Document/Exhibit Description Pages Size
1: 10-K General Motors 2004 Form 10-K 96 574K
2: EX-10 2001 Agreement Between Gmc and Gmac 3 17K
3: EX-12 Ratio of Earnings 2± 7K
4: EX-21 Subsidiary List 6 33K
5: EX-23 Auditor's Consent 2± 10K
6: EX-31 Certification of CEO G. Richard Wagoner, Jr. 2± 10K
7: EX-31 Certification of CFO John M. Devine 2± 10K
8: EX-32 Certification of CEO G. Richard Wagoner, Jr. 1 7K
9: EX-32 Certification of CFO John M. Devine 1 7K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the fiscal year ended December 31, 2004
-----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934
For the transition period from - to
Commission file number 1-143
-----
GENERAL MOTORS CORPORATION
--------------------------
(Exact Name of Registrant as Specified in its Charter)
STATE OF DELAWARE 38-0572515
----------------- ----------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 Renaissance Center, Detroit, Michigan 48265-3000
----------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
---------------------------- ---------------------------
Common, $1-2/3 par value New York Stock Exchange, Inc.
Note: The $1-2/3 par value common stock of the Registrant is also listed for
trading on the following exchanges:
Chicago Stock Exchange, Inc. Chicago, Illinois
Pacific Exchange, Inc. San Francisco, California
Philadelphia Stock Exchange, Inc. Philadelphia, Pennsylvania
Toronto Stock Exchange Toronto, Ontario, Canada
Frankfurter Wertpapierborse Frankfurt am Main, Germany
Borse Dusseldorf Dusseldorf, Germany
Bourse de Bruxelles Brussels, Belgium
Euronext Paris Paris, France
The London Stock Exchange London, England
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X. No .
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X. No .
------ ------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No .
----- ------
As of June 30, 2004, the aggregate market value of General Motors Corporation
(GM) $1-2/3 par value common stock held by nonaffiliates of GM was approximately
$26.3 billion. The closing price on June 30, 2004 as reported on the New York
Stock Exchange was $46.59 per share. As of June 30, 2004, the number of shares
outstanding of GM $1-2/3 par value common stock was 564,721,304 shares.
Documents incorporated by reference are as follows:
Part and Item Number of Form
Document 10-K into Which Incorporated
-------- ----------------------------
General Motors Notice of Annual Meeting of
Stockholders and Proxy Statement for
the Annual Meeting of Stockholders
to be held June 7, 2005 Part III, Items 10 through 14
Website Access to Company's Reports
General Motor's (GM's) internet website address is www.gm.com. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to section
13(a) or 15(d) of the Exchange Act are available free of charge through our
website as soon as reasonably practicable after they are electronically filed
with, or furnished to, the Securities and Exchange Commission.
COVER PAGE
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
THE CORPORATION
General Motors Corporation, incorporated in 1916 under the laws of the State
of Delaware, is hereinafter sometimes referred to as the "Registrant", the
"Corporation", "General Motors", or "GM."
ITEM 1. Business
General
The following information is incorporated herein by reference to the
indicated pages in Part II:
Item Page(s)
---- -------------
Wholesale Volumes II-6 through II-9
Employment and Payrolls II-16
Note 24 to the GM Consolidated Financial Statements
(Segment Reporting) II-70 through II-73
GM presents separate supplemental financial information for its reportable
operating segments:
o Automotive and Other Operations (Auto & Other); and
o 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 constitute 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.
GMNA designs, manufactures, and/or markets vehicles primarily in North
America under the following nameplates: Chevrolet, Pontiac, GMC, Oldsmobile,
Buick, Cadillac, Saturn, and HUMMER.
GME, GMLAAM, and GMAP primarily meet the demands of customers outside North
America with vehicles designed, manufactured, and/or marketed under the
following nameplates: Opel, Vauxhall, Holden, Saab, Buick, Chevrolet, GMC, and
Cadillac. As of December 31, 2004, GM also has equity ownership directly or
indirectly through various regional subsidiaries in New United Motor
Manufacturing, Inc. (NUMMI), Fiat Auto Holdings (FAH), Fuji Heavy Industries
Ltd., Suzuki Motor Corporation (Suzuki), Isuzu Motors Ltd., Shanghai General
Motors Co., Ltd. (SGM), SAIC-GM-Wuling Automobile Company Ltd., CAMI Automotive
Inc. (CAMI), and GM Daewoo Auto & Technology Company (GM-DAT). These investees
design, manufacture and market vehicles under the following nameplates: Pontiac,
Fiat, Lancia, Alfa Romeo, Subaru, Suzuki, Isuzu, Buick, Wuling, Daewoo, and
Chevrolet. On February 13, 2005, GM entered into certain agreements
with Fiat S.p.A. (see Note 25 to the Consolidated Financial Staatements) as
a result of which GM will no longer hold an interest in FAH, and the nameplates
of Fiat, Lancia, and Alfa Romeo will no longer be identified herein.
GM's FIO reportable operating segment primarily relates to General Motors
Acceptance Corporation (GMAC). GMAC provides a broad range of financial
services, including consumer vehicle financing, automotive dealership and other
commercial financing, residential and commercial mortgage services, automobile
service contracts, personal automobile insurance coverage and selected
commercial insurance coverage. See related business discussion in GMAC's Form
10-K, Item 1, which is incorporated herein by reference. GMAC's Form 10-K is
filed separately with the Securities and Exchange Commission (SEC).
Until its split-off on December 22, 2003, GM's business included Hughes
Electronics Corporation. Hughes' activities included digital entertainment,
information and communication services, and satellite-based private business
networks.
Substantially all automotive-related products are marketed through retail
dealers and distributors in the United States, Canada, and Mexico, and through
distributors and dealers overseas. At December 31, 2004, there were
approximately 7,600 GM vehicle dealers in the United States, 800 in Canada, and
300 in Mexico. Additionally, there were a total of approximately 19,400 outlets
overseas which include dealers and authorized sales, service, and parts outlets.
I-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Raw Materials and Services
GM purchases materials, parts, supplies, freight transportation, energy, and
other services from numerous unaffiliated firms. Interruptions in production or
delivery of these goods or services could adversely affect GM.
Backlog of Orders
Shipments of GM automotive products are made as promptly as possible after
receipt of firm sales orders; therefore, no significant backlog of unfilled
orders accumulates.
Competitive Position
GM's principal competitors in passenger cars and trucks in the United States
and Canada include Ford Motor Company, DaimlerChrysler AG (DaimlerChrysler),
Toyota Corporation (Toyota), Nissan Motor Corporation, Ltd., Honda Motor
Company, Ltd., Mazda Motor Corporation, Mitsubishi Motors Corporation,
Volkswagen A.G. (Volkswagen), Hyundai Motor Company, Ltd. (Hyundai), and
Bayerische Motoren Werke AG (BMW). All but Volkswagen and Hyundai currently
operate vehicle manufacturing facilities in the United States or Canada. Toyota
and GM operate the New United Motor Manufacturing, Inc. facility in Fremont,
California as a joint venture which currently builds passenger cars and
light-duty trucks. Suzuki and GM operate CAMI Automotive Inc. in Ingersoll,
Ontario as a joint venture which currently builds light-duty trucks. Wholesale
unit sales of GM passenger cars and trucks during the three years ended December
31, 2004 are summarized in Management's Discussion and Analysis of Financial
Condition and Results of Operations in Part II.
Total industry new motor vehicle (passenger cars, trucks, and buses) unit
sales of domestic and foreign makes and GM's competitive position during the
years ended December 31, 2004, 2003, and 2002 were as follows:
Vehicle Unit Sales (1)
[Enlarge/Download Table]
Years Ended December 31,
2004 2003 2002
-----------------------------------------------------------------------------------
GM as GM as GM as
a % of a % of a % of
Industry GM Industry Industry GM Industry Industry GM Industry
-------- -- -------- -------- -- -------- -------- -- --------
United States (units in thousands)
Cars 7,563 1,885 24.9% 7,637 1,961 25.7% 8,131 2,069 25.4%
Trucks 9,739 2,822 29.0% 9,333 2,796 30.0% 9,012 2,790 31.0%
------ ----- ----- ----- ----- -----
Total United
States 17,302 4,707 27.2% 16,970 4,757 28.0% 17,143 4,859 28.3%
Canada, Mexico,
and Other 2,973 705 23.7% 2,871 683 23.8% 2,992 764 25.5%
------ ----- ------ ----- ------ -----
Total GMNA 20,275 5,412 26.7% 19,841 5,440 27.4% 20,135 5,623 27.9%
GME 20,606 1,954 9.5% 19,537 1,821 9.3% 19,340 1,668 8.6%
GMLAAM 4,240 737 17.4% 3,585 584 16.3% 3,637 619 17.0%
GMAP 17,070 887 5.2% 15,925 775 4.9% 14,503 500 3.4%
------ ----- ------ ----- ------ -----
Total Worldwide 62,191 8,990 14.5% 58,888 8,620 14.6% 57,615 8,410 14.6%
(1) GM vehicle unit sales primarily represent vehicles manufactured by GM or
manufactured by GM's investees and sold either under a GM nameplate or
through a GM-owned distribution network. Consistent with industry practice,
vehicle unit sales information employs estimates of sales in certain
countries where public reporting is not legally required or otherwise
available on a consistent basis.
Research and Development
In 2004, GM spent $6.5 billion for research, manufacturing engineering,
product engineering, and development activities related primarily to the
development of new products or services or the improvement of existing products
or services, including activities related to vehicle emissions control, improved
fuel economy, and the safety of persons using GM products. Comparably, $6.2
billion and $6.0 billion were spent on company-sponsored research and other
product development activities in 2003 and 2002, respectively.
I-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Environmental Matters
Automotive Emissions Control
Both the U.S. federal and California governments currently impose stringent
emission control requirements on motor vehicles sold in their respective
jurisdictions. These requirements include pre-production testing of vehicles,
testing of vehicles after assembly, the imposition of emission defect and
performance warranties, and the obligation to recall and repair customer-owned
vehicles determined to be non-compliant with emissions requirements.
Both the U.S. Environmental Protection Agency (EPA) and the California Air
Resources Board (CARB) continue to place great emphasis on compliance testing of
customer-owned vehicles. Failure to comply with the emission standards or
defective emission control systems or components discovered during such testing,
or discovered during government required defect reporting, can lead to
substantial cost for General Motors related to emissions recalls. New CARB and
federal requirements will increase the time and mileage periods over which
manufacturers are responsible for a vehicle's emission performance.
Both the EPA and the CARB emission requirements will become even more
stringent in the future. A new tier of exhaust emission standards for cars and
light-duty trucks, the "Low-Emission Vehicles (LEV) II" standards, began phasing
in for California vehicles in the 2004 model year. Similar federal "Tier 2"
standards began phasing in during 2004. In addition, both the CARB and the EPA
have adopted more stringent standards applicable to future heavy-duty trucks.
California requires that a specified percentage of cars and certain
light-duty trucks be zero emission vehicles (ZEVs), such as electric vehicles or
hydrogen fuel cell vehicles. This requirement starts at 10% in model year 2005
and increases in future years. Manufacturers have the option of meeting a
portion of this requirement with partial ZEV credits, which are vehicles that
meet very stringent emission standards and have extended emission system
warranties. An additional portion of the ZEV requirement can be met with
vehicles that meet these partial ZEV requirements and incorporate advanced
technology, such as a hybrid electric propulsion system meeting specified
criteria.
The Clean Air Act permits states that have areas with air quality problems to
adopt the California car and truck emission standards in lieu of the federal
requirements, and four states (New York, Massachusetts, Maine and Vermont) have
requirements in effect now. Three additional states (Connecticut, New Jersey and
Rhode Island) have adopted requirements that will begin in the future.
Additional states could also adopt the California standards in the future.
In addition to the above-mentioned exhaust emission programs, onboard
diagnostic (OBD) devices, used to diagnose problems with emission control
systems, were required both federally and in California effective with the 1996
model year. This system has the potential of increasing warranty costs and the
chance for recall. OBD requirements become more challenging each year as
vehicles meet lower emission standards, and new diagnostics are required.
California has adopted more stringent OBD requirements beginning in the 2004
model year, including new design requirements and more stringent enforcement
procedures.
New evaporative emission control requirements for cars and trucks began
phasing in with the 1995 model year in California and the 1996 model year
federally. Systems are being further modified to accommodate federal onboard
refueling vapor recovery (ORVR) control standards. ORVR was phased-in on
passenger cars in the 1998 through 2000 model years, and is phasing-in on
light-duty trucks in the 2001 through 2006 model years. Beginning with the 2004
model year, even more stringent evaporative emission standards apply in
California, as well as federally.
Starting in the 2001 model year, the test procedure for exhaust emissions has
become more complex with vehicles required to meet two additional test
requirements: 1) measuring exhaust emissions over a new test cycle with the air
conditioner operating; and 2) measuring exhaust emissions over a new high speed
(80 mph) and high load cycle.
Industrial Environmental Control
GM is subject to various laws relating to the protection of the environment
including laws regulating air emissions, water discharges, waste management, and
environmental cleanup.
GM is in various stages of investigation or remediation for sites where
contamination has been alleged, and recorded a liability of $214 million at
December 31, 2004 and $226 million at December 31, 2003 for worldwide
environmental investigation and remediation as summarized below:
I-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Industrial Environmental Control (concluded)
o GM has been identified as a potentially responsible party at sites
identified by the EPA and state regulatory agencies for
investigation and remediation under the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) and similar
state statutes. GM voluntarily and actively participates in
cleanup activity where such involvement has been verified. The
total liability for sites involving GM was $79 million at December
31, 2004. This compares with $85 million at December 31, 2003.
o For closed plants owned by the Corporation, the estimated liability
for environmental investigation and remediation was $17 million at
December 31, 2004, based on an environmental assessment of the plant
property. This compares with $22 million at December 31, 2003.
o GM is involved in investigation and remediation activities at
additional locations worldwide with a liability of $118 million at
December 31, 2004. This compares with $119 million at December 31,
2003.
The cost impact of the Clean Air Act Amendments under Title V is the annual
emission fees of approximately $9 million per year. Additional programs under
the Clean Air Act, including Hazardous Air Pollutant standards, and Compliance
Assurance Monitoring and periodic monitoring requirements are estimated to cost
$300 million to $500 million in aggregate through the year 2007.
The Corporation currently estimates that future expenditures for industrial
environmental control facilities through 2007 will be approximately $125
million. Specific environmental expenses are difficult to isolate since
expenditures may be made for more than one purpose, making precise
classification difficult.
GM is implementing various voluntary initiatives to reduce energy consumption
and greenhouse gas emissions from its operations around the globe. GM is on
track to meet its target by 2005 of a reduction of 8% in carbon dioxide (CO2)
emissions from its global facilities over 2000 levels. By 2003 GM had reduced
CO2 emissions from its U.S. facilities by 22% over 1990 levels. Several GM
facilities will be included in the European emissions trading regime, which is
being implemented to meet the European Community's climate change commitments
under the Kyoto Protocol. Additional information about GM's environmental and
other initiatives is available in its Corporate Responsibility Report at
www.gmability.com.
------------------
Vehicular Noise Control
Passenger cars and light-duty trucks are subject to state and local motor
vehicle noise regulations. General Motors Corporation is committed to designing
and developing all its products to meet these noise requirements. Addressing
specific vehicle noise regulations for all state and local regulations however,
is not practical or possible. The Corporation therefore compiles the most
stringent requirement for all regulated markets and validates to the composite
requirement. In instances where a state or local noise regulation is more
stringent than the composite requirement, a waiver of the requirement is
requested.
Medium to heavy-duty trucks are regulated at the federal level. Federal truck
regulations preempt all state/local noise regulations for trucks over 10,000
lbs. gross vehicle weight rating (GVWR).
Automotive Fuel Economy
The Energy Policy and Conservation Act passed in 1975 provided for
production-weighted average fuel economy standards for passenger cars for 1978
and thereafter. Based on EPA combined city-highway test data, the GM 2004 model
year domestic passenger car fleet achieved a Corporate Average Fuel Economy
(CAFE) of 29.3 miles per gallon (mpg) versus the standard of 27.5 mpg. GM's CAFE
estimate for 2005 model year domestic passenger cars is projected at 28.8 mpg
versus the standard of 27.5 mpg.
For GM's imported passenger cars, 2004 model year CAFE attained 30.3 mpg
versus a standard of 27.5 mpg. The CAFE estimate for 2005 model year import
passenger cars is 29.3 mpg versus the standard of 27.5 mpg.
Fuel economy standards for light-duty trucks became effective in 1979.
General Motors' light truck CAFE fleet average for the 2004 model year achieved
at 21.4 mpg versus a standard of 20.7 mpg. GM's 2005 model year truck CAFE is
projected at 21.5 mpg versus a standard of 21.0 mpg. New CAFE standards for
light trucks for the model years beyond 2008 will be the subject of rulemaking
during 2005.
In addition, in 2002 California passed legislation requiring the
California Air Resources Board (CARB) to regulate greenhouse gas emissions from
new motor vehicles sold in the state beginning in 2009. Since CO2 is the primary
greenhouse gas emitted by automobiles and CO2 emissions are directly
proportional to the amount of fuel consumed, this is tantamount to establishing
state level fuel economy standards, which is prohibited by the federal fuel
economy law. Nonetheless, CARB has established standards that effectively
require about a 40% increase in new vehicle fuel economy by 2016. These
standards are now subject to legal challenge by the Alliance of
I-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive Fuel Economy (concluded)
Automobile Manufacturers and several dealers in federal court and by a legal
challenge by GM, DaimlerChrysler and several dealers in state court.
Further, in 1999 ACEA (the European Auto Manufacturers' Association) and the
European Union established a voluntary agreement with an emission target of 140
grams of CO2 per kilometer on average for new passenger cars sold in the
European Union by 2008. Discussions are now ongoing between the European Union
and European auto manufacturers, including GM, on targets for the period beyond
2008.
We continue to improve the fuel efficiency of our vehicles, even as we add
more safety features, customer convenience options, enhance utility and
performance and address other environmental aspects of our products. For
example, GM provides the broadest array of fuel efficient cars and trucks in the
U.S. Based on EPA 2005 fuel economy data, GM leads in fuel economy comparisons
on a model to model basis across the vehicle spectrum. In cars, GM leads in 28
of the 53 comparisons (combined city-highway unadjusted) in which we compete or
53%, and GM leads in 41 of the 66 truck comparisons or 62% where GM has an
offering. GM's product lineup includes nineteen models that get 30 miles per
gallon or better on the highway - more than any other automaker. Of course,
overall CO2 emissions from cars and light duty trucks on the road are determined
by a number of factors, including what products customers select and how they
choose to use them, congestion, transit alternatives, fuel quality and
availability and land use patterns.
GM has established an aggressive near, mid and long-term plan to develop and
bring to market technologies to improve fuel efficiency, reduce emissions and
provide additional value and benefits to our customers. This includes
enhancements to conventional internal combustion engine technology such as
displacement-on-demand, alternative and flex-fuel vehicles. GM currently has
hybrid electric drive technology for buses and a Parallel Hybrid Pickup truck
available in the market and is bringing a range of hybrid products to market
over the next several years. Longer term, GM is investing in hydrogen fuel cell
development.
GM's ability to meet increased fuel economy standards is contingent on
various future economic, consumer, legislative, and regulatory factors that GM
cannot control and cannot predict with certainty. If GM is not able to comply
with specific new fuel economy requirements, GM could be subject to sizeable
civil penalties and could have to severely restrict product offerings or close
plants to remain in compliance.
Seasonal Nature of Business
In the automotive business, there are retail sales fluctuations of a seasonal
nature, and production varies from month to month. Certain changeovers occur
throughout the year for reasons such as new market entries and new vehicle
changes; however, the changeover period related to the annual new model
introduction has traditionally occurred in the third quarter of each year.
Production is typically lower during the third quarter due to these annual
product changeovers and the fact that annual plant shutdowns are planned during
this time to facilitate product changes. For this reason, third quarter
operating results are, in general, less favorable than those in the other three
quarters of the year. The degree to which the third quarter results are affected
depends on the magnitude of the changeover needed to commence production of new
models incorporating, for example, design modifications related to more
fuel-efficient vehicle packaging, stricter government standards for safety and
emission controls, and consumer-oriented improvements in performance, comfort,
convenience, and style.
Segment Reporting Data
Operating segment and principal geographic area data for 2004, 2003, and 2002
are summarized in Note 24 to the GM Consolidated Financial Statements in Part
II.
* * * * * *
I-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
The Registrant makes no attempt herein to predict the future trend of its
business and earnings or the effect thereon of the results of changes in general
economic, industrial, regulatory, and international conditions.
ITEM 2. Properties
The Corporation, excluding its Financing and Insurance Operations, has
approximately 370 locations operating in approximately 40 states and
approximately 220 cities in the United States. Of these, approximately 20 are
engaged in the final assembly of GM cars and trucks; approximately 50 are
service parts operations responsible for distribution or warehousing; and the
remainder are offices or involved primarily in the testing of vehicles or the
manufacturing of automotive components and power products. In addition, the
Corporation has approximately 20 locations in Canada and assembly,
manufacturing, distribution, or warehousing operations in approximately 50 other
countries, including equity interests in associated companies which conduct
assembly, manufacturing, or distribution operations. The major facilities
outside the United States and Canada, which are principally vehicle
manufacturing and assembly operations, are located in Germany, the United
Kingdom, Brazil, Mexico, Australia, Sweden, Belgium, Spain, China, Thailand,
Argentina, Portugal, Poland and South Korea.
Most facilities are owned by the Corporation or its subsidiaries. Leased
properties consist primarily of warehouses and administration, engineering, and
sales offices. The leases for warehouses generally provide for an initial period
of five years and contain renewal options. Leases for sales offices are
generally for shorter periods.
Properties of the Registrant and its subsidiaries include facilities which,
in the opinion of management, are suitable and adequate for the manufacture,
assembly, and distribution of their products.
Additional information regarding worldwide expenditures for plants and
equipment is presented in Note 24 to the GM Consolidated Financial Statements in
Part II.
ITEM 3. Legal Proceedings
(a) Material pending legal proceedings, other than ordinary routine litigation
incidental to the business, to which the Corporation became, or was, a
party during the year ended December 31, 2004, or subsequent thereto, but
before the filing of this report are summarized below:
Environmental Matters
The EPA Region V filed an Administrative complaint against three General
Motor's facilities on October 17, 2003. The three GM assembly facilities named
in the complaint are Moraine, Ohio, Pontiac, Michigan, and Orion, Michigan. The
complaint alleges multiple violations of the hazardous waste rules as applied to
GM's painting and purge operations. The EPA seeks unspecified penalties. GM
believes that the lawsuit is without merit because the purge material in
question is not a "waste" but instead is being used as intended in enclosed
systems to clean, suspend paint solids, and transport fluids. The purge material
is thereafter captured, reclaimed and reused by GM in its processes. GM will
vigorously defend.
* * *
Other Matters
Six putative nationwide and statewide class actions are pending against
General Motors in state and federal courts alleging that the paint or paint
application process used on some GM vehicles was defective due to the omission
of a primer surfacer layer. Generally, plaintiffs allege that GM's failure to
disclose the alleged paint defect is a fraudulent omission and a violation of
various states' consumer protection laws. No determination has been made that
any case may proceed as a class action.
With respect to the suits relating to the primer surfacer issue described
above: Christian Amedee and Louis Fuxan v. General Motors Corporation, et al.,
Civil District Court for the Parish of New Orleans, State of Louisiana filed
March 24, 1995, Cherise Miller, et al., v. General Motors Corporation, United
States District Court for the Northern District of Illinois, filed on April 8,
1998 (the court determined that plaintiffs had not demonstrated that they could
meet the requirements for certification of a nationwide class), and Rose Ann
Hayes v. General Motors Corporation et al. filed on May 22, 2001 in the Circuit
Court for Madison County Illinois are purported nationwide class actions; Eddie
Glorioso v. General Motors Corporation and Scott Arnold v. General Motors
Corporation, consolidated in Superior Court for the City and County of San
Francisco, California, both filed in July 1998, are purported California
statewide class actions; Scott Haverdink v. General Motors Corporation, Court of
Common Pleas of Philadelphia County, Pennsylvania, filed on May 16, 1999, is a
putative Pennsylvania statewide class action. Darryl Oshanek v. General Motors
Corporation and General Motors of Canada, Limited, filed in the Supreme Court of
British Columbia, Canada, on June 2, 1999, is a putative class action on behalf
of residents of British Columbia, has been dismissed. GM intends to vigorously
oppose class certification and defend these cases.
* * *
I-6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Matters (concluded)
Seventy-nine purported class actions on behalf of all purchasers of new motor
vehicles in the United States since January 1, 2001, have been filed in various
state and federal courts against General Motors Corporation, General Motors of
Canada Ltd. and Ford, Daimler Chrysler, Toyota, Honda, Nissan and BMW and their
Canadian affiliates, the National Automobile Dealers Association and the
Canadian Automobile Dealers Association. The federal court actions have been
consolidated for coordinated pretrial proceedings in federal court in the State
of Maine and the more than 30 California cases have been consolidated in state
court in San Francisco, California.
The nearly identical complaints allege that the defendant manufacturers,
aided by the association defendants, conspired among themselves and with their
dealers to prevent the sale to United States citizens of vehicles produced for
the Canadian market and sold by dealers in Canada. The complaints allege that
new vehicle prices in Canada are ten to thirty percent lower than those in the
United States and that preventing the sale of these vehicles to United States
citizens resulted in the payment of supracompetitive prices by United States
consumers. The complaints, as amended, seek treble damages under federal and
state antitrust laws, but do not specify damages. The complaints further allege
unjust enrichment and violations of state unfair trade practices act. No
determination has been made to certify any of these cases as a class action. On
March 5, 2004, the Court in Maine issued a decision holding that the purported
indirect purchaser classes failed to state a claim for damages and allowed a
separate claim seeking to enjoin future alleged violations to continue. General
Motors believes its actions have been lawful and intends to vigorously defend
these cases.
* * *
On April 11 and 14, 2003, two purported class actions (Young v. Pearce, et
al.; Silverstein v. Pearce, et al.) were filed in Delaware Chancery Court on
behalf of owners of GM Class H shares against Hughes Electronics Corporation,
General Motors Corporation, News Corporation and the Hughes directors. On April
11 and 15, 2003, two purported class actions (Matcovsky, et al., v. Hughes
Electronics Corporation, et al.; Brody v. Hughes Electronics Corporation, et
al.) were filed in Superior Court in Los Angeles, California, against Hughes, GM
and the Hughes and GM directors. Two purported stockholder class actions which
name only General Motors and the GM directors have been brought in Delaware
Chancery Court challenging the agreements with News Corp., Wyser-Pratte
Management Company v. General Motors Corporation, et al., which was filed April
18, 2003, and Robert LaMarche v. General Motors Corporation, et al., which was
filed April 28, 2003. The Delaware cases have been consolidated in the Delaware
Chancery Court and the California cases have been consolidated in state court in
Los Angeles and plaintiffs in both cases have filed consolidated complaints.
The Delaware cases allege that GM and the GM directors performed ultra vires
acts and that the GM directors breached their fiduciary duties by approving a
transaction that is more favorable to the holders of GM $1-2/3 par value common
stock than the holders of GM Class H Common stock. They claim that the holders
of GM Class H Common Stock were treated unfairly because (i) GM received mostly
cash for its shares while the holders of GM Class H Common Stock received News
Corp. American Depositary Shares (ADSs) that may fluctuate in value, (ii) GM
received a $275 million payment from Hughes, (iii) a substantial number of
shares of GM Class H Common Stock were contributed to various GM employee
benefit plans prior to announcement of the deal to improve the prospects of
shareholder approval, and (iv) the transaction was announced just prior to the
announcement of improved financial results at Hughes and PanAmSat to make it
appear that holders of GM Class H Common Stock would receive a premium that
would exceed the 20 percent recapitalization premium provided for in the GM
Restated Certificate of Incorporation, as amended. The California cases allege
that the transactions involving News Corp.'s acquisition of a 34% interest in
Hughes provides benefits to GM not available to all GM Class H shareholders, in
violation of fiduciary duties. The new consolidated complaints are similar to
the original complaints, except that the Delaware complaint adds allegations
challenging the adequacy of the disclosures in the Consent Solicitation and only
names GM and members of the GM board of directors as defendants. Plaintiffs in
both cases seek unspecified damages. GM has moved to dismiss the Delaware cases
and plaintiffs are seeking to amend their complaint. In the California cases,
the claims against directors without any connection to California have been
dismissed and the consolidated case has been stayed pending a ruling on the
motion to dismiss the Delaware consolidated complaint. GM and the director
defendants believe these actions are without merit and intend to vigorously
defend the lawsuits.
* * * * * * * * *
I-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
ITEM 4A. Executive Officers of the Registrant
The names and ages of all executive officers of the Registrant and their
positions and offices with the Registrant are as follows:
Name and (Age) Positions and Offices
--------------------------- ------------------------------------
G. Richard Wagoner, Jr. (52) Chairman and Chief Executive Officer
John M. Devine (60) Vice Chairman and Chief Financial
Officer
Robert A. Lutz (73) Vice Chairman Product Development, and
Chairman of GM North America
Thomas A. Gottschalk (62) Executive Vice President, Law and
Public Policy and General Counsel
The following information pertains to all other officers of the Registrant
who file reports pursuant to Section 16(b) of the Securities Exchange Act of
1934, as amended:
Name and (Age) Positions and Offices
--------------------------- ------------------------------------
Troy A. Clarke (49) Group Vice President and President,
GM Asia Pacific
Gary L. Cowger (57) Group Vice President and President,
GM North America
Eric A. Feldstein (45) Group Vice President and Chairman,
General Motors Acceptance
Corporation
Frederick A. Henderson (46) Group Vice President and President,
GM Europe
Maureen Kempston-Darkes (56) Group Vice President and President,
GM Latin America, Africa and Middle
East
Thomas G. Stephens (56) Group Vice President, GM Powertrain
Ralph J. Szygenda (56) Group Vice President, Information
Systems & Services, and Chief
Information Officer
Bo I. Andersson (49) Vice President, Global Purchasing and
Supply Chain
Kathleen S. Barclay (50) Vice President, Global Human Resources
Lawrence D. Burns (53) Vice President, Research & Development
and Strategic Planning
Thomas J. Kowaleski (53) Vice President, Communications
Peter R. Bible (46) Chief Accounting Officer
Walter G. Borst (43) Treasurer
Paul W. Schmidt (60) Controller
There are no family relationships, as defined, between any of the officers
named above, and there is no arrangement or understanding between any of the
officers named above and any other person pursuant to which he or she was
selected as an officer. Each of the officers named above was elected by the
Board of Directors to hold office until the next annual election of officers and
until his or her successor is elected and qualified or until his or her earlier
resignation or removal. The Board of Directors elects the officers in
conjunction with each annual meeting of the stockholders.
I-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4A. Executive Officers of the Registrant - continued
Mr. G. Richard Wagoner, Jr. has been associated with General Motors since
1977. Mr. Wagoner was elected Vice President in charge of finance for General
Motors Europe in June 1989. In July 1991, he was elected President and Managing
Director of General Motors do Brasil. In November 1992, he was elected Executive
Vice President and Chief Financial Officer of General Motors. In July 1994, he
was named President of North American Operations. In October 1998, he was
elected a director, President and Chief Operating Officer of General Motors. On
June 1, 2000, Mr. Wagoner was named Chief Executive Officer and became Chairman
of the Board of Directors on May 1, 2003. Mr. Wagoner is Chairman of the
Automotive Strategy Board.
Mr. John M. Devine was named Vice Chairman and Chief Financial Officer of
General Motors Corporation, effective January 1, 2001. He has responsibility for
GM's Worldwide Financial Operations, GM Asset Management, and Economic
Development and Enterprise Services. He is a member of the GM Automotive
Strategy Board and serves as its global process leader for finance. Mr. Devine
was Chairman and Chief Executive Officer of Fluid Ventures, LLC, immediately
prior to his GM appointment. He retired from Ford Motor Company in October 1999,
after a 32 year career, as the company's Executive Vice President and Chief
Financial Officer.
Mr. Robert A. Lutz was named Vice Chairman Product Development of General
Motors Corporation, effective September 1, 2001. He was named Chairman of GM
North America on November 13, 2001, and was appointed interim president of GM
Europe on March 1, 2004 until June 1, 2004. He serves as global process leader
for Product Development and is a member of the Automotive Strategy Board and the
North America Strategy Board. Mr. Lutz was Chairman and Chief Executive Officer
of Exide Technologies, immediately prior to his GM appointment, and served as a
member of Exide's board of directors until May 5, 2004. He also has held a
number of executive positions with Ford Motor Company until 1986 and the former
Chrysler Corporation from which he retired in 1998.
Mr. Thomas A. Gottschalk has been associated with General Motors since 1994.
He previously held the position of Senior Vice President and General Counsel. He
was elected to the position of Executive Vice President of General Motors with
primary responsibility for Law and Public Policy on May 25, 2001. He retains the
General Counsel responsibility in his current position and is also responsible
for the Office of the Secretary. He is a member of the Automotive Strategy Board
and is the global process leader for Law and Public Policy. Prior to General
Motors, he was a partner and member of the management committee of the law firm
of Kirkland & Ellis in Washington, D.C.
Mr. Troy A. Clarke was appointed Group Vice President and Executive Vice
President, GM Asia Pacific on February 4, 2004, and President of GM Asia
Pacific, effective June 1, 2004. Mr. Clarke was named GM group vice president of
manufacturing and labor relations in June 2002. Mr. Clarke had been vice
president of labor relations since January 2001 and was appointed president and
managing director of GM de Mexico and a GM corporate vice president in December
1997, after having served as director of manufacturing for GM de Mexico since
June 1997. Mr. Clarke is a member of the Automotive Strategy Board and Chairman
of the Asia Pacific Strategy Board.
Mr. Gary L. Cowger has been associated with General Motors since 1965. Mr.
Cowger was elected a Vice President of General Motors Corporation, effective
October 1, 1994. On September 1, 1994, he was appointed President and Managing
Director of General Motors de Mexico. Mr. Cowger was then named Vice President,
Manufacturing, General Motors Europe, on January 1, 1998 and Chairman and
Managing Director of Adam Opel AG effective June 19, 1998. Mr. Cowger became
Group Vice President - Labor Relations, on November 1, 1998 and Group Vice
President in charge of GM Manufacturing and Labor Relations on January 1, 2001.
He was named GM Group Vice President and President of General Motors North
America on November 13, 2001. He is a board member of GMAC, a member of the
Automotive Strategy Board, global process leader for Manufacturing, and Chairman
of the North America Strategy Board.
Mr. Eric A. Feldstein has been associated with General Motors since 1981. Mr.
Feldstein was named GM Vice President and Treasurer in 1997 and GM Vice
President of Finance and Treasurer in 2001. He was named GM Group Vice President
and Chairman of General Motors Acceptance Corporation (GMAC) in November 2002.
He is a member of the Automotive Strategy Board and Chairman and President of
the GMAC Mortgage Group.
I-9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4A. Executive Officers of the Registrant - continued
Mr. Frederick A. Henderson has been associated with General Motors since
1984. From 1997 to 2000, Mr. Henderson was GM Vice President and Managing
Director of GM do Brasil, and from June 1, 2000 served as Group Vice President
and President of the GM Latin America, Africa and Middle East (LAAM) region. He
was named GM Group Vice President and President of General Motors Asia Pacific
effective January 1, 2002. Effective June 1, 2004, he was appointed Group Vice
President and President of GM Europe. He is currently a member of the Automotive
Strategy Board and Chairman of the GM Europe Strategy Board.
Ms. Maureen Kempston-Darkes has been associated with General Motors since
1975. Ms. Kempston-Darkes was GM Vice President and President and General
Manager of General Motors of Canada Limited from 1994 to 2001. She was named GM
Group Vice President and President of GM LAAM effective January 1, 2002. She is
a member of the Automotive Strategy Board and Chairman of the Latin America,
Africa, and Middle East Strategy Board.
Mr. Thomas G. Stephens is the Group Vice President responsible for GM
Powertrain. He is a member of the Automotive Strategy Board and the North
American Strategy Board, and Chairman of GM's Energy and Environmental Strategy
Board. From May 1996 through December 2000, Mr. Stephens was GM vice president
and group director of engineering operations for the GM Truck Group. He was
appointed vice president of vehicle integration in January 2001 and held this
position prior to being named group vice president for GM Powertrain in 2001.
Mr. Ralph J. Szygenda was named Group Vice President, Information Systems &
Services, and Chief Information Officer on January 7, 2000. He is a member of
the Automotive Strategy Board and is responsible for the Information Systems &
Services organization. Mr. Szygenda is a member of the board of directors of the
Handleman Company. He joined GM in 1996 as Vice President and Chief Information
Officer.
Mr. Bo I. Andersson began his career with GM in 1987 as a manager with Saab.
He was appointed GM vice president of Global Purchasing and Supply Chain on
December 1, 2001. He is a member of GM's Automotive Strategy Board and North
America Strategy Board. He held various leadership positions at Saab and GM
before being promoted to vice president of purchasing for General Motors Europe
in March 1997. He was appointed executive-in-charge for Worldwide Purchasing in
1999.
Ms. Kathleen S. Barclay has been associated with General Motors since 1985.
She was elected Vice President in charge of global human resources in 1998. Her
responsibilities include providing strategic human resource counsel to GM units
worldwide and coordinating GM's training and development activities. Prior to
that she was general director of human resource management at GM North America
Operations since 1996. She is a member of the Automotive Strategy Board.
Mr. Lawrence D. Burns has been associated with General Motors since 1969. He
was named Vice President of Research & Development and Strategic Planning in May
1998. He is a member of the Automotive Strategy Board and serves as global
process leader for R&D and Planning.
Mr. Thomas J. Kowaleski was elected Vice President in charge of global GM
communications, effective January 1, 2004. He is a member of the GM Automotive
Strategy Board and directs GM's corporate, product, brand, and internal
communications around the world. Mr. Kowaleski joined General Motors in March
1999 as executive director product and brand communications. He became GM North
America vice president of communications in June 2001. Prior to his joining GM,
Mr. Kowaleski held a number of executive positions at Chrysler Corporation and
DaimlerChrysler.
Mr. Peter R. Bible joined General Motors as Chief Accounting Officer in
December 1996. He is responsible for worldwide accounting and financial
reporting; Securities and Exchange Commission (SEC) reporting; financial
controls; financial systems development; and government contract accounting. Mr.
Bible is also responsible for communication to the Audit Committee of the Board
of Directors on accounting matters and is a signatory of the Corporations'
registration reports and financial reports.
Mr. Walter G. Borst has been associated with General Motors since 1980. He
was named Treasurer in February 2003. Prior to that, Mr. Borst was executive
director of finance and chief financial officer for GM's German subsidiary, Adam
Opel AG, since October 2000. Previously, he served as Assistant Treasurer in the
GM Treasurer's Office from 1997 to 2000.
Mr. Paul W. Schmidt has been associated with General Motors since 1969. He
was named Controller in 2002. Mr. Schmidt had been executive-in-charge of GM's
investor relations since August 2001. Prior to that, he was executive-in-charge
of GM North America Finance since 1994.
I-10
PART II
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
General Motors (GM) lists its common stock on the stock exchanges specified
on the cover page of this Form 10-K under the trading symbol "GM". On December
22, 2003, General Motors completed the split-off of Hughes by distributing
Hughes common stock to the holders of GM Class H (GMH) common stock in exchange
for all the outstanding shares of GMH common stock. Simultaneously, GM sold its
19.8% economic interest in Hughes to News Corporation in exchange for cash and
News Corporation Preferred American Depositary Shares (Preferred ADSs).
All GMH stock ceased to be outstanding and accordingly was delisted from
exchanges specified on the cover page of this report. GM's Dividend Policy is
described in the Management's Discussion and Analysis (MD&A) in Part II. As of
December 31, 2004, there were 405,272 holders of record of GM $1-2/3 par value
common stock. As of December 31, 2003, there were 418,540 holders of record of
GM $1-2/3 par value common stock. The following table sets forth the high and
low sale prices of GM's common stocks as reported on the Composite Tape and the
quarterly dividends declared for the last two years.
2004 Quarters
-------------
1st 2nd 3rd 4th
--- --- --- ---
Cash dividends per share of common stocks
$1-2/3 par value $0.50 $0.50 $0.50 $0.50
Price range of common stocks
$1-2/3 par value (1): High $55.55 $50.04 $46.93 $43.29
Low $44.72 $42.88 $40.53 $36.90
2003 Quarters
-------------
1st 2nd 3rd 4th
--- --- --- ---
Cash dividends per share of common stocks
$1-2/3 par value $0.50 $0.50 $0.50 $0.50
Class H $- $- $- $-
Price range of common stocks
$1-2/3 par value (1): High $41.12 $39.50 $43.23 $54.39
Low $29.75 $32.84 $35.00 $40.04
Class H (1): High $12.41 $13.56 $15.10 $16.72
Low $9.40 $10.17 $12.74 $14.25
----------------------
(1) The principal market is the New York Stock Exchange, and prices are based
on the Composite Tape.
The table below contains information about securities authorized for issuance
under equity compensation plans. The features of these plans are described
further in Note 22 to the Consolidated Financial Statements, in Part II.
II-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters (concluded)
Number of Number of
securities to be Weighted average securities
issued upon exercise price remaining
exercise of of outstanding available for
Plan Category outstanding options, future issuance
options, warrants and under equity
warrants and rights compensation
rights plans (1)
-------------------------------------------------------------------------------
Equity compensation plans approved
by security holders:
General Motors Amended
Stock Incentive Plan
(GMSIP) 79,455,293 $54.53 10,873,308
Equity compensation plans not
approved by security holders (2):
General Motors 1998
Salaried Stock Option
Plan (GMSSOP) 27,590,626 $55.17 394,335
-------------------------------------------------------------------------------
Total 107,045,919 $54.69 11,267,643
-------------------------------------------------------------------------------
(1) Excludes securities reflected in the first column, "Number of securities to
be issued upon exercise of outstanding options, warrants and rights."
(2) All equity compensation plans except the GMSSOP were approved by the
stockholders. The
GMSSOP was adopted by the Board of Directors in 1998 and expires December 31,
2007. The purpose of the plans is to recognize the importance and
contribution of GM employees in the creation of stockholder value, to further
align compensation with business success and to provide employees with the
opportunity for long-term capital accumulation through the grant of options
to acquire shares of General Motors common stock.
Purchases of Equity Securities
GM made the following purchases of GM $1-2/3 par value common stock during the
three months ended December 31, 2004:
Maximum Number
(or
Total Number Approximate
of Shares (or Dollar Value)
Units) of Shares (or
Total Number Average Price Purchased as Units) that
of Shares (or Paid per Share Part of May Yet Be
Period Units (or Unit) Publicly Purchased
Purchased) Announced Under the
Plans or Plans or
Program Programs
-------------------------------------------------------------------------------
October 1 to NA NA
October 31
November 1 to NA NA
November 30 5,939 $39.19
December 1 to NA NA
December 31 11,121 $38.89
-------------------------------------------------------------------------------
Total 17,060 $39.00 NA NA
-------------------------------------------------------------------------------
II-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. Selected Financial Data
Years Ended December 31
---------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(dollars in millions except per share amounts)
Total net sales and revenues $193,517 $185,837 $177,867 $169,051 $173,943
======= ======= ======= ======= =======
Income from continuing
operations $2,805 $2,862 $1,975 $1,222 $3,639
Income (loss) from
discontinued operations - (219) (239) (621) 813
Gain from sale of
discontinued operations _- 1,179 - - -
----- ----- ----- --- -----
Net income (1) $2,805 $3,822 $1,736 $601 $4,452
===== ===== ===== === =====
$1-2/3 par value common stock
Basic earnings per share
(EPS) from continuing
operations $4.97 $5.10 $3.53 $2.21 $6.23
Basic earnings (losses) per
share from discontinued
operations $- $2.14 $(0.16) $(0.42) $0.59
Diluted EPS from continuing
operations $4.95 $5.03 $3.51 $2.20 $6.12
Diluted earnings (losses)
per share from discontinued
operations $- $2.11 $(0.16) $(0.43) $0.58
Cash dividends declared per
share $2.00 $2.00 $2.00 $2.00 $2.00
Class H common stock (2)
Basic earnings (losses) per
share from discontinued
operations $ - $(0.22) $(0.21) $(0.55) $0.55
Diluted earnings (losses)
per share from
discontinued operations $ - $(0.22) $(0.21) $(0.55) $0.54
Cash dividends declared per
share $ - $ - $ - $ - $ -
Total assets $479,603 $448,507 $369,053 $322,412 $301,129
Notes and loans payable $300,279 $271,756 $200,168 $165,361 $144,783
GM-obligated mandatorily
redeemable preferred
securities of
subsidiary trusts $ - $ - $ - $ - $139
Stockholders' equity $27,726 $25,268 $6,814 $19,707 $30,175
--------------------------
Reference should be made to the notes to GM's consolidated financial statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations.
(1) On January 1, 2002, the Corporation implemented Statement of Financial
Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets,"
which ceased the amortization method of accounting for goodwill and changed
to an impairment only approach. Accordingly, goodwill is no longer amortized
and is tested for impairment at least annually. Effective January 1, 2003,
the Corporation began expensing the fair market value of newly granted stock
options and other stock-based compensation awards issued to employees to
conform to SFAS No. 123, "Accounting for Stock-Based Compensation." Effective
July 1, 2003, the Corporation began consolidating certain variable interest
entities to conform to FASB Interpretation No. 46, "Consolidation of Variable
Interest Entities."
(2) Adjusted to reflect the three-for-one stock split of the GMH common stock,
in the form of a 200% stock dividend, paid on June 30, 2000. Effective
December 22, 2003 GM split-off Hughes by distributing Hughes common stock to
the holders of GMH common stock in exchange for all outstanding shares of GMH
common stock. Simultaneously, GM sold its 19.8% economic interest in Hughes
to News Corporation in exchange for cash and News Corporation Preferred ADSs.
All shares of GMH common stock were then cancelled. See Note 2 to the
Consolidated Financial Statements.
* * * * * *
II-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the General
Motors Acceptance Corporation (GMAC) Annual Report on Form 10-K for the period
ended December 31, 2004, filed separately with the Securities and Exchange
Commission (SEC). All earnings per share amounts included in the MD&A are
reported on a fully diluted basis.
GM presents separate supplemental financial information for 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
constitute 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 United States (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.
II-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated Results
Years Ended December 31,
--------------------------------
2004 2003 2002
---- ---- ----
(dollars in millions)
Consolidated:
Total net sales and revenues $193,517 $185,837 $177,867
Income from continuing operations $2,805 $2,862 $1,975
Net income $2,805 $3,822 $1,736
Net margin from continuing operations 1.4% 1.5% 1.1%
Automotive and Other Operations:
Total net sales and revenues $161,545 $155,831 $150,250
Income (loss) from continuing operations $(89) $35 $93
Net income (loss) $(89) $995 $(146)
Financing and Insurance Operations:
Total revenues $31,972 $30,006 $27,617
Net income $2,894 $2,827 $1,882
The increase in 2004 total net sales and revenues, compared with 2003,
resulted from increased GMA revenue of $6.6 billion, with significant increases
at GMLAAM and GME, and increases in FIO revenue of $2.0 billion. Other revenues
in 2003 included approximately $814 million from the sale of GM's defense
business. The increase in 2003 total net sales and revenues, compared with 2002,
was due to increases in GMA revenue of $5.2 billion, despite lower GMNA and
global volumes and worldwide pricing competitiveness, and increases in FIO
revenue of $2.4 billion.
Income from continuing operations decreased $57 million to $2.8 billion in
2004, compared to 2003. Automotive results improved by $868 million due to
improvement at GMNA, a strong recovery at GMLAAM, and record income at GMAP,
more than offsetting increased losses at GME. Other Operations' 2004 results
include an after-tax charge of $886 million related to the February 2005
settlement reached between GM and Fiat S.p.A. (Fiat) to terminate the Master
Agreement (including the Put Option) and settle various disputes between the two
companies. GMAC earned a record $2.9 billion net income, with higher financing
and insurance income more than offsetting lower mortgage income. In 2003,
consolidated net income included a gain on the sale of discontinued operations
of $1.2 billion and a loss from discontinued operations of $219 million related
to Hughes Electronics Corporation (Hughes). See discussion at Discontinued
Operations.
Despite increased revenues, cost savings, and strong equity income in 2003
compared to 2002, continued automotive pricing pressures, higher pension and
other postretirement employee benefit (OPEB) expenses in the U.S., and
unfavorable foreign currency exchange resulted in GMA net income decreasing in
2003 compared to 2002. GMAC had record net income of $2.8 billion in 2003,
compared to $1.9 billion in the prior year.
2004 highlights included:
o Record consolidated net sales and revenues;
o Market share increases in three of four automotive regions;
o Record net income at GMAC;
o Record net income and market share at GMAP;
o Profitability at GMLAAM;
o Approximately 14% actual return on assets for U.S. pension plans;
o $9 billion contributed to pre-fund U.S. OPEB liabilities; and
o Termination of the Master Agreement (including the Put Option) with
Fiat and settlement of related disputes included in 2004 financial
results.
II-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review
Years Ended December 31,
--------------------------------
2004 2003 2002
---- ---- ----
(dollars in millions)
Auto & Other:
Total net sales and revenues $161,545 $155,831 $150,250
Income (loss) from continuing operations $(89) $35 $93
(Loss) from discontinued operations - (219) (239)
Gain on sale of discontinued operations - 1,179 -
---- ----- -------
Net income (loss) $(89) $995 $(146)
== === ===
GMA net income (loss) by region:
GMNA $1,583 $811 $2,992
GME (976) (504) (1,011)
GMLAAM 85 (331) (181)
GMAP 729 577 188
----- --- -----
Net income (loss) $1,421 $553 $1,988
===== === =====
Net margin 0.9% 0.4% 1.3%
GM global automotive market share 14.5% 14.6% 15.0%
Other:
(Loss) from continuing operations $(1,510) $(518) $(1,895)
(Loss) from discontinued operations - (219) (239)
Gain on sale of discontinued operations - 1,179 -
------ ----- -----
Net income (loss) $(1,510) $442 $(2,134)
===== === =====
The increase in 2004 total net sales and revenues, compared with 2003, was
largely due to higher wholesale volumes at GMLAAM and GME and continued growth
in GMAP, partially offset by lower GMNA revenue. The increase in 2003 total net
sales and revenues, compared with 2002, was largely due to favorable product mix
and a weaker U.S. dollar, partially offset by unfavorable pricing pressures in
North America and Europe and lower wholesale volumes. GM's global market share
was 14.5% and 14.6% for the years 2004 and 2003, respectively. Market share
gains were recognized for 2004 in three out of four automotive regions (see
discussion below under each region) with GMNA posting a 0.7 percentage point
decline, to 26.7%.
GMA's 2004 net income increased $868 million compared with 2003. GMNA's
income increased due to material cost savings and favorable tax items, partially
offset by decreased production and negative mix. GMAP achieved record annual
income, despite slower growth in the second half of the year, while GMLAAM
reached annual profitability for the first year since 2000. GME's loss for 2004
increased due to continued price pressure and unfavorable exchange. The decrease
in GMA's 2003 net income compared with 2002 was the result of lower wholesale
volumes, continued pricing pressures in North America and Europe, increased
pension and OPEB expense in the U.S., and unfavorable foreign exchange,
partially offset by continued strong product mix, material cost savings and
strong equity results at GMAP.
See discussion of Other Operations' results below.
GM Automotive Regional Results
GM North America Years Ended December 31,
----------------------------------
2004 2003 2002
---- ---- ----
GMNA: (dollars in millions)
Net income $1,583 $811 $2,992
Net margin 1.4% 0.7% 2.6%
Wholesale volumes (in thousands)
Cars 2,271 2,340 2,547
Trucks 3,193 3,267 3,174
----- ----- -----
Total GMNA 5,464 5,607 5,721
===== ===== =====
Vehicle unit sales
Industry - North America 20,275 19,841 20,135
GM as a percentage of industry 26.7% 27.4% 27.9%
Industry - U.S. 17,302 16,970 17,143
GM as a percentage of industry 27.2% 28.0% 28.3%
GM cars 24.9% 25.7% 25.4%
GM trucks 29.0% 30.0% 31.0%
II-6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
GM North America (concluded)
North American industry vehicle unit sales increased 2% to 20.3 million units
during 2004. While the industry grew slightly, GMNA's production declined
approximately 4% to 5.2 million units and market share decreased by 0.7
percentage points. GMNA ended the year with a market share of 26.7% for 2004,
compared to 27.4% for 2003.
During 2004, industry vehicle unit sales in the United States increased to
17.3 million units, while GM's U.S. market share decreased by 0.8 percentage
points. GM ended the year with a U.S. market share of 27.2% for 2004, versus
28.0% for 2003. GM's U.S. car market share declined by 0.8 percentage points to
24.9%, while U.S. truck market share for the year was 29.0%, down 1.0 percentage
point. Truck sales represented 60% of GM's total U.S. vehicle unit sales in
2004, up slightly from 59% in 2003.
Net income from GMNA totaled $1.6 billion, $811 million, and $3.0 billion in
2004, 2003, and 2002, respectively. The effects of material and structural cost
savings in 2004 were partially offset by lower volume and unfavorable product
mix. Additionally, 2004 net income includes the effect of GM's contribution of
approximately 11 million shares of XM Satellite Radio Holdings Inc. (XM) common
stock to GM's Voluntary Employees' Beneficiary Association (VEBA), which
resulted in an after-tax gain to GMNA of $118 million. GMNA recognized tax
benefits in 2004 of $540 million primarily as the result of U.S. and Mexico tax
legislation and Canadian capital loss carryforwards, as well as a benefit
related to the settlement of various prior year tax matters in the U.S. In
addition, in the third quarter of 2004 GM completed its periodic review of
products liability reserves, which comprehend all products liability exposure.
This review resulted in an after-tax reduction to these reserves of
approximately $250 million, in order to appropriately reflect the current level
of exposure.
In the fourth quarter of 2004, GM announced plans to close its assembly plant
in Baltimore, Maryland, and to permanently lay off approximately 950 employees
at GM's assembly plant in Linden, New Jersey. In connection with these actions,
GM recognized after-tax charges totaling $78 million in 2004 for impairment of
product-specific assets and facilities, and other associated costs. Continued
payment of compensation and other benefits to laid-off employees at the
Baltimore and Linden plants is estimated to be $6 million and $10 million per
month, respectively, which is expected to decline as employees are redeployed,
retire, or otherwise terminate their employment; accordingly, the total of such
charges is not currently estimable. Exit and environmental costs totaling
approximately $28 million after tax are expected to be recognized in the future
as liabilities are incurred. In addition, GM incurred after-tax charges in 2004
of $118 million for impairments of other product-specific assets and facilities
not related to these actions.
The decrease in GMNA's 2003 net income from 2002 was primarily due to
unfavorable pricing, increased pension and OPEB expense in the U.S., and higher
currency-exchange losses. During 2003, GMNA incurred charges of $448 million,
after tax, related to the October 2003 contract with the United Auto Workers,
which provided for lump-sum payments and vehicle discount vouchers for retirees.
In addition, GMNA adjusted a previously established reserve for idled workers,
primarily related to the Janesville, Wisconsin plant, resulting in $103 million
of net income, after tax. Also, GMNA incurred various structural cost
adjustments, asset impairment and other charges, favorable interest income from
settlements of prior year tax matters, and income related to the market
valuation of XM warrants. These items netted to approximately $90 million of
income for the year.
Vehicle revenue per unit was consistent year over year at $18,991 for
calendar year 2004 and $18,992 for calendar year 2003, reflecting a continuing
trend of moderating pricing.
GM Europe Years Ended December 31,
----------------------------------
2004 2003 2002
---- ---- ----
(dollars in millions)
GME net (loss) $(976) $(504) $(1,011)
GME net margin (3.2%) (1.8%) (4.2%)
Wholesale volumes (in thousands)
Cars 1,620 1,563 1,545
Trucks 97 94 100
------ ------ ------
Total GME 1,717 1,657 1,645
===== ===== =====
Vehicle unit sales
Industry 20,606 19,537 19,340
GM as a percentage of industry 9.5% 9.3% 8.6%
GM market share - Germany 10.5% 10.4% 10.2%
GM market share - United Kingdom 13.9% 13.7% 12.7%
II-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
GM Europe (concluded)
Industry vehicle unit sales increased more than 5% in Europe during 2004, and
GME increased its total market share to 9.5%, up 0.2 percentage points from
2003. In two of GM's largest markets in Europe, GM continued to increase market
share: market share was 10.5% in Germany, a 0.1 percentage point increase over
2003; and in the United Kingdom market share was 13.9%, an increase of 0.2
percentage points over 2003.
Net loss from GME totaled $976 million, $504 million, and $1.0 billion, in
2004, 2003, and 2002, respectively. The increase in GME's loss in 2004 over 2003
was primarily due to continued negative price and unfavorable exchange with
respect to the weakening of the U.S dollar compared to the euro and Swedish
krona, partially offset by favorable volume and mix, material cost savings and
reduced structural costs. In addition, in 2004 GME's net loss included an
after-tax charge of $234 million for the impairment of various product-specific
assets.
The decrease in GME's 2003 net loss from 2002 was primarily due to favorable
product mix, and reduced material and structural costs. These favorable
conditions were partially offset by unfavorable pricing and foreign currency
translation as the euro and krona strengthened relative to the U.S. dollar
during 2003. GME's net loss included a restructuring charge in 2003 of $218
million, after tax, related to an initiative to improve the competitiveness of
GM's automotive operations in Europe.
On October 14, 2004, GM announced a major restructuring initiative for GME to
reduce annual structural costs 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. In December 2004, GM
reached agreement with various labor unions in Europe on a framework for the
restructuring plan. Total costs associated with the restructuring initiative are
yet to be determined, and will be recognized in future periods as the
restructuring occurs. GM expects to incur charges in connection with this
throughout 2005; the amounts of these charges have not yet
been determined.
GM Latin America/Africa/Mid-East Years Ended December 31,
-----------------------------------
2004 2003 2002
---- ---- ----
(dollars in millions)
GMLAAM net income (loss) $85 $(331) $(181)
GMLAAM net margin 1.0% (6.1%) (3.5%)
Wholesale volumes (in thousands)
Cars 586 438 443
Trucks 183 123 197
--- --- ---
Total GMLAAM 769 561 640
=== === ===
Vehicle unit sales
Industry 4,240 3,585 3,637
GM as a percentage of industry 17.4% 16.3% 17.0%
GM market share - Brazil 23.1% 23.3% 23.0%
Improving economic conditions in Latin America resulted in significant
industry growth in 2004, with the markets in Argentina and Venezuela doubling,
and Brazil's market growing more than 10% compared to 2003. In addition, the
South Africa market grew more than 20% in 2004. GMLAAM capitalized on this
industry growth and improved its regional market share by 1.1 percentage points
to 17.4% in 2004 with a 26% increase in vehicle unit sales, to 737 thousand in
2004.
Net income (loss) from GMLAAM totaled $85 million, $(331) million, and $(181)
million in 2004, 2003, and 2002, respectively. 2004 was the first profitable
year for GMLAAM since 2000. Favorable volume and mix and positive pricing,
partially offset by increased material and structural costs, drove the improved
results in 2004. The increase in the region's 2003 net loss from 2002 was
primarily due to continued economic weakness in the region as industry vehicle
sales decreased 52 thousand units to 3.6 million for 2003. In 2003, GMLAAM
incurred asset impairment charges and unfavorable exchange effects, which were
partially offset by net price increases.
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.
II-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
GM Asia Pacific (concluded)
Years Ended December 31,
----------------------------------
2004 2003 2002
---- ---- ----
(dollars in millions)
GMAP net income $729 $577 $188
GMAP net margin 10.4% 10.8% 4.2%
Wholesale volumes (in thousands)
Cars 203 203 185
Trucks 88 70 220
--- --- ---
Total GMAP 291 273 405
=== === ===
Vehicle unit sales
Industry 17,070 15,925 14,503
GM as a percentage of industry 5.2% 4.9% 3.4%
GM market share - Australia 19.4% 20.4% 22.6%
GM market share - China 9.3% 8.6% 4.2%
Industry vehicle unit sales in the Asia Pacific region increased
approximately 7.2% in 2004, to 17.1 million units, from 15.9 million units in
2003. This reflects slower growth in China than in previous years, where vehicle
unit sales increased 16% to 5.3 million in 2004, from 4.6 million units in 2003.
During 2003 industry vehicle unit sales in China increased 35% over 2002 levels.
GMAP increased its vehicle unit sales (including GM Daewoo Auto & Technology
Company (GM-DAT) and China affiliates) in the Asia Pacific region more than 14%
in the period, to 887 thousand units from 775 thousand in 2003. GMAP's 2004
market share was 5.2%, compared to 4.9% in 2003. GMAP's market share in China
increased 0.7 percentage point to 9.3% in 2004, and China was GM's second
largest market for 2004.
Net income from GMAP totaled $729 million, $577 million, and $188 million, in
2004, 2003, and 2002, respectively. The increase in GMAP's 2004 net income over
2003 was due to improved results at equity investees in Japan and GM-DAT, as
well as improved earnings at GM operations in Thailand and India, partially
offset by reduced income at GM Holden. The increase in GMAP's 2003 net income,
compared with 2002, was primarily due to strong equity earnings from Shanghai
General Motors Co., Ltd. and other equity investees, as well as increased
earnings at Holden in Australia.
Other Operations
Years Ended December 31,
----------------------------------------
2004 2003 2002
---- ---- ----
(dollars in millions)
Other:
Total net sales and revenues $410 $1,318 $895
(Loss) from continuing operations $(1,510) $(518) $(1,895)
(Loss) from discontinued operations - (219) (239)
Gain from sale of discontinued
operations - 1,179 -
----- ----- -----
Net (loss) income $(1,510) $442 $(2,134)
===== === =====
Other Operations' loss from continuing operations increased $992 million in
2004 compared to 2003, to $1.5 billion. Other Operations' loss from continuing
operations includes after-tax legacy costs of $402 million and $634 million for
2004 and 2003 respectively, related to employee benefit costs of divested
businesses, primarily Delphi, for which GM has retained responsibility.
In 2002, GM evaluated the carrying value of its investment in Fiat Auto
Holdings B.V. (FAH), resulting in a non-cash impairment charge of $2.2 billion
($1.4 billion, after-tax). The write-down decreased the carrying value of GM's
investment in FAH from $2.4 billion to $220 million with the remaining $220
million being attributable to the investment of FAH in certain joint ventures
with GME. In December 2004, GM wrote off this remaining balance to Other
Operations' cost of sales, resulting in an after-tax charge of $136 million.
On February 13, 2005 GM and Fiat reached a settlement agreement whereby GM
will pay Fiat approximately $2.0 billion and will return its 10% equity interest
in FAH to terminate the Master Agreement (including the Put Option) entered into
in March 2000, settle various disputes related thereto, and acquire an interest
in key strategic diesel engine assets and other important rights with respect to
diesel engine technology and know-how. The settlement agreement results in a
pre-tax charge to earnings of approximately $1.4 billion ($886 million after tax
or $1.56 per fully diluted share). Since the underlying events and disputes
giving rise to GM's and Fiat's agreement to settle these disputes and terminate
the Master Agreement (including the Put Option) existed at December 31, 2004, GM
recognized this charge in the fourth quarter of 2004. This charge was recorded
in cost of sales and other expenses in Other Operations.
II-9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Operations (concluded)
In addition, the settlement agreement includes, among other things, the
following actions or provisions:
o The Fiat-GM Powertrain (FGP) joint venture company will be dissolved and GM
will regain complete ownership of all GM assets originally contributed.
During a transition period, FGP will continue to supply both companies so
that their respective operations will not be disrupted.
o GM will retain co-ownership with Fiat of the key powertrain intellectual
property, including SDE and JTD diesel engines and the M20-32 six-speed
manual transmission;
o GM will hold a 50% interest in a joint venture limited to operating the
powertrain manufacturing plant in Bielsko-Biala, Poland, that currently
produces the 1.3 liter SDE diesel engine;
o The companies will continue to supply each other with powertrains under long
term contracts which provide considerable ongoing savings;
o GM and Fiat will also continue to work together to develop certain car
programs;
o Fiat will participate in GM's purchasing alliance program;
GM and Fiat have exchanged broad releases of all claims and liabilities.
Other Operations' total net sales and revenues for 2003 include a pre-tax
gain of approximately $814 million, or approximately $505 million after-tax
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.
Also, Other Operations' 2003 results include charges of approximately $277
million related to the October 2003 contract with the UAW which provided for
lump-sum payments and vehicle vouchers for Delphi retirees, as well as net
interest expense of approximately $200 million related to 2003 debt issuances.
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. The transactions resulted
in an after-tax gain of approximately $1.2 billion classified as gain on sale of
discontinued operations in GM's consolidated statement of income for the year
ended December 31, 2003. See Note 2 to the Consolidated Financial Statements for
further discussion.
GMAC Financial Review
GMAC's net income was $2.9 billion, $2.8 billion, and $1.9 billion for 2004,
2003, and 2002 respectively.
Years Ended December 31,
-----------------------------------------
2004 2003 2002
---- ---- ----
(dollars in millions)
Financing operations $1,476 $1,360 $1,239
Mortgage operations 1,108 1,254 544
Insurance operations 329 179 87
----- ----- ------
Net income $2,913 $2,793 $1,870
===== ===== =====
Net income from financing operations totaled $1.5 billion, $1.4 billion, and
$1.2 billion in 2004, 2003, and 2002, respectively. The increase in 2004 net
income over 2003 reflects improvement in earnings from international operations,
lower credit loss provisions, improved vehicle remarketing results in North
America and favorable tax items, partially offset by lower net interest margins.
The increase in net income in 2003, compared with 2002, was primarily due to
lower credit loss provisions and increased revenues from higher asset levels,
which more than offset the unfavorable effect of lower net interest margins.
II-10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC Financial Review (concluded)
Net income from mortgage operations totaled $1.1 billion, $1.3 billion, and
$544 million in 2004, 2003, and 2002, respectively. In 2004 U.S. residential
mortgage industry volumes declined by approximately 30% compared to 2003.
However, despite the lower industry volumes, mortgage operations achieved market
share gains, asset growth, improved mortgage servicing results and an increase
in fee-based revenue in 2004 compared to 2003. The increase in net income in
2003, compared with 2002, was primarily due to higher production and
securitization volumes in both the residential and commercial mortgage sectors
as a result of historically low market interest rates.
Net income from insurance operations totaled a record $329 million in 2004,
and $179 million and $87 million in 2003 and 2002, respectively. The increase in
2004 net income was due to improved operating performance across the majority of
product lines, combined with improved investment portfolio performance. The
increase in net income in 2003, compared with 2002, primarily relates to
increased underwriting volume and increased investment income resulting from
reduced levels of impairments in 2003, as compared to 2002, related to the
Insurance Group's investment portfolio.
2005 Priorities/Targets
With respect to GM's previously reported operating priorities and financial
targets for 2005:
o GM's estimate of 2005 calendar-year earnings per share, before
restructuring charges in North America and Europe, is revised to a range
of $1.00 to $2.00, down from the previously announced range of $4.00 to
$5.00. The reduction is more than accounted for by a deterioration in
GMNA's net income outlook, only partially offset by improvements in the
other sectors.
o GM now estimates that operating cash flow will be negative at
approximately $(2.0) billion before the Fiat settlement and GME
restructuring, compared to the previously announced target of $2.0
billion, largely due to the decreased net income and lower production
volume at GMNA.
o Capital spending remains on track at $8 billion.
o GM now estimates its target of increasing global sales volume will not be
attained, as a reduction in North America will be only partially offset by
stronger sales in each of the other regions.
o Sector net income estimates are updated as follows:
- GMNA is now expected to miss its target of $500 million and will incur
a significant full-year loss, largely due to shortfalls in volume,
product mix, and pricing, only partially offset by better cost
performance.
- GME, GMLAAM, GMAP, and GMAC are expected to meet or beat their targets
of $(500) million, $100 million, $600 million, and greater than $2,500
million respectively.
For the first quarter of 2005, GM now estimates its earnings per share,
before GMNA and GME restructuring charges, will be in a loss range of around
$(1.50) per share compared to the previous estimate of breakeven or better. The
decrease is fully accounted for by GMNA's production, mix, and pricing
shortfalls. GMNA's results for the balance of the calendar year are expected to
improve from the first quarter level, as volume improves and new models enter
production for the 2006 model year.
Cash flow, cost savings and regional income targets are formulated using a
management approach consistent with the basis and manner in which GM management
internally disaggregates financial information for the purposes of assisting in
making internal operating decisions.
See discussion below at "Status of Debt Ratings" for recent actions by rating
agencies with respect to GM's and GMAC's credit ratings and the potential effect
of future ratings actions on the Corporation's access to capital markets.
LIQUIDITY AND CAPITAL RESOURCES
Statements of Cash Flows Reclassifications
For 2004 GM reclassified certain amounts between operating and investing
activities in its Consolidated Statements of Cash Flows as a result of concerns
raised by the staff of the SEC about the previous presentation. This
reclassification primarily relates to the financing of wholesale receivables
from dealers by GM's Financing and Insurance Operations that result in no net
cash receipts to GM on a consolidated basis when vehicles are sold. Because
these receivables relate to the sale of GM's inventory, changes in their
balances are now considered operating cash flows in accordance with Statement of
Financial Accounting Standards No. 95, "Statement of Cash Flows" (SFAS No. 95).
This reclassification better reflects the financing of the sale of inventory as
a non-cash transaction to GM on a consolidated basis and eliminates the effects
of intercompany transactions. This reclassification did not affect the key
measures of reported cash flow from operating or investing activities for Auto &
Other as shown in the Supplemental Information to the Consolidated Statements of
Cash Flows. GM's operating cash flow measure, as reported using a management
approach, is also unaffected by this change. See Note 1 to the Consolidated
Financial Statements.
II-11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Status of Debt Ratings
In 2004, GM and GMAC experienced adequate access to the capital markets as GM
and GMAC were able to issue various securities to raise capital, 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 February 14,
2005, Fitch affirmed GM's and GMAC's ratings at these levels. 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 February 13, 2005, Standard & Poor's
affirmed GM's and GMAC's ratings at these levels. 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
February 14, 2005, DBRS placed GM's long-term credit rating of BBB (high) with a
stable outlook and GM's commercial paper rating of R-1 (low) with a stable
outlook under review with negative implications. At the same time, DBRS affirmed
both GMAC's long-term credit rating of BBB (high) with a stable outlook and
GMAC's commercial paper rating of 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
Prime-2 with a stable outlook. On February 14, 2005, Moody's lowered the outlook
on GM's and GMAC's long-term credit ratings of Baa2 and Baa1, respectively, to
negative from stable and, at the same time, lowered the outlook on GM's and
GMAC's commercial paper rating of Prime-2 to negative from stable. 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. A further decline in the long-term ratings assigned by any one of
the agencies to non-investment grade could temporarily limit GM's and GMAC's
access to the unsecured debt markets and could severely limit GM's and
GMAC's ability to access the retail debt market for a period of time.
Additionally, GM may not be assured reliable future access to the unsecured debt
markets subsequent to being assigned a non-investment grade rating by one or
more agencies. However, over the past few years, GM and GMAC have increased
their focus on expanding and developing diversified funding sources. As a
result, management expects that based on the Corporation's current financial
position, this diversified funding strategy will continue to provide sufficient
access to capital in order to meet the Corporation's ongoing funding needs.
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 R-1 R-1 Stable - Stable
(high) (low) (low) Under review
Fitch BBB BBB F2 F2 Negative Negative
Moody's Baa2 Baa1 Prime-2 Prime-2 Negative Negative
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 $0.9 billion in undrawn committed
facilities with various maturities and undrawn uncommitted lines of credit of
$1.8 billion. Similarly, GMAC currently has a $4.6 billion syndicated line of
credit committed through June 2005, $4.4 billion committed through June 2008,
$5.0 billion of bilateral committed lines with various maturities, and
uncommitted lines of credit of $22.6 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 funding 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 GMAC. At December 31,
2004 NCAT had commercial paper outstanding of $9.7 billion, which is not
consolidated in the Corporation's Consolidated Balance Sheet. At December 31,
2004, MINT had commercial paper outstanding of $1.5 billion, which is reflected
as secured debt in the Corporation's Consolidated Balance Sheet. GMAC also has
$59.3 billion in funding commitments (with $28.4 billion used) with third
parties (including third party asset-backed commercial paper conduits) that may
be used as additional secured funding sources.
II-12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive and Other Operations
At December 31, 2004, cash, marketable securities, and $3.5 billion ($3.4
billion at December 31, 2003) of readily-available assets of the VEBA trust
totaled $23.3 billion, compared with $26.9 billion at December 31, 2003. The
decrease of approximately 13% from December 31, 2003 was primarily due to VEBA
and salaried 401(h) cash contributions of $8.6 billion in 2004 by GM, offset by
strong cash flow from operations and $1.5 billion in dividends from GMAC. Total
assets in the VEBA trust and 401(h) account used to pre-fund part of GM's other
postretirement benefits liability approximated $20.0 billion at December 31,
2004, compared with $10.0 billion at December 31, 2003, an increase of 100%.
Long-term debt was $30.5 billion at December 31, 2004, compared with $29.6
billion at December 31, 2003. The ratio of long-term debt to the total of
long-term debt and GM's net assets of Automotive and Other Operations was 84.7%
at December 31, 2004, compared with 85.2% at December 31, 2003. The ratio of
long-term debt and short-term loans payable to the total of this debt and GM's
net assets of Automotive and Other Operations was 85.5% at December 31, 2004,
compared with 86.3% at December 31, 2003. The decrease in these ratios was due
to the improved funding status of GM's other postretirement benefits liabilities
in the U.S.
Net liquidity, calculated as cash, marketable securities, and $3.5 billion
($3.4 billion at December 31, 2003) of assets of the VEBA trust invested in
liquid securities less the total of loans payable and long-term debt, was a
negative $9.2 billion at December 31, 2004, compared with a negative $5.5
billion at December 31, 2003.
In order to provide financial flexibility to GM and its suppliers, GM
maintains a trade payables program through GECC under which GECC pays
participating GM suppliers the amount due to them from GM in advance of their
contractual original due dates. In exchange for the early payment, these
suppliers accept a discounted payment. On the original due date of the payables,
GM pays GECC the full amount. At December 31, 2004 and 2003, GM owed
approximately $1.0 billion and $1.2 billion, respectively, to GECC under this
program, which is classified as short-term debt in GM's consolidated financial
statements. In addition, GM has the right under the agreement to defer payment
to GECC with respect to all or a portion of receivables which it has paid on
behalf of GM. The permissible deferral periods range from 10 days to 40 days and
would also be classified as short-term debt in GM's financial statements.
Deferred payments are subject to interest during the deferral period. In 2004,
GM did not elect to defer payment on any such payables at any time during the
year. The maximum amount permitted under both parts of the program is $2.0
billion. If any of GM's long-term unsecured debt obligations become subject to a
rating by S&P of BBB-, with a negative outlook (GM's current rating is BBB-,
with a stable outlook) or below BBB-, or a rating by Moody's of Baa3, with a
negative outlook (GM's current rating is Baa2, with a negative outlook) or below
Baa3, GECC would be permitted to immediately terminate continued access to the
program by GM and its suppliers. In 2004 GECC communicated to GM its intent to
terminate the trade payables program by the end of 2005. Following the GECC
communication, GM gave participating suppliers notice of the impending program
termination, so those suppliers could develop alternative funding sources to
replace the GECC program. GM does not anticipate that discontinuance of the
future availability of the GECC program will result in a material disruption to
the supply of parts and materials to GM, nor will it have a material adverse
effect on GM's financial position, results of operations or cash flows.
Financing and Insurance Operations
GMAC's consolidated assets totaled $324.1 billion at December 31, 2004,
approximately a 12% increase from the $288.2 billion outstanding at December 31,
2003. The increase in total assets was primarily due to an increase in net
finance receivables and loans, from $174.4 billion at December 31, 2003 to
$199.7 billion at December 31, 2004. The increased use of securitizations
structured as financing transactions (primarily in mortgage operations) combined
with the continued use of GM sponsored incentive financing programs, resulted in
an increase in consumer finance receivables and loans. Additional asset growth
was the result of an increase in commercial loans and the balance of cash and
cash equivalents.
Consistent with the growth in assets, GMAC's total debt increased to $267.8
billion at December 31, 2004, compared to $238.9 billion at December 31, 2003.
GMAC's 2004 year-end ratio of total debt to total stockholder's equity was
12.0:1 compared to 11.8:1 at December 31, 2003. GMAC's liquidity, as well as its
ability to profit from ongoing activity, is in large part dependent upon its
timely access to capital and the costs associated with raising funds in
different segments of the capital markets. Part of 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 $59.4 billion at December 31, 2004, provide "back-up"
liquidity and represent additional funding sources, if required. In addition,
GMAC has $59.3 billion in funding commitments (with $28.4 billion 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.
II-13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Off-Balance Sheet Arrangements
GM and GMAC use off-balance sheet arrangements where the economics and sound
business principles warrant their use. GM's principal use of off-balance sheet
arrangements occurs in connection with the securitization and sale of financial
assets generated or acquired in the ordinary course of business by GMAC and its
subsidiaries and, to a lesser extent, by GM. The assets securitized and sold by
GMAC and its subsidiaries consist principally of mortgages, and wholesale and
retail loans secured by vehicles sold through GM's dealer network. The assets
sold by GM consist principally of trade receivables.
In addition, GM leases real estate and equipment from various off-balance
sheet entities that have been established to facilitate the financing of those
assets for GM by nationally prominent lessors that GM believes are creditworthy.
These assets consist principally of office buildings, warehouses, and machinery
and equipment. The use of such entities allows the parties providing the
financing to isolate particular assets in a single entity and thereby syndicate
the financing to multiple third parties. This is a conventional financing
technique used to lower the cost of borrowing and, thus, the lease cost to a
lessee such as GM.
There is a well-established market in which institutions participate in the
financing of such property through their purchase of ownership interests in
these entities and each is owned by institutions that are independent of, and
not affiliated with, GM. GM believes that no officers, directors or employees of
GM, GMAC, or their affiliates hold any direct or indirect equity interests in
such entities.
The amounts outstanding in off-balance sheet facilities used by the Financing
and Insurance Operations have decreased over the past few years as GMAC
continues to use securitization transactions that, while similar in legal
structure to off-balance sheet securitizations, are accounted for as secured
financings and are recorded as receivables and debt on the balance sheet.
Assets in off-balance sheet entities were as follows (dollars in millions):
December 31
-----------
Automotive and Other Operations 2004 2003
------------------------------- ---- ----
Assets leased under operating leases $2,553 $2,411
Trade receivables sold (1) 1,210 755
----- -----
Total $3,763 $3,166
===== =====
Financing and Insurance Operations Receivables sold or securitized:
- Mortgage loans $79,043 $80,798
- Retail finance receivables 5,615 9,548
- Wholesale finance receivables 21,291 21,142
------- -------
Total $105,949 $111,488
======= =======
(1) In addition, trade receivables sold to GMAC were $549 million as of December
31, 2004 and $586 million as of December 31, 2003.
Contractual Obligations and Other Long-Term Liabilities
GM has the following minimum commitments under contractual obligations,
including purchase obligations, as defined by the U.S. Securities and Exchange
Commission. A "purchase obligation" is defined as an agreement to purchase goods
or services that is enforceable and legally binding on GM and that specifies all
significant terms, including: fixed or minimum quantities to be purchased;
fixed, minimum or variable price provisions; and the approximate timing of the
transaction. Other long-term liabilities are defined as long-term liabilities
that are reflected on GM's balance sheet under GAAP. Based on this definition,
the tables below include only those contracts which include fixed or minimum
obligations. It does not include normal purchases, which are made in the
ordinary course of business.
II-14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Contractual Obligations and Other Long-Term Liabilities (concluded)
The following table provides aggregated information about Auto & Other
outstanding contractual obligations and other long-term liabilities as of
December 31, 2004.
Payments due by period
--------------------------------------------------
2010 and
(dollars in millions) 2005 2006-2007 2008-2009 after Total
--------------------------------------------------------------------------------
Debt $2,062 $814 $1,896 $27,715 $32,487
Capital lease obligations 113 221 487 545 1,366
Operating lease obligations 467 964 1,341 1,340 4,112
Contractual commitments for
capital expenditures 676 137 - - 813
Other contractual
commitments:
Postretirement benefits (1) 3,373 7,201 - - 10,574
Less: VEBA assets (2) (3,373) (7,201) - - (10,574)
----- ----- ------
Net - - - - -
Material 1,230 2,029 1,436 307 5,002
Information technology 324 287 27 - 638
Marketing 1,377 416 58 148 1,999
Facilities 273 262 174 477 1,186
Rental car repurchases 8,230 - - - 8,230
Policy, product warranty
and recall campaigns
liability 3,864 4,394 757 118 9,133
----- ----- ------ ------ -------
Total contractual
commitments $18,616 $9,524 $6,176 $30,650 $64,966
====== ===== ===== ====== ======
Remaining balance
postretirement benefits $804 $1,606 $9,670 $54,820 $66,900
Less: VEBA assets (2) (804) (1,606) (7,032) - (9,442)
--- ----- ----- ------ ------
Net $ - $ - $2,638 $54,820 $57,458
=== ===== ===== ====== ======
(1)Amounts include postretirement benefits under the current contractual labor
agreements in North America. The remainder of the estimated liability, for
benefits beyond the current labor agreement and for essentially all salaried
employees, is classified under remaining balance of postretirement benefits.
(2)Total VEBA assets were allocated based on projected spending requirements.
Amount includes $4.0 billion VEBA asset contribution made in December 2004.
The combined U.S. hourly and salaried pension plans were $3.0 billion
overfunded at year-end 2004. As a result, and under normal conditions, GM does
not expect to make any contribution to its U.S. hourly and salaried pension
plans for the foreseeable future.
The following table provides aggregated information about FIO outstanding
contractual obligations and other long-term liabilities as of December 31, 2004.
Payments due by period
----------------------------------------------------
2010 and
(dollars in millions) 2005 2006-2007 2008-2009 after Total
--------------------------------------------------------------------------------
Debt $92,321 $63,140 $21,031 $91,820 $268,312
Operating lease
obligations 195 288 156 147 786
Mortgage purchase and sale
commitments 23,061 2,376 186 65 25,688
Lending commitments 16,468 2,974 999 4,501 24,942
Commitments to remit
excess cash flows on certain
loan portfolios - - - 4,335 4,335
Commitments to sell retail
automotive receivables 2,000 - - 2,000
Commitments to provide
capital to equity method
investees 11 4 101 227 343
Purchase obligations 203 94 21 1 319
------- ------ ------ ------- -------
Total contractual
commitments $134,259 $68,876 $22,494 $101,096 $326,725
======= ====== ====== ======= =======
BOOK VALUE PER SHARE
Book value per share was determined based on the liquidation rights of the
common stockholders. Book value per share of GM $1-2/3 par value common stock
increased to $49.06 at December 31, 2004, from $44.96 at December 31, 2003.
II-15
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
DIVIDENDS
Dividends may be paid on common stock only when, as, and if declared by GM's
Board of Directors in its sole discretion. At December 31, 2004, the amount
available for the payment of dividends on GM $1-2/3 par value was $29.7 billion.
GM's policy is to distribute dividends on its $1-2/3 par value common stock
based on the outlook and indicated capital needs of the business. Cash dividends
per share of GM $1-2/3 par value common stock were $2.00 in 2004, 2003, and
2002.
EMPLOYMENT AND PAYROLLS
Worldwide employment at December 31, (in thousands) 2004 2003 2002
---- ---- ----
GMNA 181 190 198
GME 61 62 66
GMLAAM 29 23 24
GMAP 15 14 11
GMAC 34 32 32
Other 4 5 7
--- --- ---
Total employees 324 326 338
=== === ===
Worldwide payrolls (in billions) $21.5 $20.9 $20.4
U.S. hourly payrolls (in billions) (1) $8.7 $8.9 $9.1
Average labor cost per active hour worked U.S. $73.73 $78.39 $62.78
hourly (2)
-----------------------
(1) Includes employees "at work" (excludes laid-off employees receiving
benefits).
(2) Includes U.S. hourly wages and benefits divided by the number of
hours worked.
CRITICAL ACCOUNTING ESTIMATES
Accounting policies are integral to understanding this MD&A. The consolidated
financial statements of GM are prepared in conformity with GAAP, which requires
the use of estimates, judgments, and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented. GM's
accounting policies are described in Note 1 to the Consolidated Financial
Statements. Critical accounting estimates are described in this section. An
accounting estimate is considered critical if: the estimate requires management
to make assumptions about matters that were highly uncertain at the time the
estimate was made; different estimates reasonably could have been used; or if
changes in the estimate that would have a material impact on the Corporation's
financial condition or results of operations are reasonably likely to occur from
period to period. Management believes that the accounting estimates employed are
appropriate and resulting balances are reasonable; however, actual results could
differ from the original estimates, requiring adjustments to these balances in
future periods. The Corporation has discussed the development, selection and
disclosures of these critical accounting estimates with the Audit Committee of
GM's Board of Directors, and the Audit Committee has reviewed the Corporation's
disclosures relating to these estimates.
Sales Allowances
At the latter of the time of sale or the time an incentive is announced to
dealers (applies to vehicles sold by GM and in dealer inventory), GM records as
a reduction of revenue the estimated impact of sales allowances in the form of
dealer and customer incentives. There may be numerous types of incentives
available at any particular time. Some factors used in estimating the cost of
incentives include the volume of vehicles that will be affected by the incentive
programs offered by product and the rate of customer acceptance of any incentive
program. If the actual number of vehicles differs from this estimate, or if a
different mix of incentives occurs, the sales allowances could be affected.
Policy and Warranty
Provisions for estimated expenses related to product warranties are made at
the time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims.
Management actively studies trends of warranty claims and takes action to
improve vehicle quality and minimize warranty claims.
Impairment of Long-Lived Assets
GM periodically reviews the carrying value of its long-lived assets held and
used, other than goodwill and intangible assets with indefinite lives, and
assets to be disposed of when events and circumstances warrant such a review.
This review is performed using estimates of future cash flows. If the carrying
value of a long-lived asset is considered impaired, an impairment charge is
recorded for the amount by which the carrying value of the long-lived asset
exceeds its fair value.
II-16
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CRITICAL ACCOUNTING ESTIMATES (continued)
Pension and Other Postretirement Employee Benefits (OPEB)
Pension and OPEB costs and liabilities are dependent on assumptions used in
calculating such amounts. These assumptions include discount rates, health care
cost trend rates, benefits earned, interest cost, expected return on plan
assets, mortality rates, and other factors. In accordance with GAAP, actual
results that differ from the assumptions are accumulated and amortized over
future periods and, therefore, generally affect recognized expense and the
recorded obligation in future periods. While management believes that the
assumptions used are appropriate, differences in actual experience or changes in
assumptions may affect GM's pension and other postretirement obligations and
future expense.
GM has established for its U.S. pension plans a discount rate of 5.75% for
year-end 2004, which represents a 25 basis point reduction from the 6.00%
discount rate used at year-end 2003. GM's U.S. pre-tax pension expense is
forecasted to decrease from approximately $1.5 billion in 2004, excluding
curtailments and settlements, to approximately $1.2 billion in 2005 due to the
approximately 14% 2004 actual return on assets, partially offset by a lower 2004
year-end discount rate.
The following information illustrates the sensitivity to a change in certain
assumptions for U.S. pension plans (as of December 31, 2004 the projected
benefit obligation (PBO) for U.S. pension plans was $89 billion and the minimum
pension liability charged to equity with respect to U.S. pension plans was $108
million net of tax):
Effect on
Effect on 2005 December 31, 2004
Change in Assumption Pre-Tax Pension Expense PBO
--------------------------------------------------------------------------
25 basis point decrease
in discount rate +$160 million +$2.3 billion
25 basis point increase
in discount rate -$160 million -$2.2 billion
25 basis point decrease
in expected return on
assets +$220 million -
25 basis point increase
in expected return on
assets -$220 million -
GM's U.S. pension plans generally provide covered U.S. hourly employees with
pension benefits of negotiated, flat dollar amounts for each year of credited
service earned by an individual employee. Formulas providing for such stated
amounts are contained in the prevailing labor contract. Consistent with GAAP,
the 2004 pre-tax pension expense and December 31, 2004 PBO do not comprehend any
future benefit increases beyond the amounts stated in the currently prevailing
contract that expires in September 2007. The current cycle for negotiating new
labor contracts is every four years. There is no past practice of maintaining a
consistent level of benefit increases or decreases from one contract to the
next. However, the following data illustrates the sensitivity of pension expense
and PBO to hypothetical assumed changes in future basic benefits. An annual 1%
increase in the basic benefit of the U.S. Hourly Employees Pension Plan would
result in a $112 million increase in 2005 pre-tax pension expense and a $523
million increase in the December 31, 2004 PBO. An annual 1% decrease in the same
benefit would result in a $104 million decrease in 2005 pre-tax pension expense
and a $487 million decrease in the December 31, 2004 PBO.
These changes in assumptions would have no effect on GM's funding
requirements. In addition, at December 31, 2004, a 25 basis point decrease in
the discount rate would decrease stockholders' equity by $19.0 million, net of
tax; a 25 basis point increase in the discount rate would increase stockholders'
equity by $19.0 million, net of tax. The impact of greater than a 25 basis point
decrease/increase in discount rate would not be proportional to the first 25
basis point decrease/increase in the discount rate.
GM has established for its U.S. OPEB plans a discount rate of 5.75% for
year-end 2004, which represents a 50 basis point reduction from the 6.25%
discount rate used at year-end 2003.
The following table illustrates the sensitivity to a change in the discount
rate assumption related to GM's U.S. OPEB plans (the U.S. accumulated
postretirement benefit obligation [APBO] was a significant portion of GM's
worldwide APBO of $77.5 billion as of December 31, 2004):
Effect on 2005 Effect on
Pre-Tax OPEB December 31, 2004
Change in Assumption Expense APBO
-------------------------------------------------------------------------------
25 basis point decrease in
discount rate +$200 million +$2.1 billion
25 basis point increase in
discount rate -$200 million -$2.1 billion
II-17
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CRITICAL ACCOUNTING ESTIMATES (concluded)
GM assumes a 10.5% initial health care cost trend rate and a 5.0% ultimate
health care cost trend rate as of December 31, 2004. A one percentage point
increase in the initial through ultimate assumed health care trend rates would
have increased the APBO by $8.4 billion at December 31, 2004, and the aggregate
service and interest cost components of non-pension postretirement benefit
expense for 2004 by $543 million. A one-percentage point decrease would have
decreased the APBO by $7.0 billion and the aggregate service and interest cost
components of non-pension postretirement benefit expense for 2004 by $384
million.
The above sensitivities reflect the effect of changing one assumption at a
time. It should be noted that economic factors and conditions often affect
multiple assumptions simultaneously and the effects of changes in key
assumptions are not necessarily linear.
Postemployment Benefits
GM establishes reserves for termination and other postemployment benefit
liabilities to be paid pursuant to union or other contractual agreements, or
one-time termination benefits not subject to a contractual agreement, in
connection with closed plants or other restructuring actions. The liabilities
are based on comprehensive studies that consider the effect of the annual
production and labor forecast assumptions as well as redeployment scenarios.
Allowance for Credit Losses
The allowance for credit losses is management's estimate of incurred losses
in GMAC's consumer and commercial finance receivable and loan portfolios held
for investment. Management periodically performs detailed reviews of these
portfolios to determine if impairment has occurred and to assess the estimated
realizable value of collateral where applicable and the adequacy of the
allowance for credit losses, based on historical and current trends and other
factors affecting credit quality losses. Determination of the allowance for
credit losses requires management to exercise significant judgment about the
timing, frequency, and severity of credit losses, which could materially affect
the provision for credit losses and therefore, net income.
Investments in Operating Leases
GMAC's investments in its leasing portfolio represent an estimate of the
realizable values of the assets which is based on the residual value established
at contract inception. GMAC establishes residual values at contract inception by
using independently published residual value guides. Management reviews residual
values periodically to determine that recorded amounts are appropriate and the
operating lease assets have not been impaired. GMAC actively manages the
remarketing of off-lease vehicles to maximize the realization of their value.
Changes in the value of the residuals or other external factors impacting GMAC's
future ability to market the vehicles under prevailing market conditions may
impact the realization of residual values.
Mortgage Servicing Rights
The Corporation capitalizes mortgage servicing rights associated with loans
sold with servicing retained and servicing rights acquired through bulk and flow
purchase transactions. The Corporation capitalizes the cost of originated
mortgage servicing rights based upon the relative fair market value of the
underlying mortgage loans and mortgage servicing rights at the time of sale of
the underlying mortgage loan. The Corporation capitalizes purchased mortgage
servicing rights at cost, an amount not exceeding the estimated fair market
value of those purchased or assumed mortgage servicing rights. The carrying
value of mortgage servicing rights is dependent upon whether the asset is hedged
or not. Mortgage servicing rights that receive hedge accounting treatment, as
prescribed by SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," are carried at fair value. Changes in fair value are recognized in
current period earnings, generally offset by changes in the fair value of the
underlying derivative, if the changes in the value of the asset and derivative
are highly correlated. The majority of mortgage servicing rights are hedged as
part of the Corporation's risk management program. Mortgage servicing rights
that do not receive hedge accounting treatment are carried at lower of cost or
fair value.
Accounting for Derivatives and Other Contracts at Fair Value
The Corporation uses derivatives in the normal course of business to manage
its exposure to fluctuations in commodity prices and interest and foreign
currency rates. The Corporation accounts for its derivatives on the Consolidated
Balance Sheet as assets or liabilities at fair value in accordance with SFAS No.
133. Such accounting is complex and requires significant judgments and estimates
involved in the estimating of fair values in the absence of quoted market
prices.
II-18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NEW ACCOUNTING STANDARDS
Beginning January 1, 2003, the Corporation began expensing the fair market
value of newly granted stock options and other stock based compensation awards
to employees pursuant to SFAS No. 123, "Accounting for Stock-Based
Compensation." The fair value of stock option grants are estimated on the date
of grant using the Black-Scholes option-pricing model. The fair value of other
stock compensation awards is determined by the market price of GM $1-2/3 common
stock on the date of grant. The total expense for 2003 was $229 million ($142
million net of tax), recorded in cost of sales and other expenses. For 2002 and
prior years, as permitted by SFAS No. 123, GM applied the intrinsic value method
of recognition and measurement under Accounting Principles Board Opinion No. 25
(APB No. 25), "Accounting for Stock Issued to Employees," to its stock options
and other stock-based employee compensation awards. No compensation expense
related to employee stock options is reflected in net income for these periods,
as all options granted had an exercise price equal to the market value of the
underlying common stock on the date of the grant. Refer to Note 1 to the
Consolidated Financial Statements for the effect on net income and earnings per
share if compensation cost for all outstanding and unvested stock options and
other stock-based employee compensation awards had been determined based on
their fair values at the grant date.
In December 2004, the Financial Accounting Standards Board (FASB) revised
SFAS No. 123 (SFAS No. 123R) requiring companies to record share-based payment
transactions as compensation expense at fair market value. SFAS No. 123R further
defines the concept of fair market value as it relates to such arrangements. The
provisions of this statement will be effective as of the beginning of the first
interim or annual reporting period that begins after June 15, 2005. The
Corporation began expensing the fair market value of newly granted stock options
and other stock based compensation awards to employees pursuant to SFAS No. 123
in 2003; therefore this statement is not expected to have a material effect on
GM's consolidated financial position or results of operations.
Effective July 1, 2003, the Corporation began consolidating certain variable
interest entities to conform to FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46), GM adopted the revision to FIN 46, FIN
46R, which clarified certain provisions of the original interpretation and
exempted certain entities from its requirements. 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.
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. Refer to Note 16 to the
Consolidated Financial Statements for the disclosures required by FSP 106-2.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4." SFAS No. 151 amends the guidance in ARB No.
43, "Inventory Pricing," for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) requiring that those items be
recognized as current-period expenses regardless of whether they meet the
criterion of "so abnormal." This statement also requires that allocation of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The statement is effective for inventory
costs incurred during the fiscal years beginning after June 15, 2005. Management
does not expect this statement to have a material impact on GM's consolidated
financial position or results of operations.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29." APB Opinion No. 29, "Accounting for
Nonmonetary transactions," is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. SFAS No. 153 amends APB Opinion No. 29, eliminating the exception to
fair value accounting for nonmonetary exchanges of similar productive assets and
replaces it with a general exception to fair value accounting for nonmonetary
exchanges that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The statement is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Management does not expect this statement to have a material impact on
GM's consolidated financial position or results of operations.
ADDITIONAL MATTERS
Like most domestic and foreign automobile manufacturers, over the years GM
has used some brake products each of which incorporated small amounts of
encapsulated asbestos. These products, generally brake linings, are known as
asbestos-containing friction products. There is a significant body of scientific
data demonstrating that these asbestos-containing friction products are not
unsafe and do not create an increased risk of asbestos-related disease. GM
believes that the use of asbestos in these products was appropriate.
II-19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ADDITIONAL MATTERS (concluded)
As with other companies that have used asbestos, there has been an increase
in the number of claims against GM related to allegations concerning the use of
asbestos-containing friction products in recent years. A growing number of auto
mechanics are filing suit seeking recovery based on their alleged exposure to
the small amount of asbestos used in brake components. These claims almost
always identify numerous other potential sources for the claimant's alleged
exposure to asbestos which do not involve GM or even asbestos-containing
friction products and many of these other potential sources would place users at
much greater risk. The vast majority of these claimants do not have an
asbestos-related illness and may never develop one. This is consistent with the
experience reported by other automotive manufacturers and other end users of
asbestos.
Two other types of claims related to alleged asbestos exposure are being
asserted against GM, representing a significantly lower exposure than the
automotive friction product claims. Like other locomotive manufacturers, GM used
a limited amount of asbestos in locomotive brakes and in the insulation used in
the manufacturing of some locomotives. These uses have been the basis of
lawsuits being filed against GM by railroad workers seeking relief based on
their alleged exposure to asbestos. These claims almost always identify numerous
other potential sources for the claimant's alleged exposure to asbestos, which
do not involve GM or even locomotives. Many of these claimants do not have an
asbestos-related illness and may never develop one. In addition, like many other
manufacturers, a relatively small number of claims are brought by contractors
who are seeking recovery based on alleged exposure to asbestos-containing
products while working on premises owned by GM. These claims almost always
identify numerous other potential sources for the claimant's alleged exposure to
asbestos which do not involve GM. The vast majority of these claimants do not
have an asbestos-related illness and may never develop one.
While General Motors has resolved many of these cases over the years and
continues to do so for conventional strategic litigation reasons (avoiding
defense costs and possible exposure to runaway verdicts), GM, as stated above,
believes the vast majority of such claims against GM are without merit. Only a
small percentage of the claims pending against GM allege the contraction of a
malignant disease associated with asbestos exposure. The vast majority of
claimants do not have an asbestos-related illness and may never develop one. In
addition, GM believes that it has very strong defenses based upon a number of
published epidemiological studies prepared by highly respected scientists.
Indeed, GM believes there is compelling evidence warranting the dismissal of
virtually all of these claims against GM. GM will vigorously press this evidence
before judges and juries whenever possible. The West Virginia Supreme Court and
an Ohio trial court have ruled that Federal law preempts asbestos tort claims
asserted on behalf of railroad workers. Such preemption means that Federal law
entirely eliminates the possibility that railroad workers could maintain claims
against GM.
GM's annual expenditures associated with the resolution of these claims
decreased last year after increasing in nonmaterial amounts in recent years, but
the amount expended in any year is highly dependent on the number of claims
filed, the amount of pretrial proceedings conducted, and the number of trials
and settlements which occur during the period. It is management's belief, based
upon consultation with legal counsel, that the claims will not result in a
material adverse effect upon the financial condition or results of operations of
GM.
FORWARD-LOOKING STATEMENTS
In this report, in reports subsequently filed by GM with the SEC on Form 10-Q
and filed or furnished on Form 8-K, and in related comments by management of GM
our use of the words "expect," "anticipate," "estimate," "forecast,"
"objective," "plan," "goal," "project," "priorities/targets," and similar
expressions is intended to identify forward-looking statements. While these
statements represent our current judgment on what the future may hold, and we
believe these judgments are reasonable, actual results may differ materially due
to numerous important factors that are described below and other factors that
may be described in subsequent reports which GM may file with the SEC on Form
10-Q and filed or furnished on Form 8-K:
. Changes in economic conditions, currency exchange rates or political
stability;
. Shortages of and price increase for fuel, labor strikes or work
stoppages, market acceptance of the Corporation's new products;
. Significant changes in the competitive environment
. Changes in the laws, regulations, and tax rates; and
. The ability of the Corporation to achieve reductions in cost and employment
levels, to realize production efficiencies, and to implement capital
expenditures, all at the levels and times planned by management.
* * * * * *
II-20
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
GM is exposed to market risk from changes in foreign currency exchange rates,
interest rates, and certain commodity and equity security prices. GM enters into
a variety of foreign exchange, interest rate, and commodity forward contracts
and options, primarily to maintain the desired level of exposure arising from
these risks. A risk management control system is utilized to monitor foreign
exchange, interest rate, commodity and equity price risks, and related hedge
positions.
A discussion of GM's accounting policies for derivative financial instruments
is included in Note 1 to the GM Consolidated Financial Statements. Further
information on GM's exposure to market risk is included in Notes 18 and 20 to
the Consolidated Financial Statements.
The following analyses provide quantitative information regarding GM's
exposure to foreign currency exchange rate risk, interest rate risk, and
commodity and equity price risk. GM uses a model to evaluate the sensitivity of
the fair value of financial instruments with exposure to market risk that
assumes instantaneous, parallel shifts in exchange rates, interest rate yield
curves, and commodity and equity prices. For options and instruments with
nonlinear returns, models appropriate to the instrument are utilized to
determine the impact of market shifts. There are certain shortcomings inherent
in the sensitivity analyses presented, primarily due to the assumption that
exchange rates change in a parallel fashion and that interest rates change
instantaneously. In addition, the analyses are unable to reflect the complex
market reactions that normally would arise from the market shifts modeled.
Foreign Exchange Rate Risk
GM has foreign currency exposures related to buying, selling, and financing
in currencies other than the local currencies in which it operates. More
specifically, GM is exposed to foreign currency risk related to the uncertainty
to which future earnings or asset and liability values are exposed as the result
of operating cash flows and various financial instruments that are denominated
in foreign currencies. At December 31, 2004, the net fair value liability of
financial instruments with exposure to foreign currency risk was approximately
$5.8 billion compared to a net fair value liability of $3.2 billion at December
31, 2003. The potential loss in fair value for such financial instruments from
a 10% adverse change in quoted foreign currency exchange rates would be
approximately $1.2 billion and $744 million for 2004 and 2003, respectively.
Interest Rate Risk
GM is subject to market risk from exposure to changes in interest rates due
to its financing, investing, and cash management activities. More specifically,
the Corporation is exposed to interest rate risk associated with long-term debt
and contracts to provide commercial and retail financing, retained mortgage
servicing rights, and retained assets related to mortgage securitizations. In
addition, GM is exposed to prepayment risk associated with its capitalized
mortgage servicing rights and its retained assets related to securitization
activities. This risk is managed with U.S. Treasury options and futures,
exposing GM to basis risk since the derivative instruments do not have identical
characteristics to the underlying mortgage servicing rights. At December 31,
2004 and 2003, the net fair value liability of financial instruments held for
purposes other than trading with exposure to interest rate risk was
approximately $51.1 billion and $51.5 billion, respectively. The potential loss
in fair value resulting from a 10% adverse shift in quoted interest rates would
be approximately $3.0 billion and $2.7 billion for 2004 and 2003, respectively.
At December 31, 2004 and 2003, the net fair value asset of financial instruments
held for trading purposes with exposure to interest rate risk was approximately
$3.5 billion and $4.1 billion, respectively. The potential loss in fair value
resulting from a 10% adverse shift in quoted interest rates would be
approximately $33 million and $11 million for 2004 and 2003, respectively. This
analysis excludes GM's operating lease portfolio. A fair value change in the
debt that funds this portfolio would potentially have a different impact on the
fair value of the portfolio itself. As such, the overall effect to the fair
value of financial instruments from a hypothetical change in interest rates may
be overstated.
Commodity Price Risk
GM is exposed to changes in prices of commodities used in its Automotive
business, primarily associated with various non-ferrous metals used in the
manufacturing of automotive components. GM enters into commodity forward and
option contracts to offset such exposure. At December 31, 2004 the net fair
value asset of such contracts was approximately $431 million. At December 31,
2003 the net fair value liability of such contracts was $194 million. The
potential loss in fair value resulting from a 10% adverse change in the
underlying commodity prices would be approximately $264 million and $190 million
for 2004 and 2003, respectively. This amount excludes the offsetting impact of
the price risk inherent in the physical purchase of the underlying commodities.
Equity Price Risk
GM is exposed to changes in prices of various available-for-sale equity
securities in which it invests. At December 31, 2004 and 2003, the fair value of
such investments was approximately $2.6 billion and $2.2 billion, respectively.
The potential loss in fair value resulting from a 10% adverse change in equity
prices would be approximately $258 million and $216 million for 2004 and 2003,
respectively.
II-21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining effective internal
control over financial reporting of the Corporation. This system is designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
The Corporation's internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Corporation; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Corporation are being made only in accordance
with authorizations of management and directors of the Corporation; and (iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Corporation's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, a system of internal control over
financial reporting can provide only reasonable assurance and may not prevent or
detect misstatements. Further, because of changes in conditions, effectiveness
of internal controls over financial reporting may vary over time.
Management conducted an evaluation of the effectiveness of the system of
internal control over financial reporting based on the framework in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management
determined that the Corporation's system of internal control over financial
reporting was effective as of December 31, 2004. Management's assessment of the
effectiveness of the Corporation's internal control over financial reporting has
been audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report which is included herein.
/s/ G. RICHARD WAGONER, JR. /s/ JOHN M. DEVINE
--------------------------- ------------------
G. Richard Wagoner, Jr. John M. Devine
Chairman and Chief Executive Officer Vice Chairman and Chief Financial
Officer March 14, 2005
March 14, 2005
II-22
Report of Independent Registered Public Accounting Firm
General Motors Corporation, its Directors, and Stockholders:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that General
Motors Corporation and subsidiaries (the Corporation) maintained effective
internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The
Corporation's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the
Corporation's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by,
or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assessment that the Corporation maintained
effective internal control over financial reporting as of December 31, 2004, is
fairly stated, in all material respects, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Corporation
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Consolidated Balance Sheet
and the related Consolidated Statements of Income, Cash Flows, and
Stockholders' Equity of the Corporation as of and for the year ended December
31, 2004. Our audit also included the Supplemental Information to the
Consolidated Balance Sheet and Consolidated Statements of Income and Cash
Flows and the financial statement schedule listed at Item 15 (collectively,
the financial statement schedules) as of and for the year ended December 31,
2004. Our report dated March 14, 2005 expressed an unqualified opinion on those
financial statements and financial statement schedules.
/s/ DELOITTE & TOUCHE LLP
-------------------------
DELOITTE & TOUCHE LLP
Detroit, Michigan
March 14, 2005
II-23
Report of Independent Registered Public Accounting Firm
General Motors Corporation, its Directors, and Stockholders:
We have audited the accompanying Consolidated Balance Sheets of General Motors
Corporation and subsidiaries (the Corporation) as of December 31, 2004 and 2003,
and the related Consolidated Statements of Income, Cash Flows, and Stockholders'
Equity for each of the three years in the period ended December 31, 2004. Our
audits also included the Supplemental Information to the Consolidated Balance
Sheets and Consolidated Statements of Income and Cash Flows and the financial
statement schedule listed at Item 15 (collectively, the financial statement
schedules). These financial statements and financial statement schedules are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of General Motors Corporation and
subsidiaries at December 31, 2004 and 2003, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2004, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the
Corporation: (1) effective July 1, 2003, began consolidating certain variable
interest entities to conform to FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, and (2) effective January 1, 2003, began expensing
the fair market value of newly granted stock options and other stock-based
compensation awards issued to employees to conform to Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the
Corporation's internal control over financial reporting as of December 31, 2004,
based on the criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 14, 2005 expressed an unqualified opinion on
management's assessment of the effectiveness of the Corporation's internal
control over financial reporting and an unqualified opinion on the effectiveness
of the Corporation's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
-------------------------
DELOITTE & TOUCHE LLP
Detroit, Michigan
March 14, 2005
II-24
ITEM 8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
------------------------
2004 2003 2002
---- ---- ----
(dollars in millions except
per share amounts)
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Total net sales and revenues (Notes 1 and 23) $193,517 $185,837 $177,867
------- ------- -------
Cost of sales and other expenses 159,951 152,435 147,192
Selling, general, and administrative expenses 20,394 20,957 20,834
Interest expense (Note 15) 11,980 9,464 7,503
-------- -------- -------
Total costs and expenses 192,325 182,856 175,529
-------- -------- -------
Income from continuing
operations before income
taxes, equity income
and minority interests 1,192 2,981 2,338
Income tax (benefit) expense (Note 10) (911) 731 644
Equity income (loss) and minority interests 702 612 281
----- ----- ------
Income from continuing operations 2,805 2,862 1,975
(Loss) from discontinued operations (Note 2) - (219) (239)
Gain on sale of discontinued operations - 1,179 -
----- ----- -----
Net income 2,805 3,822 1,736
Dividends on preference stocks - - (46)
----- ----- -----
Earnings attributable to common stocks
(Note 19) $2,805 $3,822 $1,690
===== ===== =====
Basic earnings (loss) per share attributable to
common stocks
$1-2/3 par value
Continuing operations $4.97 $5.10 $3.53
Discontinued operations $ - $2.14 $(0.16)
---- ---- ----
Earnings per share attributable to $1-2/3
par value $4.97 $7.24 $3.37
==== ==== ====
Losses per share from discontinued operations
attributable to Class H $- $(0.22) $(0.21)
= ==== ====
Earnings (loss) per share attributable to
common stocks assuming dilution
$1-2/3 par value
Continuing operations $4.95 $5.03 $3.51
Discontinued operations $ - $2.11 $(0.16)
---- ---- ----
Earnings per share attributable to $1-2/3
par value $4.95 $7.14 $3.35
==== ==== ====
Losses per share from discontinued operations
attributable to Class H $ - $(0.22) $(0.21)
= ===== ====
Reference should be made to the notes to consolidated financial statements.
II-25
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
------------------------
2004 2003 2002
---- ---- ----
(dollars in millions)
AUTOMOTIVE AND OTHER OPERATIONS
Total net sales and revenues (Notes 1 and 23) $161,545 $155,831 $150,250
------- ------- -------
Cost of sales and other expenses 150,053 143,525 138,397
Selling, general, and administrative expenses 11,863 11,737 11,680
------- ------- -------
Total costs and expenses 161,916 155,262 150,077
Interest expense (Note 15) 2,480 1,780 479
Net expense from transactions with
Financing and Insurance Operations (Note 1) 273 297 327
--- --- ---
(Loss) from continuing
operations before income
taxes, equity income,
and minority interests (3,124) (1,508) (633)
Income tax (benefit) (Note 10) (2,325) (869) (378)
Equity income (loss) and minority interests 710 674 348
--- --- ---
Income (loss) from continuing operations (89) 35 93
(Loss) from discontinued operations (Note 2) - (219) (239)
Gain on sale of discontinued operations - 1,179 -
---- ----- ---
Net income (loss) - Automotive and Other
Operations $(89) $995 $(146)
=== === ===
FINANCING AND INSURANCE OPERATIONS
Total revenues $31,972 $30,006 $27,617
------ ------ ------
Interest expense (Note 15) 9,500 7,684 7,024
Depreciation and amortization expense (Note 11) 5,523 5,567 5,245
Operating and other expenses 8,591 8,604 8,519
Provisions for financing and insurance losses
(Note 1) 4,315 3,959 4,185
------ ------ ------
Total costs and expenses 27,929 25,814 24,973
------ ------ ------
Net income from transactions with Automotive
and Other Operations (Note 1) (273) (297) (327)
------ ------ -----
Income before income taxes, equity income and
minority interests 4,316 4,489 2,971
Income tax expense (Note 10) 1,414 1,600 1,022
Equity income (loss) and minority interests (8) (62) (67)
----- ------ -----
Net income - Financing and Insurance
Operations $2,894 $2,827 $1,882
===== ===== =====
The above Supplemental Information is intended to facilitate analysis of
General Motors Corporation's businesses: (1) Automotive and Other Operations;
and (2) Financing and Insurance Operations.
Reference should be made to the notes to consolidated financial statements.
II-26
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------
2004 2003
ASSETS (dollars in millions)
Cash and cash equivalents (Note 1) $35,993 $32,554
Other marketable securities (Note 5) 21,737 22,215
------ ------
Total cash and marketable securities 57,730 54,769
Finance receivables - net (Note 7) 199,600 174,769
Loans held for sale 19,934 19,609
Accounts and notes receivable (less allowances) 21,236 20,532
Inventories (less allowances) (Note 8) 12,247 11,602
Deferred income taxes (Note 10) 26,241 27,190
Net equipment on operating leases
(less accumulated depreciation) (Note 9) 34,214 32,751
Equity in net assets of nonconsolidated affiliates 6,776 6,032
Property - net (Note 11) 39,020 37,972
Intangible assets - net (Notes 1 and 12) 4,925 4,760
Other assets (Note 13) 57,680 58,521
------- -------
Total assets $479,603 $448,507
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable (principally trade) $28,830 $25,422
Notes and loans payable (Note 15) 300,279 271,756
Postretirement benefits other than pensions (Note 16) 28,111 36,292
Pensions (Note 16) 9,455 8,024
Deferred income taxes (Notes 10 and 14) 7,078 7,508
Accrued expenses and other liabilities (Note 14) 77,727 73,930
------- -------
Total liabilities 451,480 422,932
Minority interests 397 307
Stockholders' equity (Note 18)
$1-2/3 par value common stock (outstanding,
565,132,021 and 561,997,725 shares) 942 937
Capital surplus (principally additional paid-in capital) 15,241 15,185
Retained earnings 14,428 12,752
------ ------
Subtotal 30,611 28,874
Accumulated foreign currency translation adjustments (1,194) (1,815)
Net unrealized gains on derivatives 589 51
Net unrealized gains on securities 751 618
Minimum pension liability adjustment (3,031) (2,460)
----- -----
Accumulated other comprehensive loss (2,885) (3,606)
----- -----
Total stockholders' equity 27,726 25,268
------- -------
Total liabilities and stockholders' equity $479,603 $448,507
======= =======
Reference should be made to the notes to consolidated financial statements.
II-27
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED BALANCE SHEETS
December 31,
---------------
GENERAL MOTORS CORPORATION AND SUBSIDIARIES 2004 2003
---- ----
ASSETS (dollars in millions)
Automotive and Other Operations
Cash and cash equivalents (Note 1) $13,148 $14,424
Marketable securities (Note 5) 6,655 9,067
------ ------
Total cash and marketable securities 19,803 23,491
Accounts and notes receivable (less allowances) 6,713 5,380
Inventories (less allowances) (Note 8) 11,717 10,960
Net equipment on operating leases (less accumulated
depreciation) (Note 9) 6,488 7,173
Deferred income taxes and other current assets (Note 10) 10,794 10,851
------ ------
Total current assets 55,515 57,855
Equity in net assets of nonconsolidated affiliates 6,776 6,032
Property - net (Note 11) 37,170 36,071
Intangible assets - net (Notes 1 and 12) 1,599 1,479
Deferred income taxes (Note 10) 17,399 18,086
Other assets (Note 13) 40,844 42,262
------- -------
Total Automotive and Other Operations assets 159,303 161,785
Financing and Insurance Operations
Cash and cash equivalents (Note 1) 22,845 18,130
Investments in securities (Note 5) 15,082 13,148
Finance receivables - net (Note 7) 199,600 174,769
Loans held for sale 19,934 19,609
Net equipment on operating leases (less accumulated
depreciation) (Note 9) 27,726 25,578
Other assets (Note 13) 35,113 35,488
Net receivable from Automotive and Other Operations (Note 1) 2,426 1,492
------- -------
Total Financing and Insurance Operations assets 322,726 288,214
------- -------
Total assets $482,029 $449,999
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive and Other Operations
Accounts payable (principally trade) $24,257 $21,542
Loans payable (Note 15) 2,062 2,813
Accrued expenses (Note 14) 46,147 45,417
Net payable to Financing and Insurance Operations (Note 1 2,426 1,492
------- -------
Total current liabilities 74,892 71,264
Long-term debt (Note 15) 30,460 29,593
Postretirement benefits other than pensions (Note 16) 23,406 32,285
Pensions (Note 16) 9,371 7,952
Other liabilities and deferred income taxes
(Notes 10 and 14) 15,657 15,567
------- -------
Total Automotive and Other Operations liabilities 153,786 156,661
Financing and Insurance Operations
Accounts payable 4,573 3,880
Debt (Note 15) 267,757 239,350
Other liabilities and deferred income taxes
(Note 10 and 14) 27,790 24,533
------- --------
Total Financing and Insurance Operations liabilities 300,120 267,763
------- -------
Total liabilities 453,906 424,424
Minority interests 397 307
Total stockholders' equity 27,726 25,268
------- -------
Total liabilities and stockholders' equity $482,029 $449,999
======= =======
The above Supplemental Information is intended to facilitate analysis of
General Motors Corporation's businesses: (1) Automotive and Other Operations;
and (2) Financing and Insurance Operations.
Reference should be made to the notes to consolidated financial statements.
II-28
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31,
--------------------------------
2004 2003 2002
---- ---- ----
Cash flows from operating activities (dollars in millions)
Income from continuing operations $2,805 $2,862 $1,975
Adjustments to reconcile income from
continuing operations to net cash provided
by operating activities
Depreciation and amortization expenses 14,152 13,513 11,569
Mortgage servicing rights
amortization 1,384 1,602 3,871
Provision for financing losses 1,944 1,721 2,153
Other postretirement employee benefit
(OPEB) expense 4,567 4,599 4,108
OPEB payments (3,974) (3,536) (3,334)
VEBA / 401(h) (contributions) (8,618) (3,000) (1,000)
Pension expense 2,456 3,412 1,780
Pension contributions (919) (18,168) (5,156)
Retiree lump sum and vehicle voucher
expense, net of payments (329) 923 (254)
Net change in mortgage loans 445 456 (4,715)
Net change in mortgage securities 597 236 (656)
Change in other investments and
miscellaneous assets 57 416 1,914
Change in other operating assets and
liabilities (Note 1) (1,628) (2,277) (3,391)
Other 122 197 2,211
------ ----- ------
Net cash provided by operating activities
(Note 1) $13,061 $2,956 $11,075
------ ----- ------
Cash flows from investing activities
Expenditures for property (7,753) (7,091) (6,871)
Investments in marketable securities -
acquisitions (15,278) (28,660) (39,386)
Investments in marketable securities -
liquidations 15,350 24,253 35,688
Net change in mortgage servicing rights (1,554) (2,557) (1,711)
Increase in finance receivables (40,278) (59,978) (51,081)
Proceeds from sale of finance receivables 23,385 22,182 30,013
Proceeds form sale of business units - 4,148 -
Operating leases - acquisitions (14,324) (11,032) (16,070)
Operating leases - liquidations 7,696 9,604 13,504
Investments in companies, net of cash
acquired (Note 1) (60) (201) (870)
Other 1,048 (1,516) 667
------ ------ ------
Net cash (used in) investing activities
(Note 1) (31,768) (50,848) (36,117)
------ ------ ------
Cash flows from financing activities
Net increase in loans payable 2,192 235 770
Long-term debt - borrowings 73,511 97,391 51,411
Long-term debt - repayments (57,822) (38,962) (24,365)
Repurchases of common and preference stocks - - (97)
Proceeds from issuing common stocks - - 62
Proceeds from sales of treasury stocks - 60 19
Cash dividends paid to stockholders (1,129) (1,121) (1,121)
Other 4,723 1,319 333
------ ------ ------
Net cash provided by financing activities 21,475 58,922 27,012
------ ------ ------
Net cash provided by discontinued operations - 275 -
Effect of exchange rate changes on
cash and cash equivalents 671 929 495
----- ------ ------
Net increase in cash and cash equivalents 3,439 12,234 2,465
Cash and cash equivalents at beginning of
the year 32,554 20,320 17,855
------ ------ ------
Cash and cash equivalents at end of the year $35,993 $32,554 $20,320
====== ====== ======
Reference should be made to the notes to consolidated financial statements.
II-29
[Enlarge/Download Table]
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31,
2004 2003 2002
-------------------------------------------------------------------------
Automotive Financing Automotive Financing Automotive Financing
and Other and and Other and and Other and
Operations Insurance Operations Insurance Operations Insurance
---------- --------- ---------- --------- ---------- ---------
Cash flows from operating (dollars in millions)
activities
Income (loss) from continuing
operations $(89) $2,894 $35 $2,827 $93 $1,882
Adjustments to reconcile income
(loss) from continuing
operations to net cash provided
by operating activities
Depreciation and amortization
expenses 8,629 5,523 7,946 5,567 6,324 5,245
Mortgage servicing rights
amortization - 1,384 - 1,602 - 3,871
Provision for financing losses - 1,944 - 1,721 - 2,153
Postretirement benefits other
than pensions,
net of payments and VEBA
contributions (8,039) 14 (1,957) 20 (241) 15
Pension expense, net of
contributions 1,174 34 (13,869) 36 (3,639) 9
Net change in mortgage loans - 445 - 456 - (4,715)
Net change in mortgage
securities - 597 - 236 - (656)
Change in other investments
and miscellaneous assets (48) 105 (200) 616 2,064 (150)
Change in other operating
assets and liabilities (Note 1) (307) (1,321) 3,067 (5,344) 3,808 (7,199)
Other (102) 224 (348) 545 (398) 2,609
----- ----- ------ ------ ------ ------
Net cash provided by (used in)
operating activities $1,218 $11,843 $(5,326) $8,282 $8,011 $3,064
----- ------ ----- ----- ----- -----
Cash flows from investing
activities
Expenditures for property (7,284) (469) (6,616) (475) (6,414) (457)
Investments in marketable
securities - acquisitions (2,209) (13,069) (13,138) (15,522) (2,228) (37,158)
Investments in marketable
securities - liquidations 4,609 10,741 7,109 17,144 873 34,815
Net change in mortgage servicing
rights - (1,554) - (2,557) - (1,711)
Increase in finance receivables - (40,278) - (59,978) - (51,081)
Proceeds from sales of finance
receivables - 23,385 - 22,182 - 30,013
Proceeds from sale of business
units - - 4,148 - - -
Operating leases - acquisitions - (14,324) - (11,032) - (16,070)
Operating leases - liquidations - 7,696 - 9,604 - 13,504
Investments in companies, net of
cash acquired (Note 1) (48) (12) (57) (144) (688) (182)
Net investing activity with
Financing and Insurance Operations 1,500 - 1,000 - 400 -
Other 882 166 332 (1,848) 1,513 (846)
----- ----- ------ ----- ----- ------
Net cash used in investing
activities (2,550) (27,718) (7,222) (42,626) (6,544) (29,173)
----- ------ ----- ------ ----- ------
Cash flows from financing
activities
Net (decrease) increase in loans
payable (803) 2,995 (234) 469 (335) 1,105
Long-term debt - borrowings 758 72,753 14,785 82,606 4,562 46,849
Long-term debt - repayments (79) (57,743) (19) (38,943) (145) (24,220)
Net financing activity with
Automotive and Other Operations - (1,500) - (1,000) - (400)
Repurchases of common and
preference stocks - - - - (97) -
Proceeds from issuing common
stocks - - - - 62 -
Proceeds from sales of treasury
stocks - - 60 - 19 -
Cash dividends paid to
stockholders (1,129) - (1,121) - (1,121) -
Other - 4,723 - 1,319 - 333
----- ----- ----- ----- ----- ---
Net cash provided by (used in)
financing activities (1,253) 21,228 13,471 44,451 2,945 23,667
----- ------ ------ ------ ----- ------
Net cash provided by
discontinued operations - - 275 - - -
Effect of exchange rate changes
on cash and cash equivalents 375 296 661 268 485 10
Net transactions with
Automotive/Financing Operations 934 (934) 403 (403) (467) 467
---- ---- ----- ----- ---- ----
Net increase (decrease) in cash
and cash equivalents (1,276) 4,715 2,262 9,972 4,430 (1,965)
Cash and cash equivalents at
beginning of the year 14,424 18,130 12,162 8,158 7,732 10,123
------ ------ ------ ----- ----- ------
Cash and cash equivalents at end
of the year $13,148 $22,845 $14,424 $18,130 $12,162 $8,158
====== ====== ====== ====== ====== =====
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. Classification of cash flows for Financing
and Insurance Operations is consistent with presentation in GM's Consolidated
Statement of Cash Flows. See Note 1.
Reference should be made to the notes to consolidated financial statements.
II-30
[Enlarge/Download Table]
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, and 2002
Accumulated
Total Other Total
Capital Capital Comprehensive Retained Comprehensive Stockholders'
Stock Surplus Income (Loss) Earnings Loss Equity
----- ------- ------------- -------- ---- ------
(dollars in millions)
Balance at January 1, 2002 $1,020 $21,519 $9,463 $(12,295) $19,707
Shares reacquired - (2,086) - - (2,086)
Shares issued 12 2,150 - - 2,162
Comprehensive income:
Net income - - $1,736 1,736 - 1,736
-----
Other comprehensive income (loss):
Foreign currency translation
adjustments - - 135 - - -
Unrealized gains on derivatives - - 102 - - -
Unrealized losses on securities - - (140) - - -
Minimum pension liability
adjustment - - (13,634) - - -
------
Other comprehensive loss - - (13,537) - (13,537) (13,537)
------
Comprehensive loss - - $(11,801) - - -
======
Cash dividends - - (1,168) - (1,168)
----- --------- ----- ------- -----
Balance at December 31, 2002 $1,032 $21,583 $10,031 $(25,832) $6,814
Shares issued 16 1,324 - - 1,340
Comprehensive income:
Net income - - $3,822 3,822 - 3,822
-----
Other comprehensive income:
Foreign currency translation
adjustments - - 969 - - -
Unrealized gains on derivatives - - 256 - - -
Unrealized gains on securities - - 246 - - -
Minimum pension liability
adjustment - - 20,755 - - -
------
Other comprehensive income - - 22,226 - 22,226 22,226
------
Comprehensive income - - $26,048 - - -
======
Effect of Hughes transactions (Note2) (111) (8,056) (8,167)
Stock Options 334 334
Delphi spin-off adjustment (a) - - 20 - 20
Cash dividends - - (1,121) - (1,121)
--- ------ ------ ----- ------
Balance at December 31, 2003 $937 $15,185 $12,752 $(3,606) $25,268
=== ====== ====== ===== ======
Shares issued 5 138 - - 143
Comprehensive income:
Net income - - $2,805 2,805 - 2,805
-----
Other comprehensive income:
Foreign currency translation
adjustments - - 621 - - -
Unrealized gains on derivatives - - 538 - - -
Unrealized gains on securities - - 133 - - -
Minimum pension liability
adjustment - - (571) - - -
---
Other comprehensive income - - 721 - 721 721
-----
Comprehensive income - - $3,526 - - -
=====
Stock Options (82) (82)
Cash dividends - - (1,129) - (1,129)
------ ------ ------- ----- ------
Balance at December 31, 2004 $942 $15,241 $14,428 $(2,885) $27,726
=== ====== ====== ===== ======
(a) Write off of deferred taxes related to the 1999 spin off of Delphi
Automotive Systems. Reference should be made to the notes to consolidated
financial statements.
II-31
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of General Motors
Corporation and domestic and foreign subsidiaries that are more than 50% owned,
principally General Motors Acceptance Corporation and Subsidiaries (GMAC),
(collectively referred to as the "Corporation," "General Motors" or "GM"). In
addition, GM consolidates variable interest entities (VIEs) for which it is
deemed to be the primary beneficiary. General Motors' share of earnings or
losses of associates, in which at least 20% of the voting securities is owned,
is included in the consolidated operating results using the equity method of
accounting, except for investments where GM is not able to exercise significant
influence over the operating and financial decisions of the investee, in which
case, the cost method of accounting is used. GM encourages reference to the GMAC
Annual Report on Form 10-K for the period ended December 31, 2004, filed
separately with the U.S. Securities and Exchange Commission (SEC).
Certain amounts for 2003 and 2002 have been reclassified to conform with the
2004 classifications.
Nature of Operations, Financial Statement Presentation, and Supplemental
Information
GM presents its primary financial statements on a fully consolidated
basis. Transactions between businesses have been eliminated in the Corporation's
consolidated financial statements. These transactions consist principally of
borrowings and other financial services provided by Financing and Insurance
Operations (FIO) to Automotive and Other Operations (Auto & Other). A master
intercompany agreement governs the nature of these transactions to ensure that
they are done on an arms length basis, in accordance with commercially
reasonable standards.
To facilitate analysis, GM presents supplemental information to the
statements of income, balance sheets, and statements of cash flows for the
following businesses: (1) Auto & Other, which consists of the design,
manufacturing, and marketing of cars, trucks, locomotives, and related parts and
accessories; and (2) FIO, which consists primarily of GMAC. GMAC provides a
broad range of financial services, including consumer vehicle financing,
full-service leasing and fleet leasing, dealer financing, car and truck extended
service contracts, residential and commercial mortgage services, vehicle and
homeowners' insurance, and asset-based lending.
Statements of Cash Flows
After considering the concerns raised by the staff of the SEC, management has
concluded that certain prior year balances in the Consolidated Statements of
Cash Flows should be reclassified to appropriately present net cash provided by
operating activities and net cash used in investing activities.
The Corporation's previous policy was to classify all the cash flow effects
of providing wholesale loans to its independent dealers by GM's Financing and
Insurance Operations as an investing activity in its Consolidated Statements of
Cash Flows. This policy, when applied to the financing of inventory sales, had
the effect of presenting an investing cash outflow and an operating cash inflow
even though there was no cash inflow or outflow on a consolidated basis. The
Corporation has changed its policy to eliminate this intersegment activity
from its Consolidated Statements of Cash Flows and, as a result of this change,
all cash flow effects related to wholesale loans are reflected in the operating
activities section of the Consolidated Statement of Cash Flows for 2004. This
reclassification better reflects the financing of the sale of inventory as a
non-cash transaction to GM on a consolidated basis and eliminates the effects
of intercompany transactions. The following table shows the effects of this
reclassification on prior years, consistent with the 2004 presentation.
Years Ended December 31,
----------------------
2003 2002
---- ----
(dollars in millions)
Net cash provided by operating activities as
previously reported $7,600 $15,482
Reclassification (4,644) (4,407)
----- ------
Revised net cash provided by operating activities $2,956 $11,075
===== ======
Net cash used in investing activities as previously
reported $(55,492) $(40,524)
Reclassification 4,644 4,407
------- -------
Revised net cash used in investing activities $(50,848) $(36,117)
====== ======
Use of Estimates in the Preparation of the Financial Statements The preparation
of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect amounts reported therein. Due to the
inherent uncertainties involved in making estimates, actual results reported in
future periods may differ from those estimates.
II-32
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (continued)
Revenue Recognition
Sales generally are recorded when products are shipped (when title and risks
and rewards of ownership have passed), or when services are rendered to
independent dealers or other third parties. Provisions for dealer and customer
sales incentives, allowances, and rebates are made at the time of vehicle sales.
Incentives, allowances, and rebates related to vehicles previously sold are
recognized as reductions of sales when announced.
Financing revenue is recorded over the terms of the receivables using the
interest method. Income from operating lease assets is recognized on a
straight-line basis over the scheduled lease terms.
Insurance premiums are earned on a basis related to coverage provided over
the terms of the policies. Commissions, premium taxes, and other costs incurred
in acquiring new business are deferred and amortized over the terms of the
related policies on the same basis as premiums are earned.
Advertising and Research and Development
Advertising, research and development, and other product-related costs are
charged to expense as incurred. Advertising expense was $5.1 billion in 2004,
$4.7 billion in 2003, and $4.4 billion in 2002. Research and development expense
was $6.5 billion in 2004, $6.2 billion in 2003 and $6.0 billion in 2002.
Depreciation and Amortization
Expenditures for special tools placed in service after January 1, 2002 are
amortized using the straight-line method over their estimated useful lives.
Expenditures for special tools placed in service prior to January 1, 2002, are
amortized over their estimated useful lives, primarily using the units of
production method. Replacements of special tools for reasons other than changes
in products are charged directly to cost of sales. As of January 1, 2001, the
Corporation adopted the straight-line method of depreciation for real estate,
plants, and equipment placed in service after that date. Assets placed in
service before January 1, 2001, continue generally to be depreciated using
accelerated methods. The accelerated methods accumulate depreciation of
approximately two-thirds of the depreciable cost during the first half
of the estimated useful lives of property groups as compared to the
straight-line method, which allocates depreciable costs equally over the
estimated useful lives of property groups. Management believes the adoption of
the straight-line amortization/depreciation method for special tools placed into
service after January 1, 2002, and real estate, plants, and equipment placed
into service after January 1, 2001, better reflects the consistent use of these
assets over their useful lives.
Equipment on operating leases is depreciated using the straight-line method
over the term of the lease agreement. For Auto & Other, the difference between
the net book value and the proceeds of sale or salvage on items disposed of is
accounted for as a charge against or credit to sales allowances.
Valuation of Long-Lived Assets
GM periodically evaluates the carrying value of long-lived assets to be held
and used in the business, other than goodwill and intangible assets with
indefinite lives, and assets held for sale when events and circumstances
warrant, generally in conjunction with the annual business planning cycle. If
the carrying value of a long-lived asset is considered impaired, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value for assets to be held and used. For assets held for sale, such loss
is further increased by costs to sell. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. Long-lived assets to be disposed of other than by sale are considered
held and used until disposed of.
Foreign Currency Transactions and Translation
Foreign currency exchange transaction and translation losses, including the
effect of derivatives, net of taxes, included in consolidated net income in
2004, 2003, and 2002, pursuant to SFAS No. 52, "Foreign Currency Translation,"
amounted to $167 million, $122 million, and $103 million, respectively.
Policy and Warranty
Provisions for estimated expenses related to product warranties are made at
the time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims.
Management actively studies trends of warranty claims and takes action to
improve vehicle quality and minimize warranty claims. (See Note 14.)
II-33
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (continued)
Exit or Disposal Activities
Costs to consolidate or close facilities and relocate employees are expensed
as incurred. Costs to terminate a contract without economic benefit to the
Corporation are expensed at the time the contract is terminated. One-time
termination benefits that are not subject to contractual arrangements provided
to employees who are involuntarily terminated are recorded when management
commits to a detailed plan of termination, that plan is communicated to
employees, and actions required to complete the plan indicate that significant
changes are not likely. If employees are required to render service until they
are terminated in order to earn the termination benefit, the benefits are
recognized ratably over the future service period.
Cash and Cash Equivalents
Cash equivalents are defined as short-term, highly-liquid investments with
original maturities of 90 days or less.
Statements of Cash Flows Supplementary Information
Years Ended December 31,
----------------------------
Automotive and Other Operations 2004 2003 2002
------------------------------- ---- ---- ----
(dollars in millions)
Increase (decrease) in cash due to changes in
other operating assets and liabilities was as
follows:
Accounts receivable $(284) $(575) $(93)
Prepaid expenses and other deferred charges 42 (578) 268
Inventories (156) (518) 221
Accounts payable 1,723 2,400 1,053
Deferred taxes and income taxes payable (329) 2,219 (1,825)
Accrued expenses and other liabilities (143) 3,049 5,517
Fleet rental - acquisitions (7,846) (7,761) (5,595)
Fleet rental - liquidations 6,686 4,831 4,262
----- ----- -----
Total $(307) $3,067 $3,808
==== ===== =====
Cash paid for interest $2,508 $1,398 $1,033
During 2004 and 2003, Auto & Other made investments in companies, net of cash
acquired, of approximately $50 million and $60 million, respectively. During
2002, Auto & Other made investments in companies, net of cash acquired, of
approximately $700 million. This amount consists primarily of GM's purchase of a
44.6% equity interest in GM Daewoo Auto & Technology Company (GM-DAT) for
approximately $251 million and GM's investments in Isuzu-related entities for
$180 million.
Years Ended December 31,
-----------------------------
Financing and Insurance Operations 2004 2003 2002
---------------------------------- ---- ---- ----
(dollars in millions)
Increase (decrease) in cash due to changes in
other operating assets and liabilities was as
follows:
Other receivables $419 $(5,236) $(6,716)
Other assets (111) 186 (241)
Accounts payable and other liabilities (1,008) 1,664 (925)
Deferred taxes and income taxes payable (621) (1,958) 683
---- ----- -----
Total $(1,321) $(5,344) $(7,199)
===== ===== =====
Cash paid for interest $8,887 $6,965 $6,333
II-34
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (continued)
FIO made investments in companies, net of cash acquired, of approximately $10
million, $140 million, and $180 million, in 2004, 2003, and 2002, respectively.
Derivative Instruments
GM is party to a variety of foreign exchange rate, interest rate and
commodity forward contracts, and options entered into in connection with the
management of its exposure to fluctuations in foreign exchange rates, interest
rates, and certain commodity prices. These financial exposures are managed in
accordance with corporate policies and procedures.
All derivatives are recorded at fair value on the consolidated balance sheet.
Effective changes in fair value of derivatives designated as cash flow hedges
and hedges of a net investment in a foreign operation are recorded in net
unrealized gain / (loss) on derivatives, a separate component of other
comprehensive income (loss). Amounts are reclassified from accumulated other
comprehensive income (loss) when the underlying hedged item affects earnings.
All ineffective changes in fair value are recorded currently in earnings.
Changes in fair value of derivatives designated as fair value hedges are
recorded currently in earnings offset, to the extent the derivative was
effective, by changes in fair value of the hedged item. Changes in fair value of
derivatives not designated as hedging instruments are recorded currently in
earnings.
New Accounting Standards
Beginning January 1, 2003, the Corporation began expensing the fair market
value of newly granted stock options and other stock-based compensation awards
to employees pursuant to SFAS No. 123, "Accounting for Stock-Based
Compensation." The fair value of stock option grants are estimated on the date
of grant using the Black-Scholes option-pricing model. The fair value of other
stock compensation awards is determined by the market price of GM $1-2/3 par
value common stock on the date of grant. The total expense for 2004 and 2003 was
$61 million ($38 million net of tax) and $229 million ($142 million net of tax),
respectively, recorded in cost of sales and other expenses. For 2002 and prior
years, as permitted by SFAS No. 123, GM applied the intrinsic value method of
recognition and measurement under Accounting Principles Board Opinion No. 25
(APB No. 25), "Accounting for Stock Issued to Employees," to its stock options
and other stock-based employee compensation awards. No compensation expense
related to employee stock options is reflected in net income for these periods,
as all options granted had an exercise price equal to the market value of the
underlying common stock on the date of the grant.
In accordance with the disclosure requirements of SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure," since GM adopted the
fair value based method of accounting for stock-based employee compensation
pursuant to SFAS No. 123 effective January 1, 2003, for newly granted
stock-based compensation awards only, the following table illustrates the effect
on net income and earnings per share if compensation cost for all outstanding
and unvested stock options and other stock-based employee compensation awards
had been determined based on their fair values at the grant date (dollars in
millions except per share amounts):
II-35
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (continued)
New Accounting Standards (continued)
Years Ended December 31,
2004 2003 2002
---- ---- ----
Net income from continuing operations, as
reported $2,805 $2,862 $1,975
Add: stock-based compensation expense,
included in reported net income,
net of related tax effects 38 142 44
Deduct: total stock-based compensation
expense determined under fair value
based method for all awards,
net of related tax effects (52) (195) (187)
----- ----- -----
Pro forma net income from continuing
operations $2,791 $2,809 $1,832
===== ===== =====
Basic earnings per share from continuing
operations attributable to GM $1-2/3 par
value
- as reported $4.97 $5.10 $3.53
- pro forma $4.94 $5.01 $3.27
Diluted earnings per share from continuing
operations attributable to GM $1-2/3 par
value
- as reported $4.95 $5.03 $3.51
- pro forma $4.92 $4.93 $3.26
In December 2004, the Financial Accounting Standards Board (FASB) revised
SFAS No. 123 (SFAS No. 123R) requiring companies to record share-based payment
transactions as compensation expense at fair market value. SFAS No. 123R further
defines the concept of fair market value as it relates to such arrangements. The
provisions of this statement will be effective as of the beginning of the first
interim or annual reporting period that begins after June 15, 2005. The
Corporation began expensing the fair market value of newly granted stock options
and other stock-based compensation awards to employees pursuant to SFAS No. 123
in 2003; therefore this statement is not expected to have a material effect on
GM's consolidated financial position or results of operations.
Effective July 1, 2003, the Corporation began consolidating certain variable
interest entities to conform to FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46), GM adopted the revision to FIN 46, FIN
46R, which clarified certain provisions of the original interpretation and
exempted certain entities from its requirements. 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.
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 16 includes the disclosures
required by FSP 106-2.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4." SFAS No. 151 amends the guidance in ARB No.
43, "Inventory Pricing," for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) requiring that those items be
recognized as current-period expenses regardless of whether they meet the
criterion of "so abnormal." This statement also requires that allocation of
fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The statement is effective for inventory
costs incurred during the fiscal years beginning after June 15, 2005. Management
does not expect this statement to have a material impact on GM's consolidated
financial position or results of operations.
II-36
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (concluded)
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29." APB Opinion No. 29, "Accounting for
Nonmonetary Transactions," is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. SFAS No. 153 amends APB Opinion No. 29, eliminating the exception to
fair value accounting for nonmonetary exchanges of similar productive assets and
replaces it with a general exception to fair value accounting for nonmonetary
exchanges that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The statement is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Management does not expect this statement to have a material impact on
GM's consolidated financial position or results of operations.
Labor Force
GM, on a worldwide basis, has a concentration of its labor supply in
employees working under union collective bargaining agreements, of which certain
contracts expired in 2003.
The 2003 United Auto Workers (UAW) labor contract was ratified on October 6,
2003, covering a four-year term from 2003-2007. The contract included a $3,000
lump sum payment per UAW employee paid in October 2003, and a 3% performance
bonus per UAW employee was paid in October 2004. GM amortizes these payments
over the 12-month period following the respective payment dates. UAW employees
will receive a gross wage increase of 2% in 2005 and 3% in 2006. Active UAW
employees were also granted pension benefit increases. There were no pension
benefit increases granted to current retirees and surviving spouses. However,
the contract does provide for four lump sum payments and two vehicle discount
vouchers for current retirees and surviving spouses. The retiree lump sum
payments and vehicle discount vouchers resulted in a charge to GM's 2003 cost of
sales of approximately $1.2 billion ($725 million after tax).
NOTE 2. Discontinued Operations
On December 22, 2003 GM completed a series of transactions that resulted in
the split-off of Hughes from GM and the simultaneous sale of GM's approximately
19.8% economic interest in Hughes to the News Corporation, Ltd. (News
Corporation).
In the transactions, GM split off Hughes by distributing Hughes common stock
to the holders of GM Class H common stock in exchange for all outstanding shares
of GM Class H common stock. Simultaneously, GM sold its 19.8% economic interest
in Hughes to News Corporation in exchange for cash and News Corporation
Preferred American Depositary Shares (Preferred ADSs). All shares of GM Class H
common stock were then cancelled. News Corporation then acquired from the former
GM Class H common stockholders an additional 14.2% of the outstanding shares of
Hughes common stock in exchange for News Corporation Preferred ADSs.
GM sold 80% of its 19.8% retained economic interest in Hughes to News
Corporation for a total of approximately $3.1 billion in cash. GM sold the
remaining 20% of its retained economic interest in Hughes to News Corporation
for approximately 28.6 million News Corporation Preferred ADSs, valued at $819
million at December 22, 2003. Including Hughes' transaction expenses of
approximately $90 million, GM recorded a net gain of $1.2 billion from the sale
of GM's approximately 19.8% economic interest in Hughes, reported as gain on
sale of discontinued operations in GM's Consolidated Statement of Income for
2003. In addition, as a result of the transactions, there was a net reduction to
GM's stockholders' equity of approximately $7.0 billion.
All News Corporation Preferred ADSs were sold by GM in January 2004.
The financial data related to GM's investment in Hughes through December
22, 2003 is classified as discontinued operations for all periods presented. The
financial data of Hughes reflect the historical results of operations and cash
flows of the businesses that were considered part of the Hughes business segment
of GM during each respective period, and the assets and liabilities of Hughes as
of the respective dates.
Hughes' net sales included in discontinued operations were $9.8 billion and
$9.5 billion for 2003 and 2002, respectively, and Hughes' net losses from
discontinued operations were $219 million and $239 million for 2003 and 2002,
respectively.
II-37
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. Asset Impairments
GM recorded pre-tax charges against income for asset impairments of $736
million ($461 million after tax, or $0.81 per diluted share) in 2004, $835
million ($533 million after tax, or $0.94 per diluted share) in 2003 and $254
million ($158 million after 0.tax, or $0.28 per diluted share) in 2002. These
charges were recorded in cost of sales and other expenses in the income
statement.
In 2004, the pre-tax charges comprised $609 million ($383 million after tax)
related to special tools and other assets related to product lines, and $127
million ($78 million after tax) related to facilities rationalization actions at
GM's Baltimore, Maryland, and Linden, New Jersey plants.
In 2003, the pre-tax charges comprised $767 million ($491 million after tax)
related to special tools and other assets related to product lines and $68
million ($42 million after tax) related to real estate.
In 2002 the charges were related to production facilities and special tools.
NOTE 4. Investment in Nonconsolidated Affiliates
Nonconsolidated affiliates of GM identified herein are those investees 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 percentage of GM's current equity ownership, or voting
interest, in them include the following: Italy - GM-Fiat Powertrain (FGP) (50%
in 2004, 2003, 2002); Japan - Fuji Heavy Industries Ltd. (20.1% in 2004, 21.1%
in 2003, 2002), Suzuki Motor Corporation (20.4% in 2004 and 20.3% in 2003,
2002); China - Shanghai General Motors Co., Ltd. (50% in 2004, 2003, 2002); SAIC
GM Wuling Automobile Co., Ltd (34% in 2004, 2003, 2002); South Korea - GM-DAT
(44.6% in 2004, 2003, 2002). On February 13, 2005, GM entered into certain
agreements with Fiat S.p.A. (Fiat) (refer to Note 25) as a result of
which GM will no longer hold an interest in FGP.
Information regarding the book value of GM's investments and its share of
income for all affiliates, as well as the total assets and liabilities of the
above significant affiliates, is included in the table below (in millions):
South
2004 Italy Japan China Korea
----
---------------------------------
Book value of GM's investments in
affiliates $1,293 $3,174 $1,173 $193
GM's share of affiliates' net income
(loss) $87 $255 $417 $(53)
Total assets of significant
affiliates (1) $8,616 $30,582 $3,730 $5,288
Total liabilities of significant
affiliates (1) $5,539 $17,417 $1,931 $4,447
2003
Book value of GM's investments in
affiliates $946 $2,781 $964 $200
GM's share of affiliates' net income
(loss) $95 $196 $414 $(74)
Total assets of significant
affiliates (1) $7,933 $29,622 $3,103 $3,263
Total liabilities of significant
affiliates (1) $5,304 $17,764 $1,460 $2,892
2002
Book value of GM's investments in $753 $2,322 $659 $252
affiliates
GM's share of affiliates' net income $80 $133 $123 $(45)
(loss)
Total assets of significant
affiliates (1) $6,589 $24,579 $1,956 $2,277
Total liabilities of significant
affiliates (1) $4,479 $14,966 $813 $1,771
(1) As defined above.
NOTE 5. Marketable Securities
Marketable securities held by GM are classified as available-for-sale, except
for certain mortgage-related securities, which are classified as
held-to-maturity or trading securities, and News Corporation ADSs, which were
classified as trading securities. Unrealized gains and losses, net of related
income taxes, for available-for-sale and held-to-maturity securities are
included as a separate component of stockholders' equity. Unrealized gains and
losses for trading securities are included in income on a current basis. GM
determines cost on the specific identification basis.
II-38
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. Marketable Securities (continued)
Automotive and Other Operations
Investments in marketable securities were as follows (dollars in millions):
Book/Fair Unrealized Unrealized
Cost Value Gains Losses
--------------------------------------------
December 31, 2004
--------------------------------------------
Type of security
Corporate debt securities and other $3,697 $3,691 $12 $18
U.S. government and agencies 2,146 2,141 6 11
Mortgage-backed securities 826 823 3 6
------ ------ --- ---
Total marketable securities $6,669 $6,655 $21 $35
===== ===== == ==
December 31, 2003
--------------------------------------------
Type of security
Corporate debt securities and other $5,246 $5,246 $9 $9
U.S. government and agencies 2,865 2,867 9 7
Mortgage-backed securities 90 90 - -
------- ------- --- ---
Total debt securities available 8,201 8,203 18 16
for sale
News Corporation ADSs 819 864 - -
------ ------ --- ---
Total marketable securities $9,020 $9,067 $18 $16
===== ===== == ==
Debt securities totaling $951 million mature within one year and $4.8 billion
mature after one through five years, $358 million mature after five through ten
years and $574 million mature after ten years. Proceeds from sales of marketable
securities totaled $14.8 billion in 2004, $7.1 billion in 2003, and $4.7 billion
in 2002. The gross gains related to sales of marketable securities were $25
million, $7 million, and $3 million in 2004, 2003, and 2002, respectively. The
gross losses related to sales of marketable securities were $30 million in 2004,
$11 million in 2003, and $1 million in 2002.
Financing and Insurance Operations
Investments in marketable securities were as follows (dollars in millions):
Book/Fair Unrealized Unrealized
Cost Value Gains Losses
----------------------------------------
December 31, 2004
-----------------------------------------
Type of security
Bonds, notes, and other securities
United States government and
agencies $2,198 $2,208 $18 $8
States and municipalities 556 596 40 -
Foreign government securities 792 805 14 1
Mortgage and asset-backed
securities 1,988 2,074 97 11
Corporate debt securities and other 3,399 3,489 97 7
----- ----- -- -
Total debt securities
available-for-sale 8,933 9,172 266 27
Mortgage-backed securities
held-to-maturity 135 135 - -
Mortgage-backed securities held for
Trading purposes 3,510 3,545 35 -
----- ------- ---- ---
Total debt securities 12,578 12,852 301 27
Equity securities 1,505 2,230 731 6
------- ------- ----- ---
Total investment in marketable
securities $14,083 $15,082 $1,032 $33
====== ====== ===== ==
Total consolidated other marketable
securities $20,752 $21,737 $1,053 $68
====== ====== ===== ==
II-39
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. Marketable Securities (continued)
Book/Fair Unrealized Unrealized
Cost Value Gains Losses
----------------------------------------
December 31, 2003
-----------------------------------------
Type of security
Bonds, notes, and other securities
United States government and
agencies $716 $722 $7 $1
States and municipalities 575 626 51 -
Foreign government securities 681 689 10 2
Mortgage and asset-backed
securities 1,801 1,944 150 7
Corporate debt securities and other 2,965 3,087 128 6
----- ----- --- --
Total debt securities
available-for-sale 6,738 7,068 346 16
Mortgage-backed securities
held-to-maturity 240 240 - -
Mortgage-backed securities held for
Trading purposes 4,483 4,142 - 341
------- ------- ----- ---
Total debt securities 11,461 11,450 346 357
Equity securities 1,185 1,698 522 9
------- ------- --- ----
Total investment in marketable
securities $12,646 $13,148 $868 $366
====== ====== === ===
Total consolidated other marketable
securities $21,666 $22,215 $886 $382
====== ====== === ===
Debt securities available-for-sale totaling $1.4 billion mature within one
year, $2.5 billion mature after one through five years, $2.6 billion mature
after five years through ten years, and $0.7 billion mature after ten years.
Mortgage-backed securities and interests in securitization trusts totaled $2
billion. Proceeds from sales of marketable securities totaled $3.2 billion in
2004, $7.6 billion in 2003, and $12.8 billion in 2002. The gross gains related
to sales of marketable securities were $138 million, $270 million, and $402
million in 2004, 2003, and 2002, respectively. The gross losses related to sales
of marketable securities were $49 million, $202 million, and $121 million in
2004, 2003, and 2002, respectively.
The gross unrealized losses and fair value of the Corporation's investments
in an unrealized loss position that are not deemed to be other-than-temporarily
impaired are summarized in the following table.
December 31, 2004
------------------------------------------
Less than 12 months 12 months or longer
------------------------------------------
Unrealized Unrealized
Fair value losses Fair value losses
--------------------------------------------------------------------------------
(dollars in millions)
Automotive and Other Operations
-------------------------------
Available for sale securities
Corporate debt securities and $1,698 $16 $81 $3
Other
U.S. government and agencies 1,293 11 - -
Mortgage backed securities 418 4 33 1
----- --- ---- --
Total marketable securities $3,409 $31 $114 $4
===== == === =
Financing and Insurance Operations
Available for sale securities
Debt securities
U.S. Treasury and federal agencies $971 $8 $- $-
Foreign government securities 208 1 - -
Mortgage-backed securities:
Residential 67 5 - -
Commercial 343 2 14 1
Interest-only strips 27 3 - -
Corporate debt securities 547 5 - -
Other 35 2 - -
------- --- --- --
Total debt securities 2,198 26 14 1
Equity securities 88 6 - -
------- --- ---- --
Total available for sale securities $2,286 $32 $14 $1
===== == == =
Total held to maturity securities $15 $1 $- $-
== = = =
II-40
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 6. Variable Interest Entities
As discussed in Note 1, GM applied the provisions of FIN 46, later clarified
by FIN 46R, to all variable interest entities beginning July 1, 2003. In
connection with the application of FIN 46, GM is providing information below
concerning variable interest entities that: (1) are consolidated by GM because
GM is deemed to be the primary beneficiary and (2) those entities that GM does
not consolidate because, although GM has significant interests in such variable
interest entities, GM is not the primary beneficiary.
Automotive and Other Operations
Synthetic Leases -- GM leases real estate and equipment from various special
purpose entities (SPEs) that have been established to facilitate the financing
of those assets for GM by nationally prominent, creditworthy lessors. These
assets consist principally of office buildings, warehouses, and machinery and
equipment. The use of SPEs allows the parties providing the financing to isolate
particular assets in a single entity and thereby syndicate the financing to
multiple third parties. This is a conventional financing technique used to lower
the cost of borrowing and, thus, the lease cost to a lessee such as GM. There is
a well-established market in which institutions participate in the financing of
such property through their purchase of interests in these SPEs. Certain of
these SPEs were determined to be VIEs under FIN 46. For those leases where GM
provides a residual value guarantee of the leased property and is considered the
primary beneficiary under FIN 46, GM consolidated these entities as of July 1,
2003. This resulted, for Auto & Other, in an initial increase in assets and debt
of $917 million and a cumulative effect of accounting change recorded in cost of
sales of $27 million after-tax. As of December 31, 2004, the carrying amount of
assets and liabilities consolidated under FIN 46R amounted to $883 million and
$1.0 billion respectively. Assets consolidated are classified as "Property" in
GM's consolidated financial statements. GM's maximum exposure to loss related to
consolidated VIEs amounts to $888 million. For other such lease arrangements
involving VIEs, GM holds significant variable interests but is not considered
the primary beneficiary under FIN 46R. GM's maximum exposure to loss related to
VIE's where GM has a significant variable interest, but does not consolidate the
entity, amounts to $592 million.
Financing and Insurance Operations
Automotive finance receivables -- In certain securitization transactions,
GMAC transfers consumer finance receivables and wholesale lines of credit into
bank-sponsored multi-seller commercial paper conduits. These conduits provide a
funding source to GMAC (as well as other transferors into the conduit) as they
fund the purchase of the receivables through the issuance of commercial paper.
Total assets outstanding in these bank-sponsored conduits approximated $16.1
billion as of December 31, 2004. While GMAC has a variable interest in these
conduits, it is not considered to be the primary beneficiary, as GMAC does not
retain the majority of the expected losses or returns. GMAC's maximum exposure
to loss as a result of its involvement with these non-consolidated variable
interest entities is $168 million and would only be incurred in the event of a
complete loss on the assets that GMAC transferred.
Mortgage warehouse funding -- GMAC's Mortgage operations transfer commercial
and residential mortgage loans through various structured finance arrangements
in order to provide funds for the origination and purchase of future loans.
These structured finance arrangements include transfers to warehouse funding
entities, including GMAC- and bank-sponsored commercial paper conduits.
Transfers of assets from GMAC into each facility are accounted for as either
sales (off-balance sheet) or secured financings (on-balance sheet) based on the
provisions of SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". However, in either case, creditors
of these facilities have no legal recourse to the general credit of GMAC. Some
of these warehouse funding entities represent variable interest entities under
FIN 46R.
Management has determined that for certain mortgage warehouse funding
facilities, GMAC is the primary beneficiary and, as such, consolidates the
entities in accordance with FIN 46R. The assets of these residential mortgage
warehouse entities totaled $4.6 billion at December 31, 2004, the majority of
which are included in loans held for sale and finance receivables, net, in the
Corporation's Consolidated Balance Sheet. The assets of the commercial mortgage
warehouse entities totaled $526 million at December 31, 2004, the majority of
which are included in loans held for sale and finance receivables and loans,
net of unearned income, the Corporation's Consolidated Balance Sheet. The
beneficial interest holders of these variable interest entities do not have
legal recourse to the general credit of GMAC.
II-41
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 6. Variable Interest Entities (continued)
Residential mortgage loan alliances -- GMAC has invested in strategic
alliances with several mortgage loan originators. These alliances may include
common or preferred equity investments, working capital or other subordinated
lending, and warrants. In addition to warehouse lending arrangements, management
has determined that GMAC does not have the majority of the expected losses or
returns and as such, consolidation is not appropriate under FIN 46R. Total
assets in these alliances were $174 million at December 31, 2004. GMAC's maximum
exposure to loss under these alliances, including commitments to lend additional
funds or purchase loans at above-market rates, is $285 million at December 31,
2004.
Construction and real estate lending -- GMAC uses an SPE to finance
construction lending receivables. The SPE purchases and holds the receivables
and funds the majority of the purchases through financing obtained from
third-party asset-backed commercial paper conduits. GMAC is the primary
beneficiary, and as such, consolidates the entity in accordance with FIN 46R.
The assets in this entity totaled $1.2 billion at December 31, 2004, which are
included in finance receivables, net, in the Corporation's Consolidated Balance
Sheet. The beneficial interest holders of this variable interest entity do not
have legal recourse to the general credit of GMAC.
GMAC has subordinated real estate lending arrangements with certain entities.
These entitles are created to develop land and construct residential homes.
Management has determined that GMAC does not have the majority of the expected
losses or returns, and as such, consolidation is not appropriate under FIN 46R.
Total assets in these entities were $194 million at December 31, 2004, of which
$49 million represents GMAC's maximum exposure to loss.
Warehouse lending -- GMAC has a facility in which it transfers mortgage
warehouse lending receivables to a 100% owned SPE which then sells a senior
participation interest in the receivables to an unconsolidated qualifying
special purpose entity (QSPE). The QSPE funds the purchase of the participation
interest from the SPE through financing obtained from third-party asset-backed
commercial paper conduits. The SPE funds the purchase of the receivables from
GMAC with cash obtained from the QSPE, as well as a subordinated loan and/or an
equity contribution from GMAC. The senior participation interest sold to the
QSPE, and the commercial paper issued are not included in the assets or
liabilities of GMAC. Once the receivables have been sold, they may not be
purchased by the GMAC except in very limited circumstances, such as a breach in
representations or warranties. Management has determined that GMAC is the
primary beneficiary of the SPE, and as such, consolidates the entity in
accordance with FIN 46R. The assets in this entity totaled $686 million at
December 31, 2004, which are included in finance receivables, net of unearned
income, in the Corporation's Consolidated Balance Sheet. The beneficial interest
holders of this variable interest entity do not have legal recourse to the
general credit of GMAC.
Collateralized debt obligations (CDOs) -- GMAC's Mortgage operations
sponsors, purchase subordinate and equity interests in, and serve as collateral
manager for CDOs. Under CDO transactions, a trust is established that purchases
a portfolio of securities and issues debt and equity certifications,
representing interests in the portfolio of assets. In addition to receiving
variable compensation for managing the portfolio, GMAC sometimes
retains equity investments in the CDOs. The majority of the CDOs sponsored by
GMAC were intitially structured or have been restructured (with approval by the
senior beneficial interest holders) as QSPEs, and are therefore exempt from FIN
46R.
GMAC receives an asset management fee for purposes of surveillance of
existing collateral performance. In the event that an asset is credit impaired,
a call option is triggered whereby GMAC, as collateral manager, may buy the
asset out of the pool and sell it to a third party. The call is triggered only
by events that are outside of GMAC's control, such as the downgrade by a rating
agency of an asset in the pool or in the event more than a specified percentage
of mortgage loans underlying a security are greater than 60 days delinquent (or
have been liquidated). In the event the conditions under which GMAC can exercise
the call option are met, GMAC recognizes these assets. In accordance with
these provisions, GMAC did not recognize any assets as of December 31, 2004 or
2003.
II-42
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 6. Variable Interest Entities (continued)
For the majority of GMAC's remaining CDOs, the results of the primary
beneficiary analysis support the conclusion that consolidation is not
appropriate under FIN 46R, because GMAC does not have the majority of the
expected losses or returns. The assets in these CDOs totaled $2.5 billion at
December 31, 2004, of which GMAC's maximum exposure to loss is $50 million,
representing GMAC's retained interests in these entities. The maximum exposure
to loss would only occur in the unlikely event that there was a complete loss
on GMAC's retained interests in these entities. In addition, management has
determined that for a particular CDO entity, GMAC is the primary beneficiary,
and as such, consolidates the entity in accordance with FIN 46R. The assets in
this entity totaled $294 million at December 31, 2004, the majority of which
are included in other marketable securities in the Corporation's Consolidated
Balance Sheet. The beneficiary interest holders of this variable interest entity
do not have legal recourse to the general credit of GMAC.
Interests in real estate partnerships -- GMAC's Commercial Mortgage
operations syndicate investments in real estate partnerships to unaffiliated
investors in the form of limited partner ownership interests (typically 99.99%
of the total interests). These syndicated real estate partnerships, in turn,
acquire limited partner ownership interests in various operating partnerships
that develop, own, and operate affordable housing properties throughout the
United States. Returns to investors in the partnerships syndicated by GMAC are
derived from flow-through low-income housing tax credits and tax losses
enerated by the underlying operating partnership entities. GMAC does have loss
exposure based on its limited partnership interest and to the investors in the
guaranteed syndicated real estate partnerships to which it has guaranteed a rate
of return. The loss exposure represents the potential under-delivery of income
tax benefits by the syndicated real estate partnerships to the investors.
In certain syndicated real estate partnerships, GMAC has guaranteed a
specified rate of return to the investors. In the event of a shortfall in the
delivery of tax benefits to the investors, GMAC is required to provide funding
to the syndicated real estate partnerships. Syndicated real estate partnerships
that contain a guarantee (i.e., guaranteed syndicated real estate partnerships)
are reflected in the Corporation's Consolidated Financial Statements under the
financing method, in accordance with SFAS No. 66, Accounting for Sales of Real
Estate. Under the financing method, the assets and liabilities of the guaranteed
syndicated real estate partnerships are reflected on GM's Consolidated Balance
Sheet. More specifically, cash and cash equivalents and equity method
investments (in the underlying operating partnership entities) of the guaranteed
syndicated real estate partnerships consist almost entirely of a financing
liability (initially equal to the amount of equity contributed by each
investor), payable to each tax credit fund investor. The financing liability to
the investors is extinguished over the life of the guaranteed syndicated real
estate partnerships, as annual tax benefits guaranteed to each investor are
delivered.
In addition to reflecting the assets and liabilities of the guaranteed
syndicated real estate partnerships, GMAC has variable interests in the
underlying operating partnerships (primarily in the form of limited partnership
interests). The results of GMAC's variable interest analysis indicated that it
is not the primary beneficiary of these partnerships and, as a result, is not
required to consolidate these entities under FIN 46R. Assets outstanding in the
underlying operating partnerships approximated $5.0 billion at December 31,
2004. GMAC's exposure to loss at such time was $708 million, representing the
financing liability reflected in the Consolidated Financial Statements, or the
amount payable to investors in the event of liquidation of the partnerships.
GMAC's exposure to loss increases as unaffiliated investors fund additional
guaranteed commitments with GMAC, and decreases as tax benefits are delivered to
unaffiliated investors. Considering such committed amounts, GMAC's exposure to
loss in future periods is not expected to exceed $1.6 billion.
Residential mortgage loan alliances -- GMAC has invested in strategic
alliances with several mortgage loan originators. These alliances may include
common or preferred equity investments, working capital or other subordinated
lending and warrants. In addition to warehouse lending arrangements, management
has determined that GMAC does not have the majority of the expected losses or
returns and, as such, consolidation is not appropriate under FIN 46R. Total
assets in these alliances were $174 million at December 31, 2004. GMAC's maximum
exposure to loss under these alliances including commitments to lend additional
funds or purchase loans at above-market rates is $285 million at December 31,
2004.
Construction and real estate lending -- GMAC uses a special purpose entity to
finance construction lending receivables. The special purpose entity purchases
and holds the receivables and funds the majority of the purchases through
financing obtained from third-party asset-backed commercial paper conduits. GMAC
is the primary beneficiary, and as such, consolidates the entity in accordance
with FIN 46R. The assets in this entity totaled $1.2 billion at December 31,
2004, which are included in finance receivables, net, in GM's Consolidated
Balance Sheet. The beneficial interest holders of this variable interest entity
do not have legal recourse to the general credit of GMAC.
II-43
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 6. Variable Interest Entities (concluded)
GMAC has subordinated real estate lending arrangements with certain entities.
These entities are created to develop land and construct residential homes.
Management has determined that GMAC does not have the majority of the expected
losses or returns and, as such, consolidation is not appropriate under FIN 46R.
Total assets in these entities were $194 million at December 31, 2004, of which
$49 million represents GMAC's maximum exposure to loss.
New market tax credit funds -- The Corporation syndicates and manages
investments in partnerships that make investments, typically mortgage loans
that, in turn, qualify the partnerships to earn New Markets Tax Credits. New
Markets Tax Credits permit taxpayers to receive a federal income tax credit for
making qualified equity investments in community development entities. For one
particular tax credit fund management has determined that GMAC does not have the
majority of the expected losses or returns and, as such, consolidation is not
appropriate under FIN 46R. The assets in these investments totaled $62 million
at December 31, 2004, of which $45 million represents GMAC's maximum exposure to
loss. In addition to this entity, management has determined that for another tax
credit fund, GMAC is a primary beneficiary and as such, consolidates the entity
in accordance with FIN 46R. The assets in the entity totaled $76 million at
December 31, 2004, which are included in other assets in the Corporation's
Consolidated Balance Sheet. The beneficial interest holders of this variable
interest entity do not have legal recourse to the general credit of GMAC.
NOTE 7. Finance Receivables and Securitizations
Finance Receivables - Net
Finance receivables - net included the following (dollars in millions):
December 31,
-----------------------
Consumer: 2004 2003
---- ----
Retail automotive $92,225 $88,594
Residential mortgages 57,709 46,307
------- -------
Total consumer 149,934 134,901
Commercial:
Automotive:
Wholesale 27,796 25,517
Leasing and lease financing 1,466 1,465
Term loans to dealers and others 3,662 3,912
Commercial and industrial 14,203 9,783
Commercial real estate:
Commercial mortgage 3,148 180
Real estate construction 2,810 2,053
------- -------
Total commercial 53,085 42,910
-------- --------
Total finance receivables and loans 203,019 177,811
Allowance for financing losses (3,419) (3,042)
-------- --------
Total consolidated finance receivables - net(1) $199,600 $174,769
======= =======
(1) Net of unearned income of $7.6 billion and $7.4 billion at December 31, 2004
and 2003, respectively.
Finance receivables that originated outside the United States were $35.4
billion and $30.6 billion at December 31, 2004 and 2003, respectively. The
aggregate amounts of total finance receivables maturing in each of the five
years following December 31, 2004, are as follows: 2005-$73.7 billion;
2006-$29.7 billion; 2007-$23.1 billion; 2008-$14.6 billion; 2009-$8.4 billion;
and 2010 and thereafter-$61.2 billion. Actual maturities may differ from those
scheduled due to prepayments.
Securitizations of Finance Receivables and Mortgage Loans
The Corporation securitizes automotive and mortgage financial assets as a
funding source. GMAC sells retail finance receivables, wholesale loans,
residential mortgage loans, commercial mortgage loans and commercial mortgage
securities. The information contained below relates only to the transfers of
finance receivables and loans that qualify as off-balance sheet securitizations
under the requirements of SFAS 140.
II-44
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 7. Finance Receivables and Securitizations (continued)
The Corporation retains servicing responsibilities for and subordinated
interests in all of its securitizations of retail finance receivables and
wholesale loans. Servicing responsibilities are retained for the majority of its
residential and commercial mortgage loan securitizations and the Corporation may
retain subordinated interests in some of these securitizations. GMAC also holds
subordinated interests and acts as collateral manager in the Corporation's
collateralized debt obligation (CDO) securitization program.
As servicer, GMAC generally receives a monthly fee stated as a percentage of
the outstanding sold receivables. For retail automotive finance receivables
where GMAC is paid a fee, the Corporation has concluded that the fee represents
adequate compensation as a servicer and, as such, no servicing asset or
liability is recognized. Considering the short-term revolving nature of
wholesale loans, no servicing asset or liability is recognized upon
securitization of the loans. As of December 31, 2004, the weighted average basic
servicing fees for GMAC's primary servicing activities were 100 basis points,
100 basis points, 29 basis points and 8 basis points of the outstanding
principal balance for sold retail finance receivables, wholesale loans,
residential mortgage loans, and commercial mortgage loans, respectively.
Additionally, the Corporation retains the rights to cash flows remaining after
the investors in most securitization trusts have received their contractual
payments. In certain retail securitization transactions, retail receivables are
sold on a servicing retained basis, but with no servicing compensation and, as
such, a servicing liability is established and recorded in other liabilities. As
of December 31, 2004 and December 31, 2003, servicing liabilities of $30 million
and $22 million, respectively, were outstanding related to such retail
securitization transactions. For mortgage servicing, the Corporation capitalizes
the value expected to be realized from performing specified residential and
commercial mortgage servicing activities as mortgage servicing rights.
GMAC maintains cash reserve accounts at predetermined amounts for certain
securitization activities in the unlikely event that deficiencies occur in cash
flows owed to the investors. The amounts available in such cash reserve accounts
totaled $118 million, $1.0 billion, $44 million, and $10 million as of December
31, 2004 related to securitizations of retail finance receivables, wholesale
loans, residential mortgage loans, and commercial mortgage loans, respectively,
and $167 million, $1.2 billion, $13 million, and $5 million as of December 31,
2003, respectively.
The following tables summarize pre-tax gains on securitizations and certain
cash flows received from and paid to securitization trusts for transfers of
finance receivables and loans that were completed during 2004, 2003 and 2002
(dollars in millions):
Year Ended December 31, 2004
---------------------------------------------------
Retail Wholesale Mortgage loans Commercial
finance Loans -------------- mortgage
receivables Residential Commercial securities
--------------------------------------------------------------------------
Pre-tax gains on
securitizations $9 $497 $602 $54 $11
Cash flow information:
Proceeds from new 935
securitizations 1,824 9,188 29,412 2,108
Servicing fees -
received 105 174 208 20
Other cash flows
received on 68
retained interests 340 808 729 216
Proceeds from
collections -
reinvested in
revolving
securitizations - 91,360 - -
Repayments of -
servicing advances 75 - 947 147
Cash outflow -
information:
Servicing advances (64) - (1,035) (169) -
Purchase obligations
and options:
Representations and
warranties -
obligations (1) - (66) -
Administrator or -
servicer actions (75) - - -
Asset performance -
conditional calls - - (137) -
Clean-up calls (269) - (3,797) - -
--------------------------------------------------------------------------
II-45
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 7. Finance Receivables and Securitizations (continued)
Year Ended December 31, 2003
---------------------------------------------------
Retail Wholesale Mortgage loans Commercial
finance Loans ----------------- mortgage
receivables Residential Commercial securities
--------------------------------------------------------------------------
Pre-tax gains on
securitizations $37 $488 $522 $75 $14
Cash flow information:
Proceeds from new 1,870
securitizations 1,604 3,625 29,566 3,342
Servicing fees -
received 228 164 250 20
Other cash flows
received on 69
retained interests 753 174 955 317
Proceeds from
collections -
reinvested in
revolving
securitizations 862 97,829 - 5
Repayments of -
servicing advances 114 - 1,208 116
Cash outflow
information:
Servicing advances (118) - (1,242) (117) -
Purchase obligations
and options: (a)
Representations and
warranties -
obligations (25) - (154) -
Administrator or -
servicer actions (146) - - -
Asset performance -
conditional calls - - (122) -
Clean-up calls (885) - (1,919) - -
--------------------------------------------------------------------------
Year Ended December 31, 2002
---------------------------------------------------
Retail Wholesale Mortgage loans Commercial
finance Loans ----------------- mortgage
receivables Residential Commercial securities
--------------------------------------------------------------------------
Pre-tax gains on
securitizations $239 $445 $562 $30 $18
Cash flow information:
Proceeds from new 439
securitizations 9,982 2,327 38,025 1,848
Servicing fees -
received 247 146 268 17
Other cash flows
received on 37
retained interests 1,361 318 1,044 86
Proceeds from
collections -
reinvested in
revolving
securitizations 482 104,485 - -
Repayments of -
servicing advances 117 - 1,333 116
Cash outflow
information:
Servicing advances (117) - (1,449) (122) -
Purchase obligations
and options: (a)
Representations and
warranties -
obligations - - (70) -
Administrator or -
servicer actions (198) - - -
Asset performance -
conditional calls - - (58) -
Clean-up calls (289) (55) (494) - -
--------------------------------------------------------------------------
Key economic assumptions used in measuring the estimated fair value of
retained interests of sales completed during 2004 and 2003, as of the dates of
such sales, were as follows:
2004
-----------------------------------------------------
Retail Mortgage loans Commercial
Year ended December 31, finance ----------------------- mortgage
receivables(a) Residential(b) Commercial securities
---------------------- ----------- ----------- ----------- ----------
Key assumptions (c)
(rates per annum):
Annual prepayment rate (d) 0.9-1.0% 0.0-51.3% 0.0-50.0% 0.0-19.9%
Weighted average life
(in years) 1.6-1.8 1.1-5.5 0.4-8.8 2.5-17.4
Expected credit losses (e) 0.0-10.9% 0.0% 0.0-3.1%
Discount rate 9.5% 6.5-24.8% 4.3-15.% 8.2-11.7%
2003
-----------------------------------------------------
Retail Mortgage loans Commercial
Year ended December 31, finance ----------------------- mortgage
receivables(a) Residential(b) Commercial securities
---------------------- ----------- ----------- ----------- ----------
Key assumptions (c)
(rates per annum):
Annual prepayment rate (d) 0.9% 3.1-59.9% 0.0-50.0% 0.0%
Weighted average life
(in years) 1.6 1.1-5.9 1.4-6.2 2.5-25.1
Expected credit losses (e) 0.4-7.3% 0.0-0.8% 0.0-1.6%
Discount rate 9.5% 6.5-14.5% 2.6-10.8% 8.6-10.0%
See notes on next page.
II-46
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 7. Finance Receivables and Securitizations (continued)
(a) The fair value of retained interests in wholesale securitizations
approximates cost because of the short-term and floating rate nature of
wholesale loans.
(b) Included within residential mortgage loans are home equity loans and lines,
high loan-to-value loans and residential first and second mortgage loans.
(c) The assumptions used to measure the expected yield on variable rate retained
interests are based on a benchmark interest rate yield curve, plus a
contractual spread, as appropriate. The actual yield curve utilized varies
depending on the specific retained interests.
(d) Based on the weighted average maturity (WAM) for finance receivables and
constant prepayment rate (CPR) for mortgage loans and commercial mortgage
securities.
(e) Amounts totaling $39 million and $83 million at December 31, 2004 and 2003,
respectively, have been established for expected credit losses on automotive
finance receivables securitized in off-balance sheet transactions. Such
amounts are included in the fair value of the retained interests, which are
classified as investment securities.
The table below outlines the key economic assumptions and the sensitivity of
the fair value of retained interests at December 31, 2004 to immediate 10% and
20% adverse changes in those assumptions (dollars in millions):
Retail Mortgage loans Commercial
finance ----------------------- mortgage
receivables(a) Residential(b) Commercial securities
-------------------------------------------------------------------------------
Carrying value/fair
value of retained
interests $748 $1,247 $443 $314
Weighted average life
(in years) 0.1-1.5 1.1-5.4 0.1-17.3 1.5-24.1
Annual prepayment rate 0.5-1.6% 0.0-55.0% 0.0-55.0% 0.0-21.1%
WAM CPR CPR CPR
Impact of 10% adverse
change $(1) $(49) $- $(1)
Impact of 20% adverse
change (2) (86) (1) (2)
-------------------------------------------------------------------------------
Loss assumption (b) 0.3-26.1% 0.0-4.2% 0.0-39.5%
Impact of 10% adverse
change $(4) $(50) $(7) $(13)
Impact of 20% adverse
change (9) (93) (12) (26)
-------------------------------------------------------------------------------
Discount rate 9.5-12.0% 6.5-40.0% 3.8-26.3% 5.3-15.0%
Impact of 10% adverse
change $(3) $(36) $(5) $(18)
Impact of 20% adverse
change (7) (68) (11) (35)
-------------------------------------------------------------------------------
Market rate (d) 2.7-3.6% (c) (c) (c)
Impact of 10% adverse
change $(4) $(15) $- $-
Impact of 20% adverse
change (8) (30) - -
-------------------------------------------------------------------------------
(a) Fair value of retained interests in wholesale securitizations approximates
cost because of the short-term and floating rate nature of wholesale
receivables.
(b) Net of a reserve for expected credit losses totaling $39 million at December
31, 2004. Such amounts are included in the fair value of the retained
interests, which are classified as investment securities.
(c) Forward benchmark interest rate yield curve plus contractual spread. (d)
Represents the rate of return paid to the investors.
These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a 10% and 20% variation in
assumptions generally cannot be extrapolated because the relationship of the
change in assumption to the change in fair value may not be linear. Also, in
this table, the effect of a variation in a particular assumption on the fair
value of the retained interest is calculated without changing any other
assumption. In reality, changes in one factor may result in changes in another,
which may magnify or counteract the sensitivities. Additionally, the Corporation
hedges interest rate and prepayment risks associated with certain of the
retained interests; the effects of such hedge strategies have not been
considered herein.
Expected static pool net credit losses include actual incurred losses plus
projected net credit losses divided by the original balance of the outstandings
comprising the securitization pool. The table below displays the expected static
pool net credit losses based on the Corporation's securitization transactions.
II-47
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 7. Finance Receivables and Securitizations (concluded)
Loans securitized in years ended
December 31, (a)
------------------------------------
2004 2003 2002
--------------------------------------------------------------
Retail automotive 0.4% 0.4% 0.6%
Residential mortgage 0.0-26.1% 0.0-26.1% 0.0-24.8%
Commercial mortgage 0.0-4.2% 0.0-6.6% 0.0-4.1%
Commercial investment
securities 0.0-39.5% 0.9-33.7% 0.3-36.8%
--------------------------------------------------------------
(a) Static pool losses not applicable to wholesale finance receivable
securitizations because of their short-term nature.
[Download Table]
The following table presents components of securitized financial assets and
other assets managed, along with quantitative information about delinquencies
and net credit losses:
Total finance
receivables and Amount 60 days or
loans more past due Net credit losses
---------------------------------------------------------
December 31,
(dollars in millions) 2004 2003 2004 2003 2004 2003
------------------------------------------------------------------------------------
Retail automotive $97,631 $100,628 $806 $755 $1,044 $1,128
Residential mortgage 129,550 104,378 6,686 4,974 944 682
------------------------------------------------------------------------------------
Total consumer 227,181 205,006 7,492 5,729 1,988 1,810
------------------------------------------------------------------------------------
Wholesale 49,197 46,644 51 47 2 5
Commercial mortgage 21,353 22,621 410 652 130 66
Other automotive and
commercial 22,155 17,364 544 636 71 194
------------------------------------------------------------------------------------
Total commercial 92,705 86,629 1,005 1,335 203 265
------------------------------------------------------------------------------------
Total managed portfolio 319,886 291,635 $8,497 $7,064 $2,191 $2,075
(a)
--------------------------------------
Securitized finance
receivables and loans (96,801) (94,622)
Loans held for sale
(unpaid principal) (19,941) (19,609)
----------------------------------------------
Total finance receivables
and loans $203,144 $177,404
----------------------------------------------
(a) Managed portfolio represents finance receivables and loans on the balance
sheet or that have been securitized, excluding securitized finance
receivables and loans that GMAC continues to service but has no other
continuing involvement (i.e., in which GMAC retains an interest or risk of
loss in the underlying receivables).
NOTE 8. Inventories
Automotive and Other Operations
Inventories included the following (dollars in millions):
December 31,
---------------------
2004 2003
---- ----
Productive material, work in process, and supplies $4,838 $4,899
Finished product, service parts, etc. 8,321 7,642
------ ------
Total inventories at FIFO 13,159 12,541
Less LIFO allowance (1,442) (1,581)
------ ------
Total inventories (less allowances) $11,717 $10,960
====== ======
Inventories are stated generally at cost, which is not in excess of market.
The cost of approximately 92% of U.S. inventories is determined by the last-in,
first-out (LIFO) method. Generally, the cost of all other inventories is
determined by either the first-in, first-out (FIFO) or average cost methods.
During 2004 and 2003, U.S. LIFO eligible inventory quantities were reduced.
This reduction resulted in a liquidation of LIFO inventory quantities carried at
lower costs prevailing in prior years as compared with the cost of 2004 and 2003
purchases, the effect of which decreased cost of goods sold by approximately
$100 million pre-tax, and $200 million pre-tax, respectively.
Financing and Insurance Operations
Inventories included the following (dollars in millions):
December 31,
---------------------
2004 2003
---- ----
Off-lease vehicles $530 $642
=== ===
Total consolidated inventories (less allowances) $12,247 $11,602
====== ======
II-48
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 9. Equipment on Operating Leases
The Corporation has significant investments in its vehicle leasing
portfolios. The residual values of vehicles on lease represent the estimate of
the values of the assets at the end of the lease contracts and are initially
determined based on appraisals and estimates. Realization of the residual values
is dependent on the Corporation's future ability to market the vehicles under
then prevailing market conditions. Management reviews residual values
periodically to determine that the estimates remain appropriate.
Automotive and Other Operations
Equipment on operating leases and accumulated depreciation were as follows
(dollars in millions):
December 31,
---------------------
2004 2003
Equipment on operating leases $7,475 $7,994
Less accumulated depreciation (987) (821)
------ ------
Net book value $6,488 $7,173
===== =====
Financing and Insurance Operations
Equipment on operating leases and accumulated depreciation were as follows
(dollars in millions):
December 31,
---------------------
2004 2003
Equipment on operating leases $36,002 $33,522
Less accumulated depreciation (8,276) (7,944)
------ ------
Net book value $27,726 $25,578
====== ======
Total consolidated net book value $34,214 $32,751
====== ======
The lease payments to be received related to equipment on operating leases
maturing in each of the five years following December 31, 2004, are as follows:
Auto & Other - none, as the payment is received at lease inception and the
income is deferred over the lease period; FIO - 2005-$5.7 billion; 2006-$3.9
billion; 2007- $2.3 billion; 2008-$712 million; and 2009-$38 million. There are
no leases maturing after 2009.
NOTE 10. Income Taxes
Income from continuing operations before income taxes and minority interests
included the following (dollars in millions):
Years Ended December 31,
-----------------------------
2004 2003 2002
---- ---- ----
U.S. income $248 $1,786 $126
Foreign income 944 1,195 2,212
----- ----- -----
Total $1,192 $2,981 $2,338
===== ===== =====
The provision for income taxes was estimated as follows (dollars in
millions):
Years Ended December 31,
----------------------------
2004 2003 2002
---- ---- ----
Income taxes estimated to be payable
currently
U.S. federal $ (282) $167 $46
Foreign 1,018 1,159 1,702
U.S. state and local 36 414 325
---- ----- -----
Total payable currently 772 1,740 2,073
--- ----- -----
Deferred income tax expense (credit) - net
U.S. federal (422) 155 3
Foreign (1,239) (1,136) (1,187)
U.S. state and local (22) (28) (245)
----- ---- -----
Total deferred (1,683) (1,009) (1,429)
----- ----- -----
Total income taxes $(911) $731 $644
=== === ===
II-49
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 10. Income Taxes (concluded)
Annual tax provisions include amounts considered sufficient to pay
assessments that may result from examination of prior year tax returns. Cash
paid for income taxes in 2004, 2003, and 2002 was $293 million, $542 million,
and $1.2 billion, respectively.
Provisions are made for estimated U.S. and foreign income taxes, less
available tax credits and deductions, which may be incurred on the remittance of
the Corporation's share of subsidiaries' undistributed earnings not deemed to be
permanently reinvested. Taxes have not been provided on foreign subsidiaries'
earnings, which are deemed permanently reinvested, of $11.0 billion at December
31, 2004, and $11.6 billion at December 31, 2003. Quantification of the deferred
tax liability, if any, associated with permanently reinvested earnings is not
practicable.
A reconciliation of the provision for income taxes compared with the amounts
at the U.S. federal statutory rate was as follows (dollars in millions):
Years Ended December 31,
----------------------------
2004 2003 2002
---- ---- ----
Tax at U.S. federal statutory income tax rate $417 $1,043 $818
State and local tax expense (949) 21 99
Foreign rates other than 35% (510) (269) (184)
Taxes on unremitted earnings of subsidiaries (366) (125) (124)
Other tax credits (41) (52) (82)
Settlement of prior year tax matters (191) (194) 18
Change in valuation allowance 1,463 566 203
ESOP dividend deduction (1) (53) (53) (85)
Realization of basis differences due to
foreign reorganizations (483) - -
Medicare Prescription Drug Benefit (211) - -
Loss carryforward related to investment
write-down (168) - -
Stock contribution to pension plans (2) - (87) -
Other adjustments 181 (119) (19)
--- --- ----
Total income tax $(911) $731 $644
==== === ===
(1) Deduction for dividends paid on GM $1-2/3 par value common stock held
under the employee stock ownership portion of the GM Savings Plans,
pursuant to the Economic Growth and Tax Relief Reconciliation Act of 2001.
(2) Additional tax benefit related to the GM Class H Common Stock contribution
to the pension and VEBA plans.
Deferred income tax assets and liabilities for 2004 and 2003 reflect the
effect of temporary differences between amounts of assets, liabilities, and
equity for financial reporting purposes and the bases of such assets,
liabilities, and equity as measured by tax laws, as well as tax loss and tax
credit carryforwards.
Temporary differences and carryforwards that gave rise to deferred tax assets
and liabilities included the following (dollars in millions):
December 31,
---------------------------------------
2004 2003
Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
---------------------------------------
Postretirement benefits other than
pensions $9,377 $ - $15,280 $ -
Pension and other employee benefit
plans 3,787 13,408 4,060 12,521
Warranties, dealer and customer
allowances, claims, and
discounts 6,907 42 6,541 108
Depreciation and amortization 5,043 3,118 3,901 2,832
Tax carryforwards 10,422 - 3,784 -
Lease transactions 19 3,801 10 4,297
Miscellaneous foreign 4,762 2,300 5,892 2,602
Other 8,732 3,804 7,409 2,885
----- ------ ------- -------
Subtotal 49,049 26,473 46,877 25,245
Valuation allowances (3,413) - (1,950) -
------ ------ ------ ------
Total deferred taxes $45,636 $26,473 $44,927 $25,245
------ ------ ------ ------
Net deferred tax assets $19,163 $19,682
====== ======
II-50
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 10. Income Taxes (concluded)
Deferred tax detail above is included in the consolidated balance sheet and
supplemental information as follows:
2004 2003
---- ----
Current deferred tax assets $8,883 $9,104
Current deferred tax liabilities (5,226) (5,671)
Non-current deferred tax assets 17,358 18,086
Non-current deferred tax liabilities (1,852) (1,837)
------ -------
Total $19,163 $19,682
====== ======
Of the tax carryforwards at December 31, 2004, approximately 6% relates to
the alternative minimum tax credit (which can be carried forward indefinitely),
approximately 21% relates to U.S. federal net operating loss carryforwards and
approximately 15% relates to the U.S. state net operating loss carryforwards,
which will expire in 2006-2024 if not used. Approximately 83% of the U.S. state
net operating loss carryforwards will not expire until after 2008. Approximately
25% of the tax carryforwards relate to general business credits (which consist
primarily of research and experimentation credits) and U.S. foreign tax credits
which will expire in 2013-2023 if not used. The remaining tax carryforwards
relate to accumulated foreign operating losses of which approximately 86% can be
carried forward indefinitely and the remaining 14% will expire by 2013. The
valuation allowance relates to U.S. state and certain foreign operating loss
carryforwards.
The Corporation has open tax years from primarily 1998 to 2003 with various
significant taxing jurisdictions including the U.S., Canada, Mexico, Germany and
Brazil. These open years contain matters that could be subject to differing
interpretations of applicable tax laws and regulations as they relate to the
amount, timing or inclusion of revenue and expenses or the sustainability of
income tax credits for a given audit cycle. The Corporation has established a
liability of $3.2 billion for those matters where the amount of loss is probable
and estimable. The amount of the liability is based on management's best
estimate given the Corporation's history with similar matters and
interpretations of current laws and regulations.
NOTE 11. Property - Net
Property - net was as follows (dollars in millions):
Estimated
Useful December 31,
Lives (Years)
---------------------------------
2004 2003
------ ------
Automotive and Other Operations
-------------------------------
Land - $967 $1,004
Buildings and land improvements 2-40 15,636 15,272
Machinery and equipment 3-30 45,796 44,851
Construction in progress - 3,807 2,722
------ ------
Real estate, plants, and equipment 66,206 63,849
Less accumulated depreciation (39,405) (37,535)
------ ------
Real estate, plants, and equipment
- net 26,801 26,314
Special tools - net 10,369 9,757
------ -------
Total property - net $37,170 $36,071
------ ------
Financing and Insurance Operations
Equipment and other 2-10 $3,086 $2,921
Less accumulated depreciation (1,236) (1,020)
----- -----
Total property - net $1,850 $1,901
----- -----
Total consolidated property - net $39,020 $37,972
====== ======
II-51
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 11. Property - Net (concluded)
Depreciation and amortization expense was as follows (dollars in millions):
Years Ended December 31,
----------------------------
Automotive and Other Operations 2004 2003 2002
------------------------------- ---- ---- ----
Depreciation $5,028 $4,526 $3,675
Amortization of special tools 3,563 3,391 2,648
Amortization of intangible assets 38 29 1
----- ----- -----
Total $8,629 $7,946 $6,324
----- ----- -----
Financing and Insurance Operations
----------------------------------
Depreciation $5,512 $5,556 $5,226
Amortization of intangible assets 11 11 19
----- ----- -----
Total $5,523 $5,567 $5,245
----- ----- -----
Total consolidated depreciation and amortization $14,152 $13,513 $11,569
====== ====== ======
NOTE 12. Goodwill and Intangible Assets
The components of the Corporation's intangible assets as of December 31, 2004
and 2003 were as follows (dollars in millions):
Gross Net
December 31, 2004 Carrying Accumulated Carrying
Amount Amortization Amount
-----------------------------------
Automotive and Other Operations
-------------------------------
Amortizing intangible assets:
Patents and intellectual property rights $303 $69 $234
Non-amortizing intangible assets:
Goodwill 600
Prepaid pension asset (Note 16) 765
----
Total goodwill and intangible assets $1,599
Financing and Insurance Operations
----------------------------------
Amortizing intangible assets:
Customer lists and contracts $73 $41 $32
Trademarks and other 40 20 20
Covenants not to compete 18 18 -
--- -- ----
Total $131 $79 $52
=== ==
Non-amortizing intangible assets:
Goodwill 3,274
-----
Total goodwill and intangible assets 3,326
-----
Total consolidated goodwill and intangible
assets $4,925
=====
December 31, 2003
Automotive and Other Operations
-------------------------------
Amortizing intangible assets:
Patents and intellectual property rights $303 $31 $272
Non-amortizing intangible assets:
Goodwill 567
Prepaid pension asset (Note 16) 640
-----
Total goodwill and intangible assets $1,479
Financing and Insurance Operations
----------------------------------
Amortizing intangible assets:
Customer lists and contracts $65 $31 $34
Trademarks and other 40 16 24
Covenants not to compete 18 18 -
--- -- ----
Total $123 $65 $58
=== ==
Non-amortizing intangible assets:
Goodwill 3,223
-----
Total goodwill and intangible assets 3,281
-----
Total consolidated goodwill and intangible
assets $4,760
=====
II-52
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 12. Goodwill and Intangible Assets (concluded)
Aggregate amortization expense on existing acquired intangible assets was $49
million for the year ended December 31, 2004. Estimated amortization expense in
each of the next five years is as follows: 2005 - $49 million; 2006 - $48
million; 2007 - $48 million; 2008 - $45 million; and 2009 - $35 million.
The changes in the carrying amounts of goodwill were as follows (dollars in
millions):
Total
Auto & Total
GMNA GME Other GMAC GM
---- --- ------- ---- -----
Balance as of December 31, 2002 $139 $338 $477 $3,273 $3,750
Goodwill acquired during the
period - - - 18 18
Goodwill written off related to
sale of business units (4) - (4) - (4)
Effect of foreign currency 6 75 81 51 132
translation
Other 13 - 13 (119)(1)(106)
--- --- --- ---- ---
Balance as of December 31, 2003 154 413 567 3,223 3,790
Goodwill acquired during the
period - - - 16 16
Effect of foreign currency
translation 5 33 38 35 73
Other (5) - (5) - (5)
--- --- --- ----- -----
Balance as of December 31, 2004 $154 $446 $600 $3,274 $3,874
=== === === ===== =====
(1) In September 2003, GMAC received $110 million related to a settlement of a
claim involving the 1999 acquisition of the asset-based lending and factoring
business of The Bank of New York. Of the settlement amount, $109 million
represented a purchase price adjustment, reducing the related goodwill; the
remainder represented a reimbursement of tax claims paid on behalf of The
Bank of New York.
NOTE 13. Other Assets
Automotive and Other Operations
Other assets included the following (dollars in millions):
December 31,
----------------------------
2004 2003
---- ----
Investments in equity securities $350 $470
Prepaid pension benefit cost (Note 16) 38,919 40,248
Other 1,575 1,544
------ ------
Total other assets $40,844 $42,262
====== ======
Investments in equity securities at December 31, 2004 and 2003 include the
fair value of investments in equity securities classified as available-for-sale
for all periods presented. It is GM's intent to hold these securities for longer
than one year. Balances include historical costs of $144 million and $114
million with unrealized gains of $209 million and $142 million and unrealized
losses of $3 million and $6 million at December 31, 2004 and 2003, respectively.
Also included in investments in equity securities at December 31, 2003 is
GM's investment in the common stock of Fiat Auto Holdings B.V. (FAH), the entity
that is the sole shareholder of Fiat Auto S.p.A. (Fiat Auto), acquired for $2.4
billion in 2000. Subsequent to that acquisition, unfavorable European market
conditions and other factors led to deterioration in the performance of Fiat
Auto. Accordingly, GM commenced a review of the appropriate carrying value of
GM's investment in FAH, completed in the third quarter of 2002, which resulted
in a non-cash charge of $2.2 billion ($1.4 billion after-tax), recorded in cost
of sales and other expenses in the Other segment of Auto & Other. This
write-down brought the carrying value of GM's investment in FAH from $2.4
billion to $220 million. The carrying value was based on GM's interest in the
estimated market value of FAH equity, which comprises FAH's ownership of Fiat
Auto, including 50% ownership interests in the purchasing and powertrain joint
ventures between GM and Fiat Auto. GM's investment in FAH was reduced from 20%
to 10% when Fiat recapitalized FAH in 2003.
In the fourth quarter of 2004, GM completed its annual review of its
investment in FAH. As a result of further deterioration in the performance of
Fiat Auto and its current debt structure, GM recorded a non-cash charge of $220
million ($136 million, after-tax) to reduce the carrying value of GM's
investment in FAH to zero.
II-53
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 13. Other Assets (concluded)
Financing and Insurance Operations
Other assets included the following (dollars in millions):
December 31,
--------------------
2004 2003
---- ----
Mortgage servicing rights $3,890 $3,720
Premiums and other insurance receivables 1,763 1,960
Deferred policy acquisition costs 1,444 1,038
Derivative assets 9,489 10,026
Repossessed and foreclosed assets, net 615 594
Equity investments 1,751 1,560
Intangible assets (Note 12) 3,326 3,281
Property (Note 11) 1,850 1,901
Cash deposits held for securitization trusts 1,836 1,922
Restricted cash collections for securitization trusts 2,217 2,291
Accrued interest and rent receivable 1,178 767
Real estate investments 1,473 1,219
Debt issuance costs 753 716
Servicer advances 769 946
Inventory (Note 8) 530 642
Other 2,229 2,905
------ ------
Total other assets $35,113 $35,488
====== ======
Reclassification for Consolidated Balance Sheet Presentation
December 31,
--------------------
2004 2003
---- ----
Auto & Other - other assets, as detailed above $40,844 $42,262
FIO - other assets, as detailed above 35,113 35,488
------ ------
Subtotal 75,957 77,750
------ ------
Prepaid assets and other 1,952 1,747
Inventory (Note 8) (530) (642)
Accounts receivable (14,523) (15,152)
Intangible assets (Note 12) (3,326) (3,281)
Property (Note 11) (1,850) (1,901)
------ ------
Total consolidated other assets $57,680 $58,521
====== ======
NOTE 14. Accrued Expenses, Other Liabilities, and Deferred Income Taxes
Automotive and Other Operations
Accrued expenses, other liabilities, and deferred income taxes included the
following (dollars in millions):
December 31,
--------------------
2004 2003
---- ----
Dealer and customer allowances, claims, and discounts $11,493 $11,145
Deferred revenue and deposits from rental car companies 12,691 13,157
Policy, product warranty, and recall campaigns 9,133 8,674
Payrolls and employee benefits (excludes postemployment) 4,642 5,081
Unpaid losses under self-insurance programs 1,784 2,027
Taxes, other than income 2,993 3,437
Interest 922 932
Postemployment benefits (including extended disability
benefits) 1,163 1,212
Fiat Settlement (Note 25) 1,364 -
Other 8,573 8,492
------ ------
Total accrued expenses and other liabilities $54,758 $54,157
Pensions 84 72
Postretirement benefits 3,890 3,210
Deferred income taxes 3,072 3,545
------ ------
Total accrued expenses, other liabilities,
and deferred income taxes $61,804 $60,984
====== ======
Current $46,147 $45,417
Non-current 15,657 15,567
------ ------
Total accrued expenses, other liabilities,
and deferred income taxes $61,804 $60,984
====== ======
II-54
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 14. Accrued Expenses, Other Liabilities, and Deferred Income Taxes
(concluded)
Automotive and Other Operations (concluded)
December 31,
---------------------
2004 2003
---- ----
Policy, product warranty and recall campaigns liability
Beginning balance $8,674 $8,850
Payments (4,608) (4,435)
Increase in liability (warranties issued during period) 4,980 4,390
Adjustments to liability (pre-existing warranties) (85) (367)
Effect of foreign currency translation 172 236
----- -----
Ending balance $9,133 $8,674
===== =====
Financing and Insurance Operations
Other liabilities and deferred income taxes included the following (dollars
in millions):
December 31,
--------------------
2004 2003
---- ----
Unpaid insurance losses, loss adjustment expenses, and
unearned insurance premiums $7,232 $6,568
Interest 3,413 3,135
Deposits 7,477 5,074
Interest rate derivatives 934 1,121
Other 3,913 3,875
------- -------
Total other liabilities $22,969 $19,773
Postretirement benefits 815 797
Deferred income taxes 4,006 3,963
----- -------
Total other liabilities and deferred income taxes $27,790 $24,533
====== ======
Total consolidated accrued expenses and other
liabilities $77,727 $73,930
====== ======
Total consolidated deferred income tax liability
(Note 10) $7,078 $7,508
===== =====
NOTE 15. Long-Term Debt and Loans Payable
Automotive and Other Operations
Long-term debt and loans payable were as follows (dollars in millions):
Weighted-Average
Interest Rate December 31,
------------- ------------
2004 2003 2004 2003
---- ---- ---- ----
Long-term debt and loans payable
Payable within one year
Current portion of long-term debt (1) 5.7% 1.4% $584 $1,090
All other 3.0% 3.3% 1,478 1,723
----- -----
Total loans payable 2,062 2,813
Payable beyond one year (1) 6.8% 6.8% 30,425 29,632
Unamortized discount (103) (108)
Mark-to-market adjustment 138 69
------ ------
Total long-term debt and loans $32,522 $32,406
====== ======
payable
----------------------
(1) The weighted-average interest rates include the impact of interest rate swap
agreements.
II-55
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 15. Long-Term Debt and Loans Payable (continued)
Long-term debt payable beyond one year at December 31, 2004 included
maturities as follows: 2006 - $552 million; 2007 - $262 million; 2008 - $1.6
billion; 2009 - $296 million; 2010 and after - $27.7 billion.
To protect against foreign exchange risk, GM has entered into cross currency
swap agreements. The notional amounts of such agreements as of December 31, 2004
and 2003 for Auto & Other were approximately $2.2 billion and $2.4 billion,
respectively.
Amounts payable beyond one year after cross currency swaps at December 31,
2004 included $2.6 billion in currencies other than the U.S. dollar, primarily
the Euro ($2.2 billion), the Australian dollar ($238 million), the Canadian
dollar ($105 million), and the Brazilian real ($83 million).
At December 31, 2004 and 2003, long-term debt and loans payable for Auto &
Other included $25.3 billion and $27.4 billion, respectively, of obligations
with fixed interest rates and $7.2 billion and $5.0 billion, respectively, of
obligations with variable interest rates (predominantly LIBOR), after interest
rate swap agreements.
To achieve its desired balance between fixed and variable rate debt, GM has
entered into interest rate swaps. The notional amount of pay variable swap
agreements as of December 31, 2004 and 2003 for Auto & Other was approximately
$5.9 billion and $3.5 billion, respectively.
GM's Auto & Other business maintains substantial lines of credit with various
banks that totaled $9.0 billion at December 31, 2004, of which $3.4 billion
represented short-term credit facilities and $5.6 billion represented long-term
credit facilities. At December 31, 2003, bank lines of credit totaled $8.3
billion, of which $2.6 billion represented short-term credit facilities and $5.7
billion represented long-term credit facilities. The unused short-term and
long-term portions of the credit lines totaled $2.7 billion and $5.6 billion at
December 31, 2004, compared with $2.1 billion and $5.7 billion at December 31,
2003. Certain bank lines of credit contain covenants with which the Corporation
and applicable subsidiaries were in compliance throughout the year ended
December 31, 2004.
Financing and Insurance Operations
----------------------------------
Debt was as follows (dollars in millions):
Weighted-Average
Interest Rate December 31,
------------- ------------
2004 2003 2004 2003
---- ---- ---- ----
Payable within one year
Current portion of long-term debt (1) 3.9% 3.1% $37,300 $34,284
Commercial paper (1) 2.5% 2.1% 8,416 13,182
All other 2.8% 2.6% 45,327 30,344
------ ------
Total loans payable 91,043 77,810
Payable beyond one year (1) 4.9% 5.0% 176,090 160,108
Unamortized discount (650) (679)
Mark to market adjustment 1,274 2,111
------- -------
Total debt $267,757 $239,350
------- -------
Total consolidated notes and loans payable $300,279 $271,756
======= =======
---------------------
(1) The weighted-average interest rates include the impact of interest rate
swap agreements.
Debt payable beyond one year at December 31, 2004 included maturities as
follows: 2006 - $38.8 billion; 2007 - $24.3 billion; 2008 - $11.4 billion; 2009
- $9.6 billion; 2010 and after - $91.9 billion. Amounts payable beyond one year
after consideration of foreign currency swaps at December 31, 2004 included
$22.7 billion in currencies other than the U.S. dollar, primarily the Canadian
dollar ($7.2 billion), the euro ($6.0 billion), the U.K. pound sterling ($4.9
billion), and the Australian dollar ($1.7 billion).
At December 31, 2004 and 2003, debt for FIO included $137 billion and $96.9
billion, respectively, of obligations with fixed interest rates and $130.8
billion and $142.5 billion, respectively, of obligations with variable interest
rates (predominantly LIBOR), after considering the impact of interest rate swap
agreements.
To achieve its desired balance between fixed and variable rate debt, GM has
entered into interest rate swap, cap, and floor agreements. The notional amounts
of such agreements as of December 31, 2004 for FIO were approximately $85.9
billion relating to swap agreements ($56.7 billion pay variable and $29.2
billion pay fixed). The notional amounts of such agreements as of December 31,
2003 for FIO were approximately $94.4 billion relating to swap agreements ($70.9
billion pay variable and $23.5 billion pay fixed).
II-56
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 15. Long-Term Debt and Loans Payable (concluded)
GM's FIO business maintains substantial lines of credit with various banks
that totaled $60.3 billion at December 31, 2004, of which $23 billion
represented short-term credit facilities and $37.3 billion represented long-term
credit facilities. At December 31, 2003, bank lines of credit totaled $54.4
billion, of which $18.5 billion represented short-term credit facilities and
$35.9 billion represented long-term credit facilities. The unused short-term and
long-term portions of the credit lines totaled $8.5 billion and $35.9 billion at
December 31, 2004 compared with $6 billion and $35.2 billion at December 31,
2003. Certain bank lines of credit contain covenants with which the Corporation
and applicable subsidiaries were in compliance throughout the year ended
December 31, 2004.
NOTE 16. Pensions and Other Postretirement Benefits
GM sponsors a number of defined benefit pension plans covering substantially
all U.S. and Canadian employees as well as certain other non-U.S. employees.
Plans covering U.S. and Canadian represented employees generally provide
benefits of negotiated, stated amounts for each year of service as well as
significant supplemental benefits for employees who retire with 30 years of
service before normal retirement age. The benefits provided by the plans
covering U.S. and Canadian salaried employees and employees in certain other
non-U.S. locations are generally based on years of service and compensation
history. GM also has certain nonqualified pension plans covering executives that
are based on targeted wage replacement percentages and are unfunded.
GM's funding policy with respect to its qualified pension plans is to
contribute annually not less than the minimum required by applicable law and
regulations, or to directly pay benefit payments where appropriate. GM made
pension contributions to the U.S. hourly and salaried, other U.S., and primary
non-U.S. pension plans, or made direct payments where appropriate, as follows
(dollars in millions):
2004 2003 2002
----------------------------------------------
U.S. hourly and
salaried $- $18,504 $4,800
Other U.S. 117 117 98
Primary non-U.S.(1) 763 374 210
(1) GM's primary non-U.S. pension plans include its GM Canada Limited, Adam Opel
and Vauxhall plans.
In 2005, GM does not have any contributions due for its U.S. hourly and
salaried pension plans. It also does not anticipate making any discretionary
contributions to its U.S. hourly and salaried pension plans. GM expects to
contribute or pay benefits of approximately $117 million to its other U.S.
pension plans and $464 million to its primary non-U.S. pension plans during
2005.
Additionally, GM maintains hourly and salaried benefit plans that provide
postretirement medical, dental, vision, and life insurance to most U.S. retirees
and eligible dependents. The cost of such benefits is recognized in the
consolidated financial statements during the period employees provide service to
GM. Certain of the Corporation's non-U.S. subsidiaries have postretirement
benefit plans, although most participants are covered by government sponsored or
administered programs. The cost of such programs generally is not significant to
GM. In 2004, GM contributed a total of $9.0 billion to plan assets including
$8.8 billion to its U.S. hourly and salaried Voluntary Employees' Beneficiary
Association (VEBA) trusts for other postretirement employee benefit (OPEB) plans
(consisting of $8.4 billion in cash and $0.4 billion in XM Satellite Radio
Holdings, Inc. common stock shares) and $0.2 billion to a salaried 401(h)
account. This was the first such contribution related to the salaried OPEB plan
and 401(h) account. GM contributed $3.3 billion and $1.0 billion to its hourly
VEBA trust during 2003 and 2002, respectively. Contributions by participants to
the other OPEB plans were $87 million and $84 million for the years ended
December 31, 2004 and 2003, respectively. GM does not anticipate making any
contributions to the VEBA trusts or 401(h) accounts for OPEB funding during
2005.
GM uses a December 31 measurement date for the majority of its U.S. pension
plans and a September 30 measurement date for U.S. OPEB plans. GM's measurement
dates for its Canadian, Adam Opel and Vauxhall Motors primary non-U.S. pension
plans are December 1, October 1 and October 1, respectively.
II-57
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 16. Pensions and Other Postretirement Benefits (continued)
U.S. Plans Non-U.S. Plans
Pension Benefits Pension Benefits Other Benefits
---------------------------------------------------
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
Change in benefit (dollars in millions)
obligations
Benefit obligation at
beginning of year $87,285 $79,617 $15,088 $12,129 $67,542 $57,195
Service cost 1,097 919 247 228 605 537
Interest cost 5,050 5,162 892 803 3,927 3,798
Plan participants'
contributions 22 22 26 23 87 84
Amendments 54 2,244 163 - 10 -
Actuarial losses 2,306 5,684 1,040 222 8,815 9,026
Benefits paid (6,605) (6,501) (806) (732) (3,804) (3,621)
Exchange rate movements - - 1,201 2,398 - -
Curtailments,
settlements, 175 138 205 17 292 523
------ ----- ------ ----- ----- ------
Benefit obligation at end
of year 89,384 87,285 18,056 15,088 77,474 67,542
------ ------ ------ ------ ------ ------
Change in plan assets
Fair value of plan assets
at beginning of year 86,169 60,498 7,560 5,943 9,998 5,794
Actual return on plan
assets 11,046 13,452 814 703 981 865
Employer contributions 117 18,621 802 442 5,037 3,339
Plan participants'
contributions 22 22 26 23 - -
Benefits paid (6,605) (6,501) (806) (732) - -
Exchange rate movements - - 627 1,181 - -
Curtailments,
settlements, and other 137 77 - - - -
----- ----- ----- ----- ------ ----
Fair value of plan
assets at end of
year 90,886 86,169 9,023 7,560 16,016 9,998
------ ------ ----- ----- ------ ------
Funded status (1) 1,502 (1,116) (9,033) (7,528) (61,458) (57,544)
Unrecognized actuarial
loss 30,228 32,997 5,411 4,401 28,742 21,079
Unrecognized prior
service cost 5,862 7,087 808 694 (394) (569)
Unrecognized transition
obligation - - 39 43 - -
Employer contributions in
fourth quarter - - - - 4,000 -
Benefits paid in fourth
quarter - - - - 999 742
------ ------ ----- ----- ------ ------
Net amount recognized $37,592 $38,968 $(2,775) $(2,390)$(28,111)$(36,292)
====== ====== ===== ===== ====== ======
Amounts recognized in the
consolidated balance
sheets consist of:
Prepaid benefit cost $38,570 $39,904 $349 $344 $ - $ -
Accrued benefit
liability (1,152) (1,139) (8,303) (6,885) (28,111) (36,292)
Intangible asset - 1 765 639 - -
Accumulated other
comprehensive
income 174 202 4,414 3,512 - -
------ ------ ----- ----- ------ ------
Net amount recognized $37,592 $38,968 $(2,775) $(2,390)$(28,111)$(36,292)
====== ====== ===== ===== ====== ======
(1) Includes overfunded status of the combined U.S. hourly and salaried
pension plans of $3.0 billion as of December 31, 2004, and $0.3 billion as
of December 31, 2003.
The total accumulated benefit obligation, the accumulated benefit obligation
and fair value of plan assets for GM's pension plans with accumulated benefit
obligations in excess of plan assets, and the projected benefit obligation and
fair value of plan assets for pension plans with projected benefit obligations
in excess of plan assets are as follows (dollars in millions):
U.S. Plans Non-U.S. Plans
--------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Accumulated Benefit Obligation $86,676 $84,821 $17,097 $14,228
Plans with ABO in excess of plan
assets
ABO $1,224 $1,310 $16,631 $13,838
Fair value of plan assets 85 187 8,388 7,003
Plans with PBO in excess of plan
assets
PBO $31,176 $30,087 $17,907 $14,965
Fair value of plan assets 29,548 27,778 8,708 7,273
II-58
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
[Enlarge/Download Table]
NOTE 16. Pensions and Other Postretirement Benefits (continued)
The components of pension and OPEB expense along with the assumptions used to
determine benefit obligations are as follows (dollars in millions):
U.S. Plans Non-U.S. Plans
Pension Benefits Pension Benefits Other Benefits
--------------------------------------------------------------
2004 2003 2002 2004 2003 2002 2004 2003 2002
--------------------------------------------------------------
Components of expense
Service cost $1,097 $919 $864 $247 $228 $194 $637 $537 $505
Interest cost 5,050 5,162 5,273 892 803 700 4,119 3,798 $3,686
Expected return on plan
assets (7,823)(6,374) 7,096) (669) (573) (580)(1,095) (444) (390)
Amortization of prior
service cost 1,279 1,148 1,253 93 101 93 (79) (12) (14)
Amortization of transition
obligation/(asset) - - - 7 11 25 - - -
Recognized net actuarial
loss 1,857 1,744 730 188 167 62 1,588 717 321
Medicare Part D - - - - - - (603) - -
Curtailments, settlements,
and other 34 27 211 204 49 51 - 3 -
----- ----- ----- --- --- --- ------ ----- ---
Net expense $1,494 $2,626 $1,235 $962 $786 $545 $4,567 $4,599 $4,108
===== ===== ===== === === === ===== ===== =====
Weighted-average
assumptions used
to determine benefit
obligations at
December 31 (1)
Discount rate 5.75% 6.00% 6.75% 5.61% 6.12% 6.23% 5.75% 6.25% 6.75%
Rate of compensation 5.0% 5.0% 5.0% 3.2% 3.4% 3.4% 3.9% 4.1% 4.3%
increase
Weighted-average
assumptions used
to determine net expense
for years
ended December 31 (2)
Discount rate 6.00% 6.75% 7.25% 6.12% 6.23% 6.81% 6.25% 6.75% 7.25%
Expected return on plan 9.0% 9.0% 10.0% 8.4% 8.5% 8.8% 8.0% 7.0% 7.9%
assets
Rate of compensation 5.0% 5.0% 5.0% 3.4% 3.4% 3.8% 4.1% 4.3% 4.7%
increase
(1) Determined as of end of year
(2) Determined as of beginning of year
GM sets the discount rate assumption annually for each of its
retirement-related benefit plans at their respective measurement dates to
reflect the yield of a portfolio of high quality, fixed-income debt instruments
matched against the timing and amounts of projected future benefits.
Assumed Health-care Trend Rates at December 31 2004 2003
-------------------------------------------------------------------------
Initial Health-care Cost Trend Rate 10.5% 8.5%
Ultimate Health-care Cost Trend Rate 5.0% 5.0%
Number of Years to Ultimate Trend Rate 6 6
A one percentage point increase in the initial through ultimate assumed
health care trend rates would have increased the Accumulated Postretirement
Benefit Obligation (APBO) by $8.4 billion at December 31, 2004 and the aggregate
service and interest cost components of non-pension postretirement benefit
expense for 2004 by $543 million. A one-percentage point decrease would have
decreased the APBO by $7.0 billion and the aggregate service and interest cost
components of non-pension postretirement benefit expense for 2004 by $384
million.
GM's long-term strategic mix and expected return on assets assumptions are
derived from detailed periodic studies conducted by GM's actuaries and GM's
asset management group. The U.S. study includes a review of alternative asset
allocation strategies, anticipated future long-term performance of individual
asset classes, risks (standard deviations) and correlations for each of the
asset classes that comprise the funds' asset mix. The primary non-U.S. plans
conduct similar studies in conjunction with local actuaries and asset managers.
While the studies give appropriate consideration to recent fund performance and
historical returns, the assumptions are primarily long-term, prospective rates.
II-59
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 16. Pensions and Other Postretirement Benefits (continued)
The capital market assumptions underpinning GM's long-term strategic mix and
long-term expected return assumptions are reexamined annually. Based on a study
conducted in 2002, GM revised its expected long-term return assumption for its
U.S. plans effective January 1, 2003 to 9%, a reduction from its previous level
of 10%. The subsequent reexamination of capital market assumptions in 2004
reaffirmed both the 9% long-term expected return assumption and the changes in
GM's long-term strategic allocation.
The strategic mix for U.S. pension plans that was implemented in the latter
part of 2003 and the first half of 2004 has reduced exposure to equity market
risks and increased allocation to asset classes which are not highly correlated
as well as asset classes where active management has historically generated
excess returns and places greater emphasis on manager skills to produce excess
return while employing various risk mitigation strategies to reduce volatility.
As of December 31, 2004, GM pension assets had the following allocation ranges:
global equity, 41%-49%; global bonds, 30%-36%; real estate, 8%-12%; and
alternatives, 9%-13%. Overall, this strategic policy mix is expected to result
in comparable but less volatile returns than GM's prior asset mix.
Prior to September 30, 2004, VEBA assets were managed with a short-term
portion, which is intended to maintain adequate liquidity for benefit payments,
and a long-term portion, which targets achieving long-term asset returns through
following investment strategies similar to the U.S. pension plans. Based on the
asset allocation to short-term and long-term portion, the blended expected
return on assets assumption for the VEBA was 8.0% in 2004. With the significant
contributions made to the hourly VEBA in 2004, a new investment policy was
adopted during the year to manage plan assets under a single investment policy
with an expanded range of asset classes. The new asset allocation was
implemented on October 1, 2004. For 2005, the expected return for the hourly
VEBA is 9.0%. In addition, in late 2004, a new salaried VEBA was created and
funded. It is primarily invested in shorter-term liquid securities. For 2005,
the expected return for the salaried VEBA is 4.5%.
U.S. and non-U.S. pension plans and OPEB plans have the following asset
allocations, as of their respective measurement dates in 2003 and 2004:
Plan Assets
Primary
Plan Assets Non-U.S. Pension
U.S. Pension Plans Plans Plan Assets OPEB
----------------------------------------------------------
Actual Percentage Actual Percentage Actual Percentage
of of of
Plan Assets Plan Assets Plan Assets
---------------------------------------------------------
Asset Category 2004 2003 2004 2003 2004 2003
-------------- ---- ---- ---- ---- ---- ----
Equity 47% 49% 61% 61% 41% 38%
Securities
Debt 35% 31% 31% 30% 48% 58%
Securities
Real Estate 8% 8% 8% 9% 2% 1%
Other 10% 12% 0% 0% 9% 3%
--- --- --- --- --- ---
Total 100% 100% 100% 100% 100% 100%
=== === === === === ===
Equity securities include GM common stock in the amounts of $29 million (less
than 1% of total pension plan assets) and $41 million (less than 1% of total
pension plan assets) at December 31, 2004 and 2003, respectively.
On December 8, 2003, President Bush signed into law the Medicare Prescription
Drug Improvement and Modernization Act of 2003. The Act introduces a
prescription drug benefit beginning in 2006 under Medicare (Medicare Part D) as
well as a federal subsidy to sponsors of retiree health care benefit plans that
provide a benefit that is at least actuarially equivalent to Medicare Part D.
Due to the levels of benefits provided under GM's U.S. health care plans,
management has concluded that GM's U.S. health care plans are at least
actuarially equivalent to Medicare Part D.
GM elected not to defer accounting for the effects of the Act and remeasured
GM's postretirement benefit obligation as of December 8, 2003. The remeasurement
reduced GM's December 31, 2004 APBO by $4.1 billion, increased plan assets by
$0.4 billion, and decreased the unrecognized actuarial loss by $4.6 billion. The
effect of the Act on 2004 OPEB expense is reflected in the tables above.
In accordance with GAAP, the effect of the Act is not reflected in the table
above for December 31, 2003 data; however it is reflected in December 31, 2004
data.
II-60
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 16. Pensions and Other Postretirement Benefits (concluded)
The following benefit payments, which reflect estimated future employee
service, as appropriate, are expected to be paid (dollars in millions):
Pension Benefits Other Benefits
---------------------------------------------
Gross
Primary Gross Medicare
Non-U.S. Benefit Part D
U.S. Plans Plans Payments Receipts
---------------------------------------------
2005 $6,721 $854 $4,177 $ -
2006 6,745 870 4,306 190
2007 6,786 902 4,501 280
2008 6,840 934 4,731 306
2009 6,874 969 4,939 331
2010-2014 $34,371 $5,414 $26,847 $1,932
NOTE 17. Commitments and Contingent Matters
Commitments
GM had the following minimum commitments under noncancelable capital leases
having remaining terms in excess of one year, primarily for property (dollars in
millions):
2010
2005 2006 2007 2008 2009 and after
---- ---- ---- ---- ---- ---------
Minimum commitments $132 $126 $133 $411 $114 $862
Sublease income (19) (19) (19) (19) (19) (317)
--------------------------------------------
Net minimum commitments $113 $107 $114 $392 $95 $545
============================================
GM had the following minimum commitments under noncancelable operating leases
having remaining terms in excess of one year, primarily for property (dollars in
millions):
2010
2005 2006 2007 2008 2009 and after
---- ---- ---- ---- ---- ---------
Minimum commitments $898 $946 $782 $1,290 $674 $4,249
Sublease Income (236) (237) (239) (237) (230) (2,762)
--------------------------------------------
Net minimum commitments $662 $709 $543 $1,053 $444 $1,487
============================================
Certain of these minimum commitments fund the obligations of non-consolidated
VIEs. Certain of the leases contain escalation clauses and renewal or purchase
options. Rental expenses under operating leases were $990 million, $926 million,
and $985 million in 2004, 2003, and 2002, respectively.
GM sponsors a credit card program, entitled the GM Card program, which offers
rebates that can be applied primarily against the purchase or lease of GM
vehicles. The amount of rebates available to qualified cardholders (net of
deferred program income) was $4.5 billion, $4.1 billion, and $4.0 billion at
December 31, 2004, 2003, and 2002, respectively.
GM has guarantees related to its performance under operating lease
arrangements and the residual value of leased assets totaling $639 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 and service
providers 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 $131 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 December 31, 2004,
approximately $55 million was recorded with respect to these guarantees, the
maximum exposure under which is approximately $7.8 billion.
II-61
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 17. Commitments and Contingent Matters (concluded)
In connection with certain divestitures prior to January 1, 2003, GM has
provided guarantees with respect to benefits for former GM employees relating to
pensions, postretirement health care and life insurance. Due to the nature of
these indemnities, the maximum exposure under these agreements cannot be
estimated. No amounts have been recorded for such indemnities as the
Corporation's obligations under them are not probable and estimable.
In addition to guarantees, GM has entered into agreements indemnifying
certain parties with respect to environmental conditions pertaining to ongoing
or sold GM properties. Due to the nature of the indemnifications, GM's maximum
exposure under these agreements cannot be estimated. No amounts have been
recorded for such indemnities as the Corporation's obligations under them are
not probable and estimable.
In addition to the above, in the normal course of business GM periodically
enters into agreements that incorporate indemnification provisions. While the
maximum amount to which GM may be exposed under such agreements cannot be
estimated, it is the opinion of management that these guarantees and
indemnifications are not expected to have a material adverse effect on the
Corporation's consolidated financial position or results of operations.
Contingent Matters
Litigation is subject to uncertainties and the outcome of individual
litigated matters is not predictable with assurance. Various legal actions,
governmental investigations, claims, and proceedings are pending against the
Corporation, including those arising out of alleged product defects;
employment-related matters; governmental regulations relating to safety,
emissions, and fuel economy; product warranties; financial services; dealer,
supplier, and other contractual relationships; and environmental matters.
GM has established reserves for matters in which losses are probable and can
be reasonably estimated. Some of the matters may involve compensatory, punitive,
or other treble damage claims, or demands for recall campaigns, environmental
remediation programs, or sanctions, that if granted, could require the
Corporation to pay damages or make other expenditures in amounts that could not
be estimated at December 31, 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.
NOTE 18. Stockholders' Equity
The following table presents changes in capital stock for the period from
January 1, 2002 to December 31, 2004 (dollars in millions):
Common Stocks
----------------- Total
$1-2/3 Capital
Par Value Class H Stock
--------- ------- -------
Balance at January 1, 2002 $932 $88 $1,020
Shares issued 4 8 12
--- -- -----
Balance at December 31, 2002 936 96 1,032
Shares issued 1 15 16
Hughes split-off - (111) (111)
--- --- ---
Balance at December 31, 2003 937 - 937
Shares issued 5 - 5
--- - ---
Balance at December 31, 2004 $942 $ - $942
=== === ===
GM Class H Stock
Effective December 22, 2003, GM split off Hughes by distributing Hughes
common stock to the holders of GM Class H common stock in exchange for all
outstanding shares of GM Class H common stock. All shares of GM Class H common
stock were then cancelled.
Preference Stock
On June 24, 2002, approximately 2.7 million shares of GM Series H 6.25%
Automatically Convertible Preference Stock held by AOL Time Warner (AOL)
mandatorily converted into approximately 80 million shares of GM Class H common
stock as provided for pursuant to the terms of the preference stock. GM
originally issued the shares of preference stock to AOL in 1999 in connection
with AOL's $1.5 billion investment in, and its strategic alliance with, Hughes.
The preference stock accrued quarterly dividends at a rate of 6.25% per year. No
GM preference stock has been issued or outstanding since.
II-62
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 18. Stockholders' Equity (concluded)
Common Stocks
The liquidation rights of the GM $1-2/3 par value common stock are subject to
certain adjustments if outstanding common stock is subdivided, by stock split or
otherwise.
Other Comprehensive Income
The changes in the components of other comprehensive income (loss) are
reported net of income taxes, as follows (dollars in millions):
[Enlarge/Download Table]
Years Ended December 31,
-----------------------------------------------------------------------------------
2004 2003 2002
-----------------------------------------------------------------------------------
Pre-tax Tax Exp. Net Pre-tax Tax Exp. Net Pre-tax Tax Epx. Net
Amount (Credit) Amount Amount (Credit) Amount Amount (Credit) Amount
------ ------ ------ ------ ------ ------ ------ ------ ------
Foreign currency
translation
adjustments $1,237 $616 $621 $1,642 $673 $969 $67 $(18) $85
Unrealized (loss) gain
on securities:
Unrealized
holding (loss)
gain 299 114 185 465 166 299 (501) (166) (335)
Reclassification
adjustment (80) (28) (52) (84) (31) (53) 611 220 391
--- --- --- --- --- --- --- --- ---
Net unrealized gain 219 86 133 381 135 246 110 54 56
Minimum pension
liability
adjustment (874) (303) (571) 33,378 12,623 20,755 (21,746) (8,127) (13,619)
Net unrealized gain
on Derivatives 701 163 538 329 73 256 151 49 102
Amounts attributable to
Hughes - - - - - - (300) (139) (161)
----- --- --- ------- ------ ------ ------ ------ -------
Other comprehensive
income (loss) $1,283 $562 $721 $35,730 $13,504 $22,226 $(21,718) $(8,181) $(13,537)
===== === === ====== ====== ====== ====== ====== =======
NOTE 19. Earnings Per Share Attributable to Common Stocks
Earnings per share (EPS) attributable to each class of GM common stock was
determined based on the attribution of earnings to each such class of common
stock for the period divided by the weighted-average number of common shares for
each such class outstanding during the period. Diluted EPS attributable to each
class of GM common stock considers the effect of potential common shares, unless
the inclusion of the potential common shares would have an antidilutive effect.
The attribution of earnings to each class of GM common stock was as follows
(dollars in millions):
Years Ended December 31,
---------------------------
2004 2003 2002
---- ---- ----
Earnings attributable to common stocks
$1-2/3 par value
Continuing operations $2,805 $2,862 $1,975
Discontinued operations - (48) (90)
Gain on sale of discontinued operations - 1,249 -
----- ----- -----
Earnings attributable to $1-2/3 par value $2,805 $4,063 $1,885
Earnings from discontinued operations
attributable to Class H $ - $(241) $(195)
----- --- ---
Total earnings attributable to common stocks $2,805 $3,822 $1,690
====== ===== =====
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
periods for which GM H stock was outstanding.
The calculated losses used for computation of the ASCNI of Hughes are then
multiplied by a fraction, the numerator of which is equal to the
weighted-average number of shares of GM Class H common stock outstanding (1.1
billion as of December 22, 2003, and 920 million as of December 31, 2002) and
the denominator of which is a number equal to the weighted-average number of
shares of GM Class H common stock which if issued and outstanding would
represent a 100% interest in the earnings of Hughes (the "Average Class H
dividend base"). The Average Class H dividend base was 1.4 billion at December
22, 2003, and 1.3 billion as of December 31, 2002.
II-63
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 19. Earnings Per Share Attributable to Common Stocks (continued)
The reconciliation of the amounts used in the basic and diluted earnings
per share computations for income from continuing operations was as follows
(dollars in millions except per share amounts):
$1-2/3 Par Value Common Stock
-------------------------------
Per Share
Income Shares Amount
Year ended December 31, 2004
Basic EPS
Income from continuing operations
attributable to common stocks $2,805 565 $4.97
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 2
----- ----
Diluted EPS
Adjusted income attributable to common
stocks $2,805 567 $4.95
===== === ====
Year ended December 31, 2003
Basic EPS
Income from continuing operations
attributable to common stocks $2,862 561 $5.10
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 8
----- ----
Diluted EPS
Adjusted income attributable to common
stocks $2,862 569 $5.03
===== === ====
Year ended December 31, 2002
Basic EPS
Income from continuing operations
attributable to common stocks $1,975 560 $3.53
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 2
----- ----
Diluted EPS
Adjusted income attributable to common
stocks $1,975 562 $3.51
===== === ====
Certain stock options and convertible securities were not included in the
computation of diluted earnings per share for the periods presented since the
instruments' underlying exercise prices were greater than the average market
prices of GM $1-2/3 par value common stock and inclusion would be antidilutive.
Such shares not included in the computation of diluted earnings per share were
88 million, 176 million, and 66 million as of December 31, 2004, 2003 and 2002,
respectively.
As of December 31, 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." 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
II-64
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 19. Earnings Per Share Attributable to Common Stocks (concluded)
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 the investor requires GM to repurchase the debentures (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).
No shares potentially issuable to satisfy the in-the-money-amount of the
convertible debentures have been included in diluted earnings per share as of
December 31, 2004, as the convertible debentures have not met the requirements
for conversion.
NOTE 20. Derivative Financial Instruments and Risk Management
GM is exposed to market risk from changes in foreign currency exchange rates,
interest rates, and certain commodity prices. In the normal course of business,
GM enters into a variety of foreign exchange, interest rate, and commodity
forward contracts, swaps, and options, with the objective of minimizing exposure
arising from these risks. A risk management control system is utilized to
monitor foreign exchange, interest rate, commodity, and related hedge positions.
Cash Flow Hedges
GM uses financial instruments designated as cash flow hedges to hedge the
Corporation's exposure to foreign currency exchange risk associated with buying,
selling, and financing in currencies other than the local currencies in which it
operates, and to variability in cash flows related to its exposure to commodity
price risk associated with changes in prices of commodities used in its
automotive business, primarily nonferrous metals used in the manufacture of
automotive components and to hedge exposure to variability in cash flows related
to floating rate and foreign currency financial instruments. For transactions
denominated in foreign currencies, GM typically hedges forecasted and firm
commitment exposures up to three years in the future. For commodities, GM
typically hedges exposures up to three years in the future. For the year ended
December 31, 2004, hedge ineffectiveness associated with instruments designated
as cash flow hedges decreased cost of sales and other expenses by $26 million.
For the year ended December 31, 2003, hedge ineffectiveness associated with
instruments designated as cash flow hedges decreased cost of sales and other
expenses by $19 million. Derivative gains and losses included in other
comprehensive income are reclassified into earnings at the time that the
associated hedged transactions impact the income statement. For the year ended
December 31, 2004, net derivative gains of $245 million were reclassified to
cost of sales and other expenses. For the year ended December 31, 2003, net
derivative gains of $245 million were likewise reclassified. These net losses/
gains were offset by net gains/losses on the transactions being hedged.
Approximately $157 million of net derivative gains included in other
comprehensive income at December 31, 2004, is expected to be reclassified into
earnings within 12 months from that date. During 2004, there were net gains of
approximately $26 million which were reclassified into earnings as a result of
discontinuance of cash flow hedges because it is probable that the original
forecasted transactions will not occur.
Fair Value Hedges
GM uses financial instruments designated as fair value hedges to manage
certain of the Corporation's exposure to interest rate risk. GM is subject to
market risk from exposures to changes in interest rates due to its financing,
investing, and cash management activities. A variety of instruments is used to
hedge GM's exposure associated with its fixed rate debt and mortgage servicing
rights (MSRs). For the year ended December 31, 2004, hedge ineffectiveness
associated with instruments designated as fair value hedges, primarily due to
hedging of MSRs, decreased selling, general, and administrative expenses by $104
million and decreased selling, general, and administrative expenses by $391
million in 2003. Changes in time value of the instruments (which are excluded
from the assessment of hedge effectiveness) decreased selling, general, and
administrative expenses by $180 million in 2004 and $175 million in 2003.
II-65
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 20. Derivative Financial Instruments and Risk Management (concluded)
Net Investment Hedges
GM uses foreign currency denominated debt to hedge the foreign currency
exposure of its net investments in foreign operations. Foreign currency
translation gains and losses related to these debt instruments are recorded in
Other Comprehensive Loss as a foreign currency translation adjustment. For the
years ended December 31, 2004 and 2003, a $64 million and $48 million unrealized
loss were recorded in accumulated foreign currency translation.
Undesignated Derivative Instruments
Forward contracts and options not designated as hedging instruments under
SFAS No. 133 may also be used to hedge certain foreign currency, commodity, and
interest rate exposures. Unrealized gains and losses on such instruments are
recognized currently in earnings.
NOTE 21. Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined using
available market information or other appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value; therefore, the estimates are not necessarily
indicative of the amounts that could be realized or would be paid in a current
market exchange. The effect of using different market assumptions and/or
estimation methodologies may be material to the estimated fair value amounts.
Book and estimated fair values of financial instruments, for which it is
practicable to estimate fair value, were as follows (dollars in millions):
December 31,
-----------------------------------------
2004 2003
------------------------------------------
Automotive and Other Operations Book Value Fair Value Book Value Fair Value
---------- ---------- ---------- ----------
Assets
Other assets (1) $841 $520 $771 $500
Derivative assets $2,089 $2,089 $1,234 $1,234
Liabilities
Long-term debt (2) $30,460 $31,276 $29,593 $31,859
Other liabilities (1) $537 $591 $528 $571
Derivative liabilities $724 $724 $356 $356
Financing and Insurance Operations
Assets
Finance receivables - net (3) $199,600 $199,827 $174,769 $177,216
Derivative assets $9,489 $9,489 $10,026 $10,026
Liabilities
Debt (2) $267,757 $268,813 $239,350 $244,641
Derivative liabilities $953 $953 $1,196 $1,196
Other liabilities $4,230 $4,106 $1,754 $1,660
(1) Other assets include various financial instruments (e.g., long-term
receivables and certain investments) that have fair values based on
discounted cash flows, market quotations, and other appropriate valuation
techniques. The fair values of retained subordinated interests in trusts
and excess servicing assets (net of deferred costs) were derived by
discounting expected cash flows using current market rates. Estimated
values of Industrial Development Bonds, included in other liabilities,
were based on quoted market prices for the same or similar issues.
(2) Long-term debt has an estimated fair value based on quoted market prices
for the same or similar issues or based on the current rates offered to
GM for debt of similar remaining maturities.
(3) The fair value was estimated by discounting the future cash flows using
applicable spreads to approximate current rates applicable to each
category of finance receivables.
Due to their short-term nature, the book value approximates fair value for
cash and marketable securities, accounts and notes receivable (less allowances),
accounts payable (principally trade), Auto & Other loans payable and FIO debt
payable within one year for the periods ending December 31, 2004 and 2003.
II-66
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 22. Stock Incentive Plans
GM's stock incentive plans consist of the General Motors 2002 Stock Incentive
Plan, formerly the 1997 General Motors Amended Stock Incentive Plan (GMSIP), the
General Motors 1998 Salaried Stock Option Plan (GMSSOP), the General Motors 1997
Performance Achievement Plan (GMPAP), and the General Motors 2002 Long Term
Incentive Plan (GMLTIP). The GMSIP, the GMPAP, and the GMLTIP are administered
by the Executive Compensation Committee of the GM Board. The GMSSOP is
administered by the Vice President of Global Human Resources.
Under the GMSIP, 27.4 million shares of GM $1-2/3 par value common stock may
be granted from June 1, 2002, through May 31, 2007, of which approximately 10.9
million were available for grants at December 31, 2004. Any shares granted and
undelivered under the GMSIP, due primarily to expiration or termination, become
again available for grant. Options granted prior to 1997 under the GMSIP
generally are exercisable one-half after one year and one-half after two years
from the dates of grant. Stock option grants awarded since 1997 vest ratably
over three years from the date of grant. Option prices are 100% of fair market
value on the dates of grant and the options generally expire 10 years from the
dates of grant, subject to earlier termination under certain conditions.
Under the GMSSOP, which commenced January 1, 1998 and ends December 31, 2007,
the number of shares of GM $1-2/3 par value common stock that may be granted
each year is determined by management. Approximately 0.4 million shares of GM
$1-2/3 par value common stock were available for grants at December 31, 2004.
Stock options vest one year following the date of grant and are exercisable two
years from the date of grant. Option prices are 100% of fair market value on the
dates of grant and the options generally expire 10 years and two days from the
dates of grant subject to earlier termination under certain conditions.
The GMPAP and the GMLTIP consist of award opportunities granted to
participants that are based on the achievement of specific corporate business
criteria. The target number of shares of GM $1 2/3 par value common stock that
may be granted each year is determined by management. These grants are subject
to a three-year performance period and the final award payout may vary based on
the achievement of those criteria. As of December 31, 2004, a total of 4.0
million shares had been granted as award opportunities under the GMPAP and the
GMLTIP. This is the targeted number of shares that would finally be granted
should all corporate business criteria be achieved.
Number of Number of
securities to be Weighted average securities
issued upon exercise price remaining
exercise of of outstanding available for
Plan Category outstanding options, future issuance
options, warrants and under equity
warrants and rights compensation
rights plans (1)
--------------------------------------------------------------------------------
Equity compensation plans
approved by security holders:
GMSIP 79,455,293 $54.53 10,873,308
Equity compensation plans not
approved by security holders (2):
GMSSOP 27,590,626 $55.17 394,335
--------------------------------------------------------------------------------
Total 107,045,919 $54.69 11,267,643
--------------------------------------------------------------------------------
(1) Excludes securities reflected in the first column, "Number of securities to
be issued upon exercise of outstanding options, warrants and rights."
(2) All equity compensation plans except the GMSSOP were approved by the
stockholders. The GMSSOP was adopted by the Board of Directors in 1998 and
expires December 31, 2007. The purpose of the plans is to recognize the
importance and contribution of GM employees in the creation of stockholder
value, to further align compensation with business success and to provide
employees with the opportunity for long-term capital accumulation through
the grant of options to acquire shares of General Motors common stock.
II-67
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 22. Stock Incentive Plans (continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
2004 2003 2002
------------------------------------------------------
GM GM GM GM GM GM
SIP SSOP SIP SSOP SIP SSOP
--- ---- --- ---- --- ----
Interest rate 3.1% 3.1% 2.9% 2.9% 4.3% 4.3%
Expected life
(years) 5.0 5.0 5.0 5.0 5.0 5.0
Expected volatility 33.9% 33.9% 35.4% 35.4% 34.6% 34.6%
Dividend yield 3.7% 3.7% 5.0% 5.0% 4.0% 4.0%
Changes in the status of outstanding options were as follows:
GMSIP GMSSOP
$1-2/3 Par Value Common $1-2/3 Par Value Common
------------------------------------------------
Weighted- Weighted-
Shares Average Shares Average
under Exercise under Exercise
Option Price Option Price
Options outstanding at
January 1, 2002 52,942,126 $57.52 14,077,981 $63.22
Granted 17,294,937 $50.53 5,015,553 $50.46
Exercised 2,729,511 $40.46 71,663 $46.59
Terminated 1,685,392 $55.28 64,672 $62.39
--------------------------------------------------------------------------------
Options outstanding at
December 31, 2002 65,822,160 $56.45 18,957,199 $59.91
Granted 11,148,605 $40.06 5,666,127 $40.05
Exercised 1,489,170 $42.28 - -
Terminated 996,029 $55.06 233,270 $56.92
--------------------------------------------------------------------------------
Options outstanding at
December 31, 2003 74,485,566 $54.38 24,390,056 $55.33
Granted 8,055,460 $53.83 3,315,479 $53.92
Exercised 1,346,996 $40.77 31,320 $47.92
Terminated 1,738,737 $55.26 83,589 $54.02
--------------------------------------------------------------------------------
Options outstanding at
December 31, 2004 79,455,293 $54.53 27,590,626 $55.17
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Options exercisable at
December 31, 2002 38,094,946 $58.18 10,098,994 $67.48
--------------------------------------------------------------------------------
December 31, 2003 48,932,216 $58.56 13,825,058 $63.29
--------------------------------------------------------------------------------
December 31, 2004 59,445,049 $56.69 18,667,303 $59.94
--------------------------------------------------------------------------------
II-68
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 22. Stock Incentive Plans (concluded)
The following table summarizes information about GM's stock option plans at
December 31, 2004:
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Options Contractual Exercise Options Exercise
Exercise Prices Outstanding Life (yrs.) Price Exercisable Price
-------------------------------------------------------------------------------
GMSIP $1-2/3 Par Value Common
$21.00 to $39.99 475,195 2.3 $34.16 403,465 $33.61
40.00 to 49.99 23,567,137 5.0 $42.75 16,514,153 $43.89
50.00 to 59.99 35,364,084 7.1 $51.96 22,478,554 $51.62
60.00 to 83.50 20,048,877 4.5 $73.40 20,048,877 $73.40
-------------------------------------------------------------------------------
$21.00 to $83.50 79,455,293 5.8 $54.53 59,445,049 $56.69
-------------------------------------------------------------------------------
GMSSOP $1-2/3 Par Value Common
$40.05 5,609,069 8.1 $40.05 - $-
46.59 2,236,818 3.0 $46.59 2,236,818 $46.59
50.46 4,908,553 7.0 $50.46 4,908,553 $50.46
52.35 3,808,686 6.0 $52.35 3,808,686 $52.35
53.92 3,314,254 9.1 $53.92 - $-
71.53 3,728,496 4.0 $71.53 3,728,496 $71.53
75.50 3,984,750 5.0 $75.50 3,984,750 $75.50
-------------------------------------------------------------------------------
$40.05 to $75.50 27,590,626 6.3 $55.17 18,667,303 $59.94
-------------------------------------------------------------------------------
NOTE 23. Other Income
Other income (included in total net sales and revenues) consisted of the
following (dollars in millions):
Years Ended December 31,
--------------------------
2004 2003 2002
---- ---- ----
Automotive and Other Operations
Interest income $816 $1,389 $905
Rental car lease revenue 2,112 1,460 1,214
Claims, commissions, and grants 1,097 916 846
Gain on sale of GM Defense - 814 -
Other 792 400 239
----- ----- -----
Total other income $4,817 $4,979 $3,204
===== ===== =====
Years Ended December 31,
--------------------------
2004 2003 2002
---- ---- ----
Financing and Insurance Operations
Interest income $807 $684 $417
Insurance premiums 3,528 3,178 2,678
Mortgage banking revenue 2,969 4,204 3,417
Automotive securitization income 753 760 1,028
Other 3,280 2,303 2,448
------ ------ -----
Total other income $11,337 $11,129 $9,988
====== ====== =====
II-69
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 24: Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," established standards for reporting information about operating
segments in financial statements. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance. GM's
chief operating decision maker is the Chief Executive Officer. The operating
segments are managed separately because each operating segment represents a
strategic business unit that offers different products and serves different
markets.
GM's reportable operating segments within its Auto & Other business consist
of General Motors Automotive (GMA) (which is comprised of four regions: GMNA,
GME, GMLAAM, GMAP), and Other. GMNA designs, manufactures, and/or markets
vehicles primarily in North America under the following nameplates: Chevrolet,
Pontiac, GMC, Oldsmobile, Buick, Cadillac, Saturn, and HUMMER. GME, GMLAAM, and
GMAP primarily meet the demands of customers outside North America with vehicles
designed, manufactured, and marketed under the following nameplates: Opel,
Vauxhall, Holden, Saab, Buick, Chevrolet, GMC, and Cadillac. The Other segment
includes the design, manufacturing, and marketing of locomotives, the
elimination of intersegment transactions, certain non-segment specific revenues
and expenditures, and certain corporate activities. GM's reportable operating
segments within its FIO business consist of GMAC and Other. GMAC provides a
broad range of financial services, including consumer vehicle financing,
full-service leasing and fleet leasing, dealer financing, car and truck extended
service contracts, residential and commercial mortgage services, commercial and
vehicle insurance, and asset-based lending. The Financing and Insurance
Operations' Other segment includes financing entities that are not consolidated
by GMAC.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that the
disaggregated financial results have been prepared using a management approach,
which is consistent with the basis and manner in which GM management internally
disaggregates financial information for the purposes of assisting in making
internal operating decisions. GM evaluates performance based on stand-alone
operating segment net income and generally accounts for intersegment sales and
transfers as if the sales or transfers were to third parties, that is, at
current market prices. Revenues are attributed to geographic areas based on the
location of the assets producing the revenues.
II-70
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 24. Segment Reporting (continued)
[Enlarge/Download Table]
Auto & Other Total
GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing
---- --- ------ ---- --- ---- ----- ---- --------- ---------
2004 (dollars in millions)
Manufactured products sales and revenues:
External customers $112,881 $29,126 $8,045 $5,775 $155,827 $901 $156,728 $ - $ - $ -
Intersegment (2,602) 1,030 673 903 4 (4) - - - -
-------- ------ ------ ------ ------- --- ------- -- -- --
Total manufactured products 110,279 30,156 8,718 6,678 155,831 897 156,728 - - -
Financing revenue - - - - - - - 20,331 304 20,635
Other income 4,266 664 74 300 5,304 (487) 4,817 10,857 480 11,337
------- ------ ----- ----- ------- --- ------- ------ --- ------
Total net sales and revenues $114,545 $30,820 $8,792 $6,978 $161,135 $410 $161,545 $31,188 $784 $31,972
======= ====== ===== ===== ======= === ======= ====== === ======
Depreciation and amortization $6,381 $1,779 $195 $235 $8,590 $39 $8,629 $5,299 $224 $5,523
Interest income (a) $1,026 $392 $20 $13 $1,451 $(635) $816 $1,117 $(310) $807
Interest expense $2,729 $403 $74 $21 $3,227 $(747) $2,480 $9,535 $(35) $9,500
Income tax expense (benefit) $(559) $(655) $31 $(11) $(1,194) $(1,131) $(2,325) $1,434 $(20) $1,414
Earnings (losses) of
nonconsolidated associates $40 $102 $(3) $666 $805 $(16) $789 $(6) $ - $(6)
Net income (loss) from
continuing operations $1,583 $(976) $85 $729 $1,421 $(1,510) $(89) $2,913 $(19) $2,894
Investments in nonconsolidated
affiliates $482 $1,476 $276 $4,541 $6,775 $1 $6,776 $179 $(179) $ -
Segment assets $126,849 $26,485 $4,193 $4,970 $162,497 $(3,194) $159,303 $324,139 $(1,413) $322,726
Expenditures for property $5,163 $1,331 $158 $496 $7,148 $136 $7,284 $470 $(1) $469
2003
Manufactured products sales and revenues:
External customers $114,756 $25,960 $4,755 $4,578 $150,049 $803 $150,852 $ - $ - $ -
Intersegment (2,044) 946 555 543 - - - - - -
------- ------ ----- ----- ------- --- ------- -- -- --
Total manufactured products 112,712 26,906 5,310 5,121 150,049 803 150,852 - - -
Financing revenue - - - - - - - 18,247 630 18,877
Other income 3,598 572 77 217 4,464 515 4,979 11,101 28 11,129
------- ------ ----- ----- ------- ----- ------- ------ --- ------
Total net sales and revenues $116,310 $27,478 $5,387 $5,338 $154,513 $1,318 $155,831 $29,348 $658 $30,006
======= ====== ===== ===== ======= ===== ======= ====== === ======
Depreciation and amortization $6,199 $1,211 $248 $233 $7,891 $55 $7,946 $5,279 $288 $5,567
Interest income (a) $1,445 $375 $36 $4 $1,860 $(471) $1,389 $937 $(253) $684
Interest expense $1,762 $343 $119 $11 $2,235 $(455) $1,780 $7,564 $120 $7,684
Income tax expense (benefit) $171 $(303) $(149) $44 $(237) $(632) $(869) $1,591 $9 $1,600
Earnings (losses) of
nonconsolidated associates $113 $102 $7 $560 $782 $(48) $734 $(3) $(4) $(7)
Net income (loss) from
continuing operations $811 $(504) $(331) $577 $553 $(518) $35 $2,793 $34 $2,827
Investments in nonconsolidated
affiliates $462 $1,139 $431 $3,944 $5,976 $56 $6,032 $50 $(50) -
Segment assets $130,279 $23,835 $3,039 $3,349 $160,502 $1,283 $161,785 $288,163 $51 $288,214
Expenditures for property $4,650 $1,202 $110 $576 $6,538 $78 $6,616 $473 $2 $475
See notes on next page
II-71
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 24. Segment Reporting (continued)
[Enlarge/Download Table]
Auto & Other Total
GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing
---- --- ------ ---- --- ---- ----- ---- --------- ---------
2004 (dollars in millions)
Manufactured products sales and revenues:
External customers $115,041 $22,409 $4,698 $3,663 $145,811 $1,253 $147,064 $ - $ - $ -
Intersegment (2,038) 1,057 327 654 - (18) (18) - - -
------- ------ ----- ----- ------- ----- ------- --- --- ---
Total manufactured products 113,003 23,466 5,025 4,317 145,811 1,235 147,046 - - -
Financing revenue - - - - - - - 16,880 749 17,629
Other income 2,806 446 85 207 3,544 (340) 3,204 10,003 (15) 9,988
------- ------ ----- ----- ------- ----- ------- ------ --- -----
Total net sales and revenues $115,809 $23,912 $5,110 $4,524 $149,355 $895 $150,250 $26,883 $734 $27,617
======= ====== ===== ===== ======= === ======= ====== === ======
Depreciation and amortization $4,853 $1,080 $178 $143 $6,254 $70 $6,324 $4,840 $405 $5,245
Interest income (a) $1,003 $316 $24 $12 $1,355 $(450) $905 $687 $(270) $417
Interest expense $738 $304 $145 $8 $1,195 $(716) $479 $6,834 $190 $7,024
Income tax expense (benefit) $1,213 $(436) $(76) $55 $756 $(1,134) $(378) $1,071 $(49) $1,022
Earnings (losses) of
nonconsolidated associates $46 $76 $(3) $231 $350 $11 $361 $(1) $(7) $(8)
Net income (loss) from
continuing operations $2,992 $(1,011) $(181) $188 $1,988 $(1,895) $93 $1,870 $12 $1,882
Investments in nonconsolidated
affiliates $534 $890 $397 $3,233 $5,054 $43 $5,097 $237 $(237) $ -
Segment assets $105,382 $20,344 $3,035 $1,689 $130,450 $(7,129) $141,974 $227,728 $440 $228,168
(b)
Expenditures for property $4,448 $1,448 $200 $263 $6,359 $55 $6,414 $451 $6 $457
(a) Interest income is included in net sales and revenues from external
customers.
(b) Includes assets of discontinued operations of $18,653 at December 31, 2002.
II-72
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 24. Segment Reporting (concluded)
Information concerning principal geographic areas was as follows (dollars in
millions):
2004 2003 2002
------------------------------------------------------
Net Sales Long Net Sales Long Net Sales Long
& Lived & Lived & Lived
Revenues Assets (1)Revenues Assets(1) Revenue Assets(1)
--------- --------- -------- --------- -------- -------
North America
United States $134,380 $46,712 $133,955 $47,354 $130,552 $45,964
Canada and Mexico 15,484 10,443 14,667 8,530 15,049 6,897
------ ------ -------- ------- -------- ------
Total North America 149,864 57,155 148,622 55,884 145,601 52,861
Europe
France 2,669 262 2,429 216 2,073 183
Germany 6,710 4,479 5,945 3,996 5,363 3,244
Spain 2,661 1,181 2,143 1,256 1,721 1,076
United Kingdom 7,563 2,273 6,480 2,244 5,513 2,096
Other 13,622 3,805 12,356 3,537 10,450 2,953
------ ----- ------- ------ ------ -----
Total Europe 33,225 12,000 29,353 11,249 25,120 9,552
Latin America
Brazil 2,987 609 2,328 584 2,487 619
Other Latin America 2,611 180 1,685 186 2,287 185
----- --- ----- --- ----- ---
Total Latin America 5,598 789 4,013 770 4,774 804
All Other 4,830 3,290 3,849 2,820 2,372 2,404
------ ------ ------- ------ ------- ------
Total $193,517 $73,234 $185,837 $70,723 $177,867 $65,621
======= ====== ======= ====== ======= ======
(1) Consists of property (Note 11), equipment on operating leases (Note 9), net
of accumulated depreciation.
NOTE 25. Subsequent Events
On February 3, 2005 GM completed the purchase of 16.6 million newly-issued
shares of common stock in GM-DAT for approximately $49 million. This increased
GM's ownership in GM-DAT to 48.2% from 44.6%. No other shareholders in GM-DAT
participated in the issue.
On February 13, 2005 GM and Fiat reached a settlement agreement whereby GM
will pay Fiat approximately $2.0 billion and will return its 10% equity interest
in FAH to terminate the Master Agreement (including the Put Option) entered into
in March 2000, settle various disputes related thereto, and acquire an interest
in key strategic diesel engine assets, and other important rights with respect
to diesel engine technology and know-how. The settlement agreement results in a
pre-tax charge to earnings of approximately $1.4 billion ($886 million after tax
or $1.56 per fully diluted share). Since the underlying events and disputes
giving rise to GM's and Fiat's agreement to settle these disputes and terminate
the Master Agreement (including the Put Option) existed at December 31, 2004,
GM recognized this charge in the fourth quarter of 2004. This charge was
recorded in cost of sales and other expenses in Other
Operations.
In addition, the settlement agreement includes, among other things, the
following actions or provisions:
o The Fiat-GM Powertrain (FGP) joint venture company will be dissolved
and GM will regain complete ownership of all GM assets originally
contributed. During a transition period, FGP will continue to supply both
companies so that their respective operations will not be disrupted.
o GM will retain co-ownership with Fiat of the key powertrain intellectual
property, including SDE and JTD diesel engines and the M20-32 six-speed
manual transmission;
o GM will hold a 50% interest in a joint venture limited to operating the
powertrain manufacturing plant in Bielsko-Biala, Poland, that currently
produces the 1.3 liter SDE diesel engine;
o The companies will continue to supply each other with powertrains under long
term contracts which provide considerable ongoing savings;
o GM and Fiat will also continue to work together to develop certain car
programs;
o Fiat will participate in GM's purchasing alliance program; GM and Fiat have
exchanged broad releases of all claims and liabilities.
II-73
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded
NOTE 25. Subsequent Events (concluded)
GM announced on March 1, 2005 that it would permanently lay off approximately
3,000 employees at GM's assembly plant in Lansing, Michigan. The products built
there (Chevrolet Classic and Pontiac Grand Am) have reached the end of their
lifecycles and market demand for these products has declined over time and does
not support continuing production of these vehicles. Therefore, both products
are being discontinued and production at the plant is being discontinued
overall. GM expects the lay-offs to occur during the second quarter of 2005. GM
will recognize a pre-tax charge of approximately $121 million ($79 million after
tax) for the write-down to fair market value of various plant assets in the
first quarter of 2005. Continued payment of compensation and other benefits to
laid-off employees is estimated to be $20 million per month, which is expected
to decline as employees are redeployed, retire, or otherwise terminate their
employment.
II-74
[Enlarge/Download Table]
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
Selected Quarterly Data (Unaudited)
2004 Quarters (1)
--------------------------------------------------------------------------------------
1st 2nd 3rd 4th (2)
---- ---- --- ----
As As As As
previously previously previously previously
reported Restated reported Restated reported Restated reported Restated
------------ -------- ------------- -------- ------------ -------- ------------ --------
(dollars in millions except per share amounts)
Total net sales and revenues $47,852 $47,862 $49,279 $49,293 $44,977 $44,934 $51,344 $51,428
Income (losses) from continuing
operations before income taxes
and minority interests $1,301 $1,264 $1,457 $1,466 $338 $175 $(527) $(1,713)
Income tax expense (benefit) 273 308 306 302 71 10 (1,070) (1,531)
Minority interests (23) (23) (23) (23) (12) (12) (23) (23)
Earnings of nonconsolidated associates 275 275 213 236 185 162 110 110
----- ----- ----- ----- --- --- --- ---
Net income $1,280 $1,208 $1,341 $1,377 $440 $315 $630 $(95)
===== ===== ===== ===== === === === ===
Basic earnings (losses)
per share attributable
to $1-2/3 par value $2.27 $2.14 $2.37 $2.44 $0.78 $0.56 $1.12 $(0.17)
==== ==== ==== ==== ==== ==== ==== ====
Average number of shares of common stock
outstanding - basic (in millions)
$1-2/3 par value 564 564 565 565 565 565 565 565
Earnings (loss) per share attributable to
common stock assuming dilution
$1-2/3 par value $2.25 $2.12 $2.36 $2.42 $0.78 $0.56 $1.11 $(0.17)
==== ==== ==== ==== ==== ==== ==== ====
Average number of shares of common stock
outstanding - diluted (in millions)
$1-2/3 par value 569 569 568 568 567 567 566 566
Net income by reportable operating segment /
region
Automotive and Other Operations
GMNA $451 $401 $328 $355 $(22) $(88) $878 $915
GME (116) (116) (45) (45) (236) (236) (579) (579)
GMLAAM 1 1 10 10 27 27 47 47
GMAP 275 275 236 259 101 78 117 117
Other Operations (117) (117) (34) (34) (83) (83) (442) (1,276)
---- ----- ---- ---- --- --- --- -----
Net income (loss) - Automotive and Other
Operations 494 444 495 545 (213) (302) 21 (776)
Financing and Insurance Operations
Net income - Financing and Insurance 786 764 846 832 653 617 609 681
----- ----- ----- --- --- --- --- ---
Operations
Net income $1,280 $1,208 $1,341 $1,377 $440 $315 $630 $(95)
===== ===== ===== ===== === === === ====
II-75
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
Selected Quarterly Data (Unaudited) (continued)
(1) Out-of-period adjustments
GM is making certain adjustments to restate previously reported
financial results for the first three quarters of 2004 and revise
previously announced fourth quarter 2004 results that do not affect GM's
2004 total annual results, cash flows or year-end 2004 financial position.
None of the adjustments that gave rise to the restatements were
individually material to the Corporation's 2004 quarterly and annual
consolidated financial statements.
The quarterly restatements were initiated by the identification of
certain out-of-period adjustments in the fourth quarter of 2004 by
internal controls that had been put in place in connection with GM's
Sarbanes-Oxley Section 404 program at GMAC's residential mortgage
businesses. The majority of these amounts resulted from items detected and
recorded in the fourth quarter of 2004 that relate to prior 2004 quarters.
The most significant of these adjustments relate to: (1) the estimation
of fair values of certain interests in securitized assets, (2) the
accounting for deferred income taxes related to certain secured financing
transactions; and (3) the income statement effects of consolidating certain
mortgage transfers previously recognized as sales.
Upon identification of these out-of-period adjustments, GM analyzed
their effect, together with the effect of out-of-period adjustments
related to Auto & Other that had been previously considered immaterial to
GM on a consolidated basis, and concluded that, in the aggregate, they
were significant enough to warrant restatement of GM's 2004 quarterly
results. The most significant of the Auto & Other out-of-period
adjustments relates to GM's accounting for the Medicare Prescription Drug,
Improvement and Modernization Act of 2003, which was initially reported in
the first quarter of 2004 pursuant to FASB Staff Position (FSP) No. FAS
106-1. FSP 106-1 permitted companies to recognize the effect of the Act
beginning with its enactment date (December 8, 2003), or defer recognition
until the issuance of final rules by the FASB. In the second quarter of
2004, FSP 106-2 was issued which clarified how to account for the effect
of the Act under circumstances where a company's OPEB plan has a plan
year-end that is different from the company's fiscal year-end. This second
quarter clarification provided guidance on the accounting for the effect
of the Act in a manner different than GM had previously applied.
Fiat settlement
On February 13, 2005 GM and Fiat reached a settlement agreement. The
settlement agreement results in a pre-tax charge to earnings of
approximately $1.4 billion ($886 million after tax or $1.56 per fully
diluted share). Since the underlying events and disputes giving rise to
GM's and Fiat's agreement existed at December 31, 2004, GM recognized this
charge in the fourth quarter of 2004, recording it in cost of sales and
other expenses in Other Operations. See Note 25 to the Consolidated
Financial Statements.
As a result of these adjustments, quarterly net income increased
(decreased) as follows (dollars in millions):
Effect on previously reported / announced net income (a)
2004 Quarters 2004
---------------------------------------- Calendar
1st 2nd 3rd 4th Year
Out-of-period adjustments $(72) $36 $(125) $161 $-
Fiat settlement - - - (886) (886)
--- --- --- --- ---
Total increase (decrease) to
net income $(72) $36 $(125) $(725) $(886)
== == === === ===
(a) As previously reported in Forms 10-Q for the 1st, 2nd, and 3rd
quarters; as previously announced and furnished on Form 8-K for the
4th quarter.
II-76
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
Selected Quarterly Data (Unaudited) (continued)
(2) Fourth quarter 2004 results include the following:
o An after-tax gain of $118 million resulting from the contribution of 11
million shares of XM Satellite Radio Holdings Inc. Class A common,
stock valued at $432 million to GM's Voluntary Employees' Beneficiary
Association (VEBA);
o A $78 million after-tax charge related primarily to previously
announced facilities rationalization actions at GM's Baltimore, MD and
Linden, NJ plants;
o A $383 million after-tax charge related to the results of GM's annual
review of the carrying value of its long-lived assets held and used,
other than goodwill and intangible assets with indefinite lives;
o A $136 million after-tax charge related to the write-off of GM's
remaining investment balance in Fiat Auto Holdings, B.V. and reflects
completion of an impairment study relating to the carrying value of
that investment; and
o A $540 million after-tax favorable adjustment for various adjustments
resulting from changes in tax laws both in the U.S. and overseas and
capital loss carryforwards.
o An after-tax charge of $886 million related to the February 13, 2005 GM
and Fiat agreement under which GM will pay Fiat approximately $2.0
billion and will return its 10% equity interest in FAH to settle
various disputes and terminate the Master Agreement (including the Put
Option) entered into in March 2000, and acquire an interest in key
strategic diesel engine assets, and other important rights with respect
to diesel engine technology and know-how.
II-77
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
[Enlarge/Download Table]
Selected Quarterly Data (Unaudited) (continued) (1)
2003 Quarters
1st (2) 2nd 3rd 4th (3)
--- ---- --- ----
(dollars in millions except per share amounts)
Total net sales and revenues $47,199 $46,098 $43,701 $48,839
Income (losses) from continuing
operations before income taxes and
minority interests $2,198 $931 $387 $(536)
Income tax expense (benefit) 682 244 134 (329)
Minority interests (20) (11) 19 (103)
Earnings of nonconsolidated associates 41 203 176 308
------ --- --- ------
Income (losses) from continuing operations 1,537 879 448 (2)
Income (losses) from discontinued operations (54) 22 (23) (164)
Gain from sale of discontinued operations - - - 1,179
------ ----- ----- -----
Net income $1,483 $901 $425 $1,013
===== === === =====
Earnings (losses) attributable to $1-2/3
par value
Continuing operations $1,537 $879 $448 $(2)
Discontinued operations (16) 5 (5) 1,218
------ ---- ---- -----
Earnings attributable to $1-2/3 par value$1,521 $884 $443 $1,216
===== === === =====
Earnings (losses) from discontinued
operations attributable to Class H $(38) $17 $(18) $(203)
Basic earnings (losses) per share
attributable to common stocks
$1-2/3 par value
Continuing operations $2.74 $1.57 $0.80 $-
Discontinued operations (0.03) 0.01 (0.01) 2.17
---- ---- ---- ----
Earnings per share attributable to $1-2/3
par value $2.71 $1.58 $0.79 $2.17
==== ==== ==== ====
Earnings (losses) per share from
discontinued operations
attributable to Class H $(0.04) $0.02 $(0.02) $(0.18)
Average number of shares of common
stocks outstanding - basic (in millions)
$1-2/3 par value 561 561 561 561
Class H 990 1,108 1,108 1,109
Earnings (loss) per share attributable to
common stocks assuming dilution
$1-2/3 par value
Continuing operations $2.74 $1.57 $0.80 $-
Discontinued operations (0.03) 0.01 (0.01) 2.13
---- ---- ---- ----
Earnings per share attributable to $1-2/3
par value $2.71 $1.58 $0.79 $2.13
==== ==== ==== ====
Earnings (losses) per share from
discontinued operations
attributable to Class H $(0.04) $0.02 $(0.02) $(0.18)
Average number of shares of common
stocks outstanding - diluted (in millions)
$1-2/3 par value 561 561 561 571
Class H 990 1,111 1,108 1,109
II-78
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
Selected Quarterly Data (Unaudited) (concluded)
----------------------
(1) Previously reported quarters have been restated to reflect the results of
Hughes as discontinued operations.
(2) First quarter 2003 results include a $505 million after-tax gain from the
sale of GM's light armored vehicle business (GM Defense) to General Dynamics
Corporation. Net proceeds were approximately $1.1 billion.
(3) Fourth quarter 2003 results include the following:
- A $725 million after-tax charge for lump-sum payments and vehicle
discount vouchers for retirees as provided by the October 2003 contract
with the United Auto Workers;
- A $103 million after-tax favorable adjustment related primarily to
previously established reserves for idled workers at the Janesville,
Wisconsin plant; and
- A $218 million after-tax charge for an initiative implemented to
improve competitiveness of GM's automotive operations in Europe.
II-79
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 9. Changes in and disagreements with accountants on accounting and
financial disclosure
None
* * * * * * *
ITEM 9A. Controls and Procedures
Evaluation of Disclosure 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 discussed in Selected Quarterly Data, GM is making certain adjustments to
restate previously reported 2004 quarterly financial results that do not affect
GM's 2004 total annual results, cash flows or year-end 2004 financial position.
None of the adjustments that gave rise to the restatements were individually
material to the Corporation's consolidated financial statements. The majority of
amounts relate to items detected and recorded in the fourth quarter of 2004 that
relate to prior quarters and, when adjusted and combined with other adjustments
previously considered immaterial to GM on a consolidated basis, became
significant enough to warrant restatement of quarterly results.
In order to analyze the internal control considerations associated with the
adjustments underlying the restatements, GM management evaluated (1) each
adjustment as to whether it was caused by an internal control deficiency and (2)
the effectiveness of actions that had been taken to remediate identified
internal control deficiencies. Certain of the adjustments were identified in the
fourth quarter of 2004 by internal controls that had been put in place in
connection with GM's Sarbanes-Oxley Section 404 program at GMAC's residential
mortgage businesses, while certain others were not related to deficiencies in
GM's internal controls. Accordingly, GM management, including the CEO and CFO,
have concluded that the restatement of quarterly results was not the result of a
material weakness in internal controls that existed as of December 31, 2004.
GM's CEO and CFO, after evaluating the effectiveness of GM's disclosure
controls and procedures (as defined in the Securities Exchange Act of 1934 Rules
13a-15(e) or 15d-15(e)) as of the end of the period covered by this report, have
concluded that based on the evaluation of these controls and procedures required
by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, that GM's disclosure
controls and procedures were effective.
There were no changes in the Corporation's internal control over financial
reporting that occurred during the last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Corporation's
internal control over financial reporting.
* * * * * * *
II-80
PART III
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 10. Code of Ethics for Senior Executives
General Motors Corporation has adopted a code of ethics that applies to the
Corporation's directors, officers, and employees, including the Chief Executive
Officer, Chief Financial Officer, Controller, Chief Accounting Officer, and any
other persons performing similar functions. The text of GM's code of ethics,
"Winning With Integrity," has been posted on the Corporation's Internet website
at http://investor.gm.com at "Investor Information - Corporate Governance."
* * * * * * *
ITEMS 10, 11, 12, 13, and 14
Information required by Part III (Items 10, 11, 12, 13, and 14) of this Form
10-K is incorporated by reference from General Motors Corporation's definitive
Proxy Statement for its 2005 Annual Meeting of Stockholders, which will be filed
with the Securities and Exchange Commission, pursuant to Regulation 14A, not
later than 120 days after the end of the fiscal year, all of which information
is hereby incorporated by reference in, and made part of, this Form 10-K, except
that the information required by Item 10 with respect to executive officers of
the Registrant is included in Item 4A of Part I of this report.
* * * * * * *
III-1
PART IV
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 15. Exhibits and Financial Statement Schedule Page
Number
------
(a) 1. All Financial Statements and Supplemental Information See Part II
2. Financial Statement Schedule II - Allowances for the
Years Ended December 31, 2004, 2003, and 2002 IV-3
3. Exhibits (Including Those Incorporated by Reference)
(b) Exhibits
(3)(i) Restated Certificate of Incorporation filed March 1, 2004 N/A
(3)(ii) Bylaws, of General Motors Corporation, as amended,
February 29, 2004 N/A
(4)(a) Form of Indenture relating to the $500,000,000 8-1/8%
Debentures Due April 15, 2016 dated as of April 1, 1986
between General Motors Corporation and Citibank, N.A.,
Trustee, incorporated by reference to Exhibit 4 to
Amendment No. 1 to Form S-3 Registration Statement
No. 33-4452 and resolutions adopted by the Special
Committee on April 15, 1986, incorporated by
reference to Exhibit 4(a) to the Current Report on Form
8-K of General Motors Corporation dated April 24, 1986. N/A
(4)(c) Form of Indenture relating to the $377,377,000 7.75%
Debentures Due March 15, 2036 dated as of December 7,
1995 between General Motors Corporation and Citibank, N.A.,
Trustee, filed as Exhibit 4(a) to Amendment No. 1 to Form
S-3 Registration Statement No. 33-64229. N/A
(4)(d) Instruments defining the rights of holders of nonregistered
debt of the Registrant have been omitted from this exhibit
index because the amount of debt authorized under any such
instrument does not exceed 10% of the total assets
of the Registrant and its subsidiaries. The Registrant
agrees to furnish a copy of any such instrument to the
Commission upon request. N/A
(4)(f)(i)Indenture between General Motors Corporation and Wilmington
Trust Company, incorporated by reference to Exhibit 4(d)(i)
to the Current Report on Form 8-K of General Motors
Corporation dated July 1, 1997. N/A
(4)(f)(ii)First Supplemental Indenture, dated March 4, 2002, between
General Motors Corporation and Citibank, N.A. With Respect
To The 4.50% Series A Convertible Senior Debentures due 2032
and 5.25% Series B Convertible Senior Debentures due
2032, incorporated by reference to Exhibit 2 to the
Current Report on Form 8-K of General Motors Corporation
dated March 6, 2002. N/A
(10) Copy of Agreement dated as of October 22, 2001 between
General Motors and General Motors Acceptance Corporation IV-5
(10)(a)**General Motors 2002 Annual Incentive Plan, incorporated by
reference to Exhibit A to the Proxy Statement of General
Motors Corporation dated April 18, 2002. N/A
(10)(b)**General Motors 2002 Stock Incentive Plan, incorporated by
reference to ExhibitA to the Proxy Statement of General
Motors Corporation dated April 18, 2002. N/A
(10)(c)**General Motors 2002 Long-term Incentive Plan, incorporated by
reference to Exhibit A to the Proxy Statement of General
MotorsCorporation dated April 18, 2002. N/A
(10)(d)**Compensation Plan for Nonemployee Directors, incorporated by
reference to Exhibit A to the Proxy Statement of General
Motors Corporation N/A dated April 16, 1997. N/A
(10)(f) Employment Contract with Robert A. Lutz dated September 1,
2001, incorporated by reference. N/A
(10)(g) Extension to Employment Contract with Robert A. Lutz dated
December 20, 2002. N/A
(12) Computation of Ratios of Earnings to Fixed Charges for
the Years Ended December 31, 2004, 2003, and 2002. IV-8
(21) Subsidiaries of the Registrant as of December 31, 2004 IV-9
(23) Consent of Independent Auditors IV-15
(31.1) Section 302 Certification of the Chief Executive Officer IV-16
(31.2) Section 302 Certification of the Chief Financial Officer IV-17
(32.1) Certification of the Chief Executive Officer Pursuant to 18
U.S.C.Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 IV-18
(32.2) Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 IV-19
* The registrant hereby undertakes to furnish supplementally a copy of
any omitted schedule or other attachment to the Securities and
Exchange Commission upon request.
** Required to be filed as an exhibit pursuant to Item 15 of Form 10-K.
IV-1
[Enlarge/Download Table]
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SCHEDULE II - ALLOWANCES
Additions Additions
Balance at charged to charged to
beginning costs and other Balance at
of year expenses accounts Deductions end of year
------- -------- -------- ---------- -----------
Description (dollars in millions)
-----------
For the Year Ended December 31, 2004
Allowances Deducted from Assets
Allowance for credit losses $3,042 $1,944 $- $1,567(b) $3,419
Accounts and notes receivable (for doubtful 5(a) 26(b)
receivables) 212 112 303
Inventories (principally for obsolescence of
service parts) 393 - - 55(c) 338
Other investments and miscellaneous assets
(receivables and other) 84 - - 74 10
Miscellaneous allowances (mortgage and other) 193 28 163 223 161
------ ------ ---- ----- ------
Total Allowances Deducted from Assets $3,924 $2,084 $168 $1,945 $4,231
===== ===== === ===== =====
For the Year Ended December 31, 2003
Allowances Deducted from Assets
Allowance for credit losses $2,991 $1,721 $- $1,670(b) $3,042
Accounts and notes receivable (for doubtful
receivables) 166 63 15(a) 32(b) 212
Inventories (principally for obsolescence of
service parts) 255 138(c) - - 393
Other investments and miscellaneous assets
(receivables and other) 26 - 58 - 84
Miscellaneous allowances (mortgage and other) 153 78 15 53 193
------ ----- -- ----- -----
Total Allowances Deducted from Assets $3,591 $2,000 $88 $1,755 $3,924
===== ===== == ===== =====
For the Year Ended December 31, 2002
Allowances Deducted from Assets
Allowance for credit losses $2,045 $2,153 $- $1,207(b) $2,991
Accounts and notes receivable (for doubtful
receivables) 159 57 - 50(b) 166
Inventories (principally for obsolescence of
service parts) 220 35(c) - - 255
Other investments and miscellaneous assets
(receivables and other) 8 - 18 - 26
Miscellaneous allowances (mortgage and other) 133 77 12 69 153
------ ------ -- ------ ------
Total Allowances Deducted from Assets $2,565 $2,322 $30 $1,326 $3,591
===== ===== == ===== =====
------------------------
Notes: (a) Primarily reflects the recovery of accounts previously written-off.
(b) Accounts written off.
(c) Represents net change of inventory allowances.
Reference should be made to the notes to the GM consolidated financial
statements.
IV-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
GENERAL MOTORS CORPORATION
--------------------------
(Registrant)
Date: March 16, 2005 By: /s/G. RICHARD WAGONER, JR.
--- --------------------------
G. Richard Wagoner, Jr.
Chairman and Chief Executive Offier
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on this 16th day of March 2005 by the following
persons on behalf of the Registrant and in the capacities indicated.
Signature Title
-------- --------
/s/G. RICHARD WAGONER, JR. Chairman and Chief Executive Officer (G. Richard
Wagoner, Jr.)
/s/JOHN M. DEVINE Vice Chairman and
----------------- Chief Financial Officer
(John M. Devine)
/s/WALTER G. BORST Treasurer
------------------
(Walter G. Borst)
/s/PAUL W. SCHMIDT Controller
------------------
(Paul W. Schmidt)
/s/PETER R. BIBLE Chief Accounting Officer
-----------------
(Peter R. Bible)
IV-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES - concluded
Signature Title
-------- -------
/s/PERCY BARNEVIK Director
-----------------
(Percy Barnevik)
/s/JOHN H. BRYAN Director
----------------
(John H. Bryan)
/s/ARMANDO M. CODINA Director
--------------------
(Armando Codina)
/s/GEORGE M.C. FISHER Director
---------------------
(George M.C. Fisher)
/s/KAREN KATEN Director
-------------
(Karen Katen)
/s/KENT KRESA Director
-------------
(Kent Kresa)
/s/ELLEN J. KULLMAN Director
-------------------
(Ellen J. Kullman)
/s/ALAN G. LAFLEY Director
-----------------
(Alan G. Lafley)
/s/PHILIP A. LASKAWY Director
--------------------
(Philip A. Laskawy)
/s/E. STANLEY O'NEAL Director
--------------------
(E. Stanley O'Neal)
/s/ECKHARD PFEIFFER Director
-------------------
(Eckhard Pfeiffer)
IV-4
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘10-K’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 3/15/36 | | 93 |
| | 4/15/16 | | 93 |
| | 7/20/10 | | 76 |
| | 3/6/09 | | 76 | | | | | 4 |
| | 12/31/07 | | 14 | | 78 | | | 10-K, 11-K, 4 |
| | 5/31/07 | | 78 |
| | 3/6/07 | | 76 |
| | 6/15/05 | | 30 | | 48 |
| | 6/7/05 | | 2 | | | | | 3, 8-K, DEF 14A, SC TO-T/A |
| Filed on: | | 3/16/05 | | 95 | | | | | 8-K |
| | 3/14/05 | | 33 | | 35 | | | 8-K |
| | 3/1/05 | | 85 | | | | | 8-K |
| | 2/14/05 | | 23 | | | | | SC 13G/A |
| | 2/13/05 | | 3 | | 88 | | | 8-K |
| | 2/3/05 | | 84 |
| For Period End: | | 12/31/04 | | 1 | | 94 | | | 10-K/A, 11-K, 4, NT 11-K |
| | 11/5/04 | | 75 | | | | | 8-K |
| | 11/4/04 | | 23 | | | | | 8-K |
| | 10/25/04 | | 23 | | | | | 8-K |
| | 10/14/04 | | 19 | | 23 | | | 8-K |
| | 10/13/04 | | 23 |
| | 10/1/04 | | 71 | | | | | 8-K |
| | 9/30/04 | | 71 | | | | | 10-Q, NT 10-Q |
| | 7/1/04 | | 30 | | 47 | | | 8-K |
| | 6/30/04 | | 2 | | | | | 10-Q |
| | 6/1/04 | | 11 | | 12 |
| | 5/19/04 | | 30 | | 47 |
| | 5/5/04 | | 11 |
| | 3/5/04 | | 9 |
| | 3/1/04 | | 11 | | 93 |
| | 2/29/04 | | 93 |
| | 2/4/04 | | 11 | | | | | 3, 8-K |
| | 1/1/04 | | 12 | | 47 | | | 3 |
| | 12/31/03 | | 4 | | 94 | | | 10-K, 11-K, 4 |
| | 12/22/03 | | 3 | | 74 | | | 4, 425, 8-K |
| | 12/8/03 | | 71 | | 87 |
| | 10/17/03 | | 8 |
| | 10/6/03 | | 48 | | | | | 3, 3/A, 425 |
| | 7/1/03 | | 15 | | 52 | | | 8-A12B/A, 8-K |
| | 5/1/03 | | 11 | | | | | 4, 8-K |
| | 4/28/03 | | 9 | | | | | 425 |
| | 4/18/03 | | 9 |
| | 1/1/03 | | 15 | | 73 | | | 3 |
| | 12/31/02 | | 4 | | 94 | | | 10-K, 11-K, 4 |
| | 12/20/02 | | 93 |
| | 6/24/02 | | 73 | | | | | 8-K |
| | 6/1/02 | | 78 |
| | 4/18/02 | | 93 | | | | | 425, DEF 14A |
| | 3/6/02 | | 93 | | | | | 425, 8-A12B/A, 8-K |
| | 3/4/02 | | 93 | | | | | 424B2, 425, 8-K |
| | 1/1/02 | | 12 | | 73 |
| | 12/1/01 | | 12 |
| | 11/13/01 | | 11 | | | | | 10-Q, 8-K |
| | 10/22/01 | | 93 |
| | 9/1/01 | | 11 | | 93 |
| | 5/25/01 | | 11 | | | | | 8-K |
| | 5/22/01 | | 8 |
| | 1/1/01 | | 9 | | 44 |
| | 6/30/00 | | 15 | | | | | 10-Q |
| | 6/1/00 | | 11 | | 12 |
| | 1/7/00 | | 12 | | | | | SC 13D/A |
| | 6/2/99 | | 8 |
| | 5/16/99 | | 8 |
| | 11/1/98 | | 11 |
| | 6/19/98 | | 11 |
| | 4/8/98 | | 8 |
| | 1/1/98 | | 11 | | 78 |
| | 7/1/97 | | 93 | | | | | 8-K |
| | 4/16/97 | | 93 | | | | | DEF 14A |
| | 12/7/95 | | 93 |
| | 3/24/95 | | 8 | | | | | 10-K405/A, 8-K, S-3 |
| | 10/1/94 | | 11 |
| | 9/1/94 | | 11 |
| List all Filings |
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