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 September 30, 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
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(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 October 31, 2004, there were outstanding 564,825,923 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 (Unaudited)
Item 1. Financial Statements
Consolidated Statements of Income for the Three Months
and Nine Months Ended September 30, 2004 and 2003 3
Supplemental Information to the Consolidated
Statements of Income for the Three Months and
Nine Months Ended September 30, 2004 and 2003 4
Consolidated Balance Sheets as of September 30, 2004,
December 31, 2003, and September 30, 2003 5
Supplemental Information to the Consolidated Balance
Sheets as of September 30, 2004, December 31, 2003,
and September 30, 2003 6
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2004 and 2003 7
Supplemental Information to the Condensed Consolidated
Statements of Cash Flows for the Nine Months Ended
September 30, 2004 and 2003 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 34
Item 4. Controls and Procedures 34
Part II - Other Information (Unaudited)
Item 1. Legal Proceedings 35
Item 2(c). Purchases of equity securities 35
Item 6. Exhibits and Reports on Form 8-K 36
Signatures 36
Exhibit 4.1 Second Supplemental Indenture dated as of November 5,
2004, between General Motors Corporation and
Citibank, N.A., as trustee 37
Exhibit 4.2 Third Supplemental Indenture dated as of November 5,
2004, between General Motors Corporation and
Citibank, N.A., as trustee 40
Exhibit 4.3 Fourth Supplemental Indenture dated as of November 5,
2004, between General Motors Corporation and
Citibank, N.A., as trustee 43
Exhibit 31.1 Section 302 Certification of the Chief Executive
Officer 46
Exhibit 31.2 Section 302 Certification of the Chief Financial
Officer 47
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 Act of 2002 48
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 Act of 2002 49
2
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2004 2003 2004 2003
---- ---- ---- ----
(dollars in millions except per share amounts)
Total net sales and revenues $44,858 $43,519 $141,691 $136,451
------ ------ ------- -------
Cost of sales and other expenses 37,177 35,049 115,304 109,863
Selling, general, and
administrative expenses 4,364 5,576 14,731 16,268
Interest expense 2,979 2,507 8,560 6,804
------ ------ -------- -------
Total costs and expenses 44,520 43,132 138,595 132,935
------ ------ ------- -------
Income from continuing operations
before income taxes, equity
income, and minority interests 338 387 3,096 3,516
Income tax expense 71 134 650 1,060
Equity income (loss) and minority
interests 173 195 615 408
--- --- ----- -----
Income from continuing operations 440 448 3,061 2,864
(Loss) from discontinued
operations (Note 2) - (23) - (55)
--- --- ----- -----
Net Income $440 $425 $3,061 $2,809
=== === ===== =====
Basic earnings (loss) per share
attributable to common stocks
(Note 9)
$1-2/3 par value
Continuing Operations $0.78 $0.80 $5.42 $5.11
Discontinued Operations - (0.01) - (0.02)
---- ---- ---- ----
Earnings per share attributable to
$1-2/3 par value $0.78 $0.79 $5.42 $5.09
==== ==== ==== ====
(Loss) per share from
discontinued operations
attributable to Class H $ - $(0.02) $ - $(0.04)
= ==== = ====
Earnings (loss) per share
attributable to common stocks
assuming dilution (Note 9)
$1-2/3 par value
Continuing Operations $0.78 $0.80 $5.39 $5.10
Discontinued Operations - (0.01) - (0.02)
---- ---- ---- ----
Earnings per share attributable to
$1-2/3 par value $0.78 $0.79 $5.39 $5.08
==== ==== ==== ====
(Loss) per share from discontinued
operations attributable to Class H $ - $(0.02) $ - $(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 Nine Months Ended
September 30, September 30,
------------- -------------
2004 2003 2004 2003
---- ---- ---- ----
(dollars in millions)
AUTOMOTIVE AND OTHER OPERATIONS
Total net sales and revenues $37,102 $35,845 $118,441 $114,003
------ ------ ------- -------
Cost of sales and other expenses 34,843 33,133 108,590 104,288
Selling, general, and
administrative expenses 2,200 2,703 8,380 8,393
------ ------ ------- -------
Total costs and expenses 37,043 35,836 116,970 112,681
Interest expense 622 516 1,780 1,091
Net expense from transactions with
Financing and Insurance
Operations 66 64 133 139
--- --- --- ---
Income (loss) from continuing
operations before income
taxes, equity income, and
minority interests (629) (571) (442) 92
Income tax (benefit) (241) (240) (599) (244)
Equity income (loss) and minority
interests 175 153 619 377
--- --- --- ---
Income from continuing operations (213) (178) 776 713
(Loss) from discontinued
operations (Note 2) - (23) - (55)
--- --- --- ---
Net Income - Automotive and
Other Operations $(213) $(201) $776 $658
=== === === ===
FINANCING AND INSURANCE OPERATIONS
Total revenues $7,756 $7,674 $23,250 $22,448
----- ----- ------ ------
Interest expense 2,357 1,991 6,780 5,713
Depreciation and amortization
expense 1,359 1,398 3,959 4,282
Operating and other expenses 2,171 2,561 6,454 6,842
Provisions for financing and
insurance losses 968 830 2,652 2,326
----- ----- ------ ------
Total costs and expenses 6,855 6,780 19,845 19,163
----- ----- ------ ------
Net income from transactions with
Automotive and Other Operations (66) (64) (133) (139)
----- ----- ------ ------
Income before income taxes, equity
income, and minority interests 967 958 3,538 3,424
Income tax expense 312 374 1,249 1,304
Equity income (loss) and minority
interests (2) 42 (4) 31
--- ---- ----- -----
Net income - Financing and
Insurance Operations $653 $626 $2,285 $2,151
=== === ===== =====
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
Sept. 30, Sept. 30,
2004 Dec. 31, 2003
(Unaudited) 2003 (Unaudited)
----------- ---- -----------
ASSETS (dollars in millions)
Cash and cash equivalents $37,589 $32,554 $39,184
Marketable securities 21,034 22,215 21,368
------ ------ ------
Total cash and marketable securities 58,623 54,769 60,552
Finance receivables - net 193,282 174,731 161,160
Loans held for sale 20,116 19,609 19,931
Accounts and notes receivable (less allowances) 17,385 20,532 19,163
Inventories (less allowances) (Note 3) 12,035 10,960 10,936
Assets of discontinued operations (Note 2) - - 19,687
Deferred income taxes 27,219 27,190 38,896
Net equipment on operating leases (less
accumulated depreciation) 33,483 32,790 32,564
Equity in net assets of nonconsolidated
affiliates 6,637 6,032 5,780
Property - net 37,432 38,211 37,637
Goodwill and Intangible assets - net (Note 4) 4,732 4,760 10,952
Other assets 57,691 58,923 17,264
------- ------- -------
Total assets $468,635 $448,507 $434,522
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable (principally trade) $26,404 $25,422 $25,052
Notes and loans payable 290,920 271,756 257,647
Liabilities of discontinued operations (Note 2) - - 8,985
Postretirement benefits other than pensions 31,948 36,292 35,841
Pensions 7,824 8,024 19,025
Deferred income taxes 6,134 7,508 6,467
Accrued expenses and other liabilities 77,255 73,930 69,996
-------- ------- --------
Total liabilities 440,485 422,932 423,013
Minority interests 369 307 740
Stockholders' equity
$1-2/3 par value common stock (outstanding,
564,804,464; 561,997,725; and
560,741,759 shares) 941 937 935
Class H common stock (outstanding,
1,108,731,138 shares
at September 30, 2003) - - 111
Capital surplus (principally additional
paid-in capital) 15,209 15,185 22,884
Retained earnings 14,966 12,752 12,000
------ ------ ------
Subtotal 31,116 28,874 35,930
Accumulated foreign currency translation
adjustments (1,678) (1,815) (2,099)
Net unrealized gain (loss) on derivatives 215 51 (130)
Net unrealized gains on securities 610 618 515
Minimum pension liability adjustment (2,482) (2,460) (23,447)
------- ------- ------
Accumulated other comprehensive loss (3,335) (3,606) (25,161)
------- ------- ------
Total stockholders' equity 27,781 25,268 10,769
------- ------- -------
Total liabilities and stockholders' equity $468,635 $448,507 $434,522
======= ======= =======
Reference should be made to the notes to consolidated financial statements.
5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED BALANCE SHEETS
Sept. 30, Sept. 30,
2004 Dec. 31, 2003
(Unaudited) 2003 (Unaudited)
----------- ---- -----------
ASSETS (dollars in millions)
Automotive and Other Operations
Cash and cash equivalents $12,984 $14,424 $17,860
Marketable securities 7,969 9,067 8,022
------ ------ ------
Total cash and marketable securities 20,953 23,491 25,882
Accounts and notes receivable (less allowances) 6,542 5,380 5,777
Inventories (less allowances) (Note 3) 12,035 10,960 10,936
Assets of discontinued operations (Note 2) - - 19,687
Net equipment on operating leases (less
accumulated depreciation) 6,764 7,173 6,401
Deferred income taxes and other current assets 10,813 10,851 9,796
------ ------ ------
Total current assets 57,107 57,855 78,479
Equity in net assets of nonconsolidated
affiliates 6,637 6,032 5,780
Property - net 35,583 36,071 35,640
Goodwill and intangible assets - net (Note 4) 1,445 1,479 7,696
Deferred income taxes 18,086 18,086 30,353
Other assets 41,251 42,262 1,807
------- ------- -------
Total Automotive and Other Operations assets 160,109 161,785 159,755
Financing and Insurance Operations
Cash and cash equivalents 24,605 18,130 21,324
Investments in securities 13,065 13,148 13,346
Finance receivables - net 193,282 174,731 161,160
Loans held for sale 20,116 19,609 19,931
Net equipment on operating leases (less
accumulated depreciation) 26,719 25,617 26,163
Other assets 30,739 35,487 32,843
Net receivable from Automotive and Other
Operations 2,548 1,492 1,735
------- ------- -------
Total Financing and Insurance Operations
assets 311,074 288,214 276,502
------- ------- -------
Total assets $471,183 $449,999 $436,257
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive and Other Operations
Accounts payable (principally trade) $23,287 $21,542 $20,540
Loans payable 2,540 2,813 2,154
Liabilities of discontinued operations (Note 2) - - 8,985
Accrued expenses 45,330 45,417 41,056
Net payable to Financing and Insurance Operations 2,548 1,492 1,735
------- ------- -------
Total current liabilities 73,705 71,264 74,470
Long-term debt 30,065 29,593 29,548
Postretirement benefits other than pensions 27,996 32,285 31,917
Pensions 7,755 7,952 18,968
Other liabilities and deferred income taxes 15,402 15,567 14,178
------- ------- -------
Total Automotive and Other Operations
liabilities 154,923 156,661 169,081
Financing and Insurance Operations
Accounts payable 3,117 3,880 4,512
Debt 258,315 239,350 225,945
Other liabilities and deferred income taxes 26,678 24,533 25,210
------- ------- -------
Total Financing and Insurance Operations
liabilities 288,110 267,763 255,667
------- ------- -------
Total liabilities 443,033 424,424 424,748
Minority interests 369 307 740
Total stockholders' equity 27,781 25,268 10,769
------- ------- -------
Total liabilities and stockholders' equity $471,183 $449,999 $436,257
======= ======= =======
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)
Nine Months Ended
September 30,
------------------------
2004 2003
---- ----
(dollars in millions)
Net cash provided by operating activities $11,396 $7,287
Cash flows from investing activities
Expenditures for property (4,762) (4,935)
Investments in marketable securities -
acquisitions (9,503) (12,600)
Investments in marketable securities -
liquidations 10,095 7,997
Net originations and purchases of mortgage
servicing rights (1,151) (1,988)
Increase in finance receivables (93,163) (103,811)
Proceeds from sales of finance receivables 79,430 76,177
Proceeds from sale of business unit - 1,076
Operating leases - acquisitions (10,364) (8,719)
Operating leases - liquidations 5,637 7,801
Investments in companies, net of cash acquired (85) (187)
Other 369 42
------ ------
Net cash used in investing activities (23,497) (39,147)
Cash flows from financing activities
Net increase (decrease) in loans payable 1,559 (238)
Long-term debt - borrowings 57,505 77,505
Long-term debt - repayments (44,822) (27,815)
Cash dividends paid to stockholders (847) (840)
Other 3,763 1,606
------ ------
Net cash provided by financing activities 17,158 50,218
Effect of exchange rate changes on cash and
cash equivalents (22) 506
------ ------
Net increase in cash and cash equivalents 5,035 18,864
Cash and cash equivalents at beginning of the
period 32,554 20,320
------ ------
Cash and cash equivalents at end of the period $37,589 $39,184
====== ======
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 Financing and
and Other Insurance
Nine Months Ended September 30,
------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
(dollars in millions)
Net cash provided by operating activities $1,273 $242 $10,122 $7,045
Cash flows from investing activities
Expenditures for property (4,502) (4,467) (260) (468)
Investments in marketable securities -
acquisitions (1,817) (7,033) (7,686) (5,567)
Investments in marketable securities -
liquidations 2,915 1,185 7,180 6,812
Net change in mortgage servicing rights - - (1,151) (1,988)
Increase in finance receivables - - (93,163)(103,811)
Proceeds from sales of finance receivables - - 79,430 76,177
Proceeds from sale of business unit - 1,076 - -
Operating leases - acquisitions - - (10,364) (8,719)
Operating leases - liquidations - - 5,637 7,801
Investments in companies, net of cash
acquired (94) (45) 9 (142)
Other 348 266 22 (224)
----- ------ ------ ------
Net cash used in investing activities (3,150) (9,018) (20,346) (30,129)
Cash flows from financing activities
Net increase (decrease) in loans payable (498) (388) 2,057 150
Long-term debt - borrowings 845 14,702 56,660 62,803
Long-term debt - repayments (72) (19) (44,750) (27,796)
Cash dividends paid to stockholders (847) (840) - -
Other - - 3,763 1,606
----- ------ ------ ------
Net cash provided by (used in) financing
activities (572) 13,455 17,730 36,763
Effect of exchange rate changes on cash and
cash equivalents (47) 373 25 133
Net transactions with Automotive/Financing
Operations 1,056 646 ( 1,056) (646)
----- ------ ------ ------
Net increase (decrease) in cash and cash
equivalents (1,440) 5,698 6,475 13,166
Cash and cash equivalents at beginning of
the period 14,424 12,162 18,130 8,158
------ ------ ------ ------
Cash and cash equivalents at end of the
period $12,984 $17,860 $24,605 $21,324
====== ====== ====== ======
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 accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the U.S.
for interim financial information. In the opinion of management, all adjustments
(consisting of only normal recurring items), which are necessary for a fair
presentation have been included. The results for interim periods are not
necessarily indicative of results that may be expected for any other interim
period or for the full year. 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 September 30, 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 principally 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.
Effective September 30, 2004, the accounting treatment for the transfer of
certain mortgage assets that historically had been recognized as sales was
deemed inappropriate and therefore changed prospectively to record the
transactions as secured borrowings under SFAS 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 140).
The impact resulted in a $6.8 billion increase in assets ($3.3 billion in loans
held for sale and $3.5 billion in commercial finance receivables) with a
corresponding increase in secured debt. Historically, these assets (and related
obligations) were included in the Corporation's off-balance sheet disclosures as
mortgage warehouse and other mortgage funding facilities. This change did not
have a material impact on the Corporation's Consolidated Statements of Income or
Cash Flows for all periods presented.
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 is 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 par value common stock on the date of grant. The total
expense was $24 million ($15 million net of tax) and $79 million ($49 million
net of tax), respectively, for the three and nine months ended September 30,
2004 and $58 million ($36 million net of tax) and $114 million ($71 million net
of tax), respectively, for the three and nine months ended September 30, 2003,
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 - continued
(Unaudited)
NOTE 1. Financial Statement Presentation (continued)
New Accounting Standards (continued)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2004 2003 2004 2003
---- ---- ---- ----
Income from continuing operations,
as reported $440 $448 $3,061 $2,864
Add: stock-based compensation
expense, included in reported
net income, net of
related tax effects 15 36 49 71
Deduct: total stock-based
compensation expense determined
under fair value based
method for all awards, net of
related tax effects (19) (49) (61) (110)
--- --- ----- -----
Pro forma income from continuing
operations $436 $435 $3,049 $2,825
=== === ===== =====
Basic earnings per share from
continuing operations attributable
to GM $1-2/3 par value
- as reported $0.78 $0.80 $5.42 $5.11
- pro forma $0.77 $0.78 $5.40 $5.04
Diluted earnings per share from
continuing operations attributable
to GM $1-2/3 par value
- as reported $0.78 $0.80 $5.39 $5.10
- pro forma $0.77 $0.78 $5.37 $5.03
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.
In October 2004, the FASB ratified the consensus of the Emerging Issues Task
Force (EITF) with respect to Issue No. 04-8, "The Effect of Contingently
Convertible Debt on Diluted Earnings per Share." The EITF's consensus states
that shares of common stock contingently issuable pursuant to contingent
convertible securities should be included in computations of diluted earnings
per share (if dilutive) regardless of whether their market price triggers (or
other contingent features) have been met. Additionally, in its efforts to
converge with international accounting standards, the FASB has issued an
Exposure Draft, "Earnings Per Share - an amendment of FASB Statement No. 128."
This Exposure Draft states that contingent convertible securities which contain
an option to settle in cash or stock be assumed to settle in stock for purposes
of computing diluted earnings per share. Under the provisions of these
pronouncements, GM would be required to include an additional 146.7 million
shares, using the if-converted method (under which net income would also be
adjusted to exclude imputed interest expense), in its computations of diluted
earnings per share for the year ending December 31, 2004 and subsequent years.
GM currently has $8.1 billion of outstanding contingently convertible
securities. On November 5, 2004, GM unilaterally and irrevocably waived, and
relinquished, its right (the waiver) to use stock, and has committed to use
cash, to settle the principal amount of the securities if (1) holders ever
choose to convert the securities or (2) if GM is ever required by holders to
repurchase the securities. GM retains the right to use either cash or stock to
settle any amount that might become due to security holders in excess of the
principal amount (the in-the-money amount).
By choosing to implement its waiver, GM's fully diluted earnings per share
would be affected only at such time in the future as and when GM's stock price
were to rise above the conversion prices specified for the various series of
securities GM has issued. The level of dilution would be equal to the number of
shares needed to satisfy the in-the-money amount. Under such circumstances, GM's
earnings per share would not experience any dilution at today's stock price.
10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 1. Financial Statement Presentation (concluded)
New Accounting Standards (concluded)
On May 19, 2004 the FASB released FASB Staff Position FAS 106-2 (FSP 106-2),
which provides accounting guidance with respect to the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 (the Medicare Act). FSP 106-2
provides guidance on accounting for the prescription drug benefit of the
Medicare Act, prescribes the transition to the new guidance, and sets forth new
disclosure requirements. GM's adoption as of July 1, 2004 of the accounting
provisions of FSP 106-2 did not have a significant effect on the Corporation's
financial condition or results of operations. Note 11 includes the disclosures
required by FSP 106-2.
Sale of GM Defense Business
On March 1, 2003 GM sold 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, the
simultaneous sale of GM's approximately 19.8% economic interest in Hughes to The
News Corporation, Ltd. (News Corporation), and the cancellation of all shares of
GM Class H common stock.
The financial data related to GM's investment in Hughes through December 22,
2003 are 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 periods and the assets and liabilities of Hughes as of the respective
dates. Hughes' net sales were $2.6 billion and net loss was $23 million for the
three months ended September 30, 2003. Hughes' net sales were $7.2 billion and
net losses were $55 million for the nine months ended September 30, 2003.
The Hughes amounts reported as assets and liabilities of discontinued
operations were as follows (in millions):
September 30, 2003
------------------
Current assets $4,845
Property and equipment - net 1,534
Intangible assets - net 7,112
Other assets 6,196
------
Assets of discontinued operations $19,687
======
Current liabilities $2,289
Long-term debt 4,602
Other liabilities 2,094
-----
Liabilities of discontinued
operations $8,985
=====
NOTE 3. Inventories
Inventories included the following for Automotive and Other Operations
(dollars in millions):
Sept. 30, Dec. 31, Sept. 30,
2004 2003 2003
---- ---- ----
Productive material, work in process,
and supplies $5,876 $4,899 $4,810
Finished product, service parts, etc. 7,745 7,642 7,899
------ ------ ------
Total inventories at FIFO 13,621 12,541 12,709
Less LIFO allowance (1,586) (1,581) (1,773)
------ ------ ------
Total inventories (less allowances) $12,035 $10,960 $10,936
====== ====== ======
11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 4. Goodwill and Acquired Intangible Assets
The components of the Corporation's acquired intangible assets as of
September 30, 2004 and 2003 were as follows (dollars in millions):
Gross Accumulated Net
September 30, 2004 Carrying Amortization Carrying
Amount Amount
------------------------------------
Automotive and Other Operations
-------------------------------
Amortizing intangible assets:
Patents and intellectual property rights $303 $61 $242
Non-amortizing intangible assets:
Goodwill 550
Pension intangible asset 653
-----
Total goodwill and intangible assets $1,445
=====
Financing and Insurance Operations
----------------------------------
Amortizing intangible assets:
Customer lists and contracts $66 $37 $29
Trademarks and other 40 19 21
Covenants not to compete 18 18 -
--- -- --
Total $124 $74 $50
=== == ==
Non-amortizing intangible assets:
Goodwill 3,237
-----
Total goodwill and intangible assets $3,287
=====
Total consolidated goodwill and intangible
assets $4,732
=====
Gross Accumulated Net
September 30, 2003 Carrying Amortization Carrying
Amount Amount
------------------------------------
Automotive and Other Operations
-------------------------------
Amortizing intangible assets:
Patents and intellectual property rights $303 $20 $283
Non-amortizing intangible assets:
Goodwill 624
Pension intangible asset 6,789
-----
Total goodwill and intangible assets $7,696
=====
Financing and Insurance Operations
----------------------------------
Amortizing intangible assets:
Customer lists and contracts $70 $31 $39
Trademarks and other 49 15 34
Covenants not to compete 18 18 -
--- -- --
Total $137 $64 $73
=== == ==
Non-amortizing intangible assets:
Goodwill 3,183
-----
Total goodwill and intangible assets $3,256
=====
Total consolidated goodwill and intangible
assets $10,952
======
Annual amortization expense relating to the existing intangible assets for
each of the next five years is estimated to range between $30 million and $50
million.
12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 4. Goodwill and Acquired Intangible Assets (concluded)
The changes in the carrying amounts of goodwill for the nine months ended
September 30, 2004 and 2003, 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 - - - 24 24
Effect of foreign currency
translation (1) (11) (12) (3) (15)
Impairment / Other (5) - (5) (7) (12)
--- --- --- ----- -----
Balance as of September 30, 2004 $148 $402 $550 $3,237 $3,787
=== === === ===== =====
Balance as of December 31, 2002 $139 $338 $477 $3,273 $3,750
Goodwill acquired during the period 109 - 109 14 123
Effect of foreign currency
translation - 42 42 14 56
Impairment / Other (4) - (4) (118) (122)
--- --- --- ----- -----
Balance as of September 30, 2003 $244 $380 $624 $3,183 $3,807
=== === === ===== =====
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
September 30, 2004 and 2003); Japan - Fuji Heavy Industries Ltd. (20.1% at
September 30, 2004 and 2003), Suzuki Motor Corporation (20.4% and 20.3% at
September 30, 2004 and 2003, respectively); China - Shanghai General Motors Co.,
Ltd (50% at September 30, 2004 and 2003), SAIC GM Wuling Automobile Co., Ltd
(34% at September 30, 2004 and 2003); South Korea - GM Daewoo Auto & Technology
Company (44.6% at September 30, 2004 and 2003).
Information regarding GM's share of income for all nonconsolidated affiliates
in the following countries is included in the table below (in millions):
Three Months Ended Nine Months Ended
GM's share of nonconsolidated September 30, September 30,
affiliates' net income (loss) ------------------- -------------------
---------------------------- 2004 2003 2004 2003
---- ---- ---- ----
Italy $30 $ - $59 $23
Japan $32 $42 $191 $125
China $74 $142 $384 $311
South Korea $(2) $(22) $(18) $(50)
NOTE 6. Product Warranty Liability
Policy, product warranty and recall campaigns liability included the
following (dollars in millions):
Nine Months Twelve Months Nine Months
Ended Ended Ended
Sept. 30, 2004 Dec. 31, 2003 Sept. 30, 2003
-------------- ------------- --------------
Beginning balance $8,674 $8,850 $8,850
Payments (3,378) (4,435) (3,338)
Increase in liability (warranties
issued during period) 3,739 4,390 3,400
Adjustments to liability (pre-existing
warranties) (163) (367) (351)
Effect of foreign currency translation 38 236 74
----- ----- -----
Ending balance $8,910 $8,674 $8,635
===== ===== =====
The change in "increase in liability," from $3.4 billion at September 30,
2003 to $3.7 billion at September 30, 2004, is attributable to higher North
American recall campaigns of approximately $300 million, a favorable adjustment
made in 2003 at the time of the sale of GM Defense, and other regional volume
and cost factors.
13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
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 $119 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 September 30, 2004
approximately $41.2 million was recorded with respect to these guarantees, the
maximum exposure under which is approximately $3.1 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 September 30, 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%.
When originally entered into in March 2000, the Master Agreement between GM
and Fiat provided that, from January 24, 2004 to July 24, 2009, Fiat could 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. GM has 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 Put is unenforceable. Fiat has stated that it believes that the Put is
enforceable in accordance with the terms of the Master Agreement.
Notwithstanding these different views, GM and Fiat are 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.
14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 7. Commitments and Contingent Matters (concluded)
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. Fiat has stated
that it does not intend to renew the standstill agreement. Discussions on these
topics are continuing between the two companies.
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.
NOTE 8. Comprehensive Income
GM's total comprehensive income was as follows (in millions):
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net income $440 $425 $3,061 $2,809
Other comprehensive income (loss),
net of tax (177) 174 271 671
--- --- ----- -----
Total $263 $599 $3,332 $3,480
=== === ===== =====
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):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
2004 2003 2004 2003
---- ---- ---- ----
Earnings (loss) attributable to
common stocks $1-2/3 par value
Continuing operations $440 $448 $3,061 $2,864
Discontinued operations - (5) - (12)
--- --- ----- -----
Earnings attributable to $1-2/3
par value $440 $443 $3,061 $2,852
(Loss) from discontinued
operations attributable to
Class H - (18) - (43)
--- --- ----- -----
Total earnings attributable to
common stocks $440 $425 $3,061 $2,809
=== === ===== =====
15
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 9. Earnings Per Share Attributable to Common Stocks (continued)
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 (1,108
million and 1,069 million for the three and nine months ended September 30,
2003, respectively) 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 and nine months ended September 30, 2003, respectively.
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 September 30, 2004
Basic EPS
Income from continuing operations
attributable to common stocks $440 565 $0.78
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 2
--- ---
Diluted EPS
Adjusted income attributable to common
stocks $440 567 $0.78
=== === ====
Three Months Ended September 30, 2003
Basic EPS
Income from continuing operations
attributable to common stocks $448 561 $0.80
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - -
--- ---
Diluted EPS
Adjusted income attributable to common stocks $448 561 $0.80
=== === ====
Nine Months Ended September 30, 2004
Basic EPS
Income from continuing operations
attributable to common stocks $3,061 565 $5.42
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 3
----- ---
Diluted EPS
Adjusted income attributable to common
stocks $3,061 568 $5.39
===== === ====
Nine Months Ended September 30, 2003
Basic EPS
Income from continuing operations
attributable to common stocks $2,864 561 $5.11
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - -
----- ---
Diluted EPS
Adjusted income attributable to common
stocks $2,864 561 $5.10
===== === ====
Certain stock options and the contingently convertible securities discussed
below 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 236 million for the three months ended September 30,
2004; 231 million for the nine months ended September 30, 2004; and 228 million
for the three and nine months ended September 30, 2003.
16
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 9. Earnings Per Share Attributable to Common Stocks (concluded)
As of September 30, 2004 GM had $8.1 billion of convertible debentures
outstanding, including $1.2 billion principal amount of 4.5% Series A
convertible senior debentures due 2032 (Series A), $2.6 billion principal amount
of 5.25% Series B convertible senior debentures due 2032 (Series B), and $4.3
billion principal amount of 6.25% Series C convertible senior debentures due
2033 (Series C). In October 2004, the FASB ratified the consensus of the EITF
with respect to Issue No. 04-8, "The Effect of Contingently Convertible Debt on
Diluted Earnings per Share." See Note 1 for a discussion of the effects on GM of
this action. On November 5, 2004, GM unilaterally and irrevocably waived, and
relinquished, its right (the waiver) to use stock, and has committed to use
cash, to settle the principal amount of the securities if (1) holders ever
choose to convert the securities or (2) GM is ever required by holders to
repurchase the securities. GM retains the right to use either cash or stock to
settle any amount that might become due to security holders in excess of the
principal amount (the in-the-money amount). The various circumstances under
which conversion of the securities may occur are described in the paragraphs 1-4
below, while paragraph 5 describes the circumstances under which GM might be
required to repurchase the securities.
1) If the closing sale price of GM's $1-2/3 par value common stock exceeds
120% of the conversion price (of $70.20 for Series A, of $64.90 for Series
B and of $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) If the debentures have been called for redemption (Series A on March 6,
2007, Series B on March 6, 2009 and Series C on July 20, 2010); or
4) Upon the occurrence of specified corporate events; or
5) If GM is required to repurchase the debentures upon the occurrence of
specified changes of control or upon specified future dates (Series A: on
March 6 of 2007, 2012, 2017, 2022 and 2027, or, if any of those days is
not a business day, on the next succeeding business day; Series B: on
March 6 of 2014, 2019, 2024 and 2029, or, if any of those days is not a
business day, on the next succeeding business day; Series C: on July 15 of
2018, 2023 and 2028 or, if any of those days is not a business day, on the
next succeeding business day).
The contingently convertible shares are not included in diluted earnings per
share as of September 30, 2004, as they have not met the requirements for
conversion.
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 Nine Months Ended
September 30, September 30,
------------------ ------------------
2004 2003 2004 2003
---- ---- ---- ----
Depreciation $1,117 $1,063 $3,706 $3,146
Amortization of special
tools 737 676 2,237 2,029
Amortization of intangible
assets 9 10 25 20
----- ----- ----- -----
Total $1,863 $1,749 $5,968 $5,195
===== ===== ===== =====
17
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
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
September 30, September 30, September 30,
----------------------------------------------------
2004 2003 2004 2003 2004 2003
----------------------------------------------------
Components of expense (in millions)
Service cost $274 $229 $61 $57 $160 $134
Interest cost 1,262 1,290 221 201 1,029 951
Expected return on plan
assets (1,956) (1,632) (167) (144) (274) (117)
Amortization of prior
service cost 320 287 24 26 (20) (3)
Amortization of transition
obligation/(asset) - - 1 2 - -
Recognized net actuarial
loss/(gain) 464 436 48 42 397 179
Medicare Part D - - - - (151) -
Curtailments, settlements,
and other - - - 14 - 1
--- --- --- --- ----- -----
Net expense $364 $610 $188 $198 $1,141 $1,145
=== === === === ===== =====
----------------------------------------------------
Nine Months Nine Months Nine Months
Ended Ended Ended
September 30, September 30, September 30,
----------------------------------------------------
2004 2003 2004 2003 2004 2003
----------------------------------------------------
Components of expense (in millions)
Service cost $822 $690 $183 $168 $477 $402
Interest cost 3,785 3,872 660 590 3,085 2,847
Expected return on plan
assets (5,864) (4,715) (493) (422) (821) (320)
Amortization of prior
service cost 958 861 71 78 (59) (9)
Amortization of transition
obligation/(asset) - - 3 5 - -
Recognized net actuarial
loss/(gain) 1,392 1,308 143 124 1,191 537
Medicare Part D - - - - (453) -
Curtailments, settlements,
and other 34 6 6 34 - 2
----- ----- --- --- ----- -----
Net expense $1,127 $2,022 $573 $577 $3,420 $3,459
===== ===== === === ===== =====
During the third quarter of 2004, GM made no contributions to its Voluntary
Employees' Beneficiary Association (VEBA) trust. For the nine months ended
September 30, 2004 GM contributed $5 billion to its VEBA trust and made a $0.3
billion discretionary contribution to certain of its GM of Canada Ltd. pension
plans. GM is considering making additional contributions to its VEBA trust in
the future.
The prescription drug benefit under the Medicare Act reduced GM's accumulated
postretirement benefit obligation by approximately 6% to $63.4 billion,
increased plan assets by $0.4 billion, and decreased the unrecognized actuarial
loss by $4.3 billion based on the remeasurement of GM's postretirement benefit
obligation as of December 8, 2003. Despite this favorable effect, GM expects
2004 OPEB expense to be consistent with 2003 expense due to changes in the
discount rate and healthcare trend rate.
GM is in the process of analyzing future healthcare cost trends in connection
with the valuation of its other postretirement employee benefit plans in the
U.S. as of September 30, 2004. Although still under development, GM anticipates
an initial healthcare trend rate of not less than 10% and a discount rate of 6%
for 2005.
GM received a request on October 14, 2004 from the SEC to voluntarily provide
information relating to its pension and other postretirement benefits plans. GM
is in the process of complying with this request. GM understands that several
companies have received similar requests.
18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 12. Segment Reporting
GM's reportable operating segments within its Auto & Other business consist
of General Motors 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. GM's reportable operating segments within
its FIO business consist of GMAC and Other Financing. Selected information
regarding GM's reportable operating segments was as follows (dollars in
millions):
Auto & Other Total
GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing
---- --- ------ ---- --- ----- ----- ---- --------- ---------
For the Three Months Ended (dollars in millions)
September 30, 2004
Manufactured products
sales and revenues:
External customers $27,006 $6,682 $1,961 $1,396 $37,045 $57 $37,102 $7,724 $32 $7,756
Intersegment (663) 253 205 205 - - - - - -
------ ----- ----- ----- ------ -- ------ ----- -- -----
Total manufactured
products $26,343 $6,935 $2,166 $1,601 $37,045 $57 $37,102 $7,724 $32 $7,756
====== ===== ===== ===== ====== == ====== ===== == =====
Interest income (a) $269 $105 $5 $3 $382 $(194) $188 $295 $(86) $209
Interest expense $669 $114 $23 $4 $810 $(188) $622 $2,367 $(10) $2,357
Net income (loss) from
continuing operations $(22) $(236) $27 $101 $(130) $(83) $(213) $656 $(3) $653
Segment assets $129,260 $25,190 $3,965 $4,119 $162,534 $(2,425) $160,109 $311,809 $(735) $311,074
For the Three Months Ended
September 30, 2003
Manufactured products
sales and revenues:
External customers $27,339 $6,085 $1,150 $1,194 $35,768 $81 $35,849 $7,649 $25 $7,674
Intersegment (529) 185 154 190 - (4) (4) - - -
------ ----- ----- ----- ------ --- ------ ----- --- -----
Total manufactured
products $26,810 $6,270 $1,304 $1,384 $35,768 $77 $35,845 $7,649 $25 $7,674
====== ===== ===== ===== ====== == ====== ===== == =====
Interest income (a) $281 $116 $4 $1 $402 $(123) $279 $1,374 $(52) $1,322
Interest expense $405 $66 $40 $3 $514 $2 $516 $1,959 $32 $1,991
Net income (loss) from
continuing operations $128 $(152) $(104) $162 $34 $(212) $(178) $630 $(4) $626
Segment assets $114,930 $21,439 $3,068 $2,723 $142,160 $(2,092) $159,755(b) $275,896 $606 $276,502
See notes on next page.
19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded
(Unaudited)
Note 12. Segment Reporting (concluded)
Auto & Other Total
GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing
---- --- ------ ---- --- ----- ----- ---- --------- ---------
For the Nine Months Ended (dollars in millions)
September 30, 2004
Manufactured products
sales and revenues:
External customers $86,637 $21,877 $5,454 $4,280 $118,248 $193 $118,441 $22,973 $277 $23,250
Intersegment (1,762) 695 454 613 - - - - - -
------- ------ ----- ----- ------- --- ------- ------ --- ------
Total manufactured
products $84,875 $22,572 $5,908 $4,893 $118,248 $193 $118,441 $22,973 $277 $23,250
====== ====== ===== ===== ======= === ======= ====== === ======
Interest income (a) $667 $278 $13 $9 $967 $(487) $480 $793 $(223) $570
Interest expense $1,963 $289 $33 $16 $2,301 $(521) $1,780 $6,801 $(21) $6,780
Net income (loss) from
continuing operations $757 $(397) $38 $612 $1,010 $(234) $776 $2,302 $(17) $2,285
For the Nine Months Ended
September 30, 2003
Manufactured products
sales and revenues:
External customers $86,844 $19,506 $3,067 $3,375 $112,79 $1,223 $114,015 $22,434 $14 $22,448
Intersegment (1,513) 689 401 423 - (12) (12) - - -
------ ------ ------ ------ ------- ----- ------- ------ -- ------
Total manufactured
products $85,331 $20,195 $3,468 $3,798 $112,79 $1,211 $114,003 $22,434 $14 $22,448
====== ====== ===== ===== ====== ===== ======= ====== == ======
Interest income (a) $525 $266 $15 $3 $809 $(359) $450 $3,519 $(186) $3,333
Interest expense $1,058 $257 $83 $6 $1,404 $(313) $1,091 $5,608 $105 $5,713
Net income (loss) from
continuing operations $759 $(220) $(219) $400 $720 $(7) $713 $2,163 $(12) $2,151
(a) Interest income is included in net sales and revenues from external
customers. (b) Includes assets of discontinued operations of $19,687 at
September 30, 2003.
* * * * * *
20
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 GMAC's Quarterly
Report on Form 10-Q for the period ended September 30, 2004, filed separately
with the U.S. Securities and Exchange Commission (SEC). All earnings per share
amounts included in the MD&A are reported on a diluted basis.
GM presents separate supplemental financial information for its reportable
operating segments: Automotive and Other Operations (Auto & Other) and Financing
and Insurance Operations (FIO).
GM's Auto & Other reportable operating segment consists of:
o GM's four automotive regions: GM North America (GMNA), GM Europe (GME), GM
Latin America/Africa/Mid-East (GMLAAM), and GM Asia Pacific (GMAP), which
are aggregated as GM Automotive (GMA); and
o Other, which includes the design, manufacturing and marketing of
locomotives, the elimination of intersegment transactions, certain
non-segment specific revenues and expenditures, including legacy costs
related to postretirement benefits for certain Delphi and other retirees,
and certain corporate activities.
GM's FIO reportable operating segment consists 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.
21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated Results
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Consolidated: (dollars in millions)
Total net sales and revenues $44,858 $43,519 $141,691 $136,451
Income from continuing operations $440 $448 $3,061 $2,864
Net income $440 $425 $3,061 $2,809
Net margin from continuing
operations 1.0% 1.0% 2.2% 2.1%
Automotive and Other Operations:
Total net sales and revenues $37,102 $35,845 $118,441 $114,003
Income (loss) from continuing
operations $(213) $(178) $776 $713
Net income (loss) $(213) $(201) $776 $658
Financing and Insurance Operations:
Total net sales and revenues $7,756 $7,674 $23,250 $22,448
Net income $653 $626 $2,285 $2,151
The increase of $1.3 billion in third quarter 2004 total net sales and
revenues, compared with third quarter 2003, was due to increases in GMA revenue
of $1.3 billion, primarily driven by higher industry volume and retail market
share at GMLAAM, and increases in FIO revenue of $82 million. The increase of
$5.2 billion in year-to-date 2004 total net sales and revenues compared to the
year-earlier period was due to higher GMA revenue of $5.5 billion, led by
increases in GMLAAM and GME, and increases in FIO revenue of $802 million. Total
net sales and revenues in Other Operations for the nine months ended September
30, 2003 decreased $1.0 billion, primarily due to the proceeds of the sale of GM
Defense in the first quarter of 2003.
Consolidated net income increased $15 million to $440 million in the third
quarter of 2004, compared to the third quarter of 2003. GMA net income decreased
$164 million in the third quarter of 2004 compared to the year-earlier quarter,
to a loss of $130 million, due to losses at GMNA and GME and lower income at
GMAP, while GMLAAM's net income improved. Other Operations' results improved
$152 million, primarily because of the inclusion in 2003 of higher interest
expense and the results of Hughes Electronics Corporation (Hughes) as loss from
discontinued operations. GMAC's third quarter 2004 net income increased $26
million over 2003. Tax benefits associated with the Medicare legislation enacted
in the U.S. in the first quarter of 2004 had a favorable effect on consolidated
net income, and contributed to the Corporation's reduced effective tax rate of
21% compared to 35% in the third quarter of 2003.
Net income for the nine months ended September 30, 2004 increased $252
million compared with the year-earlier period. Income increased at GMLAAM, GMAP
and GMAC, while GME incurred an increased loss and GMNA's income was essentially
flat. Net income for the nine months ended September 30, 2003 included a gain of
$505 million from the sale of GM's Defense operations to General Dynamics
Corporation in the first quarter of 2003, recorded in Other.
Net income for the quarter and nine months ended September 30, 2003 included
losses of $23 million and $55 million, respectively, from Hughes, classified as
loss from discontinued operations.
Third quarter 2004 highlights included:
o Net loss at GMA, including GMNA;
o Market share growth in all automotive regions; and
o Continued income growth at GMAC.
22
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Auto & Other: (dollars in millions)
Total net sales and revenues $37,102 $35,845 $118,441 $114,003
Income (loss) from continuing
operations $(213) $(178) $776 $713
(Loss) from discontinued operations - (23) - (55)
--- --- --- ---
Net income (loss) $(213) $(201) $776 $658
=== === === ===
GMA net income (loss) by region:
GMNA $(22) $128 $757 $759
GME (236) (152) (397) (220)
GMLAAM 27 (104) 38 (219)
GMAP 101 162 612 400
--- --- ----- ---
Net income (loss) $(130) $34 $1,010 $720
=== == ===== ===
Net margin (0.4%) 0.1% 0.9% 0.6%
GM global automotive market share 15.5% 15.1% 14.6% 14.5%
Other:
(Loss) from continuing operations $(83) $(212) $(234) $(7)
(Loss) from discontinued operations - (23) - (55)
-- --- --- --
Net income (loss) $(83) $(235) $(234) $(62)
== === === ==
The increase of $1.3 billion in third quarter 2004 total net sales and
revenues, compared with the third quarter of 2003, was led by a significant
increase at GMLAAM and increases at GME and GMAP, while GMNA's revenue declined.
GM's global market share was 15.5% and 15.1% for the third quarter of 2004 and
2003, respectively. Market share gains were recognized in all four automotive
regions (see discussion below under each region) with GMLAAM posting a 1.5
percentage-point increase.
GMA reported a net loss of $130 million in the third quarter 2004, a decrease
of $164 million compared with the third quarter of 2003. The decrease was due to
losses at GMNA and GME and lower income at GMAP, while GMLAAM's results were
significantly improved. Continued intense pricing pressure in North America and
Europe and unfavorable product and fleet mix in North America were the major
causes for the overall decline.
For the nine months ended September 30, 2004, Auto & Other total net sales
and revenues increased $4.4 billion over the year-earlier period, with increases
in all automotive regions except GMNA, which had a decline of less than one
percent. Over the same period, GMA net income increased $290 million to $1.0
billion, with increases at GMLAAM and GMAP, essentially flat income at GMNA, and
increased losses at GME.
Other Operations' loss from continuing operations for the third quarter of
2004 improved $129 million compared to 2003 primarily because of higher interest
expense in 2003 from the debt issuances completed in July 2003 pertaining to the
period prior to GM's use of the debt proceeds to fund U.S. pension plans This
interest expense is now included in GMNA. For the nine-month period, Other
Operations' loss from continuing operations increased primarily because 2003
results included the gain noted above from the sale of GM Defense, partially
offset by higher interest expense.
23
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
GM Automotive Regional Results
GM North America
Three Months Nine Months Ended
Ended September 30,
September 30,
------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
(dollars in millions)
GMNA net income (loss) $(22) $128 $757 $759
GMNA net margin (0.1%) 0.5% 0.9% 0.9%
Wholesale sales (volumes in thousands)
Cars 513 519 1,709 1,706
Trucks 742 733 2,377 2,417
----- ----- ----- -----
Total GMNA 1,255 1,252 4,086 4,123
===== ===== ===== =====
Vehicle unit sales
Industry - North America 5,246 5,251 15,313 15,042
GM as a percentage of 28.5% 28.2% 27.0% 27.2%
industry
GMNA revenue per unit $18,339 $18,984
(dollars)
Industry - U.S. 4,523 4,525 13,115 12,887
GM as a percentage of
industry 29.3% 28.7% 27.6% 27.8%
GM cars 26.9% 26.3% 25.4% 25.3%
GM trucks 31.1% 30.6% 29.4% 29.9%
GM dealer inventories -
U.S. (units in thousands) 1,137 1,087
North American industry vehicle unit sales were essentially flat at 5.2
million in the third quarter of 2004 compared to the third quarter of 2003,
while GMNA's market share increased to 28.5% in the third quarter of 2004,
compared to 28.2% in the third quarter of 2003.
During the third quarter of 2004, industry vehicle unit sales in the United
States were also essentially the same as in the third quarter of 2003, at 4.5
million units. GM's U.S. market share increased to 29.3%, compared to 28.7% in
the third quarter of 2003. U.S. car market share increased by 0.6 percentage
point to 26.9%, while U.S. truck market share increased to 31.1%, up 0.5
percentage point.
GMNA incurred a net loss of $22 million in the third quarter of 2004,
compared to net income of $128 million in the third quarter of 2003. The
decrease of $150 million was primarily due to continued price pressure and
unfavorable fleet / retail mix, partially offset by material cost savings and an
after-tax reduction of approximately $250 million in products liability
reserves.
GM evaluates these products liability reserves periodically, historically in
the third quarter of each year. The review completed in the third quarter of
2004 indicated that the reduction noted above was appropriate to reflect the
current level of exposure. This reserve comprehends all products liability
exposure.
North American industry vehicle unit sales increased 1.8% to 15.3 million in
the first nine months of 2004 from 15.0 million in the first nine months of
2003, while GMNA's market share decreased by 0.2 percentage point to 27.0% in
2004 year-to-date, compared to 27.2% in 2003.
For the first nine months of 2004, industry vehicle unit sales in the United
States increased 1.8% to 13.1 million units from 12.9 million units in the
year-earlier period. GM's 2004 year-to-date U.S. market share decreased by 0.2
percentage point, compared to 2003, to 27.6%. U.S. car market share rose by 0.1
percentage point to 25.4%, while U.S. truck market share declined to 29.4%, down
0.5 percentage point from 2003.
Although GM's market share in both North America and the U.S. increased in
the third quarter of 2004 over last year, given the year-to-date results it has
become more challenging to achieve GM's stated goal to increase market share in
the United States and North America during 2004.
For the nine months ended September 30, 2004, GMNA's net income was
essentially the same as in the comparable period of 2003, decreasing $2 million
to $757 million, with substantial material cost savings offset by lower
production, unfavorable mix, and higher recall expense in the second quarter.
Vehicle revenue per unit was $18,339 for the third quarter of 2004, compared
with $18,984 for the third quarter of 2003. The decrease of $645 per unit was
primarily due to higher incentives related to relatively large stocks of prior
model year units in dealer inventories.
24
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
GM North America (concluded)
At the end of the third quarter 2004, dealer inventories were 50 thousand
units higher, at 1.137 million units, than year-ago levels. However, U.S. dealer
inventories declined 230 thousand units in the third quarter, compared to the
second quarter, due to deliveries from dealer stock. Based on the GMNA
production schedule for the fourth quarter, GM estimates that U.S. dealer
inventories will be approximately 1.2 million units at the end of 2004.
GM Europe
Three Months Nine Months Ended
Ended September 30,
September 30,
------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
(dollars in millions)
GME net (loss) $(236) $(152) $(397) $(220)
GME net margin (3.4%) (2.4%) (1.8%) (1.1%)
Wholesale sales (volumes in thousands)
Cars 364 351 1,227 1,175
Trucks 22 21 70 71
--- --- ----- -----
Total GME 386 372 1,297 1,246
=== === ===== =====
Vehicle unit sales
Industry 4,805 4,764 15,719 14,877
GM as a percentage of
industry 9.6% 9.1% 9.5% 9.3%
GM market share - Germany 10.0% 10.3% 10.5% 10.6%
GM market share - United
Kingdom 14.2% 13.3% 14.1% 13.6%
Industry vehicle unit sales increased slightly in Europe during the third
quarter of 2004 to just over 4.8 million, compared to the third quarter of 2003,
with strong year-over-year growth in central and eastern Europe, and a slight
decline in western Europe. GM's market share in Europe increased 0.5 percentage
point to 9.6% over the same period, despite a decline in Germany, GM's largest
market in Europe. GM's market share was 10.0% in Germany, a 0.3 percentage point
decrease versus the third quarter of 2003, and 14.2% in the United Kingdom, an
increase of 0.9 percentage point over the third quarter 2003. Market share also
improved overall in all other major European markets.
Net loss from GME totaled $236 million and $152 million in the third quarter
of 2004 and 2003 respectively. The greater loss in 2004 is primarily due to
continuing intense price pressure, continuing restructuring costs related to
GM's share of its powertrain joint venture with Fiat Auto S.p.A. (Fiat Auto),
and unfavorable foreign exchange. These unfavorable factors were partially
offset by reduced material and structural costs and favorable volume and product
mix.
For the first nine months of 2004, European industry vehicle unit sales
showed 5.7% growth to 15.7 million units, with stronger year-over-year increases
in the central and eastern regions than in western Europe. GM's market share in
Europe for the first nine months of 2004 showed smaller gains over 2003 levels
than for the third quarter, up 0.2 percentage point to 9.5%. GM's share declined
slightly in Germany, at 10.5%, and increased 0.5 percentage point in the U.K. to
14.1%.
For the nine months ended September 30, 2004, GME's net loss increased $177
million to $397 million, again primarily due to intense price pressure and
foreign exchange losses, partially offset by material cost savings.
On October 14, 2004, GM announced a major restructuring initiative for GME to
reduce annual structural costs there by approximately euro 500 million ($600
million) by 2006. The plan involves a reduction in workforce of up to 12,000 in
2005 and 2006, largely in manufacturing and engineering operations in Germany,
and the continued integration of design and engineering functions. Costs
associated with the restructuring initiative are yet to be determined, and will
be recognized in future periods as the restructuring occurs.
25
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
GM Latin America/Africa/Mid-East
Three Months Nine Months Ended
Ended September 30,
September 30,
------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
(dollars in millions)
GMLAAM net income (loss) $27 $(104) $38 $(219)
GMLAAM net margin 1.2% (8.0%) 0.6% (6.3%)
Wholesale sales (volumes in thousands)
Cars 145 104 407 296
Trucks 45 30 127 81
---- ---- --- ----
Total GMLAAM 190 134 534 377
=== === === ===
Vehicle unit sales
Industry 1,094 902 3,097 2,579
GM as a percentage of
industry 17.1% 15.6% 16.8% 15.6%
GM market share - Brazil 21.8% 21.7% 22.9% 22.8%
Continuing the growth experienced for the first half of the year in 2004,
industry vehicle unit sales in the LAAM region increased over 21% in the third
quarter of 2004, to 1.1 million units, compared to 902 thousand in the third
quarter of 2003. Industry sales in Brazil increased 18% over 2003, and Argentina
and Venezuela's industries showed significant improvement. Overall, GMLAAM's
market share for the region was up 1.5 percentage points, to 17.1% in the third
quarter of 2004.
Industry vehicle unit sales in the LAAM region increased 20% in the first
nine months of 2004, to 3.1 million units, compared to 2.6 million in the same
period of 2003. Overall, GMLAAM's market share for the region was up 1.2
percentage points, to 16.8% for the first nine months of 2004.
GMLAAM earned net income of $27 million in the quarter, up from a loss of
$104 million in the third quarter of 2003. For the nine-month periods ended
September 30, 2004 and 2003, GMLAAM's results were net income of $38 million and
net loss of $219 million, respectively. Overall, the improvement in 2004 was the
result of higher industry volume and retail market share, which more than offset
increased costs. 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 Nine Months Ended
Ended September 30,
September 30,
------------------------------------
2004 2003 2004 2003
---- ---- ----
(dollars in millions)
GMAP net income $101 $162 $612 $400
GMAP net margin 6.3% 11.7% 12.5% 10.5%
Wholesale sales (volumes in thousands)
Cars 47 51 142 152
Trucks 24 20 62 50
-- -- --- ---
Total GMAP 71 71 204 202
== == === ===
Vehicle unit sales
Industry 4,075 3,969 12,680 11,886
GM as a percentage of
industry 5.1% 5.0% 5.2% 4.7%
GM market share - China 9.3% 9.1% 9.7% 8.2%
GM market share - Australia 19.2% 20.6% 19.5% 20.6%
Industry vehicle unit sales in the Asia Pacific region increased more than
2.7% in the third quarter of 2004, to 4.1 million units, from 4.0 million units
in the third quarter of 2003. This reflects slower growth in China than in
previous quarters, where sales increased to 1.2 million from 1.1 million units
in the third quarter of 2003. GMAP increased its retail sales (including
affiliates) in the Asia Pacific region more than 6% in the period, to 209
thousand units from 197 thousand in 2003. GMAP's third quarter 2004 market share
was 5.1%, compared to 5.0% in the third quarter of 2003. GMAP's market share in
China increased slightly to 9.3% in the third quarter of 2004, from 9.1% in the
third quarter of 2003.
26
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (concluded)
GM Asia Pacific (concluded)
For the first nine months of 2004, industry vehicle unit sales in the Asia
Pacific region increased 794 thousand units, approximately 6.7%, to 12.7
million. GM's retail sales (including affiliates) over the same period increased
over 18%, from 557 thousand in 2003 to 659 thousand in 2004. GM's nine-month
2004 Asia Pacific market share increased to 5.2%, up 0.5 percentage point from
the first nine months of 2003. GM's share in China increased to 9.7% from 8.2%
over the same period.
Net income from GMAP was $101 million and $162 million in the third quarters
of 2004 and 2003, respectively. The decrease is primarily attributable to lower
income at GM's affiliates in China, where government policies to limit growth
have resulted in an economic slowdown. For the nine months ended September 30,
2004, GMAP's net income increased $212 million to $612 million. The increase in
GMAP's 2004 net income, compared with 2003, was primarily due to 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.
Despite the current conditions in China, GM continues to expect significant
growth there and throughout the region over the medium and long term. In June
2004, GM announced plans to increase the investment in its joint ventures in
China by $3 billion, pending approval by the Chinese government, over the next
three years. The funding for these investments is expected to be generated by
profits of the operations. The funds will be used to introduce new vehicles and
powertrains, increase manufacturing capacity, and create new engineering and
design facilities.
Other Operations
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Other: (dollars in millions)
Total net sales and revenues $57 $77 $193 $1,211
(Loss) from continuing operations $(83) $(212) $(234) $(7)
(Loss) from discontinued operations - $(23) - $(55)
Net (loss) $(83) $(235) $(234) $(62)
Other Operations' loss from continuing operations decreased $129 million, to
$83 million, in the third quarter of 2004, compared to 2003. The decrease is
primarily due to the inclusion of interest expense related to 2003 debt
issuances in Other Operations in 2003. This interest is included in GMNA in
2004. Other Operations' loss from continuing operations includes after-tax
legacy costs of $100 million and $113 million for the third quarter of 2004 and
2003 respectively, and $304 million and $498 million for the nine months ended
September 30, 2004 and 2003, respectively, related to employee benefit costs of
divested businesses, primarily Delphi, for which GM has retained responsibility.
Other Operations' 2003 total net sales and revenues include a pre-tax gain of
approximately $814 million, related to the sale of GM's Defense operations
(light armored vehicle business) to General Dynamics Corporation. The sale
generated net proceeds of approximately $1.1 billion in cash. The after-tax gain
of approximately $505 million from the Defense sale is included in loss from
continuing operations in 2003, as well as interest expense related to GM's 2003
debt issuances pertaining to the period prior to GM's use of the debt proceeds
to fund U.S. pension plans.
Loss from discontinued operations, included in net income of Other
Operations, consists only of the results of Hughes for all periods presented.
Discontinued Operations
In December 2003, 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% economic
interest in Hughes to The News Corporation Ltd. (News Corporation) in exchange
for cash and News Corporation Preferred American Depositary Shares. 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.
27
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC Financial Review
GMAC's net income was $656 million and $630 million in the third quarter of
2004 and 2003, respectively. Net income for the nine-month periods ended
September 30, 2004 and 2003 was $2.3 billion and $2.2 billion, respectively.
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
(in millions)
Financing $259 $320 $1,153 $1,018
Mortgage 302 253 888 1,039
Insurance 95 57 261 106
--- --- ----- -----
Net income $656 $630 $2,302 $2,163
=== === ===== =====
Net income from financing operations totaled $259 million and $320 million in
the third quarter of 2004 and 2003, respectively. The decrease of $61 million
was primarily the result of lower net margins realized on stable asset levels
and increased marketing expenses, partly offset by lower credit loss
provisions and improved remarketing results for off-lease vehicles. Financing
operations' net income was $1.2 billion and $1.0 billion for the first nine
months of 2004 and 2003, respectively. The increase in net income for 2004,
compared with 2003, was primarily due to lower credit loss provisions and
improved remarketing results for off-lease vehicles, which more than offset the
unfavorable effect of lower net interest margins. The provision for credit
losses decreased by $35 million and $264 million for the third quarter and nine
months ended 2004, respectively, as compared to the same periods in 2003. The
decrease in the provision resulted primarily from slower growth in consumer
assets during the first nine months of 2004 as compared with 2003. The overall
credit quality and performance of the consumer portfolio remained relatively
stable compared to losses reported during 2003. During the third quarter of
2004, remarketing results of off-lease vehicles continued to improve, with the
average gain per vehicle increasing from $249 in 2003 to $459 per vehicle in
2004.
Net income from mortgage operations was $302 million and $253 million in
the third quarter of 2004 and 2003, respectively, and $888 million and $1.0
billion for the nine month periods ending September 30, 2004 and 2003,
respectively. Loan production declined 34% in the third quarter 2004, compared
to the same period in 2003, primarily due to reduced refinancing activity in the
residential market, consistent with increases in mortgage rates. The volume
decline, combined with decreased pricing margins and growth in residential
mortgage loans held as collateral for secured financings, resulted in
significant year-over-year decreases in gains on sales of loans for both the
third quarter and nine months ended September 30, 2004. Financing revenue and
interest expense each increased significantly compared to the prior year,
reflecting continued growth in the balance of residential mortgage loans held as
collateral for secured financings. In addition, the provision for credit losses
increased due to the increase in assets along with unfavorable credit
trends in the subprime and home equity residential mortgage portfolios.
Increases in interest rates, while adversely affecting loan production volumes,
favorably affected amortization and impairment of mortgage servicing rights
(MSRs). Amortization and impairment of MSRs, net of related risk management
activities, decreased by $438 million and $666 million, respectively, for the
third quarter and first nine months of 2004.
Net income from insurance operations totaled $95 million and $57million in
the third quarter of 2004 and 2003, respectively, and $261 million and $106
million for the first nine months of 2004 and 2003, respectively. The increase
in net income in 2004, compared with 2003, was primarily due to favorable
underwriting results and net capital gains in the investment portfolio instead
of the net capital losses realized in 2003, which included the write down of
certain investment securities.
28
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC Financial Review (concluded)
2004 Priorities / Targets
With respect to GM's previously reported operating priorities and
financial targets for 2004:
o GM's estimate of 2004 calendar-year earnings per share is revised to
between $6.00 and $6.50, at current dilution levels, in line with GM's
target at the beginning of 2004, and down from the previous estimate of
$7.00;
o GM's goal to increase market share in all regions is on track, except
for GMNA;
o For the calendar year:
o GMNA's net income is expected to be at the low end of its target range
of $1.0 billion to $1.4 billion;
o GME has incurred a year-to-date net loss of $397 million, and is
expected to incur a net loss in the fourth quarter;
o GMLAAM is expected to earn a profit;
o GMAP is expected to earn between $700 million and $800 million; and o GMAC
is expected to earn more than $2.0 billion; and
o GM expects a lower effective tax rate in the fourth quarter of 2004 due
to settlements of prior years' tax matters. In addition, on October 22,
2004, President Bush signed into law the American Job Creation Act of 2004
(the Act). GM is analyzing what, if any, effect the provisions of the Act
will have on GM's effective tax rate for the fourth quarter of 2004 and
subsequent periods.
LIQUIDITY AND CAPITAL RESOURCES
Financing Structure
In the third 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 October 13, 2004 Fitch downgraded GM's and GMAC's
long-term credit rating from BBB+ with a negative outlook to BBB with a negative
outlook and at the same time, affirmed GM's and GMAC's commercial paper rating
at F2 with a negative outlook. On October 14, 2004 Standard & Poor's downgraded
GM's and GMAC's long-term credit rating from BBB with a negative outlook to BBB-
with a stable outlook and at the same time, downgraded GM's and GMAC's
commercial paper rating from A-2 with a negative outlook to A-3 with a stable
outlook. On October 25, 2004 Dominion Bond Rating Service (DBRS) downgraded GM's
and GMAC's long-term credit rating from A (low) to BBB (high) with a stable
outlook and at the same time, affirmed GM's and GMAC's commercial paper rating
at R-1 (low) with a stable outlook. On November 4, 2004 Moody's downgraded GM's
long-term credit rating from Baa1 with a negative outlook to Baa2 with a stable
outlook and at the same time, downgraded GMAC's long-term credit rating from A3
with a negative outlook to Baa1 with a stable outlook. Moody's affirmed GM's and
GMAC's commercial paper rating at P-2 with a stable outlook. Refer to the table
below for a summary of GM's and GMAC's credit ratings subsequent to these rating
actions. 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 term debt or 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.
--------------------------------------------------------------
GM GMAC GM GMAC GM GMAC
--------------------------------------------------------------
Rating Agency Senior Debt Commercial Paper Outlook
------------- --------------------------------------------------------------
DBRS BBB (high)BBB (high) R-1 (low) R-1 (low) Stable Stable
Fitch BBB BBB F2 F2 Negative Negative
Moody's Baa2 Baa1 Prime-2 Prime-2 Stable Stable
S&P BBB- BBB- A-3 A-3 Stable Stable
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 $4.6 billion syndicated line of
credit committed through June 2005, $4.4 billion committed through June 2008,
$4.6 billion of bilateral committed lines with various maturities, and
uncommitted lines of credit of $21.3 billion. In addition, New Center Asset
Trust (NCAT) has $19.5 billion of liquidity facilities committed through June
2005. Mortgage Interest Networking Trust (MINT) has $3.4 billion of liquidity
facilities committed through April 2005. NCAT and MINT are 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 purchase of assets through the issuance of asset-backed
commercial paper and represent an important source of liquidity to the
Corporation. GMAC also has $54.8 billion in funding commitments (with $25.6
billion used) with third parties (including third party asset-backed commercial
paper conduits) that may be used as additional secured funding sources.
29
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (concluded)
Automotive and Other Operations
At September 30, 2004, cash, marketable securities, and $3.5 billion of
short-term assets of the Voluntary Employees' Beneficiary Association (VEBA)
trust totaled $24.5 billion, compared with $26.9 billion at December 31, 2003
and $29.3 billion at September 30, 2003. The decrease of approximately 9% from
December 31, 2003 was primarily due to $5.0 billion of VEBA cash contributions
in the first quarter and a $0.3 billion discretionary cash contribution to
certain GM of Canada Ltd. pension plans in the second quarter of 2004, partially
offset by operating cash flow generation and net debt issuances. Total assets in
the VEBA trust used to pre-fund part of GM's other postretirement benefits
liability approximated $16.0 billion at September 30, 2004, and $10.0 billion at
December 31, 2003, and September 30, 2003.
Long-term debt was $30.1 billion at September 30, 2004, $29.6 billion at
December 31, 2003, and $29.5 billion at September 30, 2003. The increase from
September 30, 2003 is primarily due to debt issuances of $0.7 billion in the
second quarter of 2004. The ratio of long-term debt to the total of long-term
debt and GM's net assets of Automotive and Other Operations was 85.3% at
September 30, 2004, 85.2% at December 31, 2003, and 146.1% at September 30,
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 86.3% at
September 30, 2004, 86.3% at December 31, 2003, and 141.7% at September 30,
2003. The decrease in these ratios compared to September 30, 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.
Net liquidity, calculated as cash, marketable securities, and $3.5 billion of
short-term assets of the VEBA trust less the total of loans payable and
long-term debt, was a negative $8.2 billion at September 30, 2004, compared with
a negative $5.5 billion at December 31, 2003, and compared to a negative $2.4
billion at September 30, 2003.
Financing and Insurance Operations
At September 30, 2004, GMAC's consolidated assets totaled $311.8 billion,
compared with $288.2 billion at December 31, 2003 and $275.9 billion at
September 30, 2003. The increases from 2003 were primarily due to increases in
net finance receivables and loans, from $174.3 billion at December 31, 2003 to
$193.4 billion at September 30, 2004, driven by increases in residential
mortgages. The higher mortgage balances are primarily the result of the
increased use of securitizations structured as financing transactions.
Consistent with the growth in assets, GMAC's total debt increased to $259.4
billion at September 30, 2004, compared with $238.9 billion at December 31, 2003
and $225.4 at September 30, 2003. GMAC's ratio of total debt to total
stockholder's equity at September 30, 2004 was 11.4:1, compared with 11.8:1 at
December 31, 2003, and 11.2:1 at September 30, 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 $60 billion at
September 30, 2004, provide "back-up" liquidity and represent additional funding
sources, if required. In addition, GMAC has $54.8 billion in funding commitments
(with $25.6 used) through a variety of committed facilities with third parties
(including third party asset-backed commercial paper conduits) that GMAC's
Financing and Mortgage operations may use as additional secured funding sources.
30
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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%.
When originally entered into in March of 2000, the Master Agreement between
GM and Fiat provides that, from January 24, 2004 to July 24, 2009, Fiat could
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. GM has 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 Put is
unenforceable. Fiat has stated that it believes that the Put is enforceable in
accordance with the terms of the Master Agreement. Notwithstanding these
different views, GM and Fiat are 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.
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. Fiat has stated
that it does not intend to renew the standstill agreement. Discussions on these
topics are continuing between the two companies.
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.
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 by GMAC 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.
31
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Off-Balance Sheet Arrangements (concluded)
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 December 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):
Sept.30, Dec. 31, Sept. 30,
Automotive and Other Operations 2004 2003 2003
------------------------------- ---- ---- ----
Assets leased under operating leases $2,525 $2,327 $2,158
Trade receivables sold (1) 703 755 639
----- ----- -----
Total $3,228 $3,082 $2,797
===== ===== =====
Financing and Insurance Operations
----------------------------------
Receivables sold or securitized:
- Mortgage loans $74,636 $80,798 $100,749
- Retail finance receivables 5,727 9,548 11,404
- Wholesale finance receivables 21,425 21,142 17,284
------- ------- -------
Total $101,788 $111,488 $129,437
======= ======= =======
(1) In addition, trade receivables sold to GMAC were $478 million, $586
million and $424 million for the periods ended September 30, 2004,
December 31, 2003, and September 30, 2003, respectively.
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 $49.19 at September 30, 2004, $44.96 at December 31, 2003, and $13.76 at
September 30, 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 August 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 September 10, 2004, to holders of record on
August 13, 2004.
EMPLOYMENT AND PAYROLLS
Worldwide employment for GM and its wholly-owned
subsidiaries at September 30, (in thousands) 2004 2003
---- ----
GMNA 181 190
GME 62 63
GMLAAM * 28 23
GMAP 14 14
GMAC 33 32
Other 5 6
--- ---
Total employees 323 328
=== ===
32
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
EMPLOYMENT AND PAYROLLS (concluded)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Worldwide payrolls - (in billions) $4.9 $4.9 $15.9 $15.3
=== === ==== ====
* 2004 includes 3,000 employees as a result of the increase in ownership of GM
South Africa from 49% to 100%.
CRITICAL ACCOUNTING ESTIMATES
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 and critical accounting
estimates are described in Note 1 to the 2003 Consolidated Financial Statements.
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.
NEW ACCOUNTING STANDARDS
In October 2004, the FASB ratified the consensus of the Emerging Issues Task
Force (EITF) with respect to Issue No. 04-8, "The Effect of Contingently
Convertible Debt on Diluted Earnings per Share." The EITF's consensus states
that shares of common stock contingently issuable pursuant to contingent
convertible securities should be included in computations of diluted earnings
per share (if dilutive) regardless of whether their market price triggers (or
other contingent features) have been met. Additionally, in its efforts to
converge with international accounting standards, the FASB has issued an
Exposure Draft, "Earnings Per Share - an amendment of FASB Statement No. 128."
This Exposure Draft states that contingent convertible securities which contain
an option to settle in cash or stock be assumed to settle in stock for purposes
of computing diluted earnings per share. Under the provisions of these
pronouncements, GM would be required to include an additional 146.7 million
shares, using the if-converted method (under which net income would also be
adjusted to exclude imputed interest expense), in its computations of diluted
earnings per share for the year ending December 31, 2004 and subsequent years.
GM currently has $8.1 billion of outstanding contingently convertible
securities. On November 5, 2004, GM unilaterally and irrevocably waived, and
relinquished, its right (the waiver) to use stock, and has committed to use
cash, to settle the principal amount of the securities if (1) holders ever
choose to convert the securities or (2) if GM is ever required by holders to
repurchase the securities. GM retains the right to use either cash or stock to
settle any amount that might become due to security holders in excess of the
principal amount (the in-the-money amount).
By choosing to implement its waiver, GM's fully diluted earnings per share
would be affected only at such time in the future as and when GM's stock price
were to rise above the conversion prices specified for the various series of
securities GM has issued. The level of dilution would be equal to the number of
shares needed to satisfy the in-the-money amount. Under such circumstances, GM's
earnings per share would not experience any dilution at today's stock price.
See Note 9 to the consolidated financial statements for a discussion of GM's
convertible securities.
33
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS
In this report, in reports subsequently filed or furnished by GM with the SEC
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 that GM may file or furnish with the SEC 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.
* * * * * * *
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.
* * * * * * *
34
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
(a) Previously reported legal proceedings which have been terminated, either
during the quarter ended September 30, 2004, or subsequent thereto, but
before the filing of this report are summarized below:
Environmental Matters
---------------------
On September 29, 2004, General Motors and the Michigan Department of
Environmental Quality ("MDEQ") entered into a Consent Judgment before
Michigan's Ingham County Circuit Court to resolve MDEQ's allegations that
GM had violated the Federal Clean Air Act at its Saginaw Metal Casting
Operations in Saginaw Michigan. While denying the allegations, GM agreed
to pay approximately $92,000 and fund various supplemental environmental
projects.
* * * * * * * * *
ITEM 2(c). Purchases of Equity Securities
GM made the following purchases of GM $1-2/3 par value common stock during the
three months ended September 30, 2004:
(d)Maximum
Number (or
Approximate
Dollar Value)
of Shares
(c)Total Number (or Units)
of Shares (or that May Yet
(a) Total (b) Average Units)Purchased Be Purchased
Number of Price as Part of Under the
Shares (or Paid Publicly Plans
Units per Share Announced Plans or
Period Purchased) (or Unit) or Program Programs
--------------------------------------------------------------------------------
July 1 to July 31 NA NA
August 1 to NA NA
August 31
September 1 to NA NA
September 30 670 $33.17
--------------------------------------------------------------------------------
Total 670 $33.17 NA NA
--------------------------------------------------------------------------------
* * * * * * * * *
35
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Page
Number Exhibit Name Number
------ ------------ ------
(4.1) Second Supplemental Indenture dated as of November 5,
2004, between General Motors Corporation and
Citibank, N.A., as trustee 37
(4.2) Third Supplemental Indenture dated as of November 5,
2004, between General Motors Corporation and
Citibank, N.A., as trustee 40
(4.3) Fourth Supplemental Indenture dated as of November 5,
2004, between General Motors Corporation and
Citibank, N.A., as trustee 43
(31.1) Section 302 Certification of the Chief Executive Officer 46
(31.2) Section 302 Certification of the Chief Financial Officer 47
(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 48
(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 49
(b) Reports on Form 8-K
Five reports on Form 8-K, were filed July 1, 2004, July 21, 2004(2*), August
3, 2004, and September 1, 2004during the quarter ended September 30, 2004
reporting matters under Item 8.01, Other Events, reporting certain agreements
under Item 9.01, Financial Statements and Exhibits.
--------------------------
* This asterisk indicates Reports submitted to the Securities and Exchange
Commission which include information "furnished" pursuant to Items 9 or 12
(prior to August 23, 2004), or Items 2.02 or 7.01 (after August 22, 2004) 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 2.02 or 7.01 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: November 10, 2004 By: /s/PETER R. BIBLE
--- -----------------
(Peter R. Bible,
Chief Accounting Officer)
36