilities 427,542 422,932 372,854
Minority interests 319 307 271
Stockholders' equity
$1-2/3 par value common stock (outstanding,
564,488,127; 561,997,725; and
560,616,422 shares) 941 937 934
Class H common stock (outstanding
1,107,517,793 shares at March 31, 2003) - - 111
Capital surplus (principally additional
paid-in capital) 15,135 15,185 22,808
Retained earnings 13,750 12,752 11,234
------ ------ ------
Subtotal 29,826 28,874 35,087
Accumulated foreign currency translation
adjustments (1,768) (1,815) (2,665)
Net unrealized gains (losses) on derivatives (8) 51 (196)
Net unrealized gains on securities 762 618 344
Minimum pension liability adjustment (2,446) (2,460) (23,204)
------- ------ -------
Accumulated other comprehensive loss (3,460) (3,606) (25,721)
------- ------ -------
Total stockholders' equity 26,366 25,268 9,366
------- ------- -------
Total liabilities and stockholders' equity $454,227 $448,507 $382,491
======= ======= =======
Reference should be made to the notes to consolidated financial statements.
5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED BALANCE SHEETS
Mar. 31, Mar. 31,
2004 Dec.31, 2003
(Unaudited) 2003 (Unaudited)
--------- ---- ---------
ASSETS (dollars in millions)
Automotive and Other Operations
Cash and cash equivalents $11,262 $14,424 $14,015
Marketable securities 8,763 9,067 3,239
------ ------ ------
Total cash and marketable securities 20,025 23,491 17,254
Accounts and notes receivable (less allowances) 6,868 5,380 4,975
Inventories (less allowances) (Note 3) 11,718 10,960 10,479
Assets of discontinued operations - - 20,414
Net equipment on operating leases - (less
accumulated depreciation) 6,519 7,173 5,661
Deferred income taxes and other current assets 10,855 10,851 9,858
------ ------ ------
Total current assets 55,985 57,855 68,641
Equity in net assets of nonconsolidated
affiliates 6,054 6,032 5,027
Property - net 35,768 36,071 34,308
Intangible assets - net (Note 4) 1,438 1,479 7,483
Deferred income taxes 18,302 18,086 30,473
Other assets 42,103 42,262 1,451
------- ------- -------
Total Automotive and Other Operations assets 159,650 161,785 147,383
Financing and Insurance Operations
Cash and cash equivalents 17,273 18,130 10,005
Investments in securities 12,273 13,148 13,602
Finance receivables - net 184,563 173,137 140,764
Loans held for sale 18,285 19,609 12,496
Net equipment on operating leases (less
accumulated depreciation) 27,105 27,210 29,407
Other assets 35,078 35,488 28,834
Net receivable from Automotive and Other
Operations 1,660 1,492 486
------- ------- -------
Total Financing and Insurance Operations
assets 296,237 288,214 235,594
------- ------- -------
Total assets $455,887 $449,999 $382,977
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive and Other Operations
Accounts payable (principally trade) $23,970 $21,542 $19,076
Loans payable 2,868 2,813 2,212
Liabilities of discontinued operations - - 9,773
Accrued expenses 45,255 45,417 40,412
Net payable to Financing and Insurance
Operations 1,660 1,492 486
------- ------ -------
Total current liabilities 73,753 71,264 71,959
Long-term debt 29,557 29,593 14,248
Postretirement benefits other than pensions 27,519 32,285 34,260
Pensions 7,731 7,952 22,398
Other liabilities and deferred income taxes 15,617 15,567 13,684
------- ------- -------
Total Automotive and Other Operations
liabilities 154,177 156,661 156,549
Financing and Insurance Operations
Accounts payable 3,193 3,880 3,413
Debt 246,547 239,350 191,691
Other liabilities and deferred income taxes 25,285 24,533 21,687
------- ------- -------
Total Financing and Insurance Operations
liabilities 275,025 267,763 216,791
------- ------- -------
Total liabilities 429,202 424,424 373,340
Minority interests 319 307 271
Total stockholders' equity 26,366 25,268 9,366
------- ------- -------
Total liabilities and stockholders' equity $455,887 $449,999 $382,977
======= ======= =======
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.
6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
---------------------
2004 2003
---- ----
(dollars in millions)
Net cash provided by operating activities $1,098 $8,938
Cash flows from investing activities
Expenditures for property (1,399) (1,612)
Investments in marketable securities -
acquisitions (2,652) (2,830)
Investments in marketable securities -
liquidations 2,905 2,906
Net originations and purchases of mortgage
servicing rights (300) (455)
Increase in finance receivables (34,156) (33,947)
Proceeds from sales of finance receivables 25,034 23,446
Proceeds from sale of business units - 1,076
Operating leases - acquisitions (3,163) (3,661)
Operating leases - liquidations 2,028 2,510
Investments in companies, net of cash acquired 5 (21)
Other (2,626) 78
------ ------
Net cash used in investing activities (14,324) (12,510)
Cash flows from financing activities
Net increase (decrease) in loans payable 2,217 (19)
Long-term debt - borrowings 20,677 16,832
Long-term debt - repayments (15,068) (10,019)
Proceeds from issuing common stocks 34 -
Cash dividends paid to stockholders (282) (280)
Other 1,730 809
----- -----
Net cash provided by financing activities 9,308 7,323
Effect of exchange rate changes on cash
and cash equivalents (101) (51)
----- -----
Net (decrease) increase in cash and cash
equivalents (4,019) 3,700
Cash and cash equivalents at beginning of the
period 32,554 20,320
------ ------
Cash and cash equivalents at end of the period $28,535 $24,020
====== ======
Reference should be made to the notes to consolidated financial statements.
7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Automotive and Financing and
Other Insurance
Three Months Ended March 31,
----------------------------------
2004 2003 2004 2003
---- ---- ---- ----
(dollars in millions)
Net cash (used in) provided by operating
activities $(1,809) $4,447 $2,907 $4,491
Cash flows from investing activities
Expenditures for property (1,298) (1,508) (101) (104)
Investments in marketable securities -
acquisitions (700) (1,155) (1,952) (1,675)
Investments in marketable securities -
liquidations 1,004 90 1,901 2,816
Net change in mortgage services rights - - (300) (455)
Increase in finance receivables - - (34,156) (33,947)
Proceeds from sales of finance receivables - - 25,034 23,446
Proceeds from sale of business units - 1,076 - -
Operating leases - acquisitions - - (3,163) (3,661)
Operating leases - liquidations - - 2,028 2,510
Investments in companies, net of cash
acquired (16) (21) 21 -
Other (16) (176) (2,610) 254
----- ----- ------ ------
Net cash used in investing activities (1,026) (1,694) (13,298) (10,816)
Cash flows from financing activities
Net (decrease) increase in loans payable (149) (23) 2,366 4
Long-term debt - borrowings 24 7 20,653 16,825
Long-term debt - repayments (26) (1) (15,042) (10,018)
Proceeds from issuing common stocks 34 - - -
Cash dividends paid to stockholders (282) (280) - -
Other - - 1,730 809
------ ------ ----- ------
Net cash (used in) provided by financing
activities (399) (297) 9,707 7,620
Effect of exchange rate changes on cash and
cash equivalents (96) 1 (5) (52)
Net transactions with Automotive/Financing 168 (604) (168) 604
------ ------ --- ------
Operations
Net (decrease) increase in cash and cash (3,162) 1,853 (857) 1,847
equivalents
Cash and cash equivalents at beginning of
teh period 14,424 12,162 18,130 8,158
------ ------ ------ ------
Cash and cash equivalents at end of the
period $11,262 $14,015 $17,273 $10,005
====== ====== ====== ======
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.
8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Financial Statement Presentation
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 affiliates is included in the consolidated operating results using the
equity method of accounting when GM is able to exercise significant influence
over the operating and financial decisions of the investee. GM encourages
reference to the GM and GMAC Annual Reports on Form 10-K for the period ended
December 31, 2003 and the GMAC Quarterly Report on form 10-Q for the period
ended March 31, 2004, filed separately with the U.S. Securities and Exchange
Commission (SEC).
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.
Certain amounts for 2003 have been reclassified to conform with the 2004
classifications.
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 the three months ended March 31, 2004 and 2003 was $35 million ($22 million
net of tax) and $47 million ($29 million net of tax), respectively, 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):
9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Financial Statement Presentation (continued)
New Accounting Standards (continued)
Three Months Ended
March 31,
------------------
2004 2003
---- ----
Income from continuing operations,
as reported $1,280 $1,537
Add: stock-based compensation expense,
included in reported net income,
net of related tax effects 22 29
Deduct: total stock-based compensation
expense determined under fair
value based method for all awards,
net of related tax effects (26) (41)
----- -----
Pro forma income from continuing operations $1,276 $1,525
===== =====
Earnings from continuing operations
attributable to
GM $1-2/3 par value common stock
- as reported $1,280 $1,537
- pro forma $1,276 $1,525
Basic earnings per share from continuing
operations attributable to GM $1-2/3 par
value
- as reported $2.27 $2.74
- pro forma $2.26 $2.72
Diluted earnings per share from continuing
operations attributable to GM $1-2/3 par
value
- as reported $2.25 $2.74
- pro forma $2.24 $2.72
In December 2003, the Financial Accounting Standards Board (FASB) published a
revision to FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities" (FIN 46R) to clarify certain provisions of the original interpretation
and to exempt certain entities from its requirements. GM adopted FIN 46R as of
January 1, 2004. The adoption of FIN 46R did not have a significant effect on
the Corporation's financial condition or results of operations.
Sale of GM Defense Business
On March 1, 2003 GM closed the transaction to sell its GM Defense operations
(light armored vehicle business) to General Dynamics Corporation for net
proceeds of approximately $1.1 billion in cash. The sale resulted in a pre-tax
gain of approximately $814 million, or approximately $505 million after-tax
($0.90 per diluted share of GM $1-2/3 par value common stock), which was
recorded in net sales and revenues in GM's Consolidated Statements of Income for
Automotive and Other Operations.
NOTE 2. Discontinued Operations
On December 22, 2003, GM completed a series of transactions that resulted in
the split-off of Hughes Electronics Corporation (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). All News Corporation Preferred
ADSs, received as a result of the transaction, 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. 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 the
respective period and the assets and liabilities of Hughes as of the respective
dates.
Hughes' net sales included in discontinued operations were $2.2 billion for
the period ended March 31, 2003, and Hughes' net losses from discontinued
operations were $54 million for the period ending March 31, 2003.
10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2. Discontinued Operations (concluded)
The Hughes amounts reported as assets and liabilities of discontinued
operations were as follows (in millions):
March 31,
2003
---------
Current assets $5,461
Property and equipment - net 1,548
Intangible assets -net 7,140
Other assets 6,265
------
Assets of discontinued operations $20,414
======
Current liabilities $2,493
Long-term debt 4,980
Other liabilities 2,300
-----
Liabilities of discontinued
operations $9,773
=====
NOTE 3. Inventories
Inventories included the following for Automotive and Other Operations
(dollars in millions):
March 31, Dec. 31, March 31,
2004 2003 2003
----- ---- ----
Productive material, work in process, and $5,155 $4,899 $4,688
supplies
Finished product, service parts, etc. 8,149 7,642 7,572
------ ------ ------
Total inventories at FIFO 13,304 12,541 12,260
Less LIFO allowance (1,586) (1,581) (1,781)
------ ------ ------
Total inventories (less allowances) $11,718 $10,960 $10,479
====== ====== ======
NOTE 4. Goodwill and Acquired Intangible Assets
The components of the Corporation's acquired intangible assets as of March 31,
2004, were as follows (dollars in millions):
Gross Accumulated Net
Carrying Amortization Carrying
Amount Amount
-----------------------------------
Automotive and Other Operations
-------------------------------
Amortizing intangible assets:
Patents and intellectual property rights $303 $37 $266
Non-amortizing intangible assets:
Goodwill 536
Pension intangible asset 636
-----
Total goodwill and intangible assets $1,438
=====
Financing and Insurance Operations
----------------------------------
Amortizing intangible assets:
Customer lists and contracts $65 $33 32
Trademarks and other 40 17 23
Covenants not to compete 18 18 -
--- -- --
Total $123 $68 $55
=== == ==
Non-amortizing intangible assets:
Goodwill 3,234
-----
Total goodwill and intangible assets 3,289
=====
Total consolidated goodwill and intangible
assets $4,727
=====
11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 4. Goodwill and Acquired Intangible Assets (concluded)
Annual amortization expense relating to the existing intangible assets for
each of the next five years is estimated at $30 million to $40 million.
The changes in the carrying amounts of goodwill for the quarter ended March
31, 2004, were as follows (dollars in millions):
Total
Auto &
GMNA GME Other GMAC Total GM
---- --- ----- ---- --------
Balance as of December 31, 2003 $154 $413 $567 $3,223 $3,790
Goodwill acquired during the period - - - 3 3
Goodwill written off related to
sale of business units - - - - -
Effect of foreign currency
translation (2) (24) (26) 8 (18)
Impairment/ Other (5) - (5) - (5)
--- --- --- ----- -----
Balance as of March 31,2004 $147 $389 $536 $3,234 $3,770
=== === === ===== =====
NOTE 5. Investment in Nonconsolidated Affiliates
Nonconsolidated affiliates of GM identified herein are those entities in
which GM owns an equity interest and for which GM uses the equity method of
accounting, because GM has the ability to exert significant influence over
decisions relating to their operating and financial affairs. GM's significant
affiliates, and the percent of GM's current equity ownership, or voting
interest, in them include the following: Italy - GM-Fiat Powertrain (50% at
March 31, 2004 and 2003); Japan - Fuji Heavy Industries Ltd. (20.1% and 21.1% at
March 31, 2004 and 2003, respectively), Suzuki Motor Corporation (20.3% at March
31, 2004 and 2003); China - Shanghai General Motors Co., Ltd (50% at March 31,
2004 and 2003), SAIC GM Wu Ling Automobile Co., Ltd (34% at March 31, 2004 and
2003); Korea - GM Daewoo (44.6% at March 31, 2004 and 2003).
Information regarding GM's share of income for all affiliates in the
following countries is included in the table below (in millions):
GM's share of affiliates' net income
(loss) March 31,
------------------------------------- ------------
2004 2003
---- ----
Italy $18 $8
Japan $106 $32
China $162 $44
Korea $(8) $(12)
NOTE 6. Product Warranty Liability
Policy, product warranty and recall campaigns liability included the
following (dollars in millions):
Three Months Twelve Months Three Months
Ended Ended Ended
March 31, 2004 Dec. 31, 2003 March 31, 2003
-------------- ------------- --------------
Beginning balance $8,674 $8,850 $8,856
Payments (1,131) (4,435) (1,096)
Increase in liability (warranties
issued during period) 1,483 4,390 1,072
Adjustments to liability (pre-existing
warranties) 6 (367) 4
Effect of foreign currency translation (80) 236 27
----- ----- -----
Ending balance $8,952 $8,674 $8,863
===== ===== =====
The change in "increase in liability," from $1.1 billion at March 31, 2003 to
$1.5 billion at March 31, 2004, is attributable to higher North American recall
campaigns of approximately $200 million, a favorable adjustment made in 2003
related to the sale of GM Defense, and other regional volume and cost factors.
12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 7. Commitments and Contingent Matters
Commitments
GM has guarantees related to its performance under operating lease
arrangements and the residual value of lease 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.
Also, GM has entered into agreements with certain suppliers that guarantee
the value of the supplier's assets and agreements with third parties that
guarantee fulfillment of certain suppliers' commitments. The maximum exposure
under these commitments amounts to $94 million.
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 March 31, 2004
approximately $54 million was recorded with respect to these guarantees, the
maximum exposure under which is approximately $3.0 billion.
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.
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, post-retirement 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 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
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 March 31, 2004. 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 (FAH)
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%.
The Master Agreement between GM and Fiat 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 SEC, that it views the exercise of the Put
only as a secondary possibility. Fiat has also stated 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 S.p.A. (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
13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7. Commitments and Contingent Matters (concluded)
Investment in Fiat Auto Holdings (concluded)
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.
NOTE 8. Comprehensive Income
GM's total comprehensive income was as follows (in millions):
Three Months Ended
March 31,
---------------------
2004 2003
---- ----
Net income $1,280 $1,483
Other comprehensive income 126 111
----- -----
Total $1,406 $1,594
===== =====
NOTE 9. 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 (in
millions):
14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9. Earnings Per Share Attributable to Common Stocks
Three Months Ended
March 31,
------------------
2004 2003
---- ----
Earnings attributable to common stocks
$1-2/3 par value
Continuing operations $1,280 $1,537
Discontinued operations - (16)
----- -----
Earnings attributable to $1-2/3 par value $1,280 $1,521
Earnings from discontinued operations
attributable to Class H $ - $(38)
----- -----
Total earnings attributable to common stocks $1,280 $1,483
===== =====
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.
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 (990
million as of March 31, 2003) 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 for the three months ended March 31, 2003.
The reconciliation of the amounts used in the basic and diluted earnings per
share computations for income from continuing operations was as follows (in
millions except per share amounts):
$1-2/3 Par Value Common Stock
-------------------------------
Per Share
Income Shares Amount
------ ------ ------
Three Months Ended March 31, 2004
Basic EPS
Income from continuing operations
attributable to common stocks $1,280 564 $2.27
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 5
----- ---
Diluted EPS
Adjusted income attributable to common
stocks $1,280 569 $2.25
===== === ====
Three Months Ended March 31, 2003
Basic EPS
Income from continuing operations
attributable to common stocks $1,537 561 $2.74
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - -
----- ---
Diluted EPS
Adjusted income attributable to common
stock $1,537 561 $2.74
===== === ====
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
223 million as of March 31, 2004 and 157 million as of March 31, 2003.
15
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10. Depreciation and Amortization
Depreciation and amortization included in cost of sales and other expenses
and selling, general and administrative expenses for Automotive and Other
Operations was as follows (in millions):
Three Months Ended
March 31,
------------------
2004 2003
---- ----
Depreciation $1,148 $986
Amortization of special tools 726 702
Amortization of intangible assets 7 5
----- -----
Total $1,881 $1,693
===== =====
NOTE 11. Pensions and Other Postretirement Benefits
U.S. Plans Non-U.S. Plans
Pension Benefits Pension Benefits Other Benefits
----------------------------------------------------
Three Months Three Months Three Months
Ended Ended Ended
March 31, March 31, March 31,
----------------------------------------------------
2004 2003 2004 2003 2004 2003
----------------------------------------------------
Components of expense (in millions)
Service cost $273 $230 $62 $54 $151 $134
Interest cost 1,260 1,291 223 189 980 947
Expected return on plan
assets (1,953) (1,541) (163) (135) (273) (102)
Amortization of prior
service cost 319 287 24 25 (20) (3)
Amortization of transition
obligation/(asset) - - 1 2 - -
Recognized net actuarial
loss/(gain) 464 436 48 40 302 178
Curtailments, settlements,
and other 34 6 6 9 - 1
--- --- --- --- ----- -----
Net expense $397 $709 $201 $184 $1,140 $1,155
=== === === === ===== =====
During the first quarter of 2004, GM contributed $5 billion to its VEBA
trust. GM is considering making additional contributions to its VEBA trust in
the future.
16
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded
(Unaudited)
NOTE 12. Segment Reporting
Auto & Other Total
GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing
---- --- ------ ---- --- ----- ----- ---- --------- ---------
For the Three Months Ended
March 31, 2004
Manufactured products sales
and revenues:
External customers $29,643 $7,278 $1,729 $1,428 $40,078 $59 $40,137 $7,634 $ 8 $7,642
Intersegment (540) 265 104 171 - - - - - -
------ ----- ----- ----- ------ -- ------ ----- -- -----
Total manufactured products $29,103 $7,543 $1,833 $1,599 $40,078 $59 $40,137 $7,634 $ 8 $7,642
====== ===== ===== ===== ====== == ====== ===== == =====
Interest income (a) $186 $81 $11 $2 $280 $(123) $157 $242 $(69) $173
Interest expense $639 $87 $(6) $7 $727 $(165) $562 $2,206 $(1) $2,205
Net income (loss) from
continuing operations $451 $(116) $1 $275 $611 $(117) $494 $786 $ - $786
Segment assets $129,926 $24,013 $3,595 $3,791 $161,325 $(1,675) $159,650 $296,839 $(602) $296,237
For the Three Months Ended
March 31, 2003
Manufactured products sales
and revenues:
External customers $30,471 $6,357 $933 $1,016 $38,777 $1,042 $39,819 $7,338 $(7) $7,331
Intersegment (508) 265 112 131 - (4) (4) - - -
------ ----- ----- ----- ------ ----- ------ ----- -- -----
Total manufactured products $29,963 $6,622 $1,045 $1,147 $38,777 $1,038 $39,815 $7,338 $(7) $7,331
====== ===== ===== ===== ====== ===== ====== ===== == =====
Interest income (a) $111 $82 $7 $1 $201 $(131) $70 $998 $(70) $928
Interest expense $320 $91 $17 $2 $430 $(181) $249 $1,794 $37 $1,831
Net income (loss) from
continuing operations $548 $(65) $(12) $75 $546 $309 $855 $699 $(17) $682
Segment assets $111,538 $19,536 $3,010 $1,833 $135,917 $(8,948) $147,383(b) $235,583 $11 $235,594
(a) Interest income is included in net sales and revenues from external
customers.
(b) Includes assets of discontinued operations of $20,414 at March
31, 2003.
* * * * * *
17
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 2. 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 December 31,
2003 consolidated financial statements and notes thereto (the 2003 Consolidated
Financial Statements), along with the MD&A included in General Motors
Corporation's (the Corporation, General Motors, or GM) 2003 Annual Report on
Form 10-K, as well as General Motors Acceptance Corporation's (GMAC) Annual
Report on Form 10-K for the period ended December 31, 2003 and the Quarterly
Report on Form 10-Q for the period ended March 31, 2004, 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.
Consistent with industry practice, market share information employs estimates
of sales in certain countries where public reporting is not legally required or
otherwise available on a consistent basis.
18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated Results
GM's total net sales and revenues were $47.8 billion and $47.1 billion for
the first quarter of 2004 and 2003, respectively, and GM's net income was $1.3
billion and $1.5 billion for the first quarter of 2004 and 2003, respectively.
Three Months Ended
March 31,
----------------------
2004 2003
---- ----
(dollars in millions)
Total net sales and revenues $47,779 $47,146
Income from continuing operations $1,280 $1,537
Net income $1,280 $1,483
Net margin from continuing operations 2.7% 3.3%
The increase in first quarter 2004 total net sales and revenues, compared
with first quarter 2003, was due to increases in GMA revenue of $1.3 billion,
primarily driven by foreign exchange, despite lower global production volumes
and worldwide pricing competitiveness, and increases in FIO revenue of $311
million.
Consolidated net income decreased $203 million to $1.3 billion in the first
quarter of 2004, compared to the first quarter of 2003. Net income in the first
quarter of 2003 included a gain of $505 million from the sale of GM's Defense
operations to General Dynamics Corporation. GMA net income increased in the
first quarter of 2004 $65 million over the year-earlier quarter, despite lower
net income in GMNA and higher losses in GME, primarily from higher equity income
in GMAP. GMAC had record first quarter net income of $786 million in 2004,
compared to $699 million in the first quarter of 2003, due to higher net income
from financing and insurance operations. In addition, tax benefits associated
with the recently enacted Medicare legislation in the U.S. had a favorable
effect on consolidated net income, and contributed to the Corporation's reduced
effective tax rate of 21% compared to the first quarter of 2003.
First quarter 2004 highlights included:
o Increased market share in three of four automotive regions;
o Increased net income at GMAC and GMAP; and
o Contributions of $5.0 billion to fund part of GM's other postretirement
employee benefits (OPEB) liability.
GM Automotive Financial Review
GMA's total net sales and revenues were $40.1 billion and $38.8 billion for
the first quarter of 2004 and 2003, respectively, and GMA's net income was $611
million and $546 million for the first quarter of 2004 and 2003, respectively.
Three Months Ended
March 31,
---------------------
2004 2003
---- ----
(dollars in millions)
GMA total net sales and revenues $40,078 $38,777
GMA net income $611 $546
GMA net margin 1.5% 1.4%
Net income (loss) by region
GMNA $451 $548
GME (116) (65)
GMLAAM 1 (12)
GMAP 275 75
--- ---
Net income $611 $546
=== ===
GM global market share 13.7% 13.6%
19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive Financial Review (continued)
The increase in first quarter 2004 total net sales and revenues, compared
with the first quarter of 2003, was the result of increased revenues in GME,
GMLAAM and GMAP, partially offset by lower revenue in GMNA. GM's global market
share was 13.7% and 13.6% for the first quarter of 2004 and 2003, respectively.
Market share gains were recognized in three out of four automotive regions (see
discussion below under each region) with GME posting a slight decline, to 9.5%.
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.
GMA's first quarter 2004 net income was $611 million, an increase of $65
million compared with the first quarter of 2003. The increase was due primarily
to higher equity earnings in GMAP, as well as significant material cost savings
and favorable foreign currency exchange. These items were partially offset by
product volume and mix, which were unfavorable, negative pricing in GMNA and
GME, and increased product recall campaigns. Decreased pension expense was
almost fully offset by increased interest expense due to GM's mid-year 2003 debt
issuances.
GM Automotive Regional Results
GM North America
Three Months Ended
March 31,
----------------------
2004 2003
---- ----
GMNA: (dollars in millions)
Net income $451 $548
Net margin 1.5% 1.8%
Wholesale sales (volumes in thousands)
Cars 584 598
Trucks 799 840
----- -----
Total GMNA 1,383 1,438
Vehicle unit sales
Industry - North America 4,657 4,474
GM as a percentage of industry 26.4% 26.1%
Industry - U.S. 3,993 3,821
GM as a percentage of industry 26.7% 26.7%
GM cars 25.9% 24.9%
GM trucks 27.3% 28.2%
North American industry vehicle unit sales increased to 4.7 million in the
first quarter of 2004 from 4.5 million in the first quarter of 2003. With this
increase in industry sales, GMNA's market share increased by 0.3 percentage
points. GMNA achieved a market share of 26.4% in the first quarter of 2003,
compared to 26.1% in the first quarter of 2003.
During the first quarter of 2004, industry vehicle unit sales in the United
States increased 4.5% to 4.0 million units from 3.8 million units in the first
quarter of 2003. GM's U.S. market share increased by 0.07 percentage point to
26.7% compared to the first quarter of 2003. U.S. car market share rose by 1.0
percentage point to 25.9%, while U.S. truck market share declined to 27.3%, down
0.9 percentage point. As GM introduces several new models in North America
during 2004, GM's goal remains to increase market share in the United States and
North America during 2004.
Net income from GMNA totaled $451 million and $548 million in the first
quarter of 2004 and 2003, respectively. The decrease in GMNA's 2004 first
quarter net income compared to 2003 was primarily due to lower production
volume, unfavorable pricing, higher product recall campaigns, and higher
interest expense related to the mid-year 2003 debt issuances. These factors were
partially offset by lower pension expense and material cost savings.
20
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive Financial Review (continued)
GM North America (concluded)
Vehicle revenue per unit was $19,084 for the first quarter of 2004, compared
with $19,089 for the first quarter of 2003. Trucks as a percent of total sales
were higher by 1.4 percentage points, offset by higher fleet sales compared to
the first quarter of 2003, resulting in essentially flat revenue per unit.
GM Europe
Three Months Ended
March 31,
----------------------
2004 2003
---- ----
(dollars in millions)
GME net loss $(116) $(65)
GME net margin (1.5%) (1.0%)
Wholesale sales (volumes in thousands)
Cars 409 400
Trucks 24 27
--- ---
Total GME 433 427
Vehicle unit sales
Industry 5,279 4,970
GM as a percentage of industry 9.5% 9.6%
GM market share - Germany 10.6% 11.1%
GM market share - United Kingdom 14.0% 14.3%
Industry vehicle unit sales increased in Europe during the first quarter of
2004 by approximately 6% to 5.3 million, from 5.0 million in the first quarter
of 2003, with strong year-over-year growth in Central and Eastern Europe, and
moderate growth in Western Europe. However, GME's market share decreased 0.1
percentage point to 9.5% over the same period. In two of GM's largest markets in
Europe, GM lost market share: share declined to 10.6% in Germany, a 0.5
percentage point decrease versus the first quarter of 2003, and declined to
14.0% in the United Kingdom, a decrease of 0.3 percentage points versus the same
period. Market share improved in the smaller Eastern and Central European
markets.
Net loss from GME totaled $116 million and $65 million in the first quarter
of 2004 and 2003 respectively. Lower income at Opel/Vauxhall was partially
offset by improved results at Saab. The increase in GME's first quarter 2004 net
loss over 2003 was primarily due to decreased volume, continued price pressure,
and lower aftermarket sales. In addition, movement of the euro and Swedish krona
against the Great Britain pound and U.S. dollar, respectively, continued to
negatively affect GME's results. These unfavorable factors were partially offset
by reduced material and structural cost.
GM Latin America/Africa/Mid-East
Three Months Ended
March 31,
----------------------
2004 2003
---- ----
(dollars in millions)
GMLAAM net income (loss) $1 $(12)
GMLAAM net margin 0.1% (1.1%)
Wholesale sales (volumes in thousands)
Cars 127 97
Trucks 40 24
--- ---
Total GMLAAM 167 121
Vehicle unit sales
Industry 937 841
GM as a percentage of industry 17.1% 15.7%
GM market share - Brazil 23.6% 23.6%
21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive Financial Review (concluded)
GM Latin America/Africa/Mid-East (concluded)
Industry vehicle unit sales in the LAAM region increased over 11% in the
first quarter of 2004, to 937 thousand units, compared to the first quarter of
2003. Overall, GMLAAM's market share for the region was up 1.4 percentage
points, to 17.1% in the first quarter of 2004.
GMLAAM achieved net income of $1 million in the quarter, up from a loss of
$12 million in the first quarter of 2003. Higher volumes and improved results in
Venezuela and South Africa offset continued losses in Brazil, which remains a
major concern due to continued economic problems. Effective January 1, 2004, GM
increased its ownership of Delta Motor Co. in South Africa to 100%, from 49%
previously, moving from the equity method of accounting to full consolidation.
The company is now known as General Motors South Africa.
GM Asia Pacific
Three Months Ended
March 31,
----------------------
2004 2003
---- ----
(dollars in millions)
GMAP net income $275 $75
GMAP net margin 17.2% 6.5%
Wholesale sales (volumes in thousands)
Cars 47 51
Trucks 15 11
-- --
Total GMAP 62 62
Vehicle unit sales
Industry 4,556 4,129
GM as a percentage of industry 4.7% 4.3%
GM market share - Australia 20.1% 20.6%
GM market share - China 9.5% 6.7%
Industry vehicle unit sales in the Asia Pacific region increased more than
10% in the first quarter of 2004, to 4.6 million units, from 4.1 million units
in the first quarter of 2003. The greatest increase in volume was in China,
where sales increased to 1.3 million from 1.0 million units. GMAP increased its
retail (including affiliates) sales in the Asia Pacific region more than 20% in
the period, to 215 thousand units from 178 thousand in 2003, which drove GMAP's
first quarter 2004 market share to 4.7%, from 4.3% in the first quarter of 2003.
GMAP's market share in China increased to 9.5% in the first quarter of 2004,
from 6.7% in the first quarter of 2003. In the first quarter of 2004, China was
GM's second largest market, surpassing Canada and the United Kingdom for the
first time.
Net income from GMAP was $275 million and $75 million in the first quarter of
2004 and 2003, respectively. The increase in GMAP's net income, compared with
the first quarter of 2003, was primarily due to strong equity earnings from
Shanghai GM and equity investees in Japan, as well as improved earnings at GM
operations in Thailand and India, and lower losses at GM Daewoo Auto &
Technology Company in South Korea.
Other Operations
In the first quarter of 2003, Other Operations' total net sales and revenues
included 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.
22
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Discontinued Operations
In December 2003, GM split off Hughes Electronics Corporation (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 The News
Corporation Ltd. (News Corporation) in exchange for cash and News Corporation
Preferred American Depositary Shares (Preferred ADSs). These transactions are
referred to as "the Hughes transactions."
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 were
classified as discontinued operations for all periods through such date
presented in GM's consolidated financial statements. See Note 2 to the 2003
Consolidated Financial Statements for further discussion.
GMAC Financial Review
GMAC's net income was $786 million and $699 million in the first quarter of
2004 and 2003, respectively.
Three Months Ended March
31,
------------------------
2004 2003
---- ----
(in millions)
Financing operations $442 $302
Mortgage operations 253 371
Insurance operations 91 26
--- ---
Net income $786 $699
=== ===
Net income from financing operations totaled $442 million and $302 million in
the first quarter of 2004 and 2003, respectively. The increase in net income in
the first quarter of 2004, compared with 2003, was primarily due to increased
revenues from higher asset levels, lower credit loss provisions, improved
remarketing performance of off-lease vehicles, and favorable foreign currency
movements (primarily the euro relative to the U.S. dollar). These more than
offset the unfavorable effect of lower net interest margins.
Net income from mortgage operations totaled $253 million and $371 million in
the first quarter of 2004 and 2003, respectively. The decrease in net income in
the first quarter of 2004, compared with 2003, was primarily due to a decrease
in gains on sales of loans during the first quarter of 2004, compared to the
same period in 2003, as a result of lower loan production volume and decreased
price margins as residential mortgage refinance activity decreased
year-over-year. This was partially offset by a decrease of amortization and
impairment charges with respect to mortgage servicing rights, reflecting larger
valuation adjustments in the first quarter of 2003, compared to the first
quarter of 2004. In addition, net financing revenue, including provision for
credit losses, increased year-over-year, primarily due to continued growth in
the balance of mortgage loans held as collateral for secured financings.
Net income from insurance operations totaled $91 million and $26 million in
the first quarter of 2004 and 2003, respectively. The increase in net income in
the first quarter of 2004, compared with 2003, was primarily due to both higher
earned premiums and underwriting income, and increased investment income
resulting from capital gains realized in the first quarter of 2004, compared
with capital losses realized, including the write down of certain investment
securities, in the first quarter of 2003.
2004 Priorities / Targets
As previously reported, GM's operating priorities and financial targets for
2004 are as follows:
o Attaining earnings per share of $7.00 for the calendar year, compared to
$6.00 to $6.50 previously estimated, and between $2.00 and $2.25 for the
second quarter of 2004, at current dilution levels;
o GME's target income of breakeven to income of $100 million for 2004 may be
difficult to achieve;
o GM expects a lower effective tax rate in the second quarter due to
settlements of prior years' tax matters;
o GM expects interest rates to rise somewhat in late 2004. The effect of
this is comprehended in the earnings per share outlook for the year; and
o GMNA incentives in the second quarter are expected to reflect seasonal
patterns of spending.
23
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Financing Structure
In the first quarter of 2004, 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 and GMAC's need for
financial flexibility. On April 16, 2004 Standard & Poor's affirmed GMAC's
rating at BBB with negative outlook. On April 22, 2004 DBRS affirmed GM's and
GMAC's ratings at A (low), with a rating outlook of stable. On April 29, 2004
Moody's affirmed GM's and GMAC's ratings at Baa1 and A3 respectively, with a
rating outlook of negative. On May 4, 2004 Fitch affirmed GM's and GMAC's
ratings at BBB+ with negative outlook. These rating actions are not expected to
have a material effect on GM's and GMAC's ability to obtain bank credit or to
sell asset-backed securities. Accordingly, 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. The table below summarizes GM's
and GMAC's credit ratings as of March 31, 2004.
-------------------- ------------------- -------------------
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
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,
$4.6 billion of bilateral committed lines with various maturities, and
uncommitted lines of credit of $17.8 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 2005. 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.
Automotive and Other Operations
At March 31, 2004, cash, marketable securities, and $3.5 billion of assets of
the Voluntary Employees' Beneficiary Association (VEBA) trust invested in
fixed-income securities totaled $23.5 billion, compared with cash, marketable
securities, and $3.4 billion of assets of the VEBA trust invested in
fixed-income securities totaling $26.9 billion at December 31, 2003 and $20.6
billion at March 31, 2003. The decrease of approximately 13% from December 31,
2003 was primarily due to $5.0 billion of VEBA cash contributions in the first
quarter of 2004, which resulted in $1.8 billion of net cash used in operating
activities. Total assets in the VEBA trust used to pre-fund part of GM's other
postretirement benefits liability approximated $15.9 billion at March 31, 2004,
$10.0 billion at December 31, 2003, and $6.4 billion at March 31, 2003. In
addition to the first quarter 2004 contribution of $5.0 billion noted above,
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, in addition to
the $0.3 billion of GM Class H common stock contributed to the VEBA in March
2003. At December 22, 2003, under terms of the Hughes transactions, these shares
of GM Class H common stock 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.
Long-term debt was $29.6 billion at March 31, 2004 and December 31, 2003,
compared with $14.2 billion at March 31, 2003. The increase from March 31, 2003
is due to net debt issuances of $14.5 billion in the second and third quarters
of 2003. The proceeds from these issuances 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 84.4% at March 31, 2004, 85.2% at December 31, 2003, and 280.4% at March 31,
2003. 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 85.6% at
March 31, 2004, 86.4% at December 31, 2003, and 225.7% at March 31, 2003. The
decrease in these ratios compared to March 31, 2003 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.
24
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (continued)
Automotive and Other Operations (concluded)
Net liquidity, calculated as cash, marketable securities, and $3.5 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 $8.9 billion at March 31, 2004,
compared with a negative $5.5 billion at December 31, 2003, and compared to $4.2
billion, including $3.4 billion of assets of the VEBA, at March 31, 2003.
Financing and Insurance Operations
At March 31, 2004, GMAC's consolidated assets totaled $296.8 billion,
compared with $288.2 billion at December 31, 2003 and $235.5 billion at March
31, 2003. The increase from December 31, 2003 was primarily due to an increase
in net finance receivables and loans, from $172.7 billion at December 31, 2003
to $184.7 billion at March 31, 2004, driven by increases in residential
mortgages and wholesale automotive receivables. The increase in GMAC's
consolidated assets at March 31, 2004 compared with March 31, 2003 was also due
to higher net finance receivables and loans, primarily residential mortgages.
The higher mortgage balances are primarily the result of the increased use of
securitizations structured as financing transactions. The increase in wholesale
automotive receivables outstanding is primarily due to higher dealer
inventories.
Consistent with the growth in assets, GMAC's total debt increased to $247.1
billion at March 31, 2004, compared with $238.9 billion at December 31, 2003 and
$191.0 at March 31, 2003. GMAC's ratio of total debt to total stockholder's
equity at March 31, 2004 was 11.7:1, compared with 11.8:1 at December 31, 2003,
and 10.3:1 at March 31, 2003. GMAC's liquidity, as well as its ongoing
profitability, in large part depends on its timely access to capital and the
costs associated with raising funds in different segments of the capital
markets. GMAC's strategy in managing liquidity risk has been to develop
diversified funding sources across a global investor base. As an important part
of its overall funding and liquidity strategy, GMAC maintains substantial bank
lines of credit. These bank lines of credit, which totaled $53 billion at March
31, 2004, provide "back-up" liquidity and represent additional funding sources,
if required. In addition, GMAC has $30 billion in funding commitments (with $19
billion used) with third party asset-backed commercial paper conduits that
GMAC's Financing and Mortgage operations may use as additional secured funding
sources.
Investment in Fiat Auto Holdings (FAH)
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%.
The Master Agreement between GM and Fiat 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 SEC, that it views the exercise of the Put
only as a secondary possibility. Fiat has also stated 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 S.p.A. (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.
25
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Investment in Fiat Auto Holdings (concluded)
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 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.
The amounts outstanding in off-balance sheet facilities used by the Financing
and Insurance Operations have decreased since March 31, 2003 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):
March 31, Dec. 31, March 31,
Automotive and Other Operations 2004 2003 2003
------------------------------- ---- ---- ----
Assets leased under operating leases $2,303 $2,287 $2,143
Trade receivables sold (1) 795 759 747
----- ----- -----
Total $3,098 $3,046 $2,890
===== ===== =====
Financing and Insurance Operations
----------------------------------
Receivables sold or securitized:
- Mortgage loans $84,267 $80,798 $108,854
- Retail finance receivables 8,501 9,548 14,855
- Wholesale finance receivables 18,702 21,142 17,520
------- ------- -------
Total $111,470 $111,488 $141,229
======= ======= =======
(1) In addition, trade receivables sold to GMAC were $506 million, $553
million and $435 million for the periods ended March 31, 2004, December
31, 2003, and March 31, 2003, respectively.
26
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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
was $46.71 at March 31, 2004, $44.96 at December 31, 2003, and $11.98 at March
31, 2003.
DIVIDENDS
Dividends may be paid on GM's $1-2/3 par value common stock only when, as,
and if declared by the GM Board in its sole discretion. The amount available for
the payment of dividends on common stock will be reduced on occasion by
dividends paid and will be adjusted on occasion for changes to the amount of
surplus attributed to the stock resulting from the repurchase or issuance of
shares of stock.
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. On February 3,
2004, the GM Board declared a quarterly cash dividend of $0.50 per share on GM
$1-2/3 par value common stock, paid March 10, 2004, to holders of record on
February 13, 2004.
EMPLOYMENT AND PAYROLLS
Worldwide employment for GM and its wholly-owned
subsidiaries at March 31, (in thousands) 2004 2003
---- ----
GMNA 186 194
GME 63 66
GMLAAM * 25 23
GMAP 14 12
GMAC 33 31
Other 5 7
--- ---
Total employees 326 333
=== ===
Three Months Ended
March 31
--------------------
2004 2003
---- ----
Worldwide payrolls - (in billions) $5.5 $5.3
=== ===
* 2004 includes 3,000 employees as a result of the consolidation of GM South
Africa.
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 2003 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 its 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.
27
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes in the Corporation's exposure to
market risk since December 31, 2003. See Item 7A in GM's Annual Report on Form
10-K for the year ended December 31, 2003.
* * * * * * *
ITEM 4. 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.
* * * * * * *
28
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
(a) Material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Corporation, or its
principal subsidiaries, became a party during the quarter ended March 31,
2004, or subsequent thereto, but before the filing of this report are
summarized below:
Other Matters
In previously reported litigation against automobile manufacturers in the United
States and Canada, including GM and GM of Canada, alleging that restrictions on
the export of vehicles from Canada to the U.S. by Canadian dealers violates
federal antitrust and various state laws, the U.S. District Court in Maine
responsible for coordinated pretrial proceedings in the 26 federal cases has
granted in part the defendants' motion to dismiss. On March 5, 2004, the Court
issued a decision holding that the purported indirect purchaser classes failed
to state a claim for damages. The Court allowed a separate claim seeking to
enjoin future alleged violations to continue. On April 23, 2004, plaintiffs
filed an amended complaint that added claims under state laws for alleged state
antitrust violations, violation of state unfair trade practices acts and unjust
enrichment. The California State Court responsible for the consolidated
California State Court cases denied defendants' demurrers. State Courts in New
York and New Jersey granted motions to dismiss statewide purported class
actions.
Environmental Matters
As previously reported, the U.S. EPA Region V filed an Administrative complaint
against General Motors on October 17, 2003 seeking unspecified penalties for
alleged multiple violations of hazardous waste rules with respect to GM's
painting and purge operations at GM plants in Moraine, Ohio; Pontiac, Michigan;
and Orion, Michigan. GM filed a lawsuit on August 2, 2002 in the DC Circuit
Court of Appeals seeking an order by the Court declaring that the position of
the EPA in its Administrative complaint constituted an "unlawful rulemaking." On
April 2, 2004, the DC Circuit Court of Appeals ruled that it did not have
jurisdiction to consider GM's claims. Therefore, the EPA Region V Administrative
complaint will now proceed as a normal enforcement matter. GM will vigorously
defend.
* * * * * * * * *
ITEM 2(e). Purchases of Equity Securities
GM made the following purchases of GM $1-2/3 par value common stock during the
three months ended March 31, 2004:
(d) Maximum Number
(c) Total Number (or Approximate
of Shares Dollar Value)
(or Units) of Shares (or
(a) Total Number (b) Average Purchased as Units) that May
of Shares Price Paid Part of Publicly Yet Be Purchased
(or Units per Share Announced Plans Under the Plans
Purchased) (or Unit) or Program or Programs
-------------------------------------------------------------------------------
January 1 to
January 31, 2004 12,305 $54.15 NA NA
February 1 to
February 29, NA NA
2004 677 $49.22
March 1 to
March 31, 2004 2,215 $46.56 NA NA
--------------------------------------------------------------------------------
Total 15,197 $52.82 NA NA
--------------------------------------------------------------------------------
* * * * * * * * *
29
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit Page
Number Exhibit Name Number
------ ------------- -------
(31.1) Section 302 Certification of the Chief Executive Officer 31
(31.2) Section 302 Certification of the Chief Financial Officer 32
(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 33
(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 34
(b) Reports on Form 8-K
Eight reports on Form 8-K, were filed January 5, 2004, January 8, 2004*,
January 20, 2004 (2)*, February 3, 2004, February 4, 2004, March 2, 2004, and
March 30, 2004 during the quarter ended March 31, 2004 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-Q and GM does not intend to
incorporate these reports by reference into any filing under the Securities Act
or the Exchange Act.
* * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
(Registrant)
Date: May 6, 2004 By: /s/PETER R. BIBLE
--- -----------------
(Peter R. Bible,
Chief Accounting Officer)
30