-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FMlYbUNuNGWGJgvSiTILPOo3s43MoDjhhw8cL48zdmjB+xJQ5h5xbIBUgaZZKQuI d8cJiRG5gd9NYshX3YleNA== 0000040730-04-000048.txt : 20040311 0000040730-04-000048.hdr.sgml : 20040311 20040311122337 ACCESSION NUMBER: 0000040730-04-000048 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040311 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL MOTORS CORP CENTRAL INDEX KEY: 0000040730 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 380572515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00043 FILM NUMBER: 04662252 BUSINESS ADDRESS: STREET 1: 300 RENAISSANCE CTR STREET 2: MAIL CODE: 482-C34-D71 CITY: DETROIT STATE: MI ZIP: 48265-3000 BUSINESS PHONE: 3135565000 MAIL ADDRESS: STREET 1: 300 RENAISSANCE CTR STREET 2: MAIL CODE: 482-C34-D71 CITY: DETROIT STATE: MI ZIP: 48265-3000 10-K 1 final10k031004.txt GENERAL MOTORS CORPORATION FORM 10-K FOR 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549-1004 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 For the fiscal year ended December 31, 2003 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ---- EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-143 GENERAL MOTORS CORPORATION (Exact Name of Registrant as Specified in its Charter) STATE OF DELAWARE 38-0572515 ----------------- ---------- (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 300 Renaissance Center, Detroit, Michigan 48265-3000 - ----------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (313) 556-5000 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered ---------------------------- ----------------------------- Common, $1-2/3 par value New York Stock Exchange, Inc. Note: The $1-2/3 par value common stock of the Registrant is also listed for trading or traded on the following exchanges: Chicago Stock Exchange, Inc. Chicago, Illinois Pacific Exchange, Inc. San Francisco, California Philadelphia Stock Exchange, Inc. Philadelphia, Pennsylvania Toronto Stock Exchange Toronto, Ontario, Canada Frankfurter Wertpapierborse Frankfurt am Main, Germany Borse Dusseldorf Dusseldorf, Germany Bourse de Bruxelles Brussels, Belgium Euronext Paris Paris, France The London Stock Exchange London, England Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X. No . ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes X No . ---- Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes X No . ---- As of June 30, 2003, the aggregate market value of General Motors Corporation (GM) $1-2/3 par value common stock held by nonaffiliates of GM was approximately $20.2 billion. The closing price on June 30, 2003 as reported on the New York Stock Exchange was $36.00 per share. As of June 30, 2003, the number of shares outstanding of GM $1-2/3 par value common stock was 560,712,564 shares. Documents incorporated by reference are as follows: Part and Item Number of Form 10-K into Which Document Incorporated - -------------- ------------------------- General Motors Notice of Annual Meeting of Stockholders and Proxy Statement for the Annual Meeting of Stockholders to be to be held June 2, 2004 Part III, Items 10 through 13 Website Access to Company's Reports General Motor's (GM's) internet website address is www.gm.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. COVER PAGE PART I GENERAL MOTORS CORPORATION AND SUBSIDIARIES THE CORPORATION General Motors Corporation, incorporated in 1916 under the laws of the State of Delaware, is hereinafter sometimes referred to as the "Registrant", the "Corporation", "General Motors", or "GM." ITEM 1. Business General The following information is incorporated herein by reference to the indicated pages in Part II: Item Page(s) ---- ------------ Wholesale Sales II-6 through II-8 Employment and Payrolls II-15 Note 26 to the GM Consolidated Financial Statements (Segment Reporting) II-68 through II-71 GM presents separate supplemental financial information for the following businesses: o Automotive and Other Operations o Financing and Insurance Operations GM participates in the automotive industry through the activities of its automotive business operating segment General Motors Automotive (GMA) which is comprised of four regions: o GM North America (GMNA), o GM Europe (GME), o GM Latin America/Africa/Mid-East (GMLAAM), and o GM Asia Pacific (GMAP) GMNA designs, manufactures, and/or markets vehicles primarily in North America under the following nameplates: Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, Saturn, and HUMMER. GME, GMLAAM, and GMAP primarily meet the demands of customers outside North America with vehicles designed, manufactured, and/or marketed under the following nameplates: Opel, Vauxhall, Holden, Saab, Buick, Chevrolet, GMC, and Cadillac. GM's automotive regions also have equity ownership in Fiat Auto Holdings (FAH), Fuji Heavy Industries Ltd., Suzuki Motor Corporation (Suzuki), Isuzu Motors Ltd., Shanghai General Motors Corporation (SGM), SAIC-GM-Wuling Automobile Company Ltd., and GM Daewoo Auto & Technology Company (GM Daewoo). These investees design, manufacturer and market vehicles under the following nameplates: Fiat, Lancia, Alfa Romeo, Subaru, Suzuki, Isuzu, Buick, Wuling, Daewoo, and Chevrolet. GM's other operations include the design, manufacturing and marketing of locomotives, the elimination of intersegment transactions, certain non-segment specific revenues and expenditures, and certain corporate activities. GM's Financing and Insurance Operations primarily relate to General Motors Acceptance Corporation (GMAC). GMAC provides a broad range of financial services, including consumer vehicle financing, automotive dealership and other commercial financing, residential and commercial mortgage services, automobile service contracts, personal automobile insurance coverage and selected commercial insurance coverage. See related business discussion in GMAC's Form 10-K, Item 1, which is incorporated herein by reference. GMAC's Form 10-K is filed separately with the Securities and Exchange Commission (SEC). Until its split-off on December 22, 2003, GM's business included Hughes Electronics Corporation. Hughes' activities included digital entertainment, information and communication services, and satellite-based private business networks. Substantially all automotive-related products are marketed through retail dealers and distributors in the United States, Canada, and Mexico, and through distributors and dealers overseas. At December 31, 2003, there were approximately 7,700 GM vehicle dealers in the United States, 800 in Canada, and 260 in Mexico. Additionally, there were a total of approximately 15,500 outlets overseas which include dealers and authorized sales, service, and parts outlets. Raw Materials and Services GM purchases materials, parts, supplies, freight transportation, energy, and other services from numerous unaffiliated firms. Interruptions in production or delivery of these goods or services could adversely affect GM. I-1 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Backlog of Orders Shipments of GM automotive products are made as promptly as possible after receipt of firm sales orders; therefore, no significant backlog of unfilled orders accumulates. Competitive Position GM's principal competitors in passenger cars and trucks in the United States and Canada include Ford Motor Company, DaimlerChrysler Corporation, Toyota Corporation (Toyota), Nissan Motor Corporation, Ltd., Honda Motor Company, Ltd., Mazda Motor Corporation, Mitsubishi Motors Corporation, Volkswagen A.G. (Volkswagen), Hyundai Motor Company, Ltd. (Hyundai), and Bayerische Motoren Werke AG (BMW). All but Volkswagen and Hyundai currently operate vehicle manufacturing facilities in the United States or Canada. Toyota and GM operate the New United Motor Manufacturing, Inc. facility in Fremont, California as a joint venture which currently builds passenger cars and light-duty trucks. Suzuki and GM operate CAMI Automotive Inc. in Ingersoll, Ontario as a joint venture which currently builds light-duty trucks. Wholesale unit sales of GM passenger cars and trucks during the three years ended December 31, 2003 are summarized in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II. Total industry new motor vehicle (passenger cars, trucks, and buses) unit sales of domestic and foreign makes and GM's competitive position during the years ended December 31, 2003, 2002, and 2001 were as follows: Vehicle Unit Sales (1)
Years Ended December 31, 2003 2002 2001 ----------------------------------------------------------------------------------- GM as GM as GM as a % of a % of a % of Industry GM Industry Industry GM Industry Industry GM Industry -------- -- -------- -------- -- -------- -------- -- -------- United States (units in thousands) Cars 7,630 1,961 25.7% 8,131 2,069 25.4% 8,455 2,272 26.9% Trucks 9,336 2,796 29.9% 9,013 2,790 31.0% 9,020 2,633 29.2% ----- ----- ----- ----- ----- ----- Total United 16,966 4,757 28.0% 17,144 4,859 28.3% 17,475 4,905 28.1% States Canada, Mexico, and Other 2,855 683 23.9% 2,974 762 25.6% 2,775 686 24.7% ----- --- ----- ----- ----- ----- Total GMNA 19,821 5,440 27.4% 20,118 5,621 27.9% 20,250 5,591 27.6% GME 19,468 1,821 9.4% 19,172 1,765 9.1% 19,705 1,800 9.1% GMLAAM 3,570 570 16.0% 3,673 565 15.7% 4,009 665 16.6% GMAP 15,720 764 4.9% 14,373 674 4.6% 13,101 524 4.0% ------ ----- ------ ----- ------ ----- Total Worldwide 58,579 8,595 14.7% 57,336 8,625 15.0% 57,065 8,580 15.0%
(1) GM vehicle unit sales primarily represent vehicles manufactured by GM or manufactured by GM's investees and sold either under a GM nameplate or through a GM-owned distribution network. Consistent with industry practice, vehicle unit sales information employs estimates of sales in certain countries where public reporting is not legally required or otherwise available on a consistent basis. Research and Development In 2003, GM spent $5.7 billion for research, manufacturing engineering, product engineering, and development activities related primarily to the development of new products or services or the improvement of existing products or services, including activities related to vehicle emissions control, improved fuel economy, and the safety of persons using GM products. Comparably, $5.7 billion and $6.1 billion were spent on company-sponsored research and other product development activities in 2002 and 2001, respectively. I-2 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Environmental Matters Automotive Emissions Control Both the U.S. Federal and California governments currently impose stringent emission control requirements on motor vehicles sold in their respective jurisdictions. These requirements include pre-production testing of vehicles, testing of vehicles after assembly, the imposition of emission defect and performance warranties, and the obligation to recall and repair customer-owned vehicles determined to be non-compliant with emissions requirements. Both the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) continue to place great emphasis on compliance testing of customer-owned vehicles. Failure to comply with the emission standards or defective emission control systems or components discovered during such testing, or discovered during government required defect reporting, can lead to substantial cost for General Motors related to emissions recalls. New CARB and Federal requirements will increase the time and mileage periods over which manufacturers are responsible for a vehicle's emission performance. Both the EPA and the CARB emission requirements will become even more stringent in the future. A new tier of exhaust emission standards for cars and light-duty trucks, the "Low-Emission Vehicles (LEV) II" standards, began phasing in for California vehicles in the 2004 model year. Similar federal "Tier 2" standards will also start in 2004. In addition, both the CARB and the EPA have adopted more stringent standards applicable to future heavy-duty trucks. California requires that a specified percentage of cars and certain light-duty trucks be zero emission vehicles (ZEVs), such as electric vehicles or hydrogen fuel cell vehicles. This requirement starts at 10% in model year 2003 and increases in future years. Manufacturers have the option of meeting a portion of this requirement with partial ZEV credits, which are vehicles that meet very stringent emission standards and have extended emission system warranties. An additional portion of the ZEV requirement can be met with vehicles that meet these partial ZEV requirements and incorporate advanced technology, such as a hybrid electric propulsion system meeting specified criteria. Currently California is in the process of further amending its ZEV regulations, including delaying its start date until 2005. California is likely to finalize these amendments sometime in the first quarter of 2004. The Clean Air Act permits states that have areas with air quality problems to adopt the California car and truck emission standards in lieu of the federal requirements, and four states (New York, Massachusetts, Maine and Vermont) have done so. Additional states could adopt the California standards in the future. To provide states an alternative to the adoption of California standards, GM and other auto manufacturers began selling LEVs in the remaining 45 states in 2001, under the provisions of the National Low Emission Vehicle Program. In addition to the above-mentioned exhaust emission programs, onboard diagnostic (OBD) devices, used to diagnose problems with emission control systems, were required both Federally and in California effective with the 1996 model year. This system has the potential of increasing warranty costs and the chance for recall. OBD requirements become more challenging each year as vehicles meet lower emission standards, and new diagnostics are required. California has adopted more stringent OBD requirements beginning in the 2004 model year, including new design requirements and more stringent enforcement procedures. New evaporative emission control requirements for cars and trucks began phasing in with the 1995 model year in California and the 1996 model year Federally. Systems are being further modified to accommodate Federal onboard refueling vapor recovery (ORVR) control standards. ORVR was phased-in on passenger cars in the 1998 through 2000 model years, and is phasing-in on light-duty trucks in the 2001 through 2006 model years. Beginning with the 2004 model year, even more stringent evaporative emission standards apply in California, as well as Federally. Starting in the 2001 model year, the test procedure for exhaust emissions has become more complex with vehicles required to meet two additional test requirements: 1) measuring exhaust emissions over a new test cycle with the air conditioner operating; and 2) measuring exhaust emissions over a new high speed (80 mph) and high load cycle. Industrial Environmental Control GM is subject to various laws relating to the protection of the environment including laws regulating air emissions, water discharges, waste management, and environmental cleanup. I-3 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Industrial Environmental Control (concluded) GM is in various stages of investigation or remediation for sites where contamination has been alleged, and recorded a liability of $226 million at December 31, 2003 and $219 million at December 31, 2002 for worldwide environmental investigation and remediation as summarized below: . GM has been identified as a potentially responsible party at sites identified by the EPA and state regulatory agencies for investigation and remediation under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and similar state statutes. GM voluntarily and actively participates in cleanup activity where such involvement has been verified. The total liability for sites involving GM was estimated to be $85 million at December 31, 2003. This compares with $86 million at December 31, 2002. . For closed plants owned by the Corporation, an estimated liability for environmental investigation and remediation is typically recognized at the time of the closure decision. Such liability, which is based on an environmental assessment of the plant property, was estimated at $22 million at December 31, 2003. This compares with $38 million at December 31, 2002. . GM is involved in investigation and remediation activities at additional locations worldwide with an estimated liability of approximately $119 million at December 31, 2003. This compares with $95 million at December 31, 2002. The cost impact of the Clean Air Act Amendments under Title V is the annual emission fees of approximately $9 million per year. Additional programs under the Clean Air Act, including Hazardous Air Pollutant standards, and Compliance Assurance Monitoring and periodic monitoring requirements are estimated to cost $300 million to $500 million in aggregate through the year 2007. The Corporation currently estimates that future expenditures for industrial environmental control facilities through 2007 will be approximately $125 million. Specific environmental expenses are difficult to isolate since expenditures may be made for more than one purpose, making precise classification difficult. Vehicular Noise Control Passenger cars and light-duty trucks are subject to state and local motor vehicle noise regulations. General Motors Corporation is committed to designing and developing all its products to meet these noise requirements. Addressing specific vehicle noise regulations for all state and local regulations however, is not practical or possible. The Corporation therefore compiles the most stringent requirement for all regulated markets and validates to the composite requirement. In instances where a state or local noise regulation is more stringent than the composite requirement, a waiver of the requirement is requested. Medium to heavy-duty trucks are regulated at the Federal level. Federal truck regulations preempt all state/local noise regulations for trucks over 10,000 lbs. gross vehicle weight rating (GVWR). Automotive Fuel Economy The Energy Policy and Conservation Act passed in 1975 provided for production-weighted average fuel economy standards for passenger cars for 1978 and thereafter. Based on EPA combined city-highway test data, the GM 2003 model year domestic passenger car fleet is projected to attain a Corporate Average Fuel Economy (CAFE) of 28.7 miles per gallon (mpg) versus the standard of 27.5 mpg. GM's CAFE estimate for 2004 model year domestic passenger cars is projected at 28.8 mpg versus the standard of 27.5 mpg. For GM's imported passenger cars, 2003 model year CAFE is projected to attain 28.2 mpg versus a standard of 27.5 mpg. The CAFE estimate for 2004 model year import passenger cars is 29.3 mpg versus the standard of 27.5 mpg. Fuel economy standards for light-duty trucks became effective in 1979. General Motors' light truck CAFE fleet average for the 2003 model year is projected at 21.1 mpg versus a standard of 20.7 mpg. GM's 2004 model year truck CAFE is projected at 21.2 mpg versus a standard of 20.7 mpg. GM's ability to meet increased CAFE standards is contingent on various future economic, consumer, legislative, and regulatory factors that GM cannot control and cannot predict with certainty. If GM could not comply with any new CAFE standards, GM could be subject to sizeable civil penalties and could have to severely restrict product offerings or close plants to remain in compliance. I-4 GENERAL MOTORS CORPORATION AND SUBSIDIARIES End of Life Vehicles During September 2000, the European parliament passed a directive requiring member states to adopt legislation regarding end-of-life vehicles and the responsibility of manufacturers for dismantling and recycling vehicles they have sold. European Union member states are required to transform the concepts detailed in the directive into national law. Under the directive, manufacturers are financially responsible for at least a portion of the cost of the take-back of vehicles placed in service after July 2002 and all vehicles placed in service prior to July 2002 that are still in operation in January 2007. The laws developed in the individual national legislatures throughout Europe will effect the amount ultimately paid by the manufacturers for this issue. GM does not expect this legislation to have a material effect on its financial position, cash flow or results of operations. Seasonal Nature of Business In the automotive business, there are retail sales fluctuations of a seasonal nature, and production varies from month to month. Certain changeovers occur throughout the year for reasons such as new market entries and new vehicle changes; however, the changeover period related to the annual new model introduction has traditionally occurred in the third quarter of each year. Production is typically lower during the third quarter due to these annual product changeovers and the fact that annual plant shutdowns are planned during this time to facilitate product changes. For this reason, third quarter operating results are, in general, less favorable than those in the other three quarters of the year. The degree to which the third quarter results are affected depends on the magnitude of the changeover needed to commence production of new models incorporating, for example, design modifications related to more fuel-efficient vehicle packaging, stricter government standards for safety and emission controls, and consumer-oriented improvements in performance, comfort, convenience, and style. Segment Reporting Data Operating segment and principal geographic area data for 2003, 2002, and 2001 are summarized in Note 26 to the GM Consolidated Financial Statements in Part II. * * * * * * The Registrant makes no attempt herein to predict the future trend of its business and earnings or the effect thereon of the results of changes in general economic, industrial, regulatory, and international conditions. ITEM 2. Properties The Corporation, excluding its Financing and Insurance Operations, has approximately 370 locations operating in approximately 40 states and approximately 210 cities in the United States. Of these, approximately 20 are engaged in the final assembly of GM cars and trucks; approximately 60 are service parts operations responsible for distribution or warehousing; and the remainder are offices or involved primarily in the testing of vehicles or the manufacturing of automotive components and power products. In addition, the Corporation has approximately 20 locations in Canada and assembly, manufacturing, distribution, or warehousing operations in approximately 50 other countries, including equity interests in associated companies which conduct assembly, manufacturing, or distribution operations. The major facilities outside the United States and Canada, which are principally vehicle manufacturing and assembly operations, are located in Germany, the United Kingdom, Brazil, Mexico, Australia, Sweden, Belgium, Spain, China, Thailand, Argentina, Portugal, Poland and Korea. Most facilities are owned by the Corporation or its subsidiaries. Leased properties consist primarily of warehouses and administration, engineering, and sales offices. The leases for warehouses generally provide for an initial period of five years and contain renewal options. Leases for sales offices are generally for shorter periods. Properties of the Registrant and its subsidiaries include facilities which, in the opinion of management, are suitable and adequate for the manufacture, assembly, and distribution of their products. Additional information regarding worldwide expenditures for plants and equipment is presented in Note 26 to the GM Consolidated Financial Statements in Part II. I-5 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 3. Legal Proceedings (a) Material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Corporation became, or was, a party during the year ended December 31, 2003, or subsequent thereto, but before the filing of this report are summarized below: Environmental Matters In March 2003, the Michigan Department of Environmental Quality (MDEQ) asserted a claim for penalties in excess of $100,000 relating to various alleged violations of air discharge regulations at the GM-Powertrain Saginaw Metal Castings Plant. Officials of GM and the MDEQ continue to discuss resolution of these matters. * * * The US EPA Region V filed an Administrative complaint against three General Motor's facilities on October 17, 2003. The three GM assembly facilities named in the complaint are Moraine, Ohio, Pontiac, Michigan, and Orion, Michigan. The complaint alleges multiple violations of the hazardous waste rules as applied to GM's painting and purge operations. EPA seeks unspecified penalties. GM believes that the lawsuit is without merit because the purge material in question is not a "waste" but instead is being used as intended in enclosed systems to clean, suspend paint solids, and transport fluids. The purge material is thereafter captured, reclaimed and reused by GM in its processes. The position being taken by EPA Regional V is the subject of a lawsuit filed by GM on August 2, 2002 in the DC Circuit Court of Appeals seeking an order by the Court declaring the position an unlawful "rulemaking" by US EPA. * * * Other Matters Six putative nationwide and statewide class actions are pending against General Motors in state and federal courts alleging that the paint or paint application process used on some GM vehicles was defective due to the omission of a primer surfacer layer. Generally, plaintiffs allege that GM's failure to disclose the alleged paint defect is a fraudulent omission and a violation of various states' consumer protection laws. No determination has been made that any case may proceed as a class action. With respect to the suits relating to the primer surfacer issue described above: Christian Amedee and Louis Fuxan v. General Motors Corporation, et al., Civil District Court for the Parish of New Orleans, State of Louisiana filed March 24, 1995, Cherise Miller, et al., v. General Motors Corporation, United States District Court for the Northern District of Illinois, filed on April 8, 1998 (the court determined that plaintiffs had not demonstrated that they could meet the requirements for certification of a nationwide class ), and Rose Ann Hayes v. General Motors Corporation et al. filed on May 22, 2001 in the Circuit Court for Madison County Illinois are purported nationwide class actions; Eddie Glorioso v. General Motors Corporation and Scott Arnold v. General Motors Corporation, consolidated in Superior Court for the City and County of San Francisco, California, both filed in July 1998, are purported California statewide class actions; Scott Haverdink v. General Motors Corporation, Court of Common Pleas of Philadelphia County, Pennsylvania, filed on May 16, 1999, is a putative Pennsylvania statewide class action. Darryl Oshanek v. General Motors Corporation and General Motors of Canada, Limited, filed in the Supreme Court of British Columbia, Canada, on June 2, 1999, is a putative class action on behalf of residents of British Columbia, has been dismissed. GM intends to vigorously oppose class certification and defend these cases. * * * I-6 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Seventy-nine purported class actions on behalf of all purchasers of new motors vehicles in the United States since January 1, 2001, have been filed in various state and federal courts against General Motors Corporation, General Motors of Canada Ltd. and Ford, Daimler Chrysler, Toyota, Honda, Nissan and BMW and their Canadian affiliates, the National Automobile Dealers Association and the Canadian Automobile Dealers Association. The federal court actions have been consolidated for coordinated pretrial proceedings in federal court in Main and the more than 30 California cases have been consolidated in state court in San Francisco. The nearly identical complaints allege that the manufacture defendants, aided by the association defendants, conspired among themselves and with their dealers to prevent the sale to United States citizens of vehicles produced for the Canadian market and sold by dealers in Canada. The complaints allege that new vehicle prices in Canada are ten to thirty percent lower than those in the United States and that preventing the sale of these vehicles to United States citizens resulted in the payment of supracompetitive prices by United States consumers. The complaints seek treble damages under the antitrust laws, but do not specify damages. No determination has been made to certify any of these cases as a class action. General Motors believes its actions have been lawful and intends to vigorously defend these cases. * * * On April 11 and 14, 2003, two purported class actions (Young v. Pearce, et al.; Silverstein v. Pearce, et al.) were filed in Delaware Chancery Court on behalf of owners of GM Class H shares against Hughes Electronics Corporation, General Motors Corporation, News Corporation and the Hughes directors. On April 11 and 15, 2003, two purported class actions (Matcovsky, et al., v. Hughes Electronics Corporation, et al.; Brody v. Hughes Electronics Corporation, et al.) were filed in Superior Court in Los Angeles, California, against Hughes, GM and the Hughes and GM directors. Two purported stockholder class actions which name only General Motors and the GM directors have been brought in Delaware Chancery Court challenging the recently announced agreements with News Corp., Wyser-Pratte Management Company v. General Motors Corporation, et al., which was filed April 18, 2003, and Robert LaMarche v. General Motors Corporation, et al., which was filed April 28, 2003. The Delaware cases have been consolidated in the Delaware Chancery Court and the California cases have been consolidated in state court in Los Angeles and plaintiffs in both cases have filed consolidated complaints. The Delaware cases allege that GM and the GM directors performed ultra vires acts and that the GM directors breached their fiduciary duties by approving a transaction that is more favorable to the holders of GM $1-2/3 par value common stock than the holders of GM Class H Common stock. They claim that the holders of GM Class H Common Stock will be treated unfairly because (i) GM will receive mostly cash for its shares while the holders of GM Class H Common Stock will receive News Corp. American Depositary Shares (ADSs) that may fluctuate in value, (ii) GM will be receiving a $275 million payment from Hughes, (iii) a substantial number of shares of GM Class H Common Stock were contributed to various GM employee benefit plans prior to announcement of the deal to improve the prospects of shareholder approval, and (iv) the transaction was announced just prior to the announcement of improved financial results at Hughes and PanAmSat to make it appear that holders of GM Class H Common Stock would receive a premium that would exceed the 20 percent recapitalization premium provided for in the GM Restated Certificate of Incorporation, as amended. The California cases allege that the proposed transactions involving News Corp.'s acquisition of a 34% interest in Hughes provides benefits to GM not available to all GM Class H shareholders, in violation of fiduciary duties. The new consolidated complaints are similar to the original complaints, except that the Delaware complaint adds allegations challenging the adequacy of the disclosures in the Consent Solicitation and only names GM and members of the GM board of directors as defendants. Plaintiffs in both cases seek unspecified damages. GM has moved to dismiss the Delaware cases and plaintiffs are seeking to amend their complaint. In the California cases, the claims against directors without any connection to California have been dismissed and the consolidated case has been stayed pending a ruling on the motion to dismiss the Delaware consolidated complaint. GM, Hughes and the director defendants believe these actions are without merit and intend to vigorously defend the lawsuits. (b) Previously reported legal proceedings which have been terminated, either during the year ended December 31, 2003, or subsequent thereto, but before the filing of this report are summarized below: On January 20, 2003, the Georgia Department of Natural Resources (GDNR) delivered a proposed consent order with respect to alleged violations of hazardous waste regulations at GM's plant in Doraville, Georgia seeking fines in excess of $100,000. GM denies the alleged violations, but amicably resolved them by entering into and administrative consent order No. EPD-HW-1534 with the GDNR. A $50,000 settlement was paid by GM to the State of Georgia under this consent order, effective October 23, 2003. * * * * * * * * * I-7 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 4. Submission of Matters to a Vote of Security Holders NONE ITEM 4A. Executive Officers of the Registrant The names and ages of all executive officers of the Registrant and their positions and offices with the Registrant are as follows: Name and (Age) Positions and Offices - ------------- --------------------- G. Richard Wagoner, Jr. (51) Chairman and Chief Executive Officer John M. Devine (59) Vice Chairman and Chief Financial Officer Robert A. Lutz (72) Vice Chairman of Product Development, Chairman of GM North America, Interim President of GM Europe Thomas A. Gottschalk (61) Executive Vice President, Law and Public Policy The following information pertains to all other officers of the Registrant who file reports pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended: Name and (Age) Positions and Offices - ------------- --------------------- Troy A. Clarke (48) Group Vice President, Manufacturing and Labor Relations Gary Cowger (56) Group Vice President and President, GM North America Eric A. Feldstein (44) Group Vice President and Chairman, General Motors Acceptance Corporation Frederick A. Henderson (45) Group Vice President and President, GM Asia Pacific Maureen Kempston-Darkes (55) Group Vice President and President, GM Latin America, Africa and Middle East Thomas G. Stephens (55) Group Vice President, GM Powertrain Ralph J. Szygenda (55) Group Vice President, Information Systems, and Chief Information Officer Kathleen S. Barclay (49) Vice President, Global Human Resources Lawrence D. Burns (52) Vice President, Research & Development and Planning Thomas J. Kowaleski (52) Vice President, Communications Peter R. Bible (45) Chief Accounting Officer Walter G. Borst (42) Treasurer Paul W. Schmidt (59) Controller There are no family relationships, as defined, between any of the officers named above, and there is no arrangement or understanding between any of the officers named above and any other person pursuant to which he or she was selected as an officer. Each of the officers named above was elected by the Board of Directors to hold office until the next annual election of officers and until his or her successor is elected and qualified or until his or her earlier resignation or removal. The Board of Directors elects the officers in conjunction with each annual meeting of the stockholders. I-8 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 4A. Executive Officers of the Registrant - continued Mr. G. Richard Wagoner, Jr. has been associated with General Motors since 1977. Mr. Wagoner was elected Vice President in charge of finance for General Motors Europe in June 1989. In July 1991, he was elected President and Managing Director of General Motors do Brasil. In November 1992, he was elected Executive Vice President and Chief Financial Officer of General Motors. In July 1994, he was named President of North American Operations. In October 1998, he was elected a director, President and Chief Operating Officer of General Motors. On June 1, 2000, Mr. Wagoner was named Chief Executive Officer and became Chairman of the Board of Directors on May 1, 2003. Mr. Wagoner is Chairman of the Automotive Strategy Board. Mr. John M. Devine was named Vice Chairman and Chief Financial Officer of General Motors Corporation, effective January 1, 2001. He has responsibility for GM's Worldwide Financial Operations and GM Asset Management. He is a member of the GM Automotive Strategy Board and serves as its global process leader for finance. Mr. Devine was Chairman and Chief Executive Officer of Fluid Ventures, LLC, immediately prior to his GM appointment. He retired from Ford Motor Company in October 1999, after a 32 year career, as the company's Executive Vice President and Chief Financial Officer. Mr. Robert A. Lutz was named Vice Chairman of Product Development of General Motors Corporation, effective September 1, 2001. He was named Chairman of GM North America on November 13, 2001, and was appointed interim president of GM Europe on March 1, 2004 until June 1, 2004. He serves as global process leader for Product Development and is a member of the Automotive Strategy Board and the North America Strategy Board. Mr. Lutz was Chairman and Chief Executive Officer of Exide Technologies, immediately prior to his GM appointment. He continues to serve as a member of Exide's board of directors. He also has held a number of executive positions with Ford Motor Company until 1986 and the former Chrysler Corporation from which he retired in 1998. Mr. Thomas A. Gottschalk has been associated with General Motors since 1994. He previously held the position of Senior Vice President and General Counsel. He was elected to the position of Executive Vice President of General Motors with primary responsibility for Law and Public Policy on May 25, 2001. He retains the General Counsel responsibility in his current position and is also responsible for the Office of the Secretary. He is a member of the Automotive Strategy Board and is the global process leader for Law and Public Policy. Prior to General Motors, he was a partner and member of the management committee of the law firm of Kirkland & Ellis in Washington, D.C. Mr. Troy A. Clarke was appointed Group Vice President and Executive Vice President, GM Asia Pacific on February 4, 2004, and President of GM Asia Pacific, effective June 1, 2004. Mr. Clarke was named GM group vice president of manufacturing and labor relations in June 2002. Mr. Clarke had been vice president of labor relations since January 2001 and was appointed president and managing director of GM de Mexico and a GM corporate vice president in December 1997, after having served as director of manufacturing for GM de Mexico since June 1997. Mr. Clarke is a member of the Automotive Strategy Board. Mr. Gary L. Cowger has been associated with General Motors since 1965. Mr. Cowger was elected a Vice President of General Motors Corporation, effective October 1, 1994. On September 1, 1994, he was appointed President and Managing Director of General Motors de Mexico. Mr. Cowger was then named Vice President, Manufacturing, General Motors Europe, on January 1, 1998 and Chairman and Managing Director of Adam Opel AG effective June 19, 1998. Mr. Cowger became Group Vice President - Labor Relations, on November 1, 1998 and Group Vice President in charge of GM Manufacturing and Labor Relations on January 1, 2001. He was named GM Group Vice President and President of General Motors North America on November 13, 2001. He is a member of the Automotive Strategy Board, global process leader for Manufacturing, and Chairman of the North America Strategy Board. Mr. Eric A. Feldstein has been associated with General Motors since 1981. Mr. Feldstein was named GM Vice President and Treasurer in 1997 and GM Vice President of Finance and Treasurer in 2001. He was named GM Group Vice President and Chairman of General Motors Acceptance Corporation (GMAC) in November 2002. He is a member of the Automotive Strategy Board and Chairman and President of the GMAC Mortgage Group. I-9 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 4A. Executive Officers of the Registrant - concluded Mr. Frederick A. Henderson has been associated with General Motors since 1984. From 1997 to 2000, Mr. Henderson was GM Vice President and Managing Director of GM do Brasil, and from June 1, 2000 served as Group Vice President and President of the GM Latin America, Africa and Middle East (LAAM) region. He was named GM Group Vice President and President of General Motors Asia Pacific effective January 1, 2002. Effective June 1, 2004, he was appointed Group Vice President and President of GM Europe. He is currently a member of the Automotive Strategy Board and Chairman of the Asia Pacific Strategy Board. Ms. Maureen Kempston-Darkes has been associated with General Motors since 1975. Ms. Kempston-Darkes was GM Vice President and President and General Manager of General Motors of Canada Limited from 1994 to 2001. She was named GM Group Vice President and President of GM LAAM effective January 1, 2002. She is a member of the Automotive Strategy Board and Chairman of the Latin America, Africa, and Middle East Strategy Board. Mr. Thomas G. Stephens is the Group Vice President responsible for GM Powertrain. He is a member of the Automotive Strategy Board and Chairman of GM's Energy and Environmental Strategy Board. From May 1996 through December 2000, Mr. Stephens was GM vice president and group director of engineering operations for the GM Truck Group. He was appointed vice president of vehicle integration in January 2001 and held this position prior to being named group vice president for GM Powertrain in 2001. Mr. Ralph J. Szygenda was named Group Vice President and Chief Information Officer on January 7, 2000. He is a member of the Automotive Strategy Board and is responsible for the Information Systems & Services organization. Mr. Szygenda is a member of the board of directors of the Handleman Company. He joined GM in 1996 as Vice President and Chief Information Officer. Ms. Kathleen S. Barclay has been associated with General Motors since 1985. She was elected Vice President in charge of global human resources and General Motors University in 1998. Prior to that she was general director of human resource management at GM North America Operations since 1996. She is a member of the Automotive Strategy Board. Mr. Lawrence D. Burns has been associated with General Motors since 1969. He was named Vice President of Research & Development and Planning in May 1998. He is a member of the Automotive Strategy Board and serves as global process leader for R&D and Planning. Mr. Thomas J. Kowaleski was elected Vice President in charge of global GM communications, effective January 1, 2004. He is a member of the GM Automotive Strategy Board and directs GM's corporate, product, brand, and internal communications around the world. Mr. Kowaleski joined General Motors in March 1999 as executive director product and brand communications. He became GM North America vice president of communications in June 2001. He is a member of the Automotive Strategy Board. Mr. Peter R. Bible joined General Motors as Chief Accounting Officer in December 1996. He is responsible for worldwide accounting, financial reporting and forecasting; Securities and Exchange Commission (SEC) reporting; financial controls; financial systems development; and government contract accounting. Mr. Walter G. Borst assumed the role of General Motors Treasurer in February 2003. Prior to that assignment, Mr. Borst was executive director of finance and chief financial officer for GM's German subsidiary, Adam Opel AG. Borst was named chief financial officer of Adam Opel AG, based in Russelsheim, Germany, in October 2000. Prior to that, he served as assistant treasurer in the GM Treasurer's Office from 1997 to 2000. Mr. Paul W. Schmidt has been associated with General Motors since 1969. He was named Controller in 2002. Mr. Schmidt had been executive-in-charge of GM's investor relations since August 2001. Prior to that, he was executive-in-charge of GM North America Finance since 1994. I-10 PART II GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters General Motors (GM) lists its common stock on the stock exchanges specified on the cover page of this Form 10-K under the trading symbol "GM". On December 22, 2003, General Motors completed the split-off of Hughes by distributing Hughes common stock to the holders of GM Class H (GMH)common stock in exchange for all the outstanding shares of GM Class H common stock. Simultaneously, GM sold its 19.8 percent economic interest in Hughes to News Corporation in exchange for cash and News Corporation Preferred American Depositary Shares (Preferred ADSs). All GMH stock ceased to be outstanding and accordingly was delisted from exchanges specified on the cover page of this report. GM's Dividend Policy is described in the Management's Discussion and Analysis (MD&A) in Part II. As of December 31, 2003, there were 418,540 holders of record of GM $1-2/3 par value common stock and no shares of GMH. As of December 31, 2002, there were 429,767 holders of record of GM $1-2/3 par value common stock and 177,355 holders of record of GM Class H common stock. The following table sets forth the high and low sale prices of GM's common stocks as reported on the Composite Tape and the quarterly dividends declared for the last two years. 2003 Quarters ------------- 1st 2nd 3rd 4th --- --- --- --- Cash dividends per share of common stocks $1-2/3 par value $0.50 $0.50 $0.50 $0.50 Class H $- $- $- $- Price range of common stocks $1-2/3 par value (1): High $41.12 $39.50 $43.23 $54.39 Low $29.75 $32.84 $35.00 $40.04 Class H (1): High $12.41 $13.56 $15.10 $16.72 Low $9.40 $10.17 $12.74 $14.25 2002 Quarters ------------- 1st 2nd 3rd 4th --- --- --- --- Cash dividends per share of common stocks $1-2/3 par value $0.50 $0.50 $0.50 $0.50 Class H $- $- $- $- Price range of common stocks $1-2/3 par value (1): High $62.01 $68.17 $54.08 $41.50 Low $47.92 $50.00 $38.11 $30.80 Class H (1): High $17.55 $17.00 $11.25 $12.00 Low $12.50 $8.49 $8.35 $8.00 -------------------- (1) The principal market is the New York Stock Exchange, and prices are based on the Composite Tape. The table below contains information about securities authorized for issuance under equity compensation plans. The features of these plans are described further in Note 23 to the Consolidated Financial Statements in Part II. II-1 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters (concluded) Number of Number of securities to be Weighted average securities issued upon exercise price remaining exercise of of outstanding available for Plan Category outstanding options, future issuance options, warrants and under equity warrants and rights compensation rights plans (1) - ------------------------------------------------------------------------------- Equity compensation plans approved by security holders: GMSIP 74,485,566 $54.38 17,194,942 Equity compensation plans not approved by security holders (2): GMSSOP 24,390,056 $55.33 3,626,225 - ------------------------------------------------------------------------------- Total 98,875,622 $54.61 20,821,167 - ------------------------------------------------------------------------------- (1) Excludes securities reflected in the first column, "Number of securities to be issued upon exercise of outstanding options, warrants and rights." (2) All equity compensation plans except the GMSSOP were approved by the shareholders. The GMSSOP was adopted by the Board of Directors in 1998 and expires December 31, 2007. The purpose of the plans is to recognize the importance and contribution of GM employees in the creation of stockholder value, to further align compensation with business success and to provide employees with the opportunity for long-term capital accumulation through the grant of options to acquire shares of General Motors common stock. II-2 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 6. Selected Financial Data Years Ended December 31 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- (dollars in millions except per share amounts) Total net sales and revenues $185,524 $177,324 $169,051 $173,943 $168,964 ======= ======= ======= ======= ======= Income from continuing operations $2,862 $1,975 $1,222 $3,639 $5,867 Income (loss) from discontinued operations (219) (239) (621) 813 135 Gain from sale of discontinued operations 1,179 - - - - ----- ----- --- ----- ----- Net income (1) $3,822 $1,736 $601 $4,452 $6,002 ===== ===== === ===== ===== $1-2/3 par value common stock Basic earnings per share (EPS) from continuing operations $5.10 $3.53 $2.21 $6.23 $9.08 Basic earnings (losses) per share from discontinued operations $2.14 $(0.16) $(0.42) $0.59 $0.29 Diluted EPS from continuing operations $5.03 $3.51 $2.20 $6.12 $8.91 Diluted earnings (losses) per share from discontinued operations $2.11 $(0.16) $(0.43) $0.58 $0.28 Cash dividends declared per share $2.00 $2.00 $2.00 $2.00 $2.00 Class H common stock (2) Basic earnings (losses) per share from discontinued operations $(0.22) $(0.21) $(0.55) $0.55 $(0.27) Diluted earnings (losses) per share from discontinued operations $(0.22) $(0.21) $(0.55) $0.54 $(0.27) Cash dividends declared per share $ - $ - $ - $ - $ - Total assets $448,507 $369,053 $322,412 $301,129 $273,729 Notes and loans payable $271,756 $200,168 $165,361 $144,783 $129,547 GM-obligated mandatorily redeemable preferred securities of subsidiary trusts $ - $ - $ - $139 $218 Stockholders' equity $25,268 $6,814 $19,707 $30,175 $20,644 ----------------- Reference should be made to the notes to GM's consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. (1) On January 1, 2002, the Corporation implemented Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets," which ceased the amortization method of accounting for goodwill and changed to an impairment only approach. Accordingly, goodwill is no longer amortized and is tested for impairment at least annually. (2) Adjusted to reflect the three-for-one stock split of the GM Class H common stock, in the form of a 200% stock dividend, paid on June 30, 2000. * * * * * * II-3 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following management's discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the General Motors Acceptance Corporation (GMAC) Annual Report on Form 10-K for the period ended December 31, 2003, filed separately with the Securities and Exchange Commission (SEC). All earnings per share amounts included in the MD&A are reported on a fully diluted basis. GM presents separate supplemental financial information for the following businesses: Automotive and Other Operations (Auto & Other) and Financing and Insurance Operations (FIO). GM's reportable operating segments within its Auto & Other business consist of: - GM Automotive (GMA), which is comprised of four regions: GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM Asia Pacific (GMAP); and - Other, which includes the design, manufacturing and marketing of locomotives, the elimination of intersegment transactions, certain non-segment specific revenues and expenditures, and certain corporate activities. GM's reportable operating segments within its FIO business consist of GMAC and Other Financing, which includes financing entities that are not consolidated by GMAC. The disaggregated financial results for GMA have been prepared using a management approach, which is consistent with the basis and manner in which GM management internally disaggregates financial information for the purpose of assisting in making internal operating decisions. In this regard, certain common expenses were allocated among regions less precisely than would be required for stand-alone financial information prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The financial results represent the historical information used by management for internal decision-making purposes; therefore, other data prepared to represent the way in which the business will operate in the future, or data prepared in accordance with GAAP, may be materially different. II-4 GENERAL MOTORS CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS Consolidated Results GM's total net sales and revenues were $186 billion, $177 billion and $169 billion for 2003, 2002 and 2001, respectively, and GM's net income was $3.8 billion, $1.7 billion and $601 million for 2003, 2002 and 2001, respectively. Years Ended December 31, --------------------------------- 2003 2002 2001 ---- ---- ---- (dollars in millions) Total net sales and revenues $185,524 $177,324 $169,051 Income from continuing operations $2,862 $1,975 $1,222 Net income $3,822 $1,736 $601 Net margin from continuing operations 1.5% 1.1% 0.7% The increase in 2003 total net sales and revenues, compared with 2002, was due to increases in GMA revenue of $5.2 billion, despite lower GMNA and global volumes and worldwide pricing competitiveness, and increases in FIO revenue of $2.6 billion. The increase in 2002 total net sales and revenues, compared with 2001, was largely due to an increase in wholesale sales at GMA. Despite increased revenues, cost savings, and strong equity income in 2003 compared to 2002, continued automotive pricing pressures, higher pension and other postretirement employee benefit (OPEB) expenses in the U.S., and unfavorable foreign currency exchange resulted in GMA net income decreasing in 2003 compared to 2002. GMAC had record net income of $2.8 billion in 2003, compared to $1.9 billion in the prior year, due primarily to income growth from GMAC's mortgage operations. The increase in 2002 net income compared to 2001 was primarily due to increased volumes at GMA offset partially by pricing pressures in North America and Europe. 2003 highlights included: o Market share increased in three of four automotive regions; o Strong cash flow was generated; o GM fully funded the combined U.S. hourly and salaried pension plans with $18.5 billion in total contributions; o Pension plans earned an approximate 22% return on assets; o Completed the Hughes transactions (1); o GMAC and GMAP each generated strong net income; and o GM completed the sale of its defense business (1)In the Hughes transactions, GM split off Hughes by distributing Hughes common stock to the holders of GM Class H common stock in exchange for all the outstanding shares of GM Class H common stock. Simultaneously, GM sold its 19.8 percent economic interest in Hughes to News Corporation in exchange for cash and News Corporation Preferred American Depositary Shares (Preferred ADSs). II-5 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive Financial Review GMA's total net sales and revenues were $155 billion, $149 billion and $142 billion for 2003, 2002 and 2001, respectively, and GMA's net income was $553 million, $2.0 billion and $445 million for 2003, 2002 and 2001, respectively. Years Ended December 31, ------------------------------- 2003 2002 2001 ---- ---- ---- (dollars in millions) GMA total net sales and revenues $154,513 $149,355 $141,939 GMA net income $553 $1,988 $445 GMA net margin 0.4% 1.3% 0.3% Net income (loss) by region GMNA $811 $2,992 $1,348 GME (504) (1,011) (765) GMLAAM (331) (181) (81) GMAP 577 188 (57) ---- ------ ---- Net income $553 $1,988 $445 === ===== === GM global market share 14.7% 15.0% 15.0% The increase in 2003 total net sales and revenues, compared with 2002, was largely due to favorable product mix and a weaker U.S. dollar, partially offset by unfavorable pricing pressures in North America and Europe and lower wholesale volumes. The increase in 2002 total net sales and revenues, compared with 2001, was largely due to an increase in wholesale sales volumes partially offset by unfavorable pricing pressures in North America and Europe. GM's global market share was 14.7% and 15.0% for the years ended 2003, and 2002, respectively. Market share gains were recognized in three out of four automotive regions (see discussion below under each region) with GMNA posting a 0.5 percentage point decline, to 27.4%. As GM introduces several new models for 2004 and overall economic conditions improve, GM's goal is to achieve market share growth in all regions during 2004. The decrease in GMA's 2003 net income compared with 2002 was a result of lower wholesale sales, continued pricing pressures in North America and Europe, increased pension and OPEB expense in the U.S., and unfavorable foreign exchange, partially offset by continued strong product mix, material cost savings and strong equity results at GMAP. The increase in 2002 net income, compared with 2001, was primarily due to an increase in wholesale sales volume, favorable product mix, and reduced structural and material costs. These favorable conditions more than offset the unfavorable effect of pricing pressures experienced in North America and Europe. GM Automotive Regional Results. GM North America Years Ended December 31, ---------------------------------- 2003 2002 2001 ---- ---- ---- GMNA: (dollars in millions) Net income $811 $2,992 $1,348 Net margin 0.7% 2.6% 1.2% Wholesale sales (volumes in thousands) Cars 2,340 2,547 2,441 Trucks 3,267 3,174 2,746 ----- ----- ----- Total GMNA 5,607 5,721 5,187 Vehicle unit sales Industry - North America 19,821 20,118 20,250 GM as a percentage of industry 27.4% 27.9% 27.6% Industry - U.S. 16,966 17,144 17,475 GM as a percentage of industry 28.0% 28.3% 28.1% GM cars 25.7% 25.4% 26.9% GM trucks 29.9% 31.0% 29.2% II-6 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive Financial Review (continued) GM North America (continued) North American industry vehicle unit sales decreased to 19.8 million units during 2003. With this decrease in industry sales, GMNA's market share decreased by 0.5 percentage points. GMNA ended the year with a market share of 27.4% for 2003, compared to 27.9% for 2002. During 2003, industry vehicle unit sales in the United States decreased slightly to 17.0 million units. In conjunction with this slight decrease in industry volume, GM's U.S. market share decreased by 0.3 percentage points. GM ended the year with a market share of 28.0% for 2003, versus 28.3% for 2002. U.S. car market share rose modestly by 0.3 percentage points to 25.7%, while U.S. truck market share ended the year at 29.9%, down 1.1 percentage points, contributing to the slight decline in overall U.S. market share. As GM introduces several new models in North America during 2004, GM anticipates increasing market share in the United States and North America during 2004. Net income from GMNA totaled $811 million, $3.0 billion, and $1.3 billion in 2003, 2002, and 2001, respectively. The decrease in GMNA's 2003 net income from 2002 was primarily due to unfavorable pricing, increased pension and OPEB expense in the U.S., and higher currency-exchange losses. During 2003, GMNA incurred charges of $448 million, after tax, related to the October 2003 contract with the United Auto Workers, which provided for lump-sum payments and vehicle discount vouchers for retirees and adjusted a previously established reserve for idled workers, primarily related to the Janesville, Wisconsin plant, resulting in $103 million of income, after tax. Also, GMNA incurred various structural cost adjustments, asset impairment and other charges, favorable interest income from settlements of prior year tax matters, and income related to the market valuation of XM Satellite Radio warrants. These items netted to approximately $90 million of income for the year. Vehicle revenue per unit was $18,992 for 2003, compared with $18,698 for 2002. Even though trucks as a percent of total sales were flat, mix remained strong during 2003, as customers continued to buy upgraded vehicles which resulted in revenue per unit growth of $294. The increase in 2002 net income from 2001 was primarily due to an increase in wholesale sales volume, improved product mix, material and structural costs reductions, and interest income from the resolution of certain prior tax years, partially offset by an increase in pension expense, OPEB expense and unfavorable price. In addition, during 2002, GMNA incurred charges of $116 million, after tax, primarily related to costs associated with the transfer of commercial truck production from Janesville, Wisconsin, to Flint, Michigan. GM Europe Years Ended December 31, ---------------------------------- 2003 2002 2001 ---- ---- ---- (dollars in millions) GME net loss $(504) $(1,011) $(765) GME net margin (1.8%) (4.2%) (3.2%) Wholesale sales (volumes in thousands) Cars 1,563 1,545 1,666 Trucks 94 100 94 ------ ------ ------ Total GME 1,657 1,645 1,760 Vehicle unit sales Industry 19,468 19,172 19,705 GM as a percentage of industry 9.4% 9.1% 9.1% GM market share - Germany 10.5% 10.3% 11.4% GM market share - United Kingdom 13.7% 13.1% 12.7% While industry vehicle unit sales remained relatively flat in Europe during 2003 (an increase of approximately 300,000 units over 2002), GME increased its total market share to 9.4%, up 0.3 percentage points from 2002. In two of GM's largest markets in Europe, GM continued to perform well with increased market share gain: market share increased to 10.5% in Germany, a 0.2 percentage point increase over 2002, and 13.7% in the United Kingdom, an increase of 0.6 percentage points over 2002. II-7 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive Financial Review (continued) GM Europe (concluded) Net loss from GME totaled $504 million, $1.0 billion, and $765 million in 2003, 2002, and 2001, respectively. The decrease in GME's 2003 net loss from 2002 was primarily due to favorable product mix, and reduced material and structural costs. These favorable conditions were partially offset by unfavorable pricing and foreign currency translation as the euro and Swedish krona strengthened relative to the U.S. dollar during 2003. GME's net loss included a restructuring charge in 2003 of $218 million, after tax, related to an initiative to improve the competitiveness of GM's automotive operations in Europe (see Note 25 to the Consolidated Financial Statements). The increase in GME's 2002 net loss from 2001 was primarily due to a decrease in wholesale sales volumes driven by a weak European industry, continuing competitive pricing pressures and a restructuring initiative implemented in the first quarter of 2002, which resulted in a charge of $407 million, after tax. These decreases were partially offset by improved material and structural cost performance. GM Latin America/Africa/Mid-East Years Ended December 31, ----------------------------------- 2003 2002 2001 ---- ---- ---- (dollars in millions) GMLAAM net loss $(331) $(181) $(81) GMLAAM net margin (6.1%) (3.5%) (1.4%) Wholesale sales (volumes in thousands) Cars 438 443 463 Trucks 123 197 203 ---- ---- ---- Total GMLAAM 561 640 666 Vehicle unit sales Industry 3,570 3,673 4,009 GM as a percentage of industry 16.0% 15.7% 16.6% GM market share - Brazil 23.3% 23.0% 22.6% Despite unfavorable economic conditions in Latin America, GM was able to increase overall GMLAAM vehicle market share to 16.0% in 2003. Net loss from GMLAAM totaled $331 million, $181 million, and $81 million in 2003, 2002, and 2001, respectively. The increase in GMLAAM's 2003 net loss from 2002 was primarily due to continued economic weakness in the region as industry vehicle sales decreased 100,000 units to 3.6 million for 2003. In 2003, GMLAAM incurred asset impairment charges and unfavorable exchange impacts, which were partially offset by net price increases. The increase in GMLAAM's 2002 net loss from 2001 was primarily due to political unrest and economic uncertainty in Argentina, Brazil, and Venezuela, which caused a significant deterioration in the industry for the region. GM Asia Pacific Years Ended December 31, ---------------------------------- 2003 2002 2001 ---- ---- ---- (dollars in millions) GMAP net income (loss) $577 $188 $(57) GMAP net margin 10.8% 4.2% (1.4%) Wholesale sales (volumes in thousands) Cars 203 185 202 Trucks 70 220 258 ---- ---- ---- Total GMAP 273 405 460 Vehicle unit sales Industry 15,720 14,373 13,101 GM as a percentage of industry 4.9% 4.6% 4.0% GM market share - Australia 20.4% 23.1% 22.4% GM market share - China 8.5% 7.8% 4.1% II-8 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive Financial Review (concluded) GM Asia Pacific (concluded) GMAP increased its total market share to 4.9%, up 0.3 percentage points from 2002 and GM's market share in China increased to 8.5%, an increase of 0.7 percentage points over 2002. China is now the third largest automotive market in the world and is GM's fourth largest market. Net income (loss) from GMAP totaled $577 million, $188 million, and $(57) million in 2003, 2002, and 2001, respectively. The increase in GMAP's net income, compared with 2002, was primarily due to strong equity earnings from Shanghai GM and other equity investees, as well as earnings at Holden in Australia. The increase in GMAP's 2002 net income, compared with 2001, was primarily due to equity income improvements from several joint ventures, led by significantly improved results at Shanghai GM. Results from equity investments in 2001 included a restructuring charge of $133 million, after tax, with respect to GM's portion of severance payments and asset impairments that were part of the restructuring of its affiliate Isuzu Motors, Ltd. In 2002, these improvements were partially offset by a decrease in wholesale sales volumes and increases in structural and other costs. Other Operations Other Operations' total net sales and revenues include a pre-tax gain of approximately $814 million, or approximately $505 million after-tax ($0.90 per diluted share), related to the sale of GM's Defense operations (light armored vehicle business) to General Dynamics Corporation on March 1, 2003. The sale generated net proceeds of approximately $1.1 billion in cash. Also, Other Operations' includes charges of approximately $277 million ($0.49 per diluted share) related to the October 2003 contract with the UAW which provided for lump-sum payments and vehicle vouchers for Delphi retirees, as well as net interest expense of approximately $200 million related to 2003 debt issuances. In 2002, GM completed a review of the carrying value of its investment in Fiat Auto S.p.A. (Fiat Auto) which resulted in a non-cash impairment charge of $2.2 billion ($1.4 billion, after-tax), recorded in cost of sales. The write-down decreased the carrying value of GM's investment in Fiat Auto Holdings, B.V. (FAH) from $2.4 billion to $220 million with the remaining $220 million being attributable to the investment of FAH in certain joint ventures with GME. Discontinued Operations As of the completion of the Hughes transactions on December 22, 2003, the results of operations, cash flows, and the assets and liabilities of Hughes Electronics Corporation were classified as discontinued operations for all periods presented in GM's consolidated financial statements. The transactions resulted in an after-tax gain of approximately $1.2 billion which is classified as gain on sale of discontinued operations in GM's consolidated statement of income for the year ended December 31, 2003. See Note 2 to the Consolidated Financial Statements for further discussion. GMAC Financial Review GMAC's net income was $2.8 billion, $1.9 billion, and $1.8 billion for 2003, 2002 and 2001 respectively. Years Ended December 31, ---------------------------------------- 2003 2002 2001 ---- ---- ---- (dollars in millions) Financing operations $1,360 $1,239 $1,254 Mortgage operations 1,254 544 331 Insurance operations 179 87 201 ----- ------ ------ Net income $2,793 $1,870 $1,786 ===== ===== ===== Net income from financing operations totaled $1.4 billion, $1.2 billion, and $1.3 billion in 2003, 2002, and 2001, respectively. The increase in net income in 2003, compared with 2002, was primarily due to lower credit loss provisions and increased revenues from higher asset levels, which more than offset the unfavorable effect of lower net interest margins. The decrease in 2002 net income compared with 2001 was due to a combination of higher credit loss provisions and wider borrowings spreads which was offset by income from higher asset levels. In addition, 2001 results reflect a favorable impact from the cumulative effect of adopting SFAS 133. II-9 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMAC Financial Review (continued) Net income from mortgage operations totaled $1.3 billion, $544 million, and $331 million in 2003, 2002, and 2001, respectively. The increase in net income in 2003, compared with 2002, was primarily due to higher production and securitization volumes in both the residential and commercial mortgage sectors. The increase in net income in 2002, compared with 2001, was primarily due to increased loan production volumes, higher servicing levels, and improved hedging results, which was partially offset by a decrease in the value of mortgage servicing rights. Net income from insurance operations totaled $179 million, $87 million, and $201 million in 2003, 2002, and 2001, respectively. The increase in net income in 2003, compared with 2002, primarily relates to increased underwriting volume and increased investment income resulting from reduced levels of impairments in 2003, as compared to 2002, related to the Insurance Group's investment portfolio. The decrease in net income in 2002, compared with 2001, reflects a write-down of certain investment securities primarily due to the prolonged decline in equity markets, partially offset by improved underwriting results and a favorable tax settlement. 2004 Priorities/Targets For 2004, GM has established certain operating priorities and financial targets including: o Attaining earnings per share between $6.00 and $6.50 at current dilution levels; o Generating $5.0 billion of operating cash flow; o Increasing automotive market share in all regions; o Reducing structural and material costs; o Capital spending of $7.0 billion; and o Regional/sector income targets, as follows: Income target ------------- (dollars in millions) GMNA $1,000 - $1,400 GME $0 - $ 100 GMLAAM $ (200) - $ (100) GMAP $ 700 - $ 800 GMAC Greater than $2,000 Cash flow, cost savings and regional income targets are formulated using a management approach which is consistent with the basis and manner in which GM management internally disaggregates financial information for the purposes of assisting in making internal operating decisions. LIQUIDITY AND CAPITAL RESOURCES Financing Structure In 2003, GM and GMAC experienced adequate access to the capital markets as GM and GMAC were able to issue various securities to raise capital and extend borrowing terms consistent with GM's need for financial flexibility. On June 13, 2003, Moody's lowered GM's long-term rating to Baa1 from A3 and GMAC's to A3 from A2 with a rating outlook of negative. Moody's also reduced GMAC's short-term rating to Prime-2 from Prime-1 and reaffirmed GM's short-term rating at Prime-2. On October 21, 2003 Standard & Poor's affirmed GM and GMAC's long-term ratings at BBB and short-term ratings at A2, with a rating outlook of negative. On November 14, 2003 Fitch affirmed GM and GMAC's long-term ratings at BBB+ and the commercial paper ratings at F2 with a rating outlook of negative. On December 10, 2003 Dominion Bond Rating Service (DBRS) confirmed GM and GMAC's senior debt ratings at A (low) and the commercial paper ratings at R1 (low) with a stable outlook. These rating actions are not expected to have a significant adverse effect on GM's and GMAC's ability to obtain bank credit or to sell asset-backed securities. The table below summarizes GM's and GMAC's credit ratings as of December 31, 2003. GM GMAC GM GMAC GM GMAC ------------------------------------------------------ Rating Agency Senior Debt Commercial Paper Outlook - ------------- ------------------------------------------------------ DBRS A (low) A (low) R1 (low) R1 (low) Stable Stable Fitch BBB+ BBB+ F2 F2 Negative Negative Moody's Baa1 A3 Prime-2 Prime-2 Negative Negative S&P BBB BBB A2 A2 Negative Negative II-10 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Financing Structure (concluded) GM's and GMAC's access to the capital markets remained sufficient to meet the Corporation's capital needs. In the second quarter of 2003, GM issued approximately $1.5 billion of senior notes. In the beginning of the third quarter of 2003, in a combined single event financing, GM issued approximately $13.5 billion of GM senior notes and convertible debentures and GMAC issued approximately $4.4 billion of short-term senior notes and debt. In addition, GM and GMAC expect that they will continue to have adequate access to the capital markets sufficient to meet the corporation's needs for financial flexibility. In 2003, GM contributed to its Voluntary Employees' Beneficiary Association (VEBA) trust a total $3.3 billion (including $0.3 billion in GM Class H common stock) and $18.5 billion (including $0.9 billion in GM Class H common stock) to its U.S. pension plans. At December 22, 2003, under terms of the Hughes transactions, the shares of GM H common stock contributed to the VEBA trust in 2003 were converted into or were exchanged for approximately 34 million shares of Hughes Electronics Corporation common stock and approximately 4 million News Corporation Preferred ADSs. Similarly, the shares of GM Class H common stock contributed to the pension plans in 2003 were converted into or were exchanged for approximately 89 million shares of Hughes Electronics Corporation common stock and approximately 10 million News Corporation Preferred ADSs. Pension plan assets for GM's U.S. hourly and salaried pension plans earned returns of approximately 22% in 2003. In addition, as a result of the $18.5 billion 2003 pension contributions, the combined U.S. hourly and salaried pension plans were $0.3 billion overfunded at year-end 2003 using a 6.00% discount rate. As an additional source of funds, GM currently has unrestricted access to a $5.6 billion line of credit with a syndicate of banks which is committed through June 2008. GM also has an additional $0.8 billion in undrawn committed facilities with various maturities and undrawn uncommitted lines of credit of $1.7 billion. Similarly, GMAC currently has a $4.2 billion syndicated line of credit committed through June 2004, $4.3 billion committed through June 2008, $4.7 billion of bilateral committed lines with various maturities, and uncommitted lines of credit of $18.0 billion. In addition, New Center Asset Trust (NCAT) has $19.2 billion of liquidity facilities committed through June 2004. Mortgage Interest Networking Trust (MINT) has $3.4 billion of liquidity facilities committed through April 2004. NCAT and MINT are non-consolidated qualified special purpose entities administered by GMAC for the purpose of purchasing assets as part of GMAC's securitization and mortgage warehouse funding programs. These entities fund the purchases of assets through the issuance of asset-backed commercial paper and represent an important source of liquidity to the Corporation. Stockholders' equity increased to $25.3 billion at December 31, 2003 from $6.8 billion at December 31, 2002. This increase was primarily due to the decrease in the minimum pension liability adjustment that was favorably effected by the much improved funded status of the pension plans recorded as of December 31, 2003 and partly offset by the split-off of Hughes. (See Note 19 to the Consolidated Financial Statements). Automotive and Other Operations At December 31, 2003, cash, marketable securities, and $3.4 billion of assets of the Voluntary Employees' Beneficiary Association (VEBA) trust invested in fixed-income securities totaled $26.9 billion, compared with cash, marketable securities, and $3.0 billion of assets of the VEBA trust invested in fixed-income securities totaling $17.3 billion at December 31, 2002. The increase of approximately 55% from December 31, 2002 was primarily due to strong cash flow from operations, proceeds from the Hughes transactions and sale of the GM Defense business in the aggregate amount of $5.3 billion, and net proceeds from debt issuances totaling $14.5 billion offset by U.S. hourly and salaried pension and VEBA cash contributions of $20.6 billion in 2003 by GM. Total assets in the VEBA trust used to pre-fund part of GM's other postretirement benefits liability approximated $10.0 billion at December 31, 2003, compared with $5.8 billion at December 31, 2002, an increase of approximately 72%. Strong cash flows from operations during 2003 enabled GM to make a cash contribution of $3.0 billion to its VEBA trust in August 2003, which was in addition to the $0.3 billion of Class H stock contributed to the VEBA in March 2003. These contributions to the VEBA trust were converted into or exchanged for approximately 34 million shares of Hughes Electronics Corporation common stock and approximately 4 million News Corporation Preferred ADSs. Long-term debt was $29.6 billion at December 31, 2003, compared with $14.3 billion at December 31, 2002. As mentioned above, the proceeds from the issuance of debt securities were used to fund GM's U.S. hourly and salaried pension plans. The ratio of long-term debt to the total of long-term debt and GM's net assets of Automotive and Other Operations was 85.2% at December 31, 2003, compared with 433.2% at December 31, 2002. The ratio of long-term debt and short-term loans payable to the total of this debt and GM's net assets of Automotive and Other Operations was 86.4% at December 31, 2003, II-11 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Automotive and Other Operations (concluded) compared with 307.5% at December 31, 2002. The decrease in these ratios was due to the improvement in GM's net asset position resulting from the improved funded status of GM's U.S. hourly and salaried pension plans. Net liquidity, calculated as cash, marketable securities, and $3.4 billion of assets of the VEBA trust invested in fixed-income securities less the total of loans payable and long-term debt, was a negative $5.5 billion at December 31, 2003, compared with $1.1 billion, including $3.0 billion of assets of the VEBA, at December 31, 2002. In order to provide financial flexibility to GM and its suppliers, GM maintains a trade payables program through GECC under which GECC pays participating GM suppliers the amount due to them from GM in advance of their contractual original due dates. In exchange for the early payment, these suppliers accept a discounted payment. On the original due date of the payables, GM pays GECC the full amount. At December 31, 2003 and 2002, GM owed approximately $1.2 billion, to GECC under this program, which is classified as short-term debt in GM's consolidated financial statements. In addition, GM has the right under the agreement to defer payment to GECC with respect to all or a portion of receivables which it has paid on behalf of GM. The permissible deferral periods range from 10 days to 40 days and would also be classified as short-term debt in GM's financial statements. Deferred payments are subject to interest during the deferral period. As of December 31, 2003, GM had elected not to defer payment on any such payables. The maximum amount permitted under both parts of the program is $2.0 billion. If any of GM's long-term unsecured debt obligations become subject to a rating by S&P of BBB-, with a negative outlook (GM's current rating is BBB, with a negative outlook) or below BBB-, or a rating by Moody's of Baa3, with a negative outlook (GM's current rating is Baa1, with a negative outlook) or below Baa3, GECC would be permitted to immediately terminate continued access to the program by GM and its suppliers. GM does not anticipate that discontinuance of the future availability of the GECC program would result in a material disruption to the supply of parts and materials to GM, nor would it have a material adverse effect on GM's financial position, results of operations or cash flows. Financing and Insurance Operations GMAC's consolidated assets totaled $288.2 billion at December 31, 2003, representing a 26.6% increase from the $227.7 billion outstanding at December 31, 2002. The increase in total assets was primarily due to an increase in finance receivables and loans, from $134.1 billion at December 31, 2002 to $172.7 billion at December 31, 2003. The increased use of securitizations structured as financing transactions (primarily in mortgage operations) combined with the continued use of GM sponsored special rate financing programs, resulted in an increase in consumer finance receivables and loans. Additional asset growth was the result of an increase in wholesale receivables outstanding due to higher dealer inventories. Consistent with the growth in assets, GMAC's total debt increased to $238.9 billion at December 31, 2003, as compared to $183.2 billion at December 31, 2002. GMAC's 2003 year-end ratio of total debt to total stockholder's equity was 11.8:1 compared to 10.3:1 at December 31, 2002. GMAC's liquidity, as well as its ability to profit from ongoing activity, is in large part dependent upon its timely access to capital and the costs associated with raising funds in different segments of the capital markets. Liquidity is managed to preserve stable, reliable and cost effective sources of cash to meet all current and future obligations. GMAC's strategy in managing liquidity risk has been to develop diversified funding sources across a global investor base. In 2003, GMAC continued to experience a difficult funding environment caused by high funding requirements (due to continued growth in assets levels), negative credit rating agency activity, and general instability in the corporate bond markets. The challenges presented by this environment resulted in GMAC's funding effort continuing to reach beyond traditional unsecured debt sources and increase the emphasis on securitization (including transactions accounted for as secured financings) and retail debt programs. Management expects that based on the Corporation's current financial position, its funding strategy and diversified financing sources will provide sufficient access to the capital markets to meet the Corporations' funding needs. Investment in Fiat Auto Holdings At the April 23, 2003, Annual General Shareholders Meeting of FAH, FAH adopted a euro 5 billion recapitalization plan that provides shareholders the option to make pro-rata capital contributions over the eighteen months following adoption of the plan. When the plan was adopted, Fiat held 80% of FAH and GM 20%. Fiat participated in the recapitalization by making a euro 3 billion contribution, which FAH used to repay inter-company debts owed to Fiat or its affiliates. Currently, GM does not plan to participate. Due to Fiat's participation in the recapitalization, and GM's non-participation, Fiat has reported that GM's interest in FAH has been reduced from 20% to 10%. II-12 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Investment in Fiat Auto Holdings (concluded) As discussed in GM's Annual Report on Form 10-K for the period ended December 31, 2002, the Master Agreement provides that, from January 24, 2004 to July 24, 2009, Fiat may seek to exercise a put option (the "Put") to require GM to purchase Fiat's FAH shares at their fair market value. Whether and when Fiat may seek to exercise the Put is unknown, although Fiat stated in its 2002 Annual Report on Form 20F, filed with the U.S. Securities and Exchange Commission, that it views the exercise of the Put only as a secondary possibility. Fiat also stated in its Form 20F that it believes that the put is enforceable in accordance with the terms of the Master Agreement. GM has, however, asserted to Fiat that the sale of certain assets of the financing business of Fiat Auto and the recapitalization of FAH represent material breaches of the Master Agreement, with the result that the Master Agreement, including the Put, is terminable by GM. Notwithstanding these different views, GM is continuing to build on the cooperation the parties have worked on for the past several years in the joint ventures and other cooperative contractual arrangements they have entered into which are independent of the Master Agreement, and is pursuing a resolution of these different views. Towards that end, Fiat and GM entered into a standstill agreement on October 26, 2003, the provisions of which enable GM to defer until December 15, 2004, the necessity of electing the remedy of termination of the Master Agreement, and with it the Put, without such deferral prejudicing the right of GM to elect that remedy after December 15, 2004. On October 26, 2003, Fiat and GM also entered into an amendment to the Master Agreement that shifts the Put period by one year, so that it begins on January 24, 2005 and runs to July 24, 2010. If the Put were implemented, the fair market value of FAH shares would be determined by the averaging of the three closest of four valuations that would be prepared by four investment banks after conducting due diligence under procedures set forth in the Master Agreement and based upon terms and conditions to be incorporated in a purchase agreement which, at this time, the parties have not prepared. Unless such a process and valuation is completed, the amount, if any, that GM might have to pay for Fiat's FAH shares if there were to be a valid exercise of the Put, is not quantifiable. If there were a valid exercise of the Put, GM would have the option to pay for Fiat's FAH shares entirely in shares of GM $1-2/3 par value common stock, entirely in cash, or in whatever combination thereof GM may choose. Under such circumstances, if and to the extent GM chose to pay in cash, that portion of the purchase price could be paid to Fiat in four installments over a three-year period and GM would expect to fund any such payments from normal operating cash flows or financing activities. If and when GM were to acquire Fiat's FAH shares, and thus become the sole owner of FAH, GM would decide what, if any, additional capitalization would then be appropriate for FAH and Fiat Auto. Specifically, if Fiat Auto were to need additional funding, GM would have to decide whether or not to provide such funding and under what conditions it might do so. Unless FAH or Fiat Auto were subject to liquidation or insolvency, FAH's consolidated financial statements would be required for financial reporting purposes to be consolidated with those of GM. Any indebtedness, losses and capital needs of FAH and Fiat Auto after their acquisition by GM are not presently determinable, but they could have a material adverse effect on GM if GM chooses to fund such needs or allows the consolidation of GM's financial statements with those of FAH and Fiat Auto. GM has discussed with Fiat potential alternatives to the Master Agreement and expects to have further discussions regarding the relationship between the parties. Off-Balance Sheet Arrangements GM and GMAC use off-balance sheet arrangements where the economics and sound business principles warrant their use. GM's principal use of off-balance sheet arrangements occurs in connection with the securitization and sale of financial assets generated or acquired in the ordinary course of business by GMAC and its subsidiaries and, to a lesser extent, by GM. The assets securitized and sold by GMAC and its subsidiaries consist principally of mortgages, and wholesale and retail loans secured by vehicles sold through GM's dealer network. The assets sold by GM consist principally of trade receivables. In addition, GM leases real estate and equipment from various off-balance sheet entities that have been established to facilitate the financing of those assets for GM by nationally prominent lessors that GM believes are creditworthy. These assets consist principally of office buildings, warehouses, and machinery and equipment. The use of such entities allows the parties providing the financing to isolate particular assets in a single entity and thereby syndicate the financing to multiple third parties. This is a conventional financing technique used to lower the cost of borrowing and, thus, the lease cost to a lessee such as GM. There is a well-established market in which institutions participate in the financing of such property through their purchase of ownership interests in these entities and each is owned by institutions that are independent of, and not affiliated with, GM. GM believes that no officers, directors or employees of GM, GMAC, or their affiliates hold any direct or indirect equity interests in such entities. II-13 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Off-Balance Sheet Arrangements (concluded) The amounts outstanding in off-balance sheet facilities used by the Financing and Insurance Operations have decreased since December 31, 2002 as GMAC continues to use securitization transactions that, while similar in legal structure to off-balance sheet securitizations, are accounted for as secured financings and are recorded as receivables and debt on the balance sheet. Assets in off-balance sheet entities were as follows (dollars in millions): December 31 ----------- Automotive and Other Operations 2003 2002 - ------------------------------- ---- ---- Assets leased under operating leases $2,287 $2,126 Trade receivables sold (1) 759 725 ------- ------ Total $3,046 $2,851 ===== ===== Financing and Insurance Operations - ---------------------------------- Receivables sold or securitized: - Mortgage loans $80,798 $106,520 - Retail finance receivables 9,548 16,164 - Wholesale finance receivables 21,142 17,415 ------- ------- Total $111,488 $140,099 ======= ======= (1) In addition, trade receivables were sold to GMAC for $553 million in 2003 and $434 million in 2002. Contractual Obligations and Other Long-Term Liabilities GM has the following minimum commitments under contractual obligations, including purchase obligations, as defined by the U.S. Securities and Exchange Commission. A "purchase obligation" is defined as an agreement to purchase goods or services that is enforceable and legally binding on GM and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Other long-term liabilities are defined as long-term liabilities that are reflected on GM's balance sheet under GAAP. Based on this definition, the tables below include only those contracts, which include fixed or minimum obligations. It does not include normal purchases, which are made in the ordinary course of business. The following table provides aggregated information about Auto & Other outstanding contractual obligations and other long-term liabilities as of December 31, 2003. Payments due by period --------------------------------------------------- 2009 and (in millions) 2004 2005-2006 2007-2008 after Total - ------------------------------------------------------------------------------- Debt $1,090 $1,116 $1,798 $26,800 $30,804 Capital lease obligations 105 205 459 649 1,418 Operating lease obligations 668 1,191 1,638 1,763 5,260 Contractual commitments for capital expenditures 1,223 137 - - 1,360 Other contractual commitments: Postretirement benefits(1) 3,005 6,459 3,416 - 12,880 Less: VEBA assets (2) (3,005) (6,459) (534) - (9,998) ----- ----- ----- ------- Net - - 2,882 - 2,882 Material 901 1,613 1,447 605 4,566 Information technology 161 147 11 - 319 Marketing 171 181 8 3 363 Facilities 201 270 99 396 966 Rental car repurchases 8,204 - - - 8,204 Policy, product warranty and recall campaigns liability 3,593 3,837 825 419 8,674 ------ ----- ----- ------ ------ Total contractual commitments $16,317 $8,697 $9,167 $30,635 $64,816 ====== ===== ===== ====== ====== Remaining balance postretirement benefits $734 $1,527 $5,170 $43,154 $50,585 === ===== ===== ====== ====== (1)Amounts include postretirement benefits under the current contractual labor agreements in North America. The remainder of the estimated liability, for benefits beyond the current labor agreement and for essentially all salaried employees, is classified under remaining balance of postretirement benefits. (2)Total VEBA assets were allocated based on projected spending requirements. II-14 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Contractual Obligations and Other Long-Term Liabilities (concluded) The combined U.S. hourly and salaried pension plans were $0.3 billion overfunded at year-end 2003. GM does not expect any contribution to its U.S. hourly and salaried pension plans until the next decade to meet ERISA (legal) Minimum funding requirements or to avoid Variable Rate Premiums to the Pension Benefit Guaranty Corporation. The following table provides aggregated information about FIO outstanding contractual obligations and other long-term liabilities as of December 31, 2003. Payments due by period --------------------------------------------------- 2009 and (in millions) 2004 2005-2006 2007-2008 after Total - ------------------------------------------------------------------------------- Debt $77,424 $64,555 $19,996 $75,455 $237,430 Operating lease obligations 142 220 136 184 682 Mortgage purchase and sale commitments 16,021 3,057 - - 19,078 Lending commitments 13,496 1,222 954 5,206 20,878 Commitments to provide capital to equity method investees 109 2 16 28 155 Purchase obligations 49 46 19 1 115 ------- ------ ------ ------ ------- Total contractural commitments $107,241 $69,102 $21,121 $80,874 $278,338 ======= ====== ====== ====== ======= BOOK VALUE PER SHARE Book value per share was determined based on the liquidation rights of the common stockholders. Book value per share of GM $1-2/3 par value common stock increased to $44.96 at December 31, 2003, from $9.06 at December 31, 2002. DIVIDENDS Dividends may be paid on common stock only when, as, and if declared by GM's Board of Directors in its sole discretion. At December 31, 2003, the amount available for the payment of dividends on GM $1-2/3 par value was $27.9 billion. GM's policy is to distribute dividends on its $1-2/3 par value common stock based on the outlook and indicated capital needs of the business. Cash dividends per share of GM $1-2/3 par value common stock were $2.00 in 2003, 2002, and 2001. EMPLOYMENT AND PAYROLLS Worldwide employment at December 31, (in thousands) 2003 2002 2001 ---- ---- ---- GMNA 190 198 207 GME 62 66 73 GMLAAM 23 24 24 GMAP 14 11 11 GMAC 32 32 29 Other 5 7 8 --- --- --- Total employees 326 338 352 === === === Worldwide payrolls (in billions) $20.9 $20.4 $19.1 U.S. hourly payrolls (in billions) (1) $8.9 $9.1 $8.5 Average labor cost per active hour worked U.S. hourly (2) $78.39 $62.78 $57.76 - ---------------------- (1)Includes employees "at work" (excludes laid-off employees receiving benefits). (2)Includes U.S. hourly wages and benefits divided by the number of hours worked. II-15 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CRITICAL ACCOUNTING ESTIMATES Accounting policies are integral to understanding this MD&A. The consolidated financial statements of GM are prepared in conformity with GAAP, which requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. GM's accounting policies are described in Note 1 to the Consolidated Financial Statements. Critical accounting estimates are described in this section. An accounting estimate is considered critical if: the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made; different estimates reasonably could have been used; or if changes in the estimate that would have a material impact on the Corporation's financial condition or results of operations are reasonably likely to occur from period to period. Management believes that the accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The Corporation has discussed the development, selection and disclosures of these critical accounting estimates with the Audit Committee of GM's Board of Directors, and the Audit Committee has reviewed the Corporation's disclosures relating to these estimates. Sales Allowances At the later of the time of sale or the time an incentive is announced to dealers (applies to vehicles sold by GM and in dealer inventory), GM records as a reduction of revenue the estimated impact of sales allowances in the form of dealer and customer incentives. There may be numerous types of incentives available at any particular time. Some factors used in estimating the cost of incentives include the volume of vehicles that will be affected by the incentive programs offered by product and the rate of customer acceptance of any incentive program. If the actual number of vehicles differs from this estimate, or if a different mix of incentives occurs, the sales allowances could be affected. Policy and Warranty Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information on the nature, frequency, and average cost of warranty claims. Management actively studies trends of warranty claims and takes action to improve vehicle quality and minimize warranty claims. Impairment of Long-Lived Assets GM periodically reviews the carrying value of its long-lived assets held and used, other than goodwill and intangible assets with indefinite lives, and assets to be disposed of when events and circumstances warrant such a review. This review is performed using estimates of future cash flows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Pension and Other Postretirement Employee Benefits (OPEB) Pension and OPEB costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, health care cost trend rates, benefits earned, interest cost, expected return on plan assets, mortality rates, and other factors. In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect GM's pension and other postretirement obligations and future expense. GM has established for its U.S. pension plans a discount rate of 6.00% for year-end 2003, which represents a 75 basis point reduction from the 6.75% discount rate used at year-end 2002. GM's U.S. pre-tax pension expense is forecasted to decrease from approximately $2.6 billion in 2003, excluding curtailments and settlements, to approximately $1.4 billion in 2004 due to the $18.5 billion 2003 pension contribution and the approximately 22% 2003 actual return on assets, partially offset by a lower 2003 year-end discount rate. The following information illustrates the sensitivity to a change in certain assumptions for U.S. pension plans (as of December 31, 2003 the Projected Benefit Obligation (PBO) for U.S. pension plans was $87 billion and the minimum pension liability charged to equity with respect to U.S. pension plans was $125 million net of tax): II-16 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CRITICAL ACCOUNTING ESTIMATES (continued) Effect on Effect on 2004 December 31, 2003 Change in Assumption Pre-Tax Pension Expense PBO - -------------------------------------------------------------------------- 25 basis point decrease in discount rate +$150 million +$2.1 billion 25 basis point increase in discount rate -$150 million -$2.1 billion 25 basis point decrease in expected return on assets +$220 million - 25 basis point increase in expected return on assets -$220 million - The above sensitivities reflect the impact of changing one assumption at a time. It should be noted that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear. These changes in assumptions would have no effect on GM's funding requirements. In addition, at December 31, 2003, a 25 basis point decrease in the discount rate would decrease stockholders' equity by $14.0 billion, net of tax; a 25 basis point increase in the discount rate would increase stockholders' equity by $20.0 million, net of tax. With a 25 basis point decrease in the discount rate, certain pension plans would become Accumulated Benefit Obligation (ABO) underfunded resulting in a significantly larger impact on equity compared to a 25 basis point increase in the discount rate. In addition, the impact of greater than a 25 basis point decrease in discount rate would not be proportional to the first 25 basis point decrease in the discount rate. GM has established for its U.S. OPEB plans a discount rate of 6.25% for year-end 2003, which represents a 50 basis point reduction from the 6.75% discount rate used at year-end 2002. The following table illustrates the sensitivity to a change in the discount rate assumption related to GM's U.S. OPEB plans (the U.S. Accumulated Postretirement Benefit Obligation [APBO] was a significant portion of GM's worldwide APBO of $67.5 billion as of December 31, 2003): Effect on 2004 Effect on Pre-Tax OPEB December 31, 2003 Change in Assumption Expense APBO - ------------------------------------------------------------------------------- 25 basis point decrease in discount rate +$170 million +$1.9 billion 25 basis point increase in discount rate -$170 million -$1.9 billion The above sensitivities reflect the impact of changing one assumption at a time. It should be noted that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear. Postemployment Benefits GM establishes reserves for termination and other postemployment benefit liabilities to be paid pursuant to union or other contractual agreements in connection with closed plants. The reserve is based on a comprehensive study that considers the impact of the annual production and labor forecast assumptions as well as redeployment scenarios. II-17 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CRITICAL ACCOUNTING ESTIMATES (concluded) Allowance for Credit Losses The allowance for credit losses is management's estimate of incurred losses in GMAC's consumer and commercial finance receivable and loan portfolios held for investment. Management periodically performs detailed reviews of these portfolios to determine if impairment has occurred and to assess the adequacy of the allowance for credit losses, based on historical and anticipated trends and other factors affecting credit quality. These factors include the historical trends of repossessions, charge-offs, recoveries, and credit losses; the careful monitoring of portfolio credit quality, including the impact of acquisitions; and current and projected economic and market conditions. Different assumptions or changes in economic circumstances could result in changes to the allowance for credit losses. Investments in Operating Leases GMAC's investments in residual values of its leasing portfolio represent an estimate of the values of the assets at the end of the lease contract and are initially recorded based on appraisals and estimates. Management reviews residual values periodically to determine that recorded amounts are appropriate and the operating lease assets have not been impaired. GMAC actively manages the remarketing of off-lease vehicles to maximize the realization of their value. Changes in the value of the residuals or other external factors impacting GMAC's future ability to market the vehicles under prevailing market conditions may impact the realization of residual values. Mortgage Servicing Rights The Corporation capitalizes mortgage servicing rights associated with loans sold with servicing retained and servicing rights acquired through bulk and flow purchase transactions. The Corporation capitalizes the cost of originated mortgage servicing rights based upon the relative fair market value of the underlying mortgage loans and mortgage servicing rights at the time of sale of the underlying mortgage loan. The Corporation capitalizes purchased mortgage servicing rights at cost, an amount not exceeding the estimated fair market value of those purchased mortgage servicing rights. Accounting for Derivatives and Other Contracts at Fair Value The Corporation uses derivatives in the normal course of business to manage its exposure to fluctuations in commodity prices and interest and foreign currency rates. Effective January 1, 2001, the Corporation accounts for its derivatives on the Consolidated Balance Sheet as assets or liabilities at fair value in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Such accounting is complex, evidenced by significant interpretations of the primary accounting standard, which continues to evolve, as well as the significant judgments and estimates involved in the estimating of fair values in the absence of quoted market prices. NEW ACCOUNTING STANDARDS Beginning January 1, 2003, the Corporation began expensing the fair market value of newly granted stock options and other stock based compensation awards to employees pursuant to Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." The fair value of stock option grants are estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of other stock compensation awards is determined by the market price of GM $1-2/3 common stock on the date of grant. The total expense for 2003 was $229 million ($142 million net of tax), recorded in cost of sales and other expenses. For 2002, as permitted by SFAS No. 123, GM applied the intrinsic value method of recognition and measurement under Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees," to its stock options and other stock-based employee compensation awards. No compensation expense related to employee stock options is reflected in net income for these periods, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of the grant. Refer to Note 1 to the Consolidated Financial Statements for the effect on net income and earnings per share if compensation cost for all outstanding and unvested stock options and other stock-based employee compensation awards had been determined based on their fair values at the grant date. In December 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligations it assumes under that guarantee. This interpretation is applicable on a prospective basis to guarantees issued or modified after December 31, 2002. FIN 45 also contains disclosure provisions surrounding existing guarantees, which are effective for financial statements of interim or annual periods ending after December 15, 2002. See Note 18 to the Consolidated Financial Statements. II-18 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NEW ACCOUNTING STANDARDS (concluded) In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which requires the consolidation of certain entities considered to be variable interest entities (VIEs). An entity is considered to be a VIE when it has equity investors who lack the characteristics of having a controlling financial interest, or its capital is insufficient to permit it to finance its activities without additional subordinated financial support. Consolidation of a VIE by an investor is required when it is determined that the investor will absorb a majority of the VIE's expected losses or residual returns if they occur. FIN 46 provides certain exceptions to these rules, relating to qualifying special purpose entities (QSPEs) subject to the requirements of SFAS No. 140. Upon its original issuance, FIN 46 required that VIEs created after January 31, 2003 would be consolidated immediately, while VIEs created prior to February 1, 2003 were to be consolidated as of July 1, 2003. In October 2003, the FASB deferred the effective date for consolidation of VIEs created prior to February 1, 2003 to December 31, 2003 for calendar year-end companies, with earlier application encouraged. GM adopted FIN 46 as of its original effective date of July 1, 2003 for entities created prior to February 1, 2003. The application of the consolidation provisions of FIN 46 resulted in an increase in assets and debt of approximately $4.6 billion ($917 million in Auto & Other, and $3.7 billion in FIO), and a cumulative effect of accounting change recorded in cost of sales of $27 million after-tax, related to Auto & Other and no net income impact at FIO. Refer to Note 7 to the Consolidated Financial Statements for further discussion of GM's involvement in variable interest entities. In December 2003, the FASB published a revision to FIN 46 (FIN 46R) to clarify some of the provisions of the original interpretation and to exempt certain entities from its requirements. FIN 46R provides special effective date provisions to enterprises that fully or partially applied FIN 46 prior to the issuance of the revised interpretation. In particular, entities that have already adopted FIN 46 are not required to adopt FIN 46R until the quarterly reporting period ended March 31, 2004. The Corporation is currently reviewing the provisions of FIN 46R and will adopt FIN 46R for the quarterly reporting period ending March 31, 2004. In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this standard did not have a material effect on the Corporation's financial condition or results of operations. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which provides standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The Statement is effective for financial instruments entered into or modified after May 31, 2003 and for pre-existing instruments as of the beginning of the first interim period beginning after June 15, 2003. The adoption of this standard did not have a material effect on the Corporation's financial condition or results of operations. In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits." The revisions to SFAS 132 are intended to improve financial statement disclosures for defined benefit plans and was initiated in 2003 in response to concerns raised by investors and other users of financial statements about the need for greater transparency of pension information. In particular the standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant quantitative and qualitative information. The guidance is effective for fiscal years ending after December 15, 2003. Refer to Note 17 to the Consolidated Financial Statements for further discussion of GM's pension and other postretirement benefits obligations. ADDITIONAL MATTERS Like most domestic and foreign automobile manufacturers, over the years GM has used some brake products each of which incorporated small amounts of encapsulated asbestos. These products, generally brake linings, are known as asbestos-containing friction products. There is a significant body of scientific data demonstrating that these asbestos-containing friction products are not unsafe and do not create an increased risk of asbestos-related disease. GM believes that the use of asbestos in these products was appropriate. II-19 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ADDITIONAL MATTERS (concluded) As with other companies that have used asbestos, there has been an increase in the number of claims against GM related to allegations concerning the use of asbestos-containing friction products in recent years. A growing number of auto mechanics are filing suit seeking recovery based on their alleged exposure to the small amount of asbestos used in brake components. These claims almost always identify numerous other potential sources for the claimant's alleged exposure to asbestos which do not involve GM or even asbestos-containing friction products and many of these other potential sources would place users at much greater risk. The vast majority of these claimants do not have an asbestos-related illness and may never develop one. This is consistent with the experience reported by other automotive manufacturers and other end users of asbestos. Two other types of claims related to alleged asbestos exposure are being asserted against GM, representing a significantly lower exposure than the automotive friction product claims. Like other locomotive manufacturers, GM used a limited amount of asbestos in locomotive brakes and in the insulation used in the manufacturing of some locomotives. These uses have been the basis of lawsuits being filed against GM by railroad workers seeking relief based on their alleged exposure to asbestos. These claims almost always identify numerous other potential sources for the claimant's alleged exposure to asbestos, which do not involve GM or even locomotives. Many of these claimants do not have an asbestos-related illness and may never develop one. In addition, like many other manufacturers, a relatively small number of claims are brought by contractors who are seeking recovery based on alleged exposure to asbestos-containing products while working on premises owned by GM. These claims almost always identify numerous other potential sources for the claimant's alleged exposure to asbestos which do not involve GM. The vast majority of these claimants do not have an asbestos-related illness and may never develop one. While General Motors has resolved many of these cases over the years and continues to do so for conventional strategic litigation reasons (avoiding defense costs and possible exposure to runaway verdicts), GM, as stated above, believes the vast majority of such claims against GM are without merit. Only a small percentage of the claims pending against GM allege the contraction of a malignant disease associated with asbestos exposure. The vast majority of claimants do not have an asbestos-related illness and may never develop one. In addition, GM believes that it has very strong defenses based upon a number of published epidemiological studies prepared by highly respected scientists. Indeed, GM believes there is compelling evidence warranting the dismissal of virtually all of these claims against GM. GM will vigorously press this evidence before judges and juries whenever possible. The West Virginia Supreme Court and an Ohio trial court have ruled that Federal law preempts asbestos tort claims asserted on behalf of railroad workers. Such preemption means that Federal law entirely eliminates the possibility that railroad workers could maintain claims against GM. GM's annual expenditures associated with the resolution of these claims have increased in nonmaterial amounts in recent years, but the amount expended in any year is highly dependent on the number of claims filed, the amount of pretrial proceedings conducted, and the number of trials and settlements which occur during the period. While over time GM anticipates annual expenditures relating to these claims may increase somewhat as a function of the number of claims increasing, it is management's belief, based upon consultation with legal counsel, that the claims will not result in a material adverse effect upon the financial condition or results of operations of GM. FORWARD-LOOKING STATEMENTS In this report, in reports subsequently filed by GM with the SEC on Form 10-Q and filed or furnished on Form 8-K, and in related comments by management of GM our use of the words "expect," "anticipate," "estimate," "forecast," "objective," "plan," "goal," "project," "priorities/targets," and similar expressions is intended to identify forward-looking statements. While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, actual results may differ materially due to numerous important factors that are described below and other factors that may be described in subsequent reports which GM may file with the SEC on Form 10-Q and filed or furnished on Form 8-K: . Changes in economic conditions, currency exchange rates or political stability; . Shortages of and price increase for fuel, labor strikes or work stoppages, market acceptance of the Corporation's new products; . Significant changes in the competitive environment . Changes in the laws, regulations, and tax rates; and . The ability of the Corporation to achieve reductions in cost and employment levels, to realize production efficiencies, and to implement capital expenditures, all at the levels and times planned by management. * * * * * * II-20 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk GM is exposed to market risk from changes in foreign currency exchange rates, interest rates, and certain commodity and equity security prices. GM enters into a variety of foreign exchange, interest rate, and commodity forward contracts and options, primarily to maintain the desired level of exposure arising from these risks. A risk management control system is utilized to monitor foreign exchange, interest rate, commodity and equity price risks, and related hedge positions. A discussion of GM's accounting policies for derivative financial instruments is included in Note 1 to the GM Consolidated Financial Statements. Further information on GM's exposure to market risk is included in Notes 19 and 21 to the Consolidated Financial Statements. The following analyses provide quantitative information regarding GM's exposure to foreign currency exchange rate risk, interest rate risk, and commodity and equity price risk. GM uses a model to evaluate the sensitivity of the fair value of financial instruments with exposure to market risk that assumes instantaneous, parallel shifts in exchange rates, interest rate yield curves, and commodity and equity prices. For options and instruments with nonlinear returns, models appropriate to the instrument are utilized to determine the impact of market shifts. There are certain shortcomings inherent in the sensitivity analyses presented, primarily due to the assumption that exchange rates change in a parallel fashion and that interest rates change instantaneously. In addition, the analyses are unable to reflect the complex market reactions that normally would arise from the market shifts modeled. Foreign Exchange Rate Risk GM has foreign currency exposures related to buying, selling, and financing in currencies other than the local currencies in which it operates. More specifically, GM is exposed to foreign currency risk related to the uncertainty to which future earnings or asset and liability values are exposed as the result of operating cash flows and various financial instruments that are denominated in foreign currencies. At December 31, 2003, the net fair value liability of financial instruments with exposure to foreign currency risk was approximately $3.2 billion compared to a net fair value asset of $4.1 billion at December 31, 2002. The potential loss in fair value for such financial instruments from a 10% adverse change in quoted foreign currency exchange rates would be approximately $323 million and $411 million for 2003 and 2002, respectively. Interest Rate Risk GM is subject to market risk from exposure to changes in interest rates due to its financing, investing, and cash management activities. More specifically, the Corporation is exposed to interest rate risk associated with long-term debt and contracts to provide commercial and retail financing, retained mortgage servicing rights, and retained assets related to mortgage securitizations. In addition, GM is exposed to prepayment risk associated with its capitalized mortgage servicing rights and its retained assets. This risk is managed with U.S. Treasury options and futures, exposing GM to basis risk since the derivative instruments do not have identical characteristics to the underlying mortgage servicing rights. At December 31, 2003 and 2002, the net fair value liability of financial instruments held for purposes other than trading with exposure to interest rate risk was approximately $51.5 billion and $26.6 billion, respectively. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates would be approximately $2.7 billion and $1.6 billion for 2003 and 2002, respectively. At December 31, 2003 and 2002, the net fair value asset of financial instruments held for trading purposes with exposure to interest rate risk was approximately $4.1 billion and $4.4 billion, respectively. The potential loss in fair value resulting from a 10% adverse shift in quoted interest rates would be approximately $11 million and $26 million for 2003 and 2002, respectively. This analysis excludes GM's operating lease portfolio. A fair value change in the debt that funds this portfolio would potentially have a different impact on the fair value of the portfolio itself. As such, the overall effect to the fair value of financial instruments from a hypothetical change in interest rates may be overstated. II-21 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk (concluded) Commodity Price Risk GM is exposed to changes in prices of commodities used in its Automotive business, primarily associated with various non-ferrous metals used in the manufacturing of automotive components. GM enters into commodity forward and option contracts to offset such exposure. At December 31, 2003 the net fair value asset of such contracts was approximately $194 million. At December 31, 2002 the net fair value liability of such contracts was $40 million. The potential loss in fair value resulting from a 10% adverse change in the underlying commodity prices would be approximately $190 million and $189 million for 2003 and 2002, respectively. This amount excludes the offsetting impact of the price risk inherent in the physical purchase of the underlying commodities. Equity Price Risk GM is exposed to changes in prices of various available-for-sale equity securities in which it invests. At December 31, 2003 and 2002, the fair value of such investments was approximately $2.2 billion and $1.6 billion, respectively. The potential loss in fair value resulting from a 10% adverse change in equity prices would be approximately $216 million and $157 million for 2003 and 2002, respectively. II-22 Independent Auditors' Report General Motors Corporation, its Directors, and Stockholders: We have audited the accompanying Consolidated Balance Sheets of General Motors Corporation and subsidiaries (the Corporation) as of December 31, 2003 and 2002, and the related Consolidated Statements of Income, Cash Flows, and Stockholders' Equity for each of the three years in the period ended December 31, 2003. Our audits also included the Supplemental Information to the Consolidated Balance Sheets and Consolidated Statements of Income and Cash Flows and the financial statement schedule listed at Item 15 (collectively, the financial statement schedules). These financial statements and financial statement schedules are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of General Motors Corporation and subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Note 1 to the Consolidated Financial Statements, the Corporation: (1) effective July 1, 2003, began consolidating certain variable interest entities to conform to FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," (2) effective January 1, 2003, began expensing the fair market value of newly granted stock options and other stock-based compensation awards issued to employees to conform to Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" and (3) effective January 1, 2002, changed its method of accounting for goodwill and other intangible assets to conform to SFAS No. 142, "Goodwill and Other Intangible Assets." /s/DELOITTE & TOUCHE LLP - ------------------------ DELOITTE & TOUCHE LLP Detroit, Michigan March 10, 2004 II-23 ITEM 8 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, ------------------------ 2003 2002 2001 ---- ---- ---- (dollars in millions except per share amounts) GENERAL MOTORS CORPORATION AND SUBSIDIARIES Total net sales and revenues (Notes 1 and 24) $185,524 $177,324 $169,051 ------- ------- ------- Cost of sales and other expenses (Note 5) 152,071 146,793 138,847 Selling, general, and administrative expenses 21,008 20,690 19,433 Interest expense (Note 16) 9,464 7,503 8,317 ------- ------- ------- Total costs and expenses 182,543 174,986 166,597 ------- ------- ------- Income from continuing operations before income taxes, equity income and minority interests 2,981 2,338 2,454 Income tax expense (Note 11) 731 644 1,094 Equity income (loss) and minority interests 612 281 (138) ----- ----- ----- Income from continuing operations 2,862 1,975 1,222 Loss from discontinued operations (Note 2) (219) (239) (621) Gain on sale of discontinued operations 1,179 - - ----- ----- ----- Net income 3,822 1,736 601 Dividends on preference stocks - (46) (99) ----- ----- ----- Earnings attributable to common stocks (Note 20) $3,822 $1,690 $502 ===== ===== === Basic earnings (loss) per share attributable to common stocks $1-2/3 par value Continuing operations $5.10 $3.53 $2.21 Discontinued operations $2.14 $(0.16) $(0.42) ---- ---- ---- Earnings per share attributable to $1-2/3 par value $7.24 $3.37 $1.79 ==== ==== ==== Losses per share from discontinued operations attributable to Class H $(0.22) $(0.21) $(0.55) ==== ==== ==== Earnings (loss) per share attributable to common stocks assuming dilution $1-2/3 par value Continuing operations $5.03 $3.51 $2.20 Discontinued operations $2.11 $(0.16) $(0.43) ---- ---- ---- Earnings per share attributable to $1-2/3 par value $7.14 $3.35 $1.77 ==== ==== ==== Losses per share from discontinued operations attributable to Class H $(0.22) $(0.21) $(0.55) ==== ==== ==== Reference should be made to the notes to consolidated financial statements. II-24 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, ------------------------ 2003 2002 2001 ---- ---- ---- (dollars in millions) AUTOMOTIVE AND OTHER OPERATIONS Total net sales and revenues (Notes 1 and 24) $155,831 $150,250 $143,173 ------- ------- ------- Cost of sales and other expenses (Note 5) 143,464 138,359 130,158 Selling, general, and administrative expenses 11,863 11,749 12,430 ------- ------- ------- Total costs and expenses 155,327 150,108 142,588 ------- ------- ------- Interest expense (Note 16) 1,780 479 572 Net expense from transactions with Financing and Insurance Operations (Note 1) 232 296 435 --- --- --- (Loss) from continuing operations before income taxes, equity income, and minority interests (1,508) (633) (422) Income tax (benefit) expense (Note 11) (869) (378) 56 Equity income (loss) and minority interests 674 348 (68) --- --- ----- Income (loss) from continuing operations 35 93 (546) (Loss) from discontinued operations (Note 2) (219) (239) (621) Gain on sale of discontinued operations 1,179 - - ----- --- ----- Net income (loss) - Automotive and Other Operations $995 $(146) $(1,167) === === ===== FINANCING AND INSURANCE OPERATIONS Total revenues $29,693 $27,074 $25,878 ------ ------ ------ Interest expense (Note 16) 7,684 7,024 7,745 Depreciation and amortization expense (Note 12) 6,032 5,541 5,857 Operating and other expenses 8,529 8,306 7,308 Provisions for financing and insurance losses (Note 1) 3,191 3,528 2,527 ------ ------ ------ Total costs and expenses 25,436 24,399 23,437 ------ ------ ------ Net income from transactions with Automotive and Other Operations (Note 1) (232) (296) (435) ----- ----- ----- Income before income taxes, equity income and minority interests 4,489 2,971 2,876 Income tax expense (Note 11) 1,600 1,022 1,038 Equity income (loss) and minority interests (62) (67) (70) ----- ----- ----- Net income - Financing and Insurance Operations $2,827 $1,882 $1,768 ===== ===== ===== The above Supplemental Information is intended to facilitate analysis of General Motors Corporation's businesses: (1) Automotive and Other Operations; and (2) Financing and Insurance Operations. Reference should be made to the notes to consolidated financial statements. II-25 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, ------------ 2003 2002 ASSETS (dollars in millions) Cash and cash equivalents (Note 1) $32,554 $20,320 Other marketable securities (Note 6) 22,215 16,825 ------ ------ Total cash and marketable securities 54,769 37,145 Finance receivables - net (Note 8) 173,137 134,643 Loans held for sale 19,609 15,720 Accounts and notes receivable (less allowances) 20,532 16,337 Inventories (less allowances) (Note 9) 10,960 9,737 Assets of discontinued operations - 18,653 Deferred income taxes (Note 11) 27,190 39,767 Net equipment on operating leases (less accumulated depreciation) (Note 10) 34,383 31,026 Equity in net assets of nonconsolidated affiliates 6,032 5,097 Property - net (Note 12) 38,211 35,956 Intangible assets - net (Notes 1 and 13) 4,760 10,796 Other assets (Note 14) 58,924 14,176 ------- ------- Total assets $448,507 $369,053 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable (principally trade) $25,422 $21,138 Notes and loans payable (Note 16) 271,756 200,168 Liabilities of discontinued operations - 7,956 Postretirement benefits other than pensions (Note 17) 36,292 38,152 Pensions (Note 17) 8,024 22,679 Deferred income taxes (Notes 11 and 15) 7,508 6,523 Accrued expenses and other liabilities (Note 15) 73,930 65,344 ------- ------- Total liabilities 422,932 361,960 Minority interests 307 279 Stockholders' equity (Note 19) $1-2/3 par value common stock (outstanding, 561,997,725 and 560,447,797 shares) 937 936 Class H common stock (outstanding, 958,284,272 shares in 2002) - 96 Capital surplus (principally additional paid-in capital) 15,185 21,583 Retained earnings 12,752 10,031 ------ ------ Subtotal 28,874 32,646 Accumulated foreign currency translation adjustments (1,815) (2,784) Net unrealized gains (losses) on derivatives 51 (205) Net unrealized gains on securities 618 372 Minimum pension liability adjustment (2,460) (23,215) ----- ------ Accumulated other comprehensive loss (3,606) (25,832) ----- ------ Total stockholders' equity 25,268 6,814 ------- ------- Total liabilities and stockholders' equity $448,507 $369,053 ======= ======= Reference should be made to the notes to consolidated financial statements. II-26 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED BALANCE SHEETS December 31, GENERAL MOTORS CORPORATION AND SUBSIDIARIES 2003 2002 ---- ---- ASSETS (dollars in millions) Automotive and Other Operations Cash and cash equivalents (Note 1) $14,424 $12,162 Marketable securities (Note 6) 9,067 2,174 ------ ------ Total cash and marketable securities 23,491 14,336 Accounts and notes receivable (less allowances) 5,380 4,735 Inventories (less allowances) (Note 9) 10,960 9,737 Assets of discontinued operations - 18,653 Net equipment on operating leases (less accumulated depreciation) (Note 10) 7,173 5,305 Deferred income taxes and other current assets (Note 11) 10,851 9,631 ------ ------ Total current assets 57,855 62,397 Equity in net assets of nonconsolidated affiliates 6,032 5,097 Property - net (Note 12) 36,071 34,135 Intangible assets - net (Notes 1 and 13) 1,479 7,453 Deferred income taxes (Note 11) 18,086 31,431 Other assets (Note 14) 42,262 1,461 ------- ------ Total Automotive and Other Operations assets 161,785 141,974 Financing and Insurance Operations Cash and cash equivalents (Note 1) 18,130 8,158 Investments in securities (Note 6) 13,148 14,651 Finance receivables - net (Note 8) 173,137 134,643 Loans held for sale 19,609 15,720 Net equipment on operating leases (less accumulated depreciation) (Note 10) 27,210 25,721 Other assets (Note 14) 35,488 28,186 Net receivable from Automotive and Other Operations (Note 1) 1,492 1,089 ------- ------- Total Financing and Insurance Operations assets 288,214 228,168 ------- ------- Total assets $449,999 $370,142 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Automotive and Other Operations Accounts payable (principally trade) $21,542 $17,919 Loans payable (Note 16) 2,813 1,994 Liabilities of discontinued operations - 7,956 Accrued expenses (Note 15) 45,417 39,113 Net payable to Financing and Insurance Operations (Note 1) 1,492 1,089 ------ ------ Total current liabilities 71,264 68,071 Long-term debt (Note 16) 29,593 14,261 Postretirement benefits other than pensions (Note 17) 32,285 34,244 Pensions (Note 17) 7,952 22,633 Other liabilities and deferred income taxes (Notes 11 and 15) 15,567 13,734 ------- ------- Total Automotive and Other Operations liabilities 156,661 152,943 Financing and Insurance Operations Accounts payable 3,880 3,219 Debt (Note 16) 239,350 183,913 Other liabilities and deferred income taxes (Note 11 and 15) 24,533 22,974 ------- ------- Total Financing and Insurance Operations liabilities 267,763 210,106 ------- ------- Total liabilities 424,424 363,049 Minority interests 307 279 Total stockholders' equity 25,268 6,814 ------- ------- Total liabilities and stockholders' equity $449,999 $370,142 ======= ======= The above Supplemental Information is intended to facilitate analysis of General Motors Corporation's businesses: (1) Automotive and Other Operations; and (2) Financing and Insurance Operations. Reference should be made to the notes to consolidated financial statements. II-27 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For The Years Ended December 31, 2003 2002 2001 ---- ---- ---- Cash flows from operating activities (dollars in millions) Income from continuing operations $2,862 $1,975 $1,222 Adjustments to reconcile income from continuing operations to net cash provided by operating activities Depreciation and amortization expenses 13,978 11,865 11,764 Mortgage servicing rights amortization 1,602 3,871 948 Provision for financing losses 1,608 2,028 1,472 Other postretirement employee benefit (OPEB) expense 4,599 4,108 3,720 OPEB payments (3,536) (3,334) (3,120) VEBA (contributions)/ withdrawls (3,000) (1,000) 1,300 Pension expense 3,412 1,780 540 Pension contributions (18,168) (5,156) (317) Retiree lump sum and vehicle voucher expense, net of payments 923 (254) (136) Net change in mortgage loans 456 (4,715) (4,615) Net change in mortgage securities 236 (656) (777) Change in other investments and miscellaneous assets 1,741 1,335 180 Change in other operating assets and liabilities (Note 1) 792 4,477 (234) Other 95 (842) 233 ----- ------ ------ Net cash provided by operating activities $7,600 $15,482 $12,180 ----- ------ ------ Cash flows from investing activities Expenditures for property (7,330) (6,871) (7,832) Investments in marketable securities - acquisitions (28,660) (39,386) (38,248) Investments in marketable securities - liquidations 24,253 35,688 37,560 Net change in mortgage servicing rights (2,557) (1,711) (2,075) Increase in finance receivables (149,419) (143,024) (107,566) Proceeds from sale of finance receivables 107,505 117,276 95,949 Proceeds from sale of business units 4,148 - - Operating leases - acquisitions (11,761) (16,624) (12,938) Operating leases - liquidations 9,952 13,994 11,892 Investments in companies, net of cash acquired (Note 1) (201) (870) (1,283) Other (1,422) 1,004 126 ------ ------- ------- Net cash used in investing activities (55,492) (40,524) (24,415) ------ ------- ------- Cash flows from financing activities Net increase (decrease) in loans payable 235 770 (21,740) Long-term debt - borrowings 97,391 51,411 62,956 Long-term debt - repayments (38,963) (24,365) (19,789) Repurchases of common and preference stocks - (97) (264) Proceeds from issuing common stocks - 62 100 Proceeds from sales of treasury stocks 60 19 418 Cash dividends paid to stockholders (1,121) (1,121) (1,105) Other 1,320 333 924 ------ ------ ------ Net cash provided by financing activities 58,922 27,012 21,500 ------ ------ ------ Net cash provided by discontinued operations 275 - - Effect of exchange rate changes on cash and cash equivalents 929 495 (96) ------ ------ ------ Net increase in cash and cash equivalents 12,234 2,465 9,169 Cash and cash equivalents at beginning of the year 20,320 17,855 8,686 ------ ------ ------ Cash and cash equivalents at end of the year $32,554 $20,320 $17,855 ====== ====== ====== Reference should be made to the notes to consolidated financial statements. II-28 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2003 2002 2001 ------------------------------------------------------------------------- Automotive Financing Automotive Financing Automotive Financing and Other and and Other and and Other and Operations Insurance Operations Insurance Operations Insurance ---------- --------- ---------- --------- ---------- --------- Cash flows from operating (dollars in millions) activities Income (loss) from continuing operations $35 $2,827 $93 $1,882 $(546) $1,768 Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities Depreciation and amortization expenses 7,946 6,032 6,324 5,541 5,907 5,857 Mortgage servicing rights amortization - 1,602 - 3,871 - 948 Provision for financing losses - 1,608 - 2,028 - 1,472 Postretirement benefits other than pensions, net of payments and VEBA contributions (1,957) 20 (241) 15 1,893 7 Pension expense, net of contributions (13,869) 36 (3,639) 9 74 13 Net change in mortgage loans - 456 - (4,715) - (4,615) Net change in mortgage securities - 236 - (656) - (777) Change in other investments and miscellaneous assets (200) 1,941 2,064 (729) 591 (411) Change in other operating assets and liabilities (Note 1) 3,067 (2,275) 3,808 669 (1,152) 918 Other (348) 443 (398) (444) 1,020 (787) ------ ------ ------ ------ ----- ----- Net cash (used in) provided by operating activities $(5,326) $12,926 $8,011 $7,471 $7,787 $4,393 ----- ------ ----- ----- ----- ----- Cash flows from investing activities Expenditures for property (6,616) (714) (6,414) (457) (7,812) (20) Investments in marketable securities - acquisitions (13,138) (15,522) (2,228) (37,158) (767) (37,481) Investments in marketable securities - liquidations 7,109 17,144 873 34,815 1,228 36,332 Net change in mortgage servicing rights - (2,557) - (1,711) - (2,075) Increase in finance receivables - (149,419) - (143,024) - (107,566) Proceeds from sales of finance receivables - 107,505 - 117,276 - 95,949 Proceeds from sale of business units 4,148 - - - - - Operating leases - acquisitions - (11,761) - (16,624) - (12,938) Operating leases - liquidations - 9,952 - 13,994 - 11,892 Investments in companies, net of cash acquired (Note 1) (57) (144) (688) (182) (741) (542) Net investing activity with Financing and Insurance Operations 1,000 - 400 - (500) - Other 332 (1,754) 1,513 (509) 244 (118) ----- ----- ----- ------ ----- ------ Net cash provided by in investing activities (7,222) (47,270) (6,544) (33,580) (8,348) (16,567) ----- ------ ----- ------ ----- ------ Cash flows from financing activities Net (decrease) increase in loans payable (234) 469 (335) 1,105 (1,440) (20,300) Long-term debt - borrowings 14,785 82,606 4,562 46,849 4,435 58,521 Long-term debt - repayments (19) (38,944) (145) (24,220) (884) (18,905) Net financing activity with Automotive and Other Operations - (1,000) - (400) - 500 Repurchases of common and preference stocks - - (97) - (264) - Proceeds from issuing common stocks - - 62 - 100 - Proceeds from sales of treasury stocks 60 - 19 - 418 - Cash dividends paid to stockholders (1,121) - (1,121) - (1,105) - Other - 1,320 - 333 - 924 ------ ------ ----- ------ ----- ------ Net cash provided by financing activities 13,471 44,451 2,945 23,667 1,260 20,740 ------ ------ ----- ------ ----- ------ Net cash provided by discontinued operations 275 - - - - - Effect of exchange rate changes on cash and cash equivalents 661 268 485 10 (74) (22) Net transactions with Automotive/Financing Operations 403 (403) (467) 467 (414) 414 ------ ----- ------ ------ --- ----- Net increase (decrease) in cash and cash equivalents 2,262 9,972 4,430 (1,965) 211 8,958 Cash and cash equivalents at beginning of the year 12,162 8,158 7,732 10,123 7,521 1,165 ------ ------ ------ ------ ----- ------ Cash and cash equivalents at end of the year $14,424 $18,130 $12,162 $8,158 $7,732 $10,123 ====== ====== ====== ===== ===== ======
The above Supplemental Information is intended to facilitate analysis of General Motors Corporation's businesses: (1) Automotive and Other Operations; and (2) Financing and Insurance Operations. Reference should be made to the notes to consolidated financial statements. II-29 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, and 2001
Accumulated Total Other Total Capital Capital Comprehensive Retained Comprehensive Stockholders' Stock Surplus Income (Loss) Earnings Loss Equity ----- ------- ------------- -------- ---- ------ (dollars in millions) Balance at January 1, 2001 $1,002 $21,020 $10,119 $(1,966) $30,175 Shares reacquired - (125) - - (125) Shares issued 18 624 - - 642 Comprehensive income: Net income - - $601 601 - 601 --- Other comprehensive income (loss): Foreign currency translation adjustments - - (417) - - - Unrealized losses on derivatives - - (307) - - - Unrealized losses on securities - - (69) - - - Minimum pension liability adjustment - - (9,536) - - - ----- Other comprehensive loss - - (10,329) (10,329) (10,329) ------ Comprehensive loss - - $(9,728) - - - ===== Delphi spin-off adjustment (a) - - (56) - (56) Cash dividends - - (1,201) - (1,201) ----- ------ ----- ------ ------ Balance at December 31, 2001 1,020 21,519 9,463 (12,295) 19,707 Shares reacquired - (2,086) - - (2,086) Shares issued 12 2,150 - - 2,162 Comprehensive income: Net income - - $1,736 1,736 - 1,736 ----- Other comprehensive income (loss): Foreign currency translation adjustments - - 135 - - - Unrealized gains on derivatives - - 102 - - - Unrealized losses on securities - - (140) - - - Minimum pension liability adjustment - - (13,634) - - - ------ Other comprehensive loss - - (13,537) - (13,537) (13,537) ------ Comprehensive loss - - $(11,801) - - - ====== Cash dividends - - (1,168) - (1,168) ----- ------ ------ ------ ----- Balance at December 31, 2002 $1,032 $21,583 $10,031 $(25,832) $6,814 Shares issued 16 1,324 - - 1,340 Comprehensive income: Net income - - $3,822 3,822 - 3,822 ----- Other comprehensive income: Foreign currency translation adjustments - - 969 - - - Unrealized gains on derivatives - - 256 - - - Unrealized losses on securities - - 246 - - - Minimum pension liability adjustment - - 20,755 - - - ------ Other comprehensive income - - 22,226 - 22,226 22,226 ------ Comprehensive income - - $26,048 - - - ====== Effect of Hughes transactions (Note 2) (111) (8,056) (8,167) Stock Options 334 334 Delphi spin-off adjustment (b) - - 20 - 20 Cash dividends - - (1,121) - (1,121) --- ------ ------ ----- ------ Balance at December 31, 2003 $937 $15,185 $12,752 $(3,606) $25,268 === ====== ====== ===== ======
(a) Resolution of workers' compensation, pension, and other postemployment liabilities owed to GM by Delphi Automotive Systems, which GM spun off in 1999. (b) Write off deferred taxes related to the 1999 spin-off of Delphi Automotive Systems. Reference should be made to the notes to consolidated financial statements. II-30 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of General Motors Corporation and domestic and foreign subsidiaries that are more than 50% owned, principally General Motors Acceptance Corporation and Subsidiaries (GMAC), (collectively referred to as the "Corporation," "General Motors" or "GM"). In addition, GM consolidates variable interest entities (VIEs) for which it is deemed to be the primary beneficiary. General Motors' share of earnings or losses of associates, in which at least 20% of the voting securities is owned, is included in the consolidated operating results using the equity method of accounting, except for investments where GM is not able to exercise significant influence over the operating and financial decisions of the investee, in which case, the cost method of accounting is used. GM encourages reference to the GMAC Annual Report on Form 10-K for the period ended December 31, 2003, filed separately with the U.S. Securities and Exchange Commission (SEC). Certain amounts for 2002 and 2001 have been reclassified to conform with the 2003 classifications. Nature of Operations, Financial Statement Presentation, and Supplemental Information GM presents its primary financial statements on a fully consolidated basis. Transactions between businesses have been eliminated in the Corporation's consolidated financial statements. These transactions consist principally of borrowings and other financial services provided by Financing and Insurance Operations (FIO) to Automotive and Other Operations (Auto & Other). To facilitate analysis, GM presents supplemental information to the statements of income, balance sheets, and statements of cash flows for the following businesses: (1) Auto & Other, which consists of the design, manufacturing, and marketing of cars, trucks, locomotives, and related parts and accessories; and (2) FIO, which consists primarily of GMAC. GMAC provides a broad range of financial services, including consumer vehicle financing, full-service leasing and fleet leasing, dealer financing, car and truck extended service contracts, residential and commercial mortgage services, vehicle and homeowners' insurance, and asset-based lending. Use of Estimates in the Preparation of the Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainties involved in making estimates, actual results reported in future periods may differ from those estimates. Revenue Recognition Sales generally are recorded when products are shipped (when title and risks and rewards of ownership have passed), or when services are rendered to independent dealers or other third parties. Provisions for dealer and customer sales incentives, allowances, and rebates are made at the time of vehicle sales. Incentives, allowances, and rebates related to vehicles previously sold are recognized as reductions of sales when announced. Financing revenue is recorded over the terms of the receivables using the interest method. Income from operating lease assets is recognized on a straight-line basis over the scheduled lease terms. Insurance premiums are earned on a basis related to coverage provided over the terms of the policies. Commissions, premium taxes, and other costs incurred in acquiring new business are deferred and amortized over the terms of the related policies on the same basis as premiums are earned. Advertising and Research and Development Advertising, research and development, and other product-related costs are charged to expense as incurred. Advertising expense was $4.7 billion in 2003, $4.4 billion in 2002, and $4.1 billion in 2001. Research and development expense was $5.7 billion in 2003 and 2002, and $6.1 billion in 2001. Depreciation and Amortization Expenditures for special tools placed in service after January 1, 2002 are amortized using the straight-line method over their estimated useful lives. Expenditures for special tools placed in service prior to January 1, 2002, are amortized over their estimated useful lives, primarily using the units of production method. Replacements of special tools for reasons other than changes in products are charged directly to cost of sales. As of January 1, 2001, the Corporation adopted the straight-line method of depreciation for real estate, plants, and equipment placed in service after that date. Assets placed in service before January 1, 2001, continue generally to be depreciated using accelerated methods. The accelerated methods accumulate depreciation of approximately two-thirds of the depreciable cost during the first half II-31 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Significant Accounting Policies (continued) Depreciation and Amortization (concluded) of the estimated useful lives of property groups as compared to the straight-line method, which allocates depreciable costs equally over the estimated useful lives of property groups. Management believes the adoption of the straight-line amortization/depreciation method for special tools placed into service after January 1, 2002, and real estate, plants, and equipment placed into service after January 1, 2001, better reflects the consistent use of these assets over their useful lives. Equipment on operating leases is depreciated using the straight-line method over the term of the lease agreement. The difference between the net book value and the proceeds of sale or salvage on items disposed of is accounted for as a charge against or credit to the provision for depreciation. Valuation of Long-Lived Assets GM periodically evaluates the carrying value of long-lived assets to be held and used in the business, other than goodwill and intangible assets with indefinite lives, and assets held for sale when events and circumstances warrant, generally in conjunction with the annual business planning cycle. If the carrying value of a long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value for assets to be held and used. For assets held for sale, such loss is further increased by costs to sell. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Long-lived assets to be disposed of other than by sale are considered held and used until disposed of. Goodwill and Other Intangible Assets Prior to January 1, 2002, goodwill was amortized using the straight-line method over 20 to 40 year periods. On January 1, 2002, the Corporation implemented Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," which ceased the amortization method of accounting for goodwill and changed to an impairment-only approach. Accordingly, goodwill is no longer amortized and is tested for impairment at least annually. GM's reported income and earnings per share from continuing operations information, exclusive of amortization expense recognized related to goodwill required under previous accounting standards on an after-tax basis, is as follows (dollars in millions except per share amounts): Years-Ended December 31, ---------------------------- 2003 2002 2001 ---- ---- ---- Net Income from continuing operations, as reported $2,862 $1,975 $1,222 Add: Goodwill amortization - - 107 ----- ----- ------ Adjusted net income $2,862 $1,975 $1,329 Basic earnings per share from continuing operations attributable to GM $1-2/3 par value Reported $5.10 $3.53 $2.21 Adjusted $5.10 $3.53 $2.41 Earnings per share from continuing operations attributable to GM $1-2/3 par value assuming dilution Reported $5.03 $3.51 $2.20 Adjusted $5.03 $3.51 $2.39 Foreign Currency Transactions and Translation Foreign currency exchange transaction and translation losses, including the effect of derivatives, net of taxes, included in consolidated net income in 2003, 2002, and 2001, pursuant to SFAS No. 52, "Foreign Currency Translation," amounted to $122 million, $103 million, and $129 million, respectively. Policy and Warranty Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information on the nature, frequency, and average cost of warranty claims. Management actively studies trends of warranty claims and takes action to improve vehicle quality and minimize warranty claims. (See Note 15.) II-32 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Significant Accounting Policies (continued) Cash and Cash Equivalents Cash equivalents are defined as short-term, highly-liquid investments with original maturities of 90 days or less. Statements of Cash Flows Supplementary Information Years Ended December 31, ----------------------------- Automotive and Other Operations 2003 2002 2001 - ------------------------------- ---- ---- ---- (dollars in millions) Increase (decrease) in cash due to changes in other operating assets and liabilities was as follows: Accounts receivable $(575) $(93) $76 Prepaid expenses and other deferred charges (578) 268 (93) Inventories (518) 221 545 Accounts payable 2,400 1,053 545 Deferred taxes and income taxes payable 2,219 (1,825) (1,404) Accrued expenses and other liabilities 3,049 5,517 (1,384) Fleet rental - acquisitions (7,761) (5,595) (4,997) Fleet rental - liquidations 4,831 4,262 5,560 ----- ----- ----- Total $3,067 $3,808 $(1,152) ===== ===== ===== Cash paid for interest $1,398 $1,033 $700 During 2003, Auto & Other made investments in companies, net of cash acquired, of approximately $60 million. During 2002, Auto & Other made investments in companies, net of cash acquired, of approximately $700 million. This amount consists primarily of GM's purchase of a 44.6% equity interest in GM Daewoo Auto & Technology Company (GM Daewoo) for approximately $251 million and GM's investments in Isuzu-related entities for $180 million. During 2001, the majority of the $740 million of investments made by Auto & Other consisted of GM's purchase of an additional 10% ownership in Suzuki Motor Corporation (Suzuki) for approximately $520 million. Years Ended December 31, ---------------------------- Financing and Insurance Operations 2003 2002 2001 - ---------------------------------- ---- ---- ---- (dollars in millions) Increase (decrease) in cash due to changes in other Operating assets and liabilities was as follows: Other receivables $(1,050) $(278) $(736) Accounts payable and other liabilities 733 264 1,306 Deferred taxes and income taxes payable (1,958) 683 348 ----- --- --- Total $(2,275) $669 $918 ===== === === Cash paid for interest $6,965 $6,333 $6,932 FIO made investments in companies, net of cash acquired, of approximately $140 million, $180 million, and $540 million, in 2003, 2002, and 2001, respectively. The 2001 investments were primarily for a mortgage warehouse lending business. II-33 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Significant Accounting Policies (continued) Derivative Instruments GM is party to a variety of foreign exchange rate, interest rate and commodity forward contracts, and options entered into in connection with the management of its exposure to fluctuations in foreign exchange rates, interest rates, and certain commodity prices. These financial exposures are managed in accordance with corporate policies and procedures. All derivatives are recorded at fair value on the consolidated balance sheet. Effective changes in fair value of derivatives designated as cash flow hedges and hedges of a net investment in a foreign operation are recorded in net unrealized gain / (loss) on derivatives, a separate component of other income (loss). Amounts are reclassified from accumulated other comprehensive loss when the underlying hedged item affects earnings and all ineffective changes in fair value are recorded currently in earnings. Changes in fair value of derivatives designated as fair value hedges are recorded currently in earnings offset to the extent the derivative was effective by changes in fair value of the hedged item. Changes in fair value of derivatives not designated as hedging instruments are recorded currently in earnings. New Accounting Standards Beginning January 1, 2003, the Corporation began expensing the fair market value of newly granted stock options and other stock based compensation awards to employees pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation." The fair value of stock option grants are estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of other stock compensation awards is determined by the market price of GM $1-2/3 common stock on the date of grant. The total expense for 2003 was $229 million ($142 million net of tax), recorded in cost of sales and other expenses. For 2002 and prior years, as permitted by SFAS No. 123, GM applied the intrinsic value method of recognition and measurement under Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees," to its stock options and other stock-based employee compensation awards. No compensation expense related to employee stock options is reflected in net income for these periods, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of the grant. In accordance with the disclosure requirements of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," since GM adopted the fair value based method of accounting for stock-based employee compensation pursuant to SFAS No. 123 effective January 1, 2003 for newly granted stock based compensation awards only, the following table illustrates the effect on net income and earnings per share if compensation cost for all outstanding and unvested stock options and other stock-based employee compensation awards had been determined based on their fair values at the grant date (dollars in millions except per share amounts): Year-Ended December 31, ----------------------- 2003 2002 2001 ---- ---- ---- Net income from continuing operations, as reported $2,862 $1,975 $1,222 Add: stock-based compensation expense, included in reported net income, net of related tax effects 142 44 18 Deduct: total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects (195) (187) (156) ----- ----- ----- Pro forma net income from continuing operations $2,809 $1,832 $1,084 ===== ===== ===== Earnings from continuing operations attributable to GM $1-2/3 par value common stock - as reported $2,862 $1,975 $1,220 - pro forma $2,809 $1,832 $1,082 Basic earnings per share from continuing operations attributable to GM $1-2/3 par value - as reported $5.10 $3.53 $2.21 - pro forma $5.01 $3.27 $1.96 Diluted earnings per share from continuing operations attributable to GM $1-2/3 par value - as reported $5.03 $3.51 $2.20 - pro forma $4.93 $3.26 $1.95 II-34 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Significant Accounting Policies (continued) New Accounting Standards (continued) In December 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligations it assumes under that guarantee. This interpretation is applicable on a prospective basis to guarantees issued or modified after December 31, 2002. FIN 45 also contains disclosure provisions surrounding existing guarantees, which are effective for financial statements of interim or annual periods ending after December 15, 2002. See Note 18. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46), which requires the consolidation of certain entities considered to be variable interest entities (VIEs). An entity is considered to be a VIE when it has equity investors who lack the characteristics of having a controlling financial interest, or its capital is insufficient to permit it to finance its activities without additional subordinated financial support. Consolidation of a VIE by an investor is required when it is determined that the investor will absorb a majority of the VIE's expected losses or residual returns if they occur. FIN 46 provides certain exceptions to these rules, relating to qualifying special purpose entities (QSPEs) subject to the requirements of SFAS No. 140. Upon its original issuance, FIN 46 required that VIEs created after January 31, 2003 would be consolidated immediately, while VIEs created prior to February 1, 2003 were to be consolidated as of July 1, 2003. In October 2003, the FASB deferred the effective date for consolidation of VIEs created prior to February 1, 2003 to December 31, 2003 for calendar year-end companies, with earlier application encouraged. GM adopted FIN 46 as of its original effective date of July 1, 2003 for entities created prior to February 1, 2003. The application of the consolidation provisions of FIN 46 resulted in an increase in assets and debt of approximately $4.6 billion ($917 million in Auto & Other, and $3.7 billion in FIO), and a cumulative effect of accounting change recorded in cost of sales of $27 million after-tax, related to Auto & Other and no net income effect at FIO. Refer to Note 7 for further discussion of GM's involvement in variable interest entities. In December 2003, the FASB published a revision to FIN 46 (FIN 46R) to clarify some of the provisions of the original interpretation and to exempt certain entities from its requirements. FIN 46R provides special effective date provisions to enterprises that fully or partially applied FIN 46 prior to the issuance of the revised interpretation. In particular, entities that have already adopted FIN 46 are not required to adopt FIN 46R until the quarterly reporting period ended March 31, 2004. The Corporation is currently reviewing the provisions of FIN 46R and will adopt FIN 46R for the quarterly reporting period ending March 31, 2004. In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this standard did not have a material effect on the Corporation's financial condition or results of operations. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which provides standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The Statement is effective for financial instruments entered into or modified after May 31, 2003 and for pre-existing instruments as of the beginning of the first interim period beginning after June 15, 2003. The adoption of this standard did not have a material effect on the Corporation's financial condition or results of operations. In December 2003, the FASB issued SFAS No. 132 (revised 2003),"Employers' Disclosures about Pensions and Other Postretirement Benefits." The revisions to SFAS 132 are intended to improve financial statement disclosures for defined benefit plans and was initiated in 2003 in response to concerns raised by investors and other users of financial statements about the need for greater transparency of pension information. In particular the standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant quantitative and qualitative information. The guidance is effective for fiscal years ending after December 15, 2003. Refer to Note 17 for further discussion of GM's pension and other postretirement benefits obligations. II-35 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Significant Accounting Policies (concluded) Labor Force GM, on a worldwide basis, has a concentration of its labor supply in employees working under union collective bargaining agreements, of which certain contracts expired in 2003. The 2003 United Auto Workers (UAW) labor contract was ratified on October 6, 2003 covering a four-year term from 2003-2007. The contract included a $3,000 lump sum payment per UAW employee paid in October 2003, and a 3% performance bonus per UAW employee to be paid in October 2004. GM will amortize these payments over the 12-month period following the respective payment dates. UAW employees will receive a gross wage increase of 2% in 2005 and 3% in 2006. Active UAW employees were also granted pension benefit increases. There were no pension benefit increases granted to current retirees and surviving spouses. However, the contract does provide for four lump sum payments and two vehicle discount vouchers for current retirees and surviving spouses. The retiree lump sum payments and vehicle discount vouchers resulted in a charge to GM's 2003 fourth quarter cost of sales of approximately $1.2 billion ($725 million after-tax). NOTE 2. Discontinued Operations On December 22, 2003 GM completed a series of transactions that resulted in the split-off of Hughes from GM and the simultaneous sale of GM's approximately 19.8 percent economic interest in Hughes to the News Corporation, Ltd. (News Corporation). In the transactions, GM split-off Hughes by distributing Hughes common stock to the holders of GM Class H common stock in exchange for all outstanding shares of GM Class H common stock. Simultaneously, GM sold its 19.8 percent economic interest in Hughes to News Corporation in exchange for cash and News Corporation Preferred American Depositary Shares (Preferred ADSs). All shares of GM Class H common stock were then cancelled. News Corporation then acquired from the former GM Class H common stockholders an additional 14.2 percent of the outstanding shares of Hughes common stock in exchange for News Corporation Preferred ADSs. GM sold 80 percent of its 19.8 percent retained economic interest in Hughes to News Corporation for a total of approximately $3.1 billion in cash. GM sold the remaining 20 percent of its retained economic interest in Hughes to News Corporation for approximately 28.6 million News Corporation Preferred ADSs, valued at $819 million at December 22, 2003. Including Hughes' transaction expenses of approximately $90 million, GM recorded a net gain of $1.2 billion from the sale of GM's approximately 19.8% economic interest in Hughes, reported as gain on sale of discontinued operations in GM's Consolidated Statement of Income for 2003. In addition, as a result of the transactions, there was a net reduction to GM's stockholders' equity of approximately $7.0 billion. All News Corporation Preferred ADSs were sold by GM in January 2004. The financial data related to GM's investment in Hughes through December 22, 2003 is classified as discontinued operations for all periods presented. The financial data of Hughes reflect the historical results of operations and cash flows of the businesses that were considered part of the Hughes business segment of GM during each respective period, and the assets and liabilities of Hughes as of the respective dates. Hughes' net sales included in discontinued operations were $9.8 billion, $9.5 billion and $8.3 billion for 2003, 2002 and 2001, respectively, and Hughes' net losses from discontinued operations were $219 million, $239 million and $621 million for 2003, 2002 and 2001, respectively. The Hughes amounts reported as assets and liabilities of discontinued operations were as follows (in millions): December 31, 2002 ---- Current assets $3,670 Property and equipment - net 1,558 Intangible assets -net 7,158 Other assets 6,267 ------ Assets of discontinued operations $18,653 ====== Current liabilities $3,177 Long-term debt 2,390 Other liabilities 2,389 ----- Liabilities of discontinued operations $7,956 ===== II-36 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. Asset Impairments GM recorded pre-tax charges against income for asset impairments of $835 million ($533 million after-tax, or $0.94 per diluted share) in 2003, $254 million ($158 million after-tax, or $0.28 per diluted share) in 2002 and $140 million ($90 million after-tax, or $0.16 per diluted share) in 2001. These charges were recorded in cost of sales and other expenses in the income statement. In 2003, the pre-tax charges were comprised of $767 million ($491 million after-tax) related to special tools and other assets related to product lines and $68 million ($42 million after-tax) related to real estate. In 2002 the charges were related to production facilities and special tools. The 2001 charges related to the write-down of equipment as a result of the announcement of the closing of the Ste. Therese, Quebec, assembly plant in 2002 and the write-down of certain equipment on operating leases that was determined to be impaired in GMNA. NOTE 4. Investment in Nonconsolidated Affiliates Nonconsolidated affiliates are those investees of GM for which GM uses the equity method of accounting, because GM has the ability to exert significant influence over the operating and financial decisions of the affiliate. GM's significant affiliates and GM's ownership percentage include the following: Italy - GM-Fiat Powertrain (50% in 2003, 2002, 2001); Japan - Fuji Heavy Industries Ltd. (20% in 2003, 21% in 2002, 2001), Suzuki Motor Corporation (20.1%, 20.2% and 20.3% in 2003, 2002, 2001, respectively); China - Shanghai General Motors Corporation (50% in 2003, 2002, 2001); Korea - GM Daewoo (44.6% in 2003 and 2002, 0% in 2001). Further information regarding the book value of GM's investments and its share of income for all affiliates, as well as the total assets and liabilities of the above significant affiliates, is included in the table below: 2003 Italy Japan China Korea - ---- --------------------------------- Book value of GM's investments in affiliates $946 $2,781 $964 $200 GM's share of affiliates' net income (loss) $95 $196 $437 $(74) Total assets of significant affiliates (1) $7,939 $29,622 $2,723 $3,263 Total liabilities of significant affiliates (1) $5,309 $17,764 $1,175 $2,892 2002 - ---- Book value of GM's investments in affiliates $753 $2,322 $659 $252 GM's share of affiliates' net income (loss) $80 $133 $142 $(45) Total assets of significant affiliates (1) $6,589 $24,579 $1,698 $2,277 Total liabilities of significant affiliates (1) $4,479 $14,966 $634 $1,771 2001 - ---- Book value of GM's investment in affiliates $699 $2,214 $486 $0 GM's share of affiliates' net income (loss) $32 $(102) $38 $0 Total assets of significant affiliates (1) $5,361 $23,960 $1,374 $0 Total liabilities of significant affiliates (1) $3,936 $14,911 $530 $0 (1) As defined above. II-37 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 5. Postemployment Benefit Costs GM records liabilities for termination and other post-employment benefits to be paid pursuant to the union or other contractual agreements in connection with closed plants in North America. GM reviews the adequacy and continuing need for these liabilities on an annual basis in conjunction with its year-end production and labor forecasts. Furthermore, GM reviews the reasonableness of these liabilities on a quarterly basis. The liability for post-employment benefits as of December 31, 2003 totals approximately $384 million relating to 9 plants and approximately 2,900 employees, with anticipated spending of approximately 96% over the next three years. The liability for post-employment benefits was $613 million relating to 11 plants and approximately 3,400 employees as of December 31, 2002. The liability for post-employment benefits was $626 million relating to 12 plants and approximately 5,800 employees as of December 31, 2001. The following table summarizes the activity from December 31, 2001 through December 31, 2003 for this liability (dollars in millions): Balance at December 31, 2001 $626 Spending (182) Interest accretion 47 Additions 281 Adjustments (159) --- Balance at December 31, 2002 $613 Spending (189) Interest accretion 31 Additions - Adjustments (71) --- Balance at December 31, 2003 $384 === In 2003, GM recognized adjustments of $71 million to reduce the liability balance of existing closed plants ($44 million after tax, or $0.08 per share of GM $1-2/3 par value common stock), recorded in cost of sales. The adjustments are primarily the result of the reversal of the remaining post-employment liabilities for employees at the Janesville, Wisconsin plant location, a reduction of the respective liabilities for employees at the Oklahoma City, Oklahoma plant, and an increase to the respective liabilities at the Wilmington, Delaware plant. The Janesville charge was established in 2002, relating to 772 employees impacted by the transfer of commercial truck production from Janesville, to Flint, Michigan. The reversal is primarily due to earlier than anticipated retirements of 479 employees. The adjustments also include a reduction in the reserve for the Oklahoma City plant, as employees have been absorbed into the continuing workforce due to increased manpower requirements. The Wilmington plant reserve is increased to account for increased duration that employees will not be absorbed into the continuing workforce due to a change in the production plan. In 2002, GM recognized post-employment benefit liabilities of $281 million ($174 million after tax, or $0.31 per share of GM $1-2/3 par value common stock) primarily related to the transfer of commercial truck production from Janesville, to Flint. The Janesville charge related to 772 employees and was included in cost of sales. The adjustments of $159 million ($99 million after tax of $0.18 per share of GM $1-2/3 par value common stock), recorded in cost of sales, are primarily the result of a reversal of post-employment benefit liabilities for employees at the Spring Hill, Tennessee, plant. This reversal was recorded due to approximately 400 employees, who had been included in the planned production capacity reduction but were instead absorbed into the continuing workforce due to a change in the plan. NOTE 6. Marketable Securities Marketable securities held by GM are classified as available-for-sale, except for certain mortgage-related securities, which are classified as held-to-maturity or trading securities, and News Corporation ADSs, which are classified as trading securities. Unrealized gains and losses, net of related income taxes, for available-for-sale and held-to-maturity securities are included as a separate component of stockholders' equity. Unrealized gains and losses for trading securities are included in income on a current basis. GM determines cost on the specific identification basis. II-38 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 6. Marketable Securities (continued) Automotive and Other Operations - ------------------------------- Investments in marketable securities were as follows (dollars in millions): Book/Fair Unrealized Unrealized Cost Value Gains Losses ---- ----- ----- ------ December 31, 2003 ------------------------------------------ Type of security Corporate debt securities and other $5,246 $5,246 $9 $9 U.S. government and agencies 2,865 2,867 9 7 Mortgage backed securities 90 90 - - ----- ----- Total debt securities available for sale 8,201 8,203 - - News Corporation ADSs 819 864 - - ----- ----- -- -- Total marketable securities $9,020 $9,067 $18 $16 ===== ===== == == December 31, 2002 ------------------------------------------- Type of security Corporate debt securities and other $1,456 $1,469 $18 $5 U.S. government and agencies 606 612 6 - Mortgage backed securities 93 93 - - ----- ----- -- -- Total marketable securities $2,155 $2,174 $24 $5 ===== ===== == = Debt securities totaling $752 million mature within one year and $7.1 billion mature after one through five years, $79 million mature after five through ten years and $247 million mature after ten years. Proceeds from sales of marketable securities totaled $7.1 billion in 2003, $4.7 billion in 2002, and $373 million in 2001. The gross gains related to sales of marketable securities were $7 million, $3 million, and $3 million in 2003, 2002, and 2001, respectively. The gross losses related to sales of marketable securities were $11 million in 2003, $1 million in 2002 and $7 million in 2001. Financing and Insurance Operations - ---------------------------------- Investments in marketable securities were as follows (dollars in millions): Book/Fair Unrealized Unrealized Cost Value Gains Losses ---- ----- ----- ------ December 31, 2003 ------------------------------------------ Type of security Bonds, notes, and other securities United States government and agencies $716 $722 $7 $1 States and municipalities 595 647 52 - Foreign government securities 543 550 8 1 Mortgage and asset-backed securities 1,806 1,949 150 7 Corporate debt securities and other 3,078 3,200 129 7 ----- ----- --- - Total debt securities available-for-sale 6,738 7,068 346 16 Mortgage-backed securities held-to-maturity 240 240 - - Mortgage-backed securities held for trading purposes 4,483 4,142 - 341 ------ ------ --- --- Total debt securities 11,461 11,450 346 357 Equity securities 1,185 1,698 522 9 ------ ------ --- --- Total investment in marketable securities $12,646 $13,148 $868 $366 ====== ====== === === Total consolidated other marketable securities $21,666 $22,215 $886 $382 ====== ====== === === II-39 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 6. Marketable Securities (concluded) Book/Fair Unrealized Unrealized Cost Value Gains Losses ---- ----- ----- ------ December 31, 2002 ------------------------------------------ Type of security Bonds, notes, and other securities United States government and agencies $2,836 $2,875 $39 $- States and municipalities 599 650 52 1 Foreign government securities 479 497 19 1 Mortgage and asset-backed securities 2,529 2,761 296 64 Corporate debt securities and other 1,836 1,933 106 9 ----- ----- --- - Total debt securities available-for-sale 8,279 8,716 512 75 Mortgage-backed securities held-to-maturity 305 305 - - Mortgage-backed securities held for trading purposes 5,176 4,378 - 798 ------ ------ --- --- Total debt securities 13,760 13,399 512 873 Equity securities 1,224 1,252 163 135 ------ ------ --- ----- Total investment in marketable securities $14,984 $14,651 $675 $1,008 ====== ====== === ===== Total consolidated other marketable securities $17,139 $16,825 $699 $1,013 ====== ====== === ===== Debt securities available-for-sale totaling $1.1 billion mature within one year, $2.0 billion mature after one through five years, $1.6 billion mature after five years through 10 years, and $2.4 billion mature after 10 years. Proceeds from sales of marketable securities totaled $7.6 billion in 2003, $12.8 billion in 2002, and $5.1 billion in 2001. The gross gains related to sales of marketable securities were $270 million, $402 million, and $228 million in 2003, 2002, and 2001, respectively. The gross losses related to sales of marketable securities were $202 million, $121 million and $145 million in 2003, 2002, and 2001, respectively. NOTE 7. Variable Interest Entities As discussed in Note 1, GM applied the provisions of FIN 46 to all variable interest entities beginning July 1, 2003. In connection with the application of FIN 46, GM is providing information below concerning variable interest entities that: (1) are consolidated by GM because GM is deemed to be the primary beneficiary and (2) those entities that GM does not consolidate because, although GM has significant interests in such variable interest entities, GM is not the primary beneficiary. Automotive and Other Operations Synthetic Leases -- GM leases real estate and equipment from various special purpose entities (SPEs) that have been established to facilitate the financing of those assets for GM by nationally prominent, creditworthy lessors. These assets consist principally of office buildings, warehouses, and machinery and equipment. The use of SPEs allows the parties providing the financing to isolate particular assets in a single entity and thereby syndicate the financing to multiple third parties. This is a conventional financing technique used to lower the cost of borrowing and, thus, the lease cost to a lessee such as GM. There is a well-established market in which institutions participate in the financing of such property through their purchase of interests in these SPEs. Certain of these SPEs were determined to be VIEs under FIN 46. For those leases where GM provides a residual value guarantee of the leased property and is considered the primary beneficiary under FIN 46, GM consolidated these entities as of July 1, 2003. This resulted, for Auto & Other, in an initial increase in assets and debt of $917 million and a cumulative effect of accounting change recorded in cost of sales of $27 million after-tax. As of December 31, 2003, the carrying amount of assets and liabilities consolidated under FIN 46 amounted to $878 million and $945 million respectively. Assets consolidated are classified as "Property" in GM's consolidated financial statements. GM's maximum exposure to loss related to consolidated VIEs amounts to $795 million. For other such lease arrangements involving VIEs, GM holds significant variable interests but is not considered the primary beneficiary under FIN 46. GM's maximum exposure to loss related to VIE's where GM has a significant variable interest, but does not consolidate the entity, amounts to $557 million. II-40 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 7. Variable Interest Entities (concluded) Financing and Insurance Operations Mortgage warehouse funding -- GMAC's Mortgage operations sell commercial and residential mortgage loans through various structured finance arrangements in order to provide funds for the origination and purchase of future loans. These structured finance arrangements include sales to off-balance sheet warehouse funding entities, including GMAC- and bank-sponsored commercial paper conduits. Transfers of assets from GMAC into each facility are accounted for as sales based on the provisions of SFAS 140 and as such creditors of these facilities have no recourse to the general credit of GMAC. Some of these warehouse funding entities represent variable interest entities under FIN 46. For certain mortgage warehouse entities, management determined that GMAC does not have the majority of the expected losses or returns and, as such, consolidation is not appropriate under FIN 46. The assets in these entities totaled $2.4 billion, of which $0.8 billion represents GMAC's maximum exposure to loss. The maximum exposure would only occur in the unlikely event that there was a complete loss on the underlying assets of the entities. In other entities, GMAC was considered the primary beneficiary, and the activities of these entities were either terminated prior to July 1, 2003 or GMAC consolidated these entities pursuant to FIN 46. As of December 31, 2003 the consolidated entities had no assets remaining and had been terminated. Interests in Real Estate Partnerships -- The Corporation's Mortgage operations syndicate investments in real estate partnerships to unaffiliated investors and, in certain partnerships, guarantee the timely payment of a specified return to those investors. Returns to investors in the partnerships syndicated by the Corporation are derived from tax credits and tax losses generated by underlying operating partnership entities that develop, own, and operate affordable housing properties throughout the United States. Syndicated tax credit partnerships that contain a guarantee are reflected in the Corporation's financial statements under the financing method. In addition, the Corporation has variable interests in the underlying operating partnerships (primarily in the form of limited partnership interests). The results of the Corporation's variable interest analysis indicated that GMAC is not the primary beneficiary of these partnerships and, as a result, is not required to consolidate these entities under FIN 46. Assets outstanding in these partnerships approximated $3 billion at December 31, 2003. GMAC's exposure to loss at such time was $675 million, representing the amount payable to investors in the event of liquidation of the partnerships. The Corporation's exposure to loss increases as unaffiliated investors place additional guaranteed commitments with the Corporation. Considering such committed amounts, the Corporation's exposure to loss in future periods is not expected to exceed $1.2 billion. Collateralized debt obligations (CDOs) -- GMAC's Mortgage operations sponsor, purchase subordinate and equity interests in, and serve as collateral manager for CDOs. Under CDO transactions, a trust is established that purchases a portfolio of securities and issues debt and equity certificates, representing interests in the portfolio of assets. In addition to receiving variable compensation for managing the portfolio, the Corporation sometimes retains equity investments in the CDOs. The majority of the CDOs sponsored by the Corporation were initially structured or have been restructured (with approval by the senior beneficial interest holders) as qualifying special purpose entities, and are therefore exempt from FIN 46. For the Corporation's remaining CDOs, the results of the primary beneficiary analysis support the conclusion that consolidation is not appropriate under FIN 46 because GMAC does not have the majority of the expected losses or returns. The assets in these CDOs totaled $2.0 billion of which GMAC's maximum exposure to loss is $40 million, representing GMAC's retained interests in these entities. The maximum exposure to loss would only occur in the unlikely event that there was a complete loss on the underlying assets of the entities. Automotive Finance Receivables -- In certain securitization transactions, GMAC securitizes consumer and commercial finance receivables into bank-sponsored multi-seller commercial paper conduits. These conduits provide a funding source to GMAC (as well as other sellers into the conduit) as they fund the purchase of the receivables through the issuance of commercial paper. Total assets outstanding in these bank-sponsored conduits approximated $13 billion as of December 31, 2003. While GMAC has a variable interest in these conduits, the Corporation is not deemed to be the primary beneficiary, as GMAC does not retain the majority of the expected losses or returns. GMAC's maximum exposure to loss as a result of its involvement with these non-consolidated variable interest entities is $179 million and would only be realized in the event of a complete loss on the assets that GMAC sold. II-41 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 8. Finance Receivables and Securitizations Finance Receivables - Net Finance receivables - net included the following (dollars in millions): December 31, ----------------------- Consumer: 2003 2002 ---- ---- Retail automotive $87,163 $78,857 Residential mortgages 46,307 15,238 ------- ------ Total consumer 133,470 94,095 Commercial: Automotive: Wholesale 25,517 21,459 Leasing and lease financing 1,465 5,910 Term loans to dealers and others 3,912 4,190 Commercial and industrial 9,783 9,464 Commercial real estate: Commercial mortgage 180 621 Construction 2,053 1,963 ------- ------- Total commercial 42,910 43,607 ------- ------- Total finance receivables and loans 176,380 137,702 Allowance for financing losses (3,243) (3,059) ------- ------- Total consolidated finance receivables - net (1) $173,137 $134,643 ======= ======= (1) Net of unearned income of $7.2 billion and $6.5 billion at December 31, 2003 and 2002, respectively. Finance receivables that originated outside the United States were $29.1 billion and $23.1 billion at December 31, 2003 and 2002, respectively. The aggregate amounts of total finance receivables maturing in each of the five years following December 31, 2003, is as follows: 2004-$64.0 billion; 2005-$25.6 billion; 2006-$22.0 billion; 2007-$15.0 billion; 2008-$7.3 billion; and 2009 and thereafter-$49.1 billion. Actual maturities may differ from those scheduled due to prepayments. Securitizations of Finance Receivables and Mortgage Loans The Corporation securitizes automotive and mortgage financial assets as a funding source. GMAC sells retail finance receivables, wholesale loans, residential mortgage loans, commercial mortgage loans and commercial investment securities. The Corporation retains servicing responsibilities and subordinated interests for all of its securitizations of retail finance receivables and wholesale loans. Servicing responsibilities are retained for the majority of its residential and commercial mortgage loan securitizations and the Corporation may retain subordinated interests in some of these securitizations. GMAC also holds subordinated interests and acts as collateral manager in the securitizations of its commercial investment securities. As of December 31, 2003, the weighted average servicing fees for GM's primary servicing activities were 200 basis points, 100 basis points, 27 basis points and 8 basis points of the outstanding principal balance for sold retail finance receivables, wholesale loans, residential mortgage loans and commercial mortgage loans, respectively. Additionally, the Corporation retains the rights to cash flows remaining after the investors in most securitization trusts have received their contractual payments. The Corporation maintains cash reserve accounts at predetermined amounts for certain securitization activities in the unlikely event that deficiencies occur in cash flows owed to the investors. The amounts available in such cash reserve accounts totaled $162 million, $1.2 billion, $6 million, $5 million, and $70 million as of December 31, 2003 related to securitizations of retail finance receivables, wholesale loans, residential mortgage loans, commercial mortgage loans and commercial investment securities, respectively, and $280 million, $937 million, $21 million, $4 million and $20 million as of December 31, 2002, respectively. II-42 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 8. Finance Receivables and Securitizations (continued) The following table summarizes pre-tax gains on securitizations and certain cash flows received from and paid to securitization trusts for sales of finance receivables and loans that were completed during 2003, 2002 and 2001: 2003 -------------------------------------------------- Retail Mortgage loans Year ended December 31, finance Wholesale ------------------------ (in millions) receivables loans Residential Commercial - ------------- ----------- ----- ----------- ---------- Pre-tax gains on securitizations $37 $ - $522 $75 Cash flow information: Proceeds from new securitizations 1,604 3,625 29,566 3,342 Servicing fees received 228 164 250 20 Other cash flows received on retained interests 753 174 955 317 Purchases of delinquent or foreclosed assets (275) - (262) (5) Pool buyback cash flows (885) - (1,953) - Servicing advances (118) - (1,944) (117) Repayments of servicing advances 114 - 2,017 116 Proceeds from collections reinvested in revolving securitizations 862 97,829 - 5 2002 -------------------------------------------------- Retail Mortgage loans Year ended December 31, finance Wholesale ------------------------ (in millions) receivables loans Residential Commercial - ------------- ----------- ----- ----------- ---------- Pre-tax gains on securitizations $239 $ - $562 $30 Cash flow information: Proceeds from new securitizations 9,982 2,327 28,241 1,848 Servicing fees received 247 146 201 17 Other cash flows received on retained interests 1,361 318 1,044 86 Purchases of delinquent or foreclosed assets (299) - (504) - Pool buyback cash flows (289) (55) (216) - Servicing advances (117) - (1,582) (122) Repayments of servicing advances 117 - 1,447 116 Proceeds from collections reinvested in revolving securitizations 482 104,485 - - 2001 -------------------------------------------------- Retail Mortgage loans Year ended December 31, finance Wholesale ------------------------ (in millions) receivables loans Residential Commercial - ------------- ----------- ----- ----------- ---------- Pre-tax gains on securitizations $210 $ - $966 $24 Cash flow information: Proceeds from new securitizations 7,331 7,055 35,137 2,934 Servicing fees received 168 124 256 16 Other cash flows received on retained interests 1,282 417 844 60 Purchases of delinquent or forecloed assets (240) - (34) - Pool buyback cash flows (270) - (390) - Servicing advances (88) - (1,861) (95) Repayments of servicing advances 66 - 1,817 71 Proceeds from collections reinvested in revolving securitizations - 81,563 364 - - -------------------------------------------------------------------------------- In addition to the information presented in the preceding table, pre-tax gains recognized on commercial investment securities were $14 million, $18 million and $17 million for the years ended December 31, 2003, 2002 and 2001, respectively. Cash proceeds from new securitizations of commercial investment securities were $1.9 billion, $439 million and $643 million for the years ended December 31, 2003, 2002 and 2001, respectively. In addition, cash flows received on retained interests of commercial investment securities aggregated $69 million, $37 million and $16 million for the years ended December 31, 2003, 2002 and 2001, respectively. Key economic assumptions used in measuring the estimated fair value of retained interests of sales completed during 2003 and 2002, as of the dates of such sales, were as follows: 2003 ----------------------------------------------------- Retail Mortgage loans Commercial Year ended December 31, finance ----------------------- investment receivables(a) Residential(b) Commercial securities - ---------------------- ----------- ----------- ----------- ---------- Key assumptions (c) (rates per annum): Annual prepayment rate (d) 0.9% 3.1-59.9% 0.0-50.0% 0.0% Weighted average life (in years) 1.6 1.7-5.9 1.4-6.2 2.5-25.1 Expected credit losses (e) 0.0-7.3% 0.0-0.8% 0.0-1.6% Discount rate 9.5% 6.5-14.5% 2.6-10.8% 8.6-10.0% 2002 ----------------------------------------------------- Retail Mortgage loans Commercial Year ended December 31, finance ----------------------- investment receivables(a) Residential(b) Commercial securities - ---------------------- ----------- ----------- ----------- ---------- Key assumptions (c) (rates per annum): Annual prepayment rate (d) 0.8-1.3% 6.6-54.7% 0.0-50.0% 0.0-90.0% Weighted average life (in years) 1.5-2.6 1.3-4.5 1.0-7.8 3.0-36.0 Expected credit losses (e) 0.0-24.8% 0.0-1.5% 0.0-0.9% Discount rate 9.5-12.0% 6.5-13.5% 2.8-20.1% 3.6-12.7% - ------------------------------------------------------------------------------ (a)The fair value of retained interests in wholesale securitizations approximates cost because of the short-term and floating rate nature of wholesale loans. (b)Included within residential mortgage loans are home equity loans and lines, high loan-to-value loans and residential first and second mortgage loans. (c)The assumptions used to measure the expected yield on variable rate retained interests are based on a benchmark interest rate yield curve, plus a contractual spread, as appropriate. The actual yield curve utlized varies depending on the specific retained interests. (d)Based on the weighted average maturity (WAM) for finance receivables and constant prepayment rate (CPR) for mortgage loans and commercial investment securities. (e)A reserve totaling $83 million and $127 million at December 31, 2003 and 2002, respectively, has been established for expected credit losses on finance receivables securitized in off-balance sheet transactions. II-43 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 8. Finance Receivables and Securitizations (continued) The table below outlines the key economic assumptions and the sensitivity of the estimated fair value of retained interests at December 31, 2003 to immediate 10% and 20% adverse changes in those assumptions. ----------------------------------------------------- Retail Mortgage loans Commercial ($ in millions) finance ----------------------- investment receivables(a) Residential(b) Commercial securities - ------------------------------------------------------------------------------- Carrying value/fair value of retained interests $1,045 (b) $1,171 $620 $318 Weighted average life (in years) 0.1-1.0 1.1-5.9 0.1-18.4 0.5-25.1 Annual prepayment rate 0.7-1.6% WAM 7.0-65.0%CPR 0.0-50.0% CPR 0.0-37.0% CPR Impact of 10% adverse change $-- $(69) $(2) $(2) Impact of 20% adverse change (1) (132) (3) (3) - ------------------------------------------------------------------------------- Loss assumption (b) 0.0-26.1% 0.0-6.6% 0.9-33.7% Impact of 10% adverse change $(8) $(123) $(5) $(10) Impact of 20% adverse change (17) (252) (10) (19) - ------------------------------------------------------------------------------- Discount rate 9.5-12.0% 6.5-14.5% 2.5-20.1% 3.6-13.2% Impact of 10% adverse change $(5) $(31) $(8) $(18) Impact of 20% adverse change (10) (61) (16) (34) - ------------------------------------------------------------------------------- Market rate (d) 2.1-3.2% (c) (c) (c) Impact of 10% adverse change $(6) $(19) $-- $-- Impact of 20% adverse change (11) (39) -- -- - ------------------------------------------------------------------------------- (a)The fair value of retained interests in wholesale securitizations approximates cost because of the short-term and floating rate nature of wholesale receivables. (b The fair value of retained interests in securitizations is net of a reserve for expected credit losses totaling $83 million at December 31, 2003. (c)Forward benchmark interest rate yield curve plus contractual spread. (d)Represents the rate of return paid to the investors. These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which may magnify or counteract the sensitivities. Additionally, the Corporation hedges interest rate and prepayment risks associated with certain of the retained interests; the effects of such hedge strategies have not been considered herein. Expected static pool net credit losses include actual incurred losses plus projected net credit losses divided by the original balance of the outstandings comprising the securitization pool. The table below displays the expected static pool net credit losses based on securitizations completed each year. Loans securitized in (a) ------------------------------------------------ December 31, 2003 2002 2001 - --------------------------------------------------------------- Retail automotive 0.4% 0.6% 0.7% Residential mortgage 0.0-26.0% 0.0-24.8% 0.0-22.9% Commercial mortgage 0.0-6.6% 0.0-4.1% 0.0-2.3% Commercial investment securities 0.9-33.7% 0.3-36.8% 0.0-17.0% - --------------------------------------------------------------- (a) Static pool losses not applicable to wholesale finance receivable securitizations because of their short-term nature. II-44 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 8. Finance Receivables and Securitizations (concluded) The following table presents components of securitized financial assets and other assets managed, along with quantitative information about delinquencies and net credit losses.
Total finance Amount 60 days receivables and or loans more past due Net credit losses --------------------------------------------------------- December 31, (in millions) 2003 2002 2003 2002 2003 2002 - ------------------------------------------------------------------------------------ Retail automotive $99,196 $93,848 $749 $637 $1,179 $844 Residential mortgage 104,378 93,955 4,974 3,973 682 644 - ------------------------------------------------------------------------------------ Total consumer 203,574 187,803 5,723 4,610 1,861 1,488 - ------------------------------------------------------------------------------------ Wholesale 46,644 38,722 46 88 5 (15) Commercial mortgage 22,621 19,513 652 350 66 8 Other automotive and commercial 17,364 21,678 167 317 194 176 - ------------------------------------------------------------------------------------ Total commercial 86,629 79,913 865 755 265 169 - ------------------------------------------------------------------------------------ Total managed portfolio (a) 290,203 267,716 $6,588 $5,365 $2,126 $1,657 ===================================== Securitized finance receivables and loans (94,622) (114,767) Loans held for sale (unpaid principal) (19,609) (15,756) - ---------------------------------------------- Total finance receivables and loans $175,972 $137,193 ==============================================
(a)Managed portfolio represents finance receivables and loans on the balance sheet or that have been securitized, excluding securitized finance receivables and loans that GMAC continues to service but has no other continuing involvement (i.e., in which GMAC retains an interest or risk of loss in the underlying receivables). NOTE 9. Inventories Inventories included the following for Automotive and Other Operations (dollars in millions): December 31, -------------------- 2003 2002 ---- ---- Productive material, work in process, and supplies $4,899 $4,803 Finished product, service parts, etc. 7,642 6,741 ------ ------ Total inventories at FIFO 12,541 11,544 Less LIFO allowance 1,581 1,807 ------ ----- Total inventories (less allowances) $10,960 $9,737 ====== ===== Inventories are stated generally at cost, which is not in excess of market. The cost of approximately 92% of U.S. inventories is determined by the last-in, first-out (LIFO) method. Generally, the cost of all other inventories is determined by either the first-in, first-out (FIFO) or average cost methods. During 2003, U.S. LIFO eligible inventory quantities were reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of 2003 purchases, the effect of which decreased cost of goods sold by approximately $200 million, pre-tax. NOTE 10. Equipment on Operating Leases The Corporation has significant investments in the residual values of its leasing portfolios. The residual values represent the estimate of the values of the assets at the end of the lease contracts and are initially recorded based on appraisals and estimates. Realization of the residual values is dependent on the Corporation's future ability to market the vehicles under then prevailing market conditions. Management reviews residual values periodically to determine that recorded amounts are appropriate. Automotive and Other Operations - ------------------------------- Equipment on operating leases and accumulated depreciation was as follows (dollars in millions): December 31, --------------------- 2003 2002 ---- ---- Equipment on operating leases $7,994 $5,729 Less accumulated depreciation (821) (424) ------ ------ Net book value $7,173 $5,305 ===== ===== II-45 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 10. Equipment on Operating Leases (concluded) Financing and Insurance Operations - ---------------------------------- Equipment on operating leases and accumulated depreciation was as follows (dollars in millions): December 31, --------------------- 2003 2002 ---- ---- Equipment on operating leases $35,800 $33,422 Less accumulated depreciation (8,590) (7,701) ------ ------ Net book value $27,210 $25,721 ====== ====== Total consolidated net book value $34,383 $31,026 ====== ====== The lease payments to be received related to equipment on operating leases maturing in each of the five years following December 31, 2003, are as follows: Auto & Other - none, as the payment is received upfront and the income is deferred over the lease period; FIO - 2004 $6.4 billion; 2005-$4.3 billion; 2006 - - $2.4 billion; 2007 - $711 million; and 2007-$54 million. There are no leases maturing after 2008. NOTE 11. Income Taxes Income from continuing operations before income taxes and minority interests included the following (dollars in millions): Years Ended December 31, ----------------------------- 2003 2002 2001 ---- ---- ---- U.S. income (loss) $1,786 $126 $(329) Foreign income 1,195 2,212 2,783 ----- ----- ----- Total $2,981 $2,338 $2,454 ===== ===== ===== The provision for income taxes was estimated as follows (dollars in millions): Years Ended December 31, ---------------------------- 2003 2002 2001 ---- ---- ---- Income taxes estimated to be payable currently U.S. federal $123 $48 $34 Foreign 1,701 1,394 1,292 U.S. state and local 414 325 45 ----- ----- ----- Total payable currently 2,238 1,767 1,371 ----- ----- ----- Deferred income tax expense (credit) - net U.S. federal 239 81 86 Foreign (1,712) (958) (400) U.S. state and local (34) (246) 37 ----- ----- ------ Total deferred (1,507) (1,123) (277) ----- ----- ----- Total income taxes $731 $644 $1,094 === === ===== II-46 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 11. Income Taxes (continued) Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns. Cash paid for income taxes in 2003, 2002, and 2001 was $1.7 billion, $2.2 billion, and $2.1 billion, respectively. Provisions are made for estimated U.S. and foreign income taxes, less available tax credits and deductions, which may be incurred on the remittance of the Corporation's share of subsidiaries' undistributed earnings not deemed to be permanently reinvested. Taxes have not been provided on foreign subsidiaries' earnings, which are deemed permanently reinvested, of $11.6 billion at December 31, 2003, and $11.8 billion at December 31, 2002. Quantification of the deferred tax liability, if any, associated with permanently reinvested earnings is not practicable. A reconciliation of the provision for income taxes compared with the amounts at the U.S. federal statutory rate was as follows (dollars in millions): Years Ended December 31, ---------------------------- 2003 2002 2001 ---- ---- ---- Tax at U.S. federal statutory income tax rate $1,043 $818 $859 State and local tax expense 261 91 56 Foreign rates other than 35% (31) 16 131 Taxes on unremitted earnings of subsidiaries 6 (13) 29 Tax credits (52) (82) (57) Raytheon settlement (1) - - 180 Settlement of prior year tax matters (194) 18 - ESOP dividend deduction (2) (53) (85) - Stock contribution to pension plans (3) (87) - - Other adjustments (162) (119) (104) --- --- ----- Total income tax $731 $644 $1,094 === === ===== (1) Non-tax deductible settlement with the Raytheon Company on a purchase price adjustment related to Raytheon's 1997 merger with Hughes Defense. (2) Deduction for dividends paid on GM $1-2/3 par value common stock held under the employee stock ownership portion of the GM Savings Plans, pursuant to the Economic Growth and Tax Relief Reconciliation Act of 2001. (3) Additional tax benefit related to the GM Class H Common Stock contribution to the pension and VEBA plans. Deferred income tax assets and liabilities for 2003 and 2002 reflect the effect of temporary differences between amounts of assets, liabilities, and equity for financial reporting purposes and the bases of such assets, liabilities, and equity as measured by tax laws, as well as tax loss and tax credit carryforwards. Temporary differences and carryforwards that gave rise to deferred tax assets and liabilities included the following (dollars in millions): December 31, -------------------------------------- 2003 2002 Deferred Tax Deferred Tax ------------ ------------ Assets Liabilities Assets Liabilities ------ ----------- ------ ----------- Postretirement benefits other than pensions $15,280 $ - $14,945 $ - Pension and other employee benefit plans 4,060 12,521 8,009 461 Warranties, dealer and customer allowances, claims, and discounts 6,541 108 6,047 - Depreciation and amortization 3,901 2,832 2,386 2,967 Tax carryforwards 3,313 - 3,707 - Lease transactions 10 4,297 - 4,732 Miscellaneous foreign 6,363 2,602 5,165 2,007 Other 7,136 2,885 8,277 3,942 ------ ------ ------ ------ Subtotal 46,604 25,245 48,536 14,109 Valuation allowances (1,677) - (1,183) - ------ ------ ------ ------ Total deferred taxes $44,927 $25,245 $47,353 $14,109 ------ ------ ------ ------ Net deferred tax assets $19,682 $33,244 ====== ====== II-47 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 11. Income Taxes (concluded) Deferred tax detail above is included in the consolidated balance sheet and supplemental information as follows: 2003 2002 ---- ---- Current deferred tax assets $9,104 $8,336 Current deferred tax liabilities (5,671) (5,348) Non-current deferred tax assets 18,086 31,431 Non-current deferred tax liabilities (1,837) (1,175) ------ ------ Total $19,682 $33,244 ====== ====== Of the tax carryforwards, approximately 17.2% relates to the alternative minimum tax credit (which can be carried forward indefinitely) and approximately 17.7% relates to the U.S. state net operating loss carryforwards, which will expire in the years 2004-2022 if not used. However, a substantial portion of the U.S. state net operating loss carryforwards will not expire until after the year 2006. The other tax credit carryforwards, consisting primarily of research and experimentation credits, will expire in the years 2019-2022 if not used. The valuation allowance principally relates to U.S. state and certain foreign operating loss carryforwards. NOTE 12. Property - Net Property - net was as follows (dollars in millions): Estimated December 31, Useful -------------- Lives (Years) 2003 2002 -------------- -------------- Automotive and Other Operations - ------------------------------- Land - $1,004 $913 Buildings and land improvements 2-40 15,272 13,912 Machinery and equipment 3-30 44,851 41,500 Construction in progress - 2,722 2,757 ------ ------ Real estate, plants, and equipment 63,849 59,082 Less accumulated depreciation (37,535) (34,182) ------ ------ Real estate, plants, and equipment - net 26,314 24,900 Special tools - net 9,757 9,235 ------ ------ Total property - net $36,071 $34,135 ------ ------ Financing and Insurance Operations - ---------------------------------- Equipment and other 2-10 $3,160 $2,329 Less accumulated depreciation (1,020) (508) ----- ------ Total property - net $2,140 $1,821 ----- ----- Total consolidated property - net $38,211 $35,956 ====== ====== Depreciation and amortization expense was as follows (dollars in millions): Years Ended December 31, --------------------------- Automotive and Other Operations 2003 2002 2001 - ------------------------------- ---- ---- ---- Depreciation $4,526 $3,675 $3,533 Amortization of special tools 3,391 2,648 2,360 Amortization of intangible assets 29 1 14 ----- ----- ----- Total $7,946 $6,324 $5,907 ===== ===== ===== Financing and Insurance Operations - ---------------------------------- Depreciation $6,021 $5,522 $5,684 Amortization of intangible assets 11 19 173 ----- ----- ----- Total $6,032 $5,541 $5,857 ===== ===== ===== II-48 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 13. Goodwill and Intangible Assets The components of the Corporation's intangible assets as of December 31, 2003 and 2002 were as follows (dollars in millions): Gross Accumulated Net December 31, 2003 Carrying Amortization Carrying Amount Amount ----------------------------------- Automotive and Other Operations - ------------------------------- Amortizing intangible assets: Patents and intellectual property rights $303 $31 $272 Non-amortizing intangible assets: Goodwill 567 Prepaid pension asset (Note 17) 640 ----- Total goodwill and intangible assets $1,479 ----- Financing and Insurance Operations - ---------------------------------- Amortizing intangible assets: Customer lists and contracts $65 $31 $34 Trademarks and other 40 16 24 Covenants not to compete 18 18 - --- -- -- Total $123 $65 $58 === == Non-amortizing intangible assets: Goodwill 3,223 ----- Total goodwill and intangible assets 3,281 ----- Total consolidated goodwill and intangible assets $4,760 ===== December 31, 2002 Automotive and Other Operations - ------------------------------- Amortizing intangible assets: Patents and intellectual property rights $305 $28 $277 Non-amortizing intangible assets: Goodwill 477 Prepaid pension asset (Note 17) 6,699 ----- Total goodwill and intangible assets $7,453 ----- Financing and Insurance Operations - ---------------------------------- Amortizing intangible assets: Customer lists and contracts $67 $24 $43 Trademarks and other 39 12 27 Covenants not to compete 18 18 - --- -- -- Total $124 $54 $70 === == Non-amortizing intangible assets: Goodwill 3,273 ----- Total goodwill and intangible assets 3,343 ----- Total consolidated goodwill and intangible assets $10,796 ====== Aggregate amortization expense on existing acquired intangible assets was $37 million for the year ended December 31, 2003. Estimated amortization expense in each of the next five years is as follows: 2004 - $38 million; 2005 - $38 million; 2006 - $37 million; 2007 - $37 million; and 2008 - $34 million. II-49 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 13. Goodwill and Intangible Assets (concluded) The changes in the carrying amounts of goodwill for the year ended December 31, 2003, were as follows (dollars in millions): Total Auto & GMNA GME Other GMAC Total GM ---- --- ----- ---- -------- Balance as of December 31, 2001 $29 $283 $312 $3,144 $3,456 Goodwill acquired during the period 118 - 118 96 214 Goodwill written off related to sale of business units (8) - (8) (9) (17) Effect of foreign currency - 55 55 42 97 --- --- --- ----- ----- translation Balance as of December 31, 2002 139 338 477 3,273 3,750 Goodwill acquired during the period - - - 18 18 Goodwill written off related to sale of business units (4) - (4) - (4) Effect of foreign currency translation 6 75 81 51 132 Impairment/Other 13 - 13 (119)(1) (106) --- --- --- ----- ----- Balance as of December 31, 2003 $154 $413 $567 $3,223 $3,790 === === === ===== ===== (1)In September 2003, GMAC received $110 million related to a settlement of a claim involving the 1999 acquisition of the asset-based lending and factoring business of The Bank of New York. Of the settlement amount, $109 million was considered a purchase price adjustment, reducing the related goodwill; the remainder represented a reimbursement of tax claims paid on behalf of The Bank of New York. NOTE 14. Other Assets Automotive and Other Operations Other assets included the following (dollars in millions): December 31, ----------------------- 2003 2002 ---- ---- Investments in equity securities $470 $334 U.S. prepaid pension benefit cost (Note 17) 39,904 - Other 1,888 1,127 ------- ----- Total other assets $42,262 $1,461 ====== ===== Investments in equity securities at December 31, 2003 and 2002 includes the fair value of investments in equity securities classified as available-for-sale for all periods presented. It is GM's intent to hold these securities for longer than one year. Balances include historical costs of $114 million and $60 million with unrealized gains of $142 million and $75 million and unrealized losses of $6 million and $21 million at December 31, 2003 and 2002, respectively. Also included in investments in equity securities is GM's investment in the common stock of Fiat Auto Holdings B.V. (FAH), the entity that is the sole shareholder of Fiat Auto S.p.A. (Fiat Auto), acquired for $2.4 billion in 2000. Subsequent to that acquisition, unfavorable European market conditions and other factors led to deterioration in the performance of Fiat Auto. Accordingly, GM commenced a review of the appropriate carrying value of GM's investment in FAH, completed in the third quarter of 2002, which resulted in a non-cash charge of $2.2 billion ($1.4 billion after-tax), recorded in cost of sales and other expenses in the Other segment of Auto & Other. This write-down brought the carrying value of GM's investment in FAH from $2.4 billion to $220 million. The carrying value is based on GM's interest in the estimated market value of FAH equity, which comprises FAH's ownership of Fiat Auto, including 50% ownership interests in the purchasing and powertrain joint ventures between GM and Fiat Auto. GM's investment in FAH was reduced from 20% to 10% when Fiat recapitalized FAH in 2003. II-50 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 14. Other Assets (concluded) Financing and Insurance Operations Other assets included the following (dollars in millions): December 31, -------------------- 2003 2002 ---- ---- Mortgage servicing rights $3,720 $2,683 Premiums and other insurance receivables 1,960 1,742 Deferred policy acquisition costs 1,038 584 Derivative assets 10,026 7,185 Repossessed and foreclosed assets, net 786 418 Equity investments 1,560 587 Intangible assets (Note 13) 3,281 3,343 Property (Note 12) 2,140 1,821 Cash deposits held for securitization trusts 1,922 1,481 Restricted cash collections for securitization trusts 2,291 1,244 Accrued interest and rent receivable 767 673 Real estate investments 788 819 Debt issuance costs 716 508 Servicer advances 946 838 Other 3,547 4,260 ------ ------ Total other assets $35,488 $28,186 ====== ====== Reclassification for Consolidated Balance Sheet Presentation December 31, -------------------- 2003 2002 ---- ---- AO - other assets, as detailed above $42,262 $1,461 FIO - other assets, as detailed above 35,488 28,186 ------ ------ Subtotal 77,750 29,647 ------ ------ Prepaid assets and other 1,747 1,295 Accounts and notes receivable (15,152) (11,602) Intangible assets (Note 13) (3,281) (3,343) Property (Note 12) (2,140) (1,821) ------ ------ Total consolidated other assets $58,924 $14,176 ====== ====== NOTE 15. Accrued Expenses, Other Liabilities, and Deferred Income Taxes Automotive and Other Operations - ------------------------------- Accrued expenses, other liabilities, and deferred income taxes included the following (dollars in millions): December 31, -------------------- 2003 2002 ---- ---- Dealer and customer allowances, claims, and discounts $11,145 $10,388 Deferred revenue, principally sales of vehicles to rental companies 13,157 10,311 Policy, product warranty, and recall campaigns 8,674 8,850 Payrolls and employee benefits (excludes postemployment) 5,081 4,283 Unpaid losses under self-insurance programs 2,027 1,990 Taxes 3,437 1,670 Interest 932 669 Postemployment benefits (including extended disability benefits) 1,212 1,251 Other 8,492 7,576 ------ ------ Total accrued expenses and other liabilities $54,157 $46,988 Pensions 72 46 Postretirement benefits 3,210 3,142 Deferred income taxes 3,545 2,671 ------ ------ Total accrued expenses, other liabilities, and deferred income taxes $60,984 $52,847 ====== ====== Current $45,417 $39,113 Non-current 15,567 13,734 ------ ------ Total accrued expenses, other liabilities, and deferred income taxes $60,984 $52,847 ====== ====== II-51 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 15. Accrued Expenses, Other Liabilities, and Deferred Income Taxes (continued) Automotive and Other Operations (concluded) - ------------------------------------------- December 31, ----------------- 2003 2002 ---- ---- Policy, product warranty and recall campaigns liability Beginning balance $8,850 $8,171 Payments (4,435) (4,182) Increase in liability (warranties issued during period) 4,390 4,418 Adjustments to liability (pre-existing warranties) (367) 323 Effect of foreign currency translation 236 120 ----- ----- Ending balance $8,674 $8,850 ===== ===== Financing and Insurance Operations - ---------------------------------- Other liabilities and deferred income taxes included the following (dollars in millions): December 31, -------------------- 2003 2002 ---- ---- Unpaid insurance losses, loss adjustment expenses, and unearned insurance premiums $6,568 $5,637 Income taxes 139 1,659 Interest 3,135 2,741 Deposits 5,074 3,732 Interest rate derivatives 1,121 843 Other 3,736 3,744 ------ ------ Total other liabilities $19,773 $18,356 Postretirement benefits 797 766 Deferred income taxes 3,963 3,852 ------ ------ Total other liabilities and deferred income taxes $24,533 $22,974 ====== ====== Total consolidated accrued expenses and other liabilities $73,930 $65,344 ====== ====== Total consolidated deferred income tax liability (Note 11) $7,508 $6,523 ===== ===== NOTE 16. Long-Term Debt and Loans Payable Automotive and Other Operations - ------------------------------- Long-term debt and loans payable were as follows (dollars in millions): Weighted-Average Interest Rate December 31, ------------- ------------ 2003 2002 2003 2002 ---- ---- ---- ---- Long-term debt and loans payable Payable within one year Current portion of long-term debt (1) 1.4% 3.8% $1,090 $424 All other 3.3% 2.9% 1,723 1,570 ----- ----- Total loans payable 2,813 1,994 Payable beyond one year (1) 6.8% 6.0% 29,632 14,234 Unamortized discount (108) (21) Mark to market adjustment (2) 69 48 ------ ----- Total long-term debt and loans payable $32,406 $16,255 (1) The weighted-average interest rates include the impact of interest rate swap agreements. (2) Effective January 1, 2001, the Corporation began recording its hedged debt at fair market value on the balance sheet due to the implementation of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". II-52 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 16. Long-Term Debt and Loans Payable (continued) Long-term debt payable beyond one year at December 31, 2003 included maturities as follows: 2005 - $575 million; 2006 - $541 million; 2007 - $198 million; 2008 - $1.6 billion; 2009 and after - $26.8 billion. To protect against foreign exchange risk, GM has entered into cross currency swap agreements. The notional amounts of such agreements as of December 31, 2003 for Auto & Other were approximately $2.4 billion. The notional amounts of such agreements as of December 31, 2002 for Auto & Other were approximately $238 million. Amounts payable beyond one year after cross currency swaps at December 31, 2003 included $2.3 billion in currencies other than the U.S. dollar, primarily the euro ($1.9 billion), the Brazilian real ($197 million) and the Australian dollar ($186 million) At December 31, 2003 and 2002, long-term debt and loans payable for Auto & Other included $27.4 billion and $14.8 billion, respectively, of obligations with fixed interest rates and $5.0 billion and $1.5 billion, respectively, of obligations with variable interest rates (predominantly LIBOR), after interest rate swap agreements. To achieve its desired balance between fixed and variable rate debt, GM has entered into interest rate swap and swaption agreements. The notional amount of pay variable swap agreements as of December 31, 2003 for Auto & Other was approximately $ 3.5 billion. There were no such swaption agreements as of December 31, 2003. The notional amount of such agreements as of December 31, 2002 for Auto & Other was approximately $745 million ($645 million pay variable swap agreements and $100 million relating to pay variable swaption agreements). GM's Auto & Other business maintains substantial lines of credit with various banks that totaled $8.6 billion at December 31, 2003, of which $2.6 billion represented short-term credit facilities and $6.0 billion represented long-term credit facilities. At December 31, 2002, bank lines of credit totaled $8.5 billion, of which $2.6 billion represented short-term credit facilities and $5.9 billion represented long-term credit facilities. The unused short-term and long-term portions of the credit lines totaled $2.1 billion and $5.9 billion at December 31, 2003, compared with $1.8 billion and $5.8 billion at December 31, 2002. Certain bank lines of credit contain covenants with which the Corporation and applicable subsidiaries were in compliance throughout the year ended December 31, 2003. Financing and Insurance Operations - ---------------------------------- Debt was as follows (dollars in millions): Weighted-Average Interest Rate December 31, ------------- ------------ 2003 2002 2003 2002 ---- ---- ---- ---- Debt Payable within one year Current portion of long-term debt (1) 3.1% 3.5% $34,284 $27,344 Commercial paper (1) 2.1% 2.5% 13,182 13,425 All other 2.6% 3.0% 30,344 22,063 ------ ------ Total loans payable 77,810 62,832 Payable beyond one year (1) 5.0% 5.1% 160,108 118,678 Unamortized discount (679) (717) Mark to market adjustment (2) 2,111 3,120 ------- ------- Total debt $239,350 $183,913 ------- ------- Total consolidated notes and loans payable $271,756 $200,168 ======= ======= - --------------------- (1) The weighted-average interest rates include the impact of interest rate swap agreements. (2) Effective January 1, 2001, the Corporation began recording its hedged debt at fair market value on the balance sheet due to the implementation of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Debt payable beyond one year at December 31, 2003 included maturities as follows: 2005 - $33.6 billion; 2006 - $30.9 billion; 2007 - $11.9 billion; 2008 - - $8.1 billion; 2009 and after - $75.6 billion. Amounts payable beyond one year after consideration of foreign currency swaps at December 31, 2003 included $19.6 billion in currencies other than the U.S. dollar, primarily the Canadian dollar ($8.7 billion), the euro ($3.9 billion), the U.K. pound sterling ($3.8 billion), and the Australian dollar ($1.3 billion). II-53 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 16. Long-Term Debt and Loans Payable (concluded) At December 31, 2003 and 2002, debt for FIO included $96.9 billion and $71.5 billion, respectively, of obligations with fixed interest rates and $142.5 billion and $112.4 billion, respectively, of obligations with variable interest rates (predominantly LIBOR), after considering the impact of interest rate swap agreements. To achieve its desired balance between fixed and variable rate debt, GM has entered into interest rate swap, cap, and floor agreements. The notional amounts of such agreements as of December 31, 2003 for FIO were approximately $94.4 billion relating to swap agreements ($70.9 billion pay variable and $23.5 billion pay fixed). The notional amounts of such agreements as of December 31, 2002 for FIO were approximately $56.4 billion relating to swap agreements ($53.7 billion pay variable and $2.7 billion pay fixed). GM's FIO business maintains substantial lines of credit with various banks that totaled $54.4 billion at December 31, 2003, of which $18.5 billion represented short-term credit facilities and $35.9 billion represented long-term credit facilities. At December 31, 2002, bank lines of credit totaled $53.0 billion, of which $17.8 billion represented short-term credit facilities and $35.2 billion represented long-term credit facilities. The unused short-term and long-term portions of the credit lines totaled $6 billion and $35.2 billion at December 31, 2003 compared with $7.4 billion and $34.7 billion at December 31, 2002. Certain bank lines of credit contain covenants with which the Corporation and applicable subsidiaries were in compliance throughout the year ended December 31, 2003. NOTE 17. Pensions and Other Postretirement Benefits GM sponsors a number of defined benefit pension plans covering substantially all U.S. and Canadian employees. Plans covering U.S. and Canadian represented employees generally provide benefits of negotiated, stated amounts for each year of service as well as significant supplemental benefits for employees who retire with 30 years of service before normal retirement age. The benefits provided by the plans covering U.S. and Canadian salaried employees and employees in certain foreign locations are generally based on years of service and compensation history. GM also has certain nonqualified pension plans covering executives that are based on targeted wage replacement percentages and are unfunded. GM's funding policy with respect to its qualified pension plans is to contribute annually not less than the minimum required by applicable law and regulations. GM made pension contributions to the U.S. hourly and salaried pension plans of $18.5 billion in 2003, $4.8 billion in 2002, and no pension contributions in 2001. In addition, GM made pension contributions to all other U.S. plans of $117 million, $98 million, and $93 million in 2003, 2002, and 2001, respectively. GM does not have any contributions due in 2004 for its U.S. hourly and salaried pension plans to meet ERISA minimum funding requirements or to avoid paying variable rate premiums to the Pension Benefit Guaranty Corporation. It also does not anticipate any discretionary contributions to its U.S. hourly and salaried pension plans. GM expects to contribute approximately $120 million to its other U.S. pension plans during 2004. Additionally, GM maintains hourly and salaried benefit plans that provide postretirement medical, dental, vision, and life insurance to most U.S. retirees and eligible dependents. The cost of such benefits is recognized in the consolidated financial statements during the period employees provide service to GM. Certain of the Corporation's non-U.S. subsidiaries have postretirement benefit plans, although most participants are covered by government-sponsored or administered programs. The cost of such programs generally is not significant to GM. GM has contributed $3.3 billion and $1.0 billion to its Voluntary Employees' Beneficiary Association (VEBA) trust for other postretirement employee benefit plans (OPEB) during 2003 and 2002, respectively, and made no contributions in 2001. GM has also contributed $5.0 billion to its VEBA trust in the first quarter of 2004. Contributions by participants to the other OPEB plans were $84 million and $55 million for the years ended December 31, 2003, and 2002, respectively. II-54 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 17. Pensions and Other Postretirement Benefits (continued) GM uses a December 31 measurement date for the majority of its U.S. pension plans and a September 30 measurement date for U.S. OPEB plans. U.S. Plans Non-U.S. Plans Pension Benefits Pension Benefits Other Benefits --------------------------------------------------- 2003 2002 2003 2002 2003 2002 ---- ---- ---- ---- ---- ---- Change in benefit (dollars in millions) obligations Benefit obligation at beginning of year $79,617 $75,927 $12,129 $9,950 $57,195 $52,461 Service cost 919 864 228 194 537 505 Interest cost 5,162 5,273 803 700 3,798 3,686 Plan participants' contributions 22 23 23 25 84 55 Amendments 2,244 83 - 31 - - Actuarial losses 5,684 3,652 222 1,040 9,026 3,796 Benefits paid (6,501) (6,420) (732) (641) (3,621) (3,389) Exchange rate movements - - 2,398 776 - - Curtailments, settlements, and other 138 215 17 54 523 81 ------ ------ ------ ------ ------ ------ Benefit obligation at end of year 87,285 79,617 15,088 12,129 67,542 57,195 ------ ------ ------ ------ ------ ------ Change in plan assets Fair value of plan assets at beginning of year 60,498 66,906 5,943 6,340 5,794 4,944 Actual return on plan assets 13,452 (4,911) 703 (329) 865 (150) Employer contributions 18,621 4,898 442 258 3,339 1,000 Plan participants' contributions 22 23 23 25 - - Benefits paid (6,501) (6,420) (732) (641) - - Exchange rate movements - - 1,181 259 - - Curtailments, settlements, and other 77 3 - 31 - - ------ ------ ----- ----- ----- ------ Fair value of plan assets at end of year 86,169 60,499 7,560 5,943 9,998 5,794 ------ ------ ----- ----- ------ ------ Funded status (1) (1,116) (19,118) (7,528) (6,186) (57,544) (51,401) Unrecognized actuarial loss 32,997 36,105 4,401 3,802 21,821 13,542 Unrecognized prior service cost 7,087 5,981 694 691 (569) (293) Unrecognized transition obligation - - 43 46 - - ------ ------ ----- ----- ------ ------ Net amount recognized $38,968 $22,968 $(2,390)$(1,647)$(36,292)$(38,152) ====== ====== ===== ===== ====== ====== Amounts recognized in the consolidated balance sheets consist of: Prepaid benefit cost $39,904 $ - $344 $218 $ - $ - Accrued benefit liability (1,139) (17,163) (6,885) (5,525) (36,292) (38,152) Intangible asset 1 6,009 639 690 - - Accumulated other comprehensive income 202 34,122 3,512 2,970 - - ------ ------ ----- ----- ------ ------ Net amount recognized $38,968 $22,968 $(2,390)$(1,647)$(36,292)$(38,152) ====== ====== ===== ===== ====== ====== (1)Includes overfunded status of the combined U.S. hourly and salaried pension plans of $0.3 billion as of December 31, 2003. II-55 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 17. Pensions and Other Postretirement Benefits (continued) The accumulated benefit obligation for all pension plans was $99 billion as of December 31, 2003 and $89 billion as of December 31, 2002. The accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $15 billion and $7 billion respectively as of December 31, 2003, and $89 billion and $66 billion respectively as of December 31, 2002. The projected benefit obligation and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets were $45 billion and $35 billion respectively as of December 31, 2003, and $91 billion and $66 billion respectively as of December 31, 2002.
U.S. Plans Non-U.S. Plans Pension Benefits Pension Benefits Other Benefits -------------------------------------------------------------- 2003 2002 2001 2003 2002 2001 2003 2002 2001 -------------------------------------------------------------- Components of expense (dollars in millions) Service cost $919 $864 $885 $228 $194 $176 $537 $505 $480 Interest cost 5,162 5,273 5,261 803 700 638 3,798 $3,686 3,731 Expected return on plan assets (6,374)(7,096) (7,480)(573) (580) (605) (444) (390) (542) Amortization of prior service cost 1,148 1,253 1,323 101 93 93 (12) (14) (45) Amortization of transition obligation/(asset) - - - 11 25 3 - - - Recognized net actuarial loss/(gain) 1,744 730 82 167 62 (1) 717 321 96 Curtailments, settlements, and other 27 211 65 49 51 100 3 - - ----- ----- --- --- --- --- ----- ----- ----- Net expense $2,626 $1,235 $136 $786 $545 $404 $4,599 $4,108 $3,720 ===== ===== === === === === ===== ===== ===== Weighted-average assumptions used to determine benefit obligations at December 31(1) Discount rate 6.00% 6.75% 7.25% 6.12% 6.23% 6.81% 6.25% 6.75% 7.25% Rate of compensation increase 5.0% 5.0% 5.0% 3.4% 3.4% 3.8% 4.1% 4.3% 4.7% Weighted-average assumptions used to determine net expense for years ended December 31 (2) Discount rate 6.75% 7.25% 7.25% 6.23% 6.81% 7.06% 6.75% 7.25% 7.75% Expected return on plan assets 9.0% 10.0% 10.0% 8.5% 8.8% 8.9% 7.0% 7.9% 8.1% Rate of compensation increase 5.0% 5.0% 5.0% 3.4% 3.8% 4.0% 4.3% 4.7% 4.3%
(1) Determined as of end of year (2) Determined as of beginning of year GM sets the discount rate assumption annually for each of its retirement-related benefit plans at their respective measurement dates to reflect the yield of a portfolio of high quality, fixed-income debt instruments matched against the timing and amounts of projected future benefits. Assumed Health Care Trend Rates at December 31 2003 2002 - --------------------------------------------------------------------- Initial Health Care Cost Trend Rate 8.5% 7.2% Ultimate Health Care Cost Trend Rate 5.0% 5.0% Number of Years to Ultimate Trend Rate 6 6 A one percentage point increase in the assumed health care trend rate would have increased the Accumulated Postretirement Benefit Obligation (APBO) by $7.6 billion at December 31, 2003 and the aggregate service and interest cost components of non-pension postretirement benefit expense for 2003 by $539 million. A one percentage point decrease would have decreased the APBO by $6.4 billion and the aggregate service and interest cost components of non-pension postretirement benefit expense for 2003 by $444 million. GM's expected return on assets assumption is derived from a detailed periodic study conducted by GM's actuaries and GM's asset management group. The study includes a review of the asset allocation strategy, anticipated future long-term performance of individual asset classes, risks (standard deviations) and correlations for each of the asset classes that comprise the funds' asset mix. While the study gives appropriate consideration to recent fund performance and historical returns, the assumption is primarily a long-term, prospective rate. II-56 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 17. Pensions and Other Postretirement Benefits (concluded) Based on a study performed in 2002, GM revised its expected long-term return assumption for its U.S. plans effective January 1, 2003 to 9%, a reduction from its previous level of 10%. In anticipation of 2003 contributions, GM's asset management group in conjunction with GM's actuaries, studied alternatives to lower asset return volatility of U.S. pension plans. As a result of the study, the GM U.S. pension plans have approved and commenced implementation of certain changes in the long-run strategic allocations of the pension funds in the second half of 2003. In setting the strategic mix, the ability of the selected mix to fund the pension plan liabilities effectively, meet the long-term asset return target of 9% and align the selected mix with the risk tolerance of the plans' fiduciaries were taken into account. The current strategic mix for U.S. pension plans has reduced exposure to equity market risks and increased allocation to asset classes which are not highly correlated as well as asset classes where active management has historically generated excess returns and places greater emphasis on manager skills to produce excess return while employing various risk mitigation strategies to reduce volatility. When fully implemented, GM pension assets will have the following allocations: global equity: 41%-49%, global bonds: 32%-36%, real estate: 8%-12%, and alternatives: 9%-13%. Overall, the current strategic policy mix is expected to result in comparable but less volatile returns than GM's prior asset mix. VEBA assets are managed with a short-term portion, which is intended to maintain adequate liquidity for benefit payments, and a long-term portion, which targets achieving long-term asset returns through following investment strategies similar to the U.S. pension plans. Based on the asset allocation to short-term and long-term portion, the blended expected return on assets assumption for the VEBA was 7.0% in 2003. U.S. pension plans and OPEB plans have the following asset allocations, as of their respective measurement dates in 2002 and 2003: Plan Assets U.S. Pension Plans Plan Assets OPEB --------------------------------------------- Actual Percentage of Actual Percentage of Plan Assets at Plan Assets at December 31, September 30, --------------------------------------------- Asset Category 2003 2002 2003 2002 - -------------- ---- ---- ---- ---- Equity Securities 49% 55% 38% 23% Debt Securities 31% 34% 58% 71% Real Estate 8% 10% 1% 2% Other 12% 1% 3% 4% --- --- --- --- Total 100% 100% 100% 100% === === === === Equity securities include GM common stock in the amounts of $41 million (less than 1% of total pension plan assets) and $30 million (less than 1% of total pension plan assets) at December 31, 2003, and 2002, respectively. On December 8, 2003, President Bush signed into law the Medicare Prescription Drug Improvement and Modernization Act of 2003. The Act introduces a prescription drug benefit beginning in 2006 under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Due to the levels of benefits provided under GM's U.S. health care plans, management has concluded that GM's U.S. health care plans are at least actuarially equivalent to Medicare Part D. GM has elected not to defer accounting for the effects of the Act and has remeasured GM's postretirement benefit obligation as of December 8, 2003. The remeasurement will reduce GM's APBO by approximately 6% to $63.4 billion, increase plan assets by $0.4 billion, and decrease the unrecognized actuarial loss by $4.3 billion. The impact of this remeasurement will be amortized over the average working life of GM's employees eligible for postretirement benefits beginning January 1, 2004. Despite this favorable impact, GM expects 2004 OPEB expense to be consistent with 2003 expense due to changes in the discount rate and healthcare trend rate. In accordance with GAAP, the impact of the Act is not reflected in the table above. Specific authoritative guidance on the accounting for the Act is pending and guidance, when issued, could result in an adjustment to the accounting treatment described above. II-57 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 18. Commitments and Contingent Matters Commitments GM had the following minimum commitments under noncancelable capital leases having remaining terms in excess of one year, primarily for property (dollars in millions): 2009 2004 2005 2006 2007 2008 and after ---- ---- ---- ---- ---- ---------- Minimum commitments $119 $117 $116 $121 $366 $816 Sublease income (14) (14) (14) (14) (14) (167) ---------------------------------------------- Net minimum commitments $105 $103 $102 $107 $352 $649 ============================================== GM had the following minimum commitments under noncancelable operating leases having remaining terms in excess of one year, primarily for property (dollars in millions): 2009 2004 2005 2006 2007 2008 and after ---- ---- ---- ---- ---- ---------- Minimum commitments $918 $850 $811 $778 $1,326 $4,628 Sublease income (250) (235) (235) (233) (233) (2,865) ---------------------------------------------- Net minimum commitments $668 $615 $576 $545 $1,093 $1,763 ============================================== Certain of these minimum commitments fund the obligations of non-consolidated SPEs. Certain of the leases contain escalation clauses and renewal or purchase options. Rental expenses under operating leases were $926 million, $985 million, and $849 million in 2003, 2002, and 2001, respectively. GM sponsors a credit card program, entitled the GM Card program, which offers rebates that can be applied primarily against the purchase or lease of GM vehicles. The amount of rebates available to qualified cardholders (net of deferred program income) was $4.1 billion, $4.0 billion, and $3.9 billion at December 31, 2003, 2002 and 2001, respectively. GM has guarantees related to its performance under operating lease arrangements and the residual value of leased assets totaling $604 million. Expiration dates vary, and certain leases contain renewal options. The fair value of the underlying assets is expected to fully mitigate GM's obligations under these guarantees. Accordingly, no liabilities were recorded with respect to such guarantees. The Corporation has guaranteed certain amounts related to the securitization of mortgage loans. In addition, GMAC issues financial standby letters of credit as part of their financing and mortgage operations. At December 31, 2003 approximately $51 million was recorded with respect to these guarantees, the maximum exposure under which is approximately $2.9 billion. In connection with certain divestitures prior to January 1, 2003, GM has provided guarantees with respect to benefits for former GM employees relating to income protection, pensions, postretirement healthcare and life insurance. Due to the nature of these indemnities, the maximum exposure under these agreements cannot be estimated. No amounts have been recorded for such indemnities as the Corporation's obligations under them are not probable and estimable. In addition to guarantees, GM has entered into agreements indemnifying certain parties with respect to environmental conditions pertaining to ongoing or sold GM properties. Due to the nature of the indemnifications, GM's maximum exposure under these agreements cannot be estimated. No amounts have been recorded for such indemnities as the Corporation's obligations under them are not probable and estimable. In addition to the above, in the normal course of business GM periodically enters into agreements that incorporate indemnification provisions. While the maximum amount to which GM may be exposed under such agreements cannot be estimated, it is the opinion of management that these guarantees and indemnifications are not expected to have a material adverse effect on the Corporation's consolidated financial position or results of operations. II-58 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 18. Commitments and Contingent Matters (concluded) Contingent Matters Litigation is subject to uncertainties and the outcome of individual litigated matters is not predictable with assurance. Various legal actions, governmental investigations, claims, and proceedings are pending against the Corporation, including those arising out of alleged product defects; employment-related matters; governmental regulations relating to safety, emissions, and fuel economy; product warranties; financial services; dealer, supplier, and other contractual relationships; and environmental matters. GM has established reserves for matters in which losses are probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or other treble damage claims, or demands for recall campaigns, environmental remediation programs, or sanctions, that if granted, could require the Corporation to pay damages or make other expenditures in amounts that could not be estimated at December 31, 2003. After discussion with counsel, it is the opinion of management that such liability is not expected to have a material adverse effect on the Corporation's consolidated financial condition or results of operations. Investment in Fiat Auto Holdings At the April 23, 2003, Annual General Shareholders Meeting of FAH, FAH adopted a euro 5 billion recapitalization plan that provides shareholders the option to make pro-rata capital contributions over the eighteen months following adoption of the plan. When the plan was adopted, Fiat S.p.A. (Fiat) held 80% of FAH and GM 20%. Fiat participated in the recapitalization by making a euro 3 billion contribution, which FAH used to repay inter-company debts owed to Fiat or its affiliates. Currently, GM does not plan to participate. Due to Fiat's participation in the recapitalization, and GM's non-participation, Fiat has reported that GM's interest in FAH has been reduced from 20% to 10%. As discussed in GM's Annual Report on Form 10-K for the period ended December 31, 2002, the Master Agreement provides that, from January 24, 2004 to July 24, 2009, Fiat may seek to exercise a put option (the "Put") to require GM to purchase Fiat's FAH shares at their fair market value. Whether and when Fiat may seek to exercise the Put is unknown, although Fiat stated in its 2002 Annual Report on Form 20F, filed with the U.S. Securities and Exchange Commission, that it views the exercise of the Put only as a secondary possibility. Fiat also stated in its Form 20F that it believes that the Put is enforceable in accordance with the terms of the Master Agreement. GM has, however, asserted to Fiat that the sale of certain assets of the financing business of Fiat Auto and the recapitalization of FAH represent material breaches of the Master Agreement, with the result that the Master Agreement, including the Put, is terminable by GM. Notwithstanding these different views, GM is continuing to build on the cooperation the parties have worked on for the past several years in the joint ventures and other cooperative contractual arrangements they have entered into which are independent of the Master Agreement, and is pursuing a resolution of these different views. Towards that end, Fiat and GM entered into a standstill agreement on October 26, 2003, the provisions of which enable GM to defer until December 15, 2004, the necessity of electing the remedy of termination of the Master Agreement, and with it the Put, without such deferral prejudicing the right of GM to elect that remedy after December 15, 2004. On October 26, 2003, Fiat and GM also entered into an amendment to the Master Agreement that shifts the Put period by one year, so that it begins on January 24, 2005 and runs to July 24, 2010. If the Put were implemented, the fair market value of FAH shares would be determined by the averaging of the three closest of four valuations that would be prepared by four investment banks after conducting due diligence under procedures set forth in the Master Agreement and based upon terms and conditions to be incorporated in a purchase agreement which, at this time, the parties have not prepared. Unless such a process and valuation is completed, the amount, if any, that GM might have to pay for Fiat's FAH shares if there were to be a valid exercise of the Put, is not quantifiable. If there were a valid exercise of the Put, GM would have the option to pay for Fiat's FAH shares entirely in shares of GM $1-2/3 par value common stock, entirely in cash, or in whatever combination thereof GM may choose. Under such circumstances, if and to the extent GM chose to pay in cash, that portion of the purchase price could be paid to Fiat in four installments over a three-year period and GM would expect to fund any such payments from normal operating cash flows or financing activities. If and when GM were to acquire Fiat's FAH shares, and thus become the sole owner of FAH, GM would decide what, if any, additional capitalization would then be appropriate for FAH and Fiat Auto. Specifically, if Fiat Auto were to need additional funding, GM would have to decide whether or not to provide such funding and under what conditions it might do so. Unless FAH or Fiat Auto were subject to liquidation or insolvency, FAH's consolidated financial statements would be required for financial reporting purposes to be consolidated with those of GM. Any indebtedness, losses and capital needs of FAH and Fiat Auto after their acquisition by GM are not presently determinable, but they could have a material adverse effect on GM if GM chooses to fund such needs or allows the consolidation of GM's financial statements with those of FAH and Fiat Auto. GM has discussed with Fiat potential alternatives to the Master Agreement and expects to have further discussions regarding the relationship between the parties. II-59 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 19. Stockholders' Equity The following table presents changes in capital stock for the period from January 1, 2001 to December 31, 2003 (dollars in millions): Common Stocks ----------------- Total $1-2/3 Capital Par Value Class H Stock --------- ------- ----- Balance at January 1, 2001 $914 $88 $1,002 Shares issued 18 - 18 --- --- ----- Balance at December 31, 2001 932 88 1,020 Shares issued 4 8 12 --- --- ----- Balance at December 31, 2002 936 96 1,032 Shares issued 1 15 16 Hughes split-off - (111) (111) --- --- ----- Balance at December 31, 2003 $937 $ - $937 === === === GM split off Hughes by distributing Hughes common stock to the holders of GM Class H common stock in exchange for all outstanding shares of GM Class H common stock. All shares of GM Class H common stock were then cancelled. Preference Stock On June 24, 2002, approximately 2.7 million shares of GM Series H 6.25% Automatically Convertible Preference Stock held by AOL Time Warner (AOL) mandatorily converted into approximately 80 million shares of GM Class H common stock as provided for pursuant to the terms of the preference stock. GM originally issued the shares of preference stock to AOL in 1999 in connection with AOL's $1.5 billion investment in, and its strategic alliance with, Hughes. The preference stock accrued quarterly dividends at a rate of 6.25% per year. No GM preference stock has been issued or outstanding since. Common Stocks The liquidation rights of the GM $1-2/3 par value common stock are subject to certain adjustments if outstanding common stock is subdivided, by stock split or otherwise. Convertible Debentures As of December 31, 2003, GM had $8.1 billion of convertible senior debentures of outstanding, including $1.2 billion principal amount of 4.5% Series A convertible senior debentures (Series A) due 2032, $2.6 billion principal amount of 5.25% Series B convertible senior debentures (Series B) due 2032 and $4.3 billion principal amount of GM 6.25% Series C convertible senior debentures (Series C) due 2033. The securities are convertible into shares of GM's $1-2/3 par value common stock, at investors' option, under any of the following circumstances: (1) The closing sale price of GM's $1-2/3 par value common stock exceeds 120% of the conversion price ($70.20 for Series A, $64.90 for Series B, and $47.62 for Series C, respectively) for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; or (2) During the five business day period after any nine consecutive trading day period in which the trading price of the debentures for each day of such period was less than 95% of the product of the closing sale price of GM's $1-2/3 par value common stock multiplied by the number of shares issuable upon conversion of $25.00 principal amount of the debentures; or (3) The debentures have been called for redemption; or (4) Upon the occurrence of specified corporate events. The number of shares potentially convertible is 16,380,600 for Series A, 40,060,800 for Series B, and 90,300,000 for Series C. The contingently convertible shares are not included in diluted earnings per share as of December 31, 2003 as they have not met the requirements for conversion. II-60 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 19. Stockholders' Equity (concluded) Other Comprehensive Income The changes in the components of other comprehensive income (loss) are reported net of income taxes, as follows (dollars in millions):
Years Ended December 31, ----------------------------------------------------------------------------------- 2003 2002 2001 ----------------------------------------------------------------------------------- Pre-tax Tax Exp. Net Pre-tax Tax Exp. Net Pre-tax Tax Epx. Net Amount (Credit) Amount Amount (Credit) Amount Amount (Credit) Amount ------ ------ ------ ------ ------ ------ ------ ------ ------ Foreign currency translation adjustments $1,642 $673 $969 $67 $(18) $85 $(504) $(148) $(356) Unrealized (loss) gain on securities: Unrealized holding (loss) gain 465 166 299 (501) (166) (335) 162 56 106 Reclassification adjustment (84) (31) (53) 611 220 391 (176) (66) (110) --- --- --- --- --- --- --- -- --- Net unrealized (loss) gain 381 135 246 110 54 56 (14) (10) (4) Minimum pension liability adjustment 33,378 12,623 20,755 (21,746) (8,127) (13,619) (15,317) (5,783) (9,534) Net unrealized gain (loss) on derivatives 329 73 256 151 49 102 (387) (80) (307) Amounts attributable to Hughes - - - (300) (139) (161) (172) (44) (128) ------ ------ ------ ------ ----- ------ ------ ----- ------ Other comprehensive (loss) income $35,730 $13,504 $22,226 $(21,718) $(8,181) $(13,537) $(16,394) $(6,065) $(10,329) ====== ====== ====== ====== ===== ====== ====== ===== ======
NOTE 20. Earnings Per Share Attributable to Common Stocks Earnings per share (EPS) attributable to each class of GM common stock was determined based on the attribution of earnings to each such class of common stock for the period divided by the weighted-average number of common shares for each such class outstanding during the period. Diluted EPS attributable to each class of GM common stock considers the effect of potential common shares, unless the inclusion of the potential common shares would have an antidilutive effect. The attribution of earnings to each class of GM common stock was as follows (dollars in millions): Years Ended December 31, ---------------------------- 2003 2002 2001 ---- ---- ---- Earnings attributable to common stocks $1-2/3 par value Continuing operations $2,862 $1,975 $1,220 Discontinued operations (48) (90) (234) Gain on sale of discontinued operations 1,249 - - ----- ----- ----- Earnings attributable to $1-2/3 par value $4,063 $1,885 $986 Earnings from discontinued operations attributable to Class H $(241) $(195) $(484) --- --- --- Total earnings attributable to common stocks $3,822 $1,690 $502 ===== ===== === Earnings attributable to GM $1-2/3 par value common stock for each period represent the earnings attributable to all GM common stocks, reduced by the Available Separate Consolidated Net Income (ASCNI) of Hughes for the respective period. In 2001 and prior years, losses attributable to GM Class H common stock represent the ASCNI of Hughes, reduced by the amount of dividends accrued on the Series A Preferred Stock of Hughes (as an equivalent measure of the effect that GM's payment of dividends on the GM Series H 6.25% Automatically Convertible Preference Stock would have if paid by Hughes). II-61 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 20. Earnings Per Share Attributable to Common Stocks (concluded) The calculated losses used for computation of the ASCNI of Hughes are then multiplied by a fraction, the numerator of which is equal to the weighted-average number of shares of GM Class H common stock outstanding (1.1 billion as of December 22, 2003, 920 million as of December 31, 2002, and 876 million as of December 31, 2001) and the denominator of which is a number equal to the weighted-average number of shares of GM Class H common stock which if issued and outstanding would represent a 100% interest in the earnings of Hughes (the "Average Class H dividend base"). The Average Class H dividend base was 1.4 billion at December 22, 2003 and 1.3 billion as of December 31, 2002 and 2001. The reconciliation of the amounts used in the basic and diluted earnings per share computations for income from continuing operations was as follows (dollars in millions except per share amounts): $1-2/3 Par Value Common Stock ------------------------------- Per Share Income Shares Amount ------ ------ ------ Year ended December 31, 2003 Basic EPS Income from continuing operations attributable to common stocks $2,862 561 $5.10 ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 8 ----- -- Diluted EPS Adjusted income attributable to common stocks $2,862 569 $5.03 ===== === ==== Year ended December 31, 2002 Basic EPS Income from continuing operations attributable to common stocks $1,975 560 $3.53 ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 2 ----- --- Diluted EPS Adjusted income attributable to common stocks $1,975 562 $3.51 ===== === ==== Year ended December 31, 2001 Income from continuing operations $1,222 Less: Dividends on preference stocks 2 ----- Basic EPS Income from continuing operations attributable to common stocks $1,220 551 $2.21 ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 5 ----- --- Diluted EPS Adjusted income attributable to common stocks $1,220 556 $2.20 ===== === ==== Certain stock options and convertible securities were not included in the computation of diluted earnings per share for the periods presented since the instruments' underlying exercise prices were greater than the average market prices of GM $1-2/3 par value common stock and inclusion would be antidilutive. Such shares not included in the computation of diluted earnings per share were 176 million, 66 million, and 29 million as of December 31, 2003, 2002 and 2001, respectively. NOTE 21. Derivative Financial Instruments and Risk Management Effective January 1, 2001, GM adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and interpreted, which requires that all derivatives be recorded at fair value on the balance sheet and establishes criteria for designation and effectiveness of derivative transactions for which hedge accounting is applied. GM assesses the initial and ongoing effectiveness of its hedging relationships in accordance with its documented policies. As a result of the adoption of this standard as of January 1, 2001, GM recorded a transition adjustment representing a one-time after-tax charge to income totaling $15 million, as well as an after-tax unrealized gain of $4 million to other comprehensive income. II-62 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 21. Derivative Financial Instruments and Risk Management (concluded) GM is exposed to market risk from changes in foreign currency exchange rates, interest rates, and certain commodity and equity security prices. In the normal course of business, GM enters into a variety of foreign exchange, interest rate, and commodity forward contracts, swaps, and options, with the objective of minimizing exposure arising from these risks. A risk management control system is utilized to monitor foreign exchange, interest rate, commodity and equity price risks, and related hedge positions. Cash Flow Hedges GM uses financial instruments designated as cash flow hedges to hedge the Corporation's exposure to foreign currency exchange risk associated with buying, selling, and financing in currencies other than the local currencies in which it operates, and to variability in cash flows related to floating rate debt, and its exposure to commodity price risk associated with changes in prices of commodities used in its automotive business, primarily non ferrous metals used in the manufacture of automotive components. For transactions denominated in foreign currencies, GM typically hedges forecasted and firm commitment exposure up to one year in the future. For commodities, GM hedges exposures up to five years in the future. For the year ended December 31, 2003, hedge ineffectiveness associated with instruments designated as cash flow hedges decreased cost of sales and other expenses by $50 million. For the year ended December 31, 2002, hedge ineffectiveness associated with instruments designated as cash flow hedges increased cost of sales and other expenses by $0.1 million; changes in time value of the instruments (which are excluded from the assessment of hedge effectiveness and exclude transition adjustment) increased cost of sales and other expenses by $30 million and $19 million, respectively. Derivative gains and losses included in other comprehensive income are reclassified into earnings at the time that the associated hedged transactions impact the income statement. For the year ended December 31, 2003, net derivative gains of $245 million were reclassified to cost of sales and other expenses. For the year ended December 31, 2002, net derivative losses of $65 million were likewise reclassified. These net losses/gains were offset by net gains/losses on the transactions being hedged. Approximately $91 million of net derivative gains included in other comprehensive income at December 31, 2003, will be reclassified into earnings within 12 months from that date. Fair Value Hedges GM uses financial instruments designated as fair value hedges to manage certain of the Corporation's exposure to interest rate risk. GM is subject to market risk from exposures to changes in interest rates due to its financing, investing, and cash management activities. A variety of instruments is used to hedge GM's exposure associated with its fixed rate debt and mortgage servicing rights (MSR's). For the year ended December 31, 2003, hedge ineffectiveness associated with instruments designated as fair value hedges, primarily due to hedging of MSRs, decreased selling, general, and administrative expenses by $390 million and increased selling, general, and administrative expenses by $458 million in 2002. Changes in time value of the instruments (which are excluded from the assessment of hedge effectiveness) decreased selling, general, and administrative expenses by $175 million in 2003 and $212 million in 2002. Undesignated Derivative Instruments Forward contracts and options not designated as hedging instruments under SFAS No. 133 are also used to hedge certain foreign currency, commodity, and interest rate exposures. Unrealized gains and losses on such instruments are recognized currently in earnings. NOTE 22. Fair Value of Financial Instruments The estimated fair value of financial instruments has been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value; therefore, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions and/or estimation methodologies may be material to the estimated fair value amounts. II-63 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 22. Fair Value of Financial Instruments (concluded) Book and estimated fair values of financial instruments, for which it is practicable to estimate fair value, were as follows (dollars in millions): December 31, --------------------------------------------- 2003 2002 --------------------------------------------- Automotive and Other Operations Book Value Fair Value Book Value Fair Value - ------------------------------- ---------- ---------- ---------- ---------- Assets Other assets (1) $771 $500 $496 $327 Derivative assets $1,234 $1,234 $364 $364 Liabilities Long-term debt (2) $29,593 $31,859 $14,261 $13,832 Other liabilities (1) $528 $571 $531 $580 Derivative liabilities $356 $356 $298 $298 Financing and Insurance Operations - ---------------------------------- Assets Finance receivables - net (3) $172,423 $174,547 $133,964 $135,890 Derivative assets $10,026 $10,026 $7,185 $7,185 Liabilities Debt (2) $239,350 $244,642 $183,913 $186,360 Derivative liabilities $1,196 $1,196 $843 $843 (1) Other assets include various financial instruments (e.g., long-term receivables and certain investments) that have fair values based on discounted cash flows, market quotations, and other appropriate valuation techniques. The fair values of retained subordinated interests in trusts and excess servicing assets (net of deferred costs) were derived by discounting expected cash flows using current market rates. Estimated values of Industrial Development Bonds, included in other liabilities, were based on quoted market prices for the same or similar issues. (2) Long-term debt has an estimated fair value based on quoted market prices for the same or similar issues or based on the current rates offered to GM for debt of similar remaining maturities. (3) The fair value was estimated by discounting the future cash flows using applicable spreads to approximate current rates applicable to each category of finance receivables. Due to their short-term nature, the book value approximates fair value for cash and marketable securities, accounts and notes receivable (less allowances), accounts payable (principally trade), Auto & Other loans payable and FIO debt payable within one year for the periods ending December 31, 2003 and 2002. NOTE 23. Stock Incentive Plans GM's stock incentive plans consist of the General Motors 2002 Stock Incentive Plan, formerly the 1997 General Motors Amended Stock Incentive Plan (GMSIP), the General Motors 1998 Salaried Stock Option Plan (GMSSOP), the General Motors 1997 Performance Achievement Plan (GMPAP), and the General Motors 2002 Long Term Incentive Plan (GMLTIP). The GMSIP, the GMPAP, and the GMLTIP are administered by the Executive Compensation Committee of the GM Board. The GMSSOP is administered by the Vice President of Global Human Resources. Under the GMSIP, 27.4 million shares of GM $1-2/3 par value common stock may be granted from June 1, 2002, through May 31, 2007, of which approximately 17.2 million were available for grants at December 31, 2003. Any shares granted and undelivered under the GMSIP, due primarily to expiration or termination, become again available for grant. Options granted prior to 1997 under the GMSIP generally are exercisable one-half after one year and one-half after two years from the dates of grant. Stock option grants awarded since 1997 vest ratably over three years from the date of grant. Option prices are 100% of fair market value on the dates of grant and the options generally expire 10 years from the dates of grant, subject to earlier termination under certain conditions. II-64 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 23. Stock Incentive Plans (continued) Under the GMSSOP, which commenced January 1, 1998 and ends December 31, 2007, the number of shares of GM $1-2/3 par value common stock that may be granted each year is determined by management. Approximately 3.6 million shares of GM $1-2/3 par value common stock were available for grants at December 31, 2003. Stock options vest one year following the date of grant and are exercisable two years from the date of grant. Option prices are 100% of fair market value on the dates of grant and the options generally expire 10 years and two days from the dates of grant subject to earlier termination under certain conditions. The GMPAP and the GMLTIP consist of award opportunities granted to participants that are based on the achievement of specific corporate business criteria. The target number of shares of GM $1 2/3 par value common stock that may be granted each year is determined by management. These grants are subject to a two- or three-year performance period and the final award payout may vary based on the achievement of those criteria. As of December 31, 2003, a total of 3.8 million shares had been granted as award opportunities under the GMPAP and the GMLTIP. This is the targeted number of shares that would finally be granted should all corporate business criteria be achieved. Number of Number of securities to be Weighted average securities issued upon exercise price remaining exercise of of outstanding available for Plan Category outstanding options, future issuance options, warrants and under equity warrants and rights compensation rights plans (1) - ------------------------------------------------------------------------------- Equity compensation plans approved by security holders: GMSIP 74,485,566 $54.38 17,194,942 Equity compensation plans not approved by security holders (2): GMSSOP 24,390,056 $55.33 3,626,225 - ------------------------------------------------------------------------------- Total 98,875,622 $54.61 20,821,167 - ------------------------------------------------------------------------------- (1)Excludes securities reflected in the first column, "Number of securities to be issued upon exercise of outstanding options, warrants and rights." (2)All equity compensation plans except the GMSSOP were approved by the shareholders. The GMSSOP was adopted by the Board of Directors in 1998 and expires December 31, 2007. The purpose of the plans is to recognize the importance and contribution of GM employees in the creation of stockholder value, to further align compensation with business success and to provide employees with the opportunity for long-term capital accumulation through the grant of options to acquire shares of General Motors common stock. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2003 2002 2001 ------------------------------------------------------ GM GM GM GM GM GM SIP SSOP SIP SSOP SIP SSOP --- ---- --- ---- --- ---- Interest rate 2.9% 2.9% 4.3% 4.3% 4.6% 4.6% Expected life (years) 5.0 5.0 5.0 5.0 5.0 5.0 Expected volatility 35.4% 35.4% 34.6% 34.6% 31.2% 31.1% Dividend yield 5.0% 5.0% 4.0% 4.0% 3.8% 3.8% II-65 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 23. Stock Incentive Plans (concluded) Changes in the status of outstanding options were as follows: GMSIP GMSSOP $1-2/3 Par Value $1-2/3 Par Value Common Common ----------------------------------------------- Weighted- Weighted- Shares Average Shares Average under Exercise under Exercise Option Price Option Price - ------------------------------------------------------------------------------- Options outstanding at January 1, 2001 43,125,106 $58.49 10,367,464 $67.30 - ------------------------------------------------------------------------------- Granted 13,141,725 $52.49 3,902,862 $52.35 Exercised 1,682,731 $39.66 37,655 $46.59 Terminated 1,641,974 $61.08 154,690 $66.27 - ------------------------------------------------------------------------------- Options outstanding at December 31, 2001 52,942,126 $57.52 14,077,981 $63.22 - ------------------------------------------------------------------------------- Granted 17,294,937 $50.53 5,015,553 $50.46 Exercised 2,729,511 $40.46 71,663 $46.59 Terminated 1,685,392 $55.28 64,672 $62.39 - ------------------------------------------------------------------------------- Options outstanding at December 31, 2002 65,822,160 $56.45 18,957,199 $59.91 Granted 11,148,605 $40.06 5,666,127 $40.05 - ------------------------------------------------------------------------------- Exercised 1,489,170 $42.28 - - - ------------------------------------------------------------------------------- Terminated 996,029 $55.06 233,270 $56.92 - ------------------------------------------------------------------------------- Options outstanding at December 31, 2003 74,485,566 $54.38 24,390,056 $55.33 =============================================================================== - ------------------------------------------------------------------------------- Options exercisable at December 31, 2001 29,890,175 $53.93 6,148,695 $61.97 - ------------------------------------------------------------------------------- December 31, 2002 38,094,946 $58.18 10,098,994 $67.48 - ------------------------------------------------------------------------------- December 31, 2003 48,932,216 $58.56 13,825,058 $63.29 - ------------------------------------------------------------------------------- The following table summarizes information about GM's stock option plans at December 31, 2003: Weighted- Average Weighted- Weighted- Remaining Average Average Range of Options Contractual Exercise Options Exercise Exercise Prices Outstanding Life (yrs.) Price Exercisable Price - ------------------------------------------------------------------------------- GMSIP $1-2/3 Par Value Common $21.00 to $39.99 886,116 2.0 $33.51 804,179 $33.24 40.00 to 49.99 24,860,743 5.9 $42.80 13,971,139 $44.93 50.00 to 59.99 28,259,174 7.6 $51.42 13,696,365 $51.78 60.00 to 83.50 20,479,533 5.5 $73.40 20,460,533 $73.41 - ------------------------------------------------------------------------------- $21.00 to $83.50 74,485,566 6.4 $54.38 48,932,216 $58.56 - ------------------------------------------------------------------------------- GMSSOP $1-2/3 Par Value Common $40.05 5,631,365 9.1 $40.05 - $- 46.59 2,264,335 4.0 $46.59 2,264,335 $46.59 50.46 4,933,633 8.0 $50.46 - $- 52.35 3,824,905 7.0 $52.35 3,824,905 $52.35 71.53 3,739,403 5.0 $71.53 3,739,403 $71.53 75.50 3,996,415 6.0 $75.50 3,996,415 $75.50 - ------------------------------------------------------------------------------- $40.05 to $75.50 24,390,056 6.9 $55.33 13,825,058 $63.29 - ------------------------------------------------------------------------------- II-66 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 24. Other Income Other income (included in total net sales and revenues) consisted of the following (dollars in millions): Years Ended December 31, -------------------------- 2003 2002 2001 ---- ---- ---- Automotive and Other Operations Other income Interest income $1,389 $905 $714 Rental car lease revenue 1,460 1,214 1,424 Claims, commissions, and grants 916 846 767 Gain on sale of GM Defense 814 - - Other 400 239 369 ----- ----- ----- Total other income $4,979 $3,204 $3,274 ===== ===== ===== Years Ended December 31, -------------------------- 2003 2002 2001 ---- ---- ---- Financing and Insurance Operations Other income Interest income $684 $2,951 $2,269 Insurance premiums 2,544 2,188 1,524 Mortgage banking income 2,696 2,064 1,862 Automotive securitization income 1,057 1,357 1,183 Other 3,419 3,034 2,840 ------ ------ ----- Total other income $10,400 $11,594 $9,678 ====== ====== ===== NOTE 25. European Matters During 2001, GM Europe announced its plan to turn around its business with the implementation of Project Olympia. The initial stages of Project Olympia sought to identify initiatives that could deliver: . Solid and profitable business performance as of 2003 . A strengthened and optimized sales structure . A revitalized Opel/Vauxhall brand . Further market growth opportunities . Continuous improvement by refocusing the organizational structure The project identified several initiatives which aim to address the goals mentioned above. These initiatives include, among other things, reducing GME's manufacturing capacity, restructuring the dealer network in Germany, and redefining the way vehicles are marketed. These initiatives resulted in a decrease to GM's pre-tax earnings and were recorded in the GME region in the first quarter of 2002 as follows: (1) $298 million related to employee separation costs for approximately 4,000 employees; (2) $235 million related to asset write-downs; and (3) $108 million related to the dealer network restructuring in Germany. The net income impact of these charges in the first quarter of 2002 was $407 million, or $0.72 per diluted share of GM $1-2/3 par value common stock ($553 million included in cost of sales and other expenses; $88 million included in selling, general, and administrative expenses; and $(234) million included in income tax expense). In 2003, GME recorded a $311 million pre-tax ($218 million after-tax) charge to improve the competitiveness of GM's automotive operations in Europe. This charge was comprised of the following: $207 million related to employee separation costs for approximately 2,900 employees; and $104 million related to asset write-downs and other costs. These charges were recorded in cost of sales and other expenses. II-67 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 26: Segment Reporting SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", established standards for reporting information about operating segments in financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. GM's chief operating decision maker is the Chief Executive Officer. The operating segments are managed separately because each operating segment represents a strategic business unit that offers different products and serves different markets. GM's reportable operating segments within its Auto & Other business consist of General Motors Automotive (GMA) (which is comprised of four regions: GMNA, GME, GMLAAM, GMAP), and Other. GMNA designs, manufactures, and/or markets vehicles primarily in North America under the following nameplates: Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, Saturn, and HUMMER. GME, GMLAAM, and GMAP primarily meet the demands of customers outside North America with vehicles designed, manufactured, and marketed under the following nameplates: Opel, Vauxhall, Holden, Saab, Buick, Chevrolet, GMC, and Cadillac. The Other segment includes the design, manufacturing, and marketing of locomotives, the elimination of intersegment transactions, certain non-segment specific revenues and expenditures, and certain corporate activities. GM's reportable operating segments within its FIO business consist of GMAC and Other. GMAC provides a broad range of financial services, including consumer vehicle financing, full-service leasing and fleet leasing, dealer financing, car and truck extended service contracts, residential and commercial mortgage services, commercial and vehicle insurance, and asset-based lending. The Financing and Insurance Operations' Other segment includes financing entities that are not consolidated by GMAC. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies except that the disaggregated financial results have been prepared using a management approach, which is consistent with the basis and manner in which GM management internally disaggregates financial information for the purposes of assisting in making internal operating decisions. GM evaluates performance based on stand-alone operating segment net income and generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. Revenues are attributed to geographic areas based on the location of the assets producing the revenues. II-68 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 26. Segment Reporting (continued)
Auto & Other Total GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing ---- --- ------ ---- --- ---- ----- ---- --------- --------- 2003 (dollars in millions) Manufactured products sales and revenues: External customers $114,756 $25,960 $4,755 $4,578 $150,049 $803 $150,852 $ - $ - $ - Intersegment (2,044) 946 555 543 - - - - - - ------- ------ ----- ----- ------- --- ------- -- -- -- Total manufactured products 112,712 26,906 5,310 5,121 150,049 803 150,852 - - - Financing revenue - - - - - - - 18,663 630 19,293 Other income 3,598 572 77 217 4,464 515 4,979 10,962 (562) 10,400 ------- ------ ----- ----- ------- ----- ------- ------ --- ------ Total net sales and revenues $116,310 $27,478 $5,387 $5,338 $154,513 $1,318 $155,831 $29,625 $68 $29,693 ======= ====== ===== ===== ======= ===== ======= ====== === ====== Depreciation and amortization $6,199 $1,211 $248 $233 $7,891 $55 $7,946 $5,744 $288 $6,032 Interest income (a) $1,445 $375 $36 $4 $1,860 $(471) $1,389 $937 $(253) $684 Interest expense $1,762 $343 $119 $11 $2,235 $(455) $1,780 $7,564 $120 $7,684 Income tax expense (benefit) $171 $(303) $(149) $44 $(237) $(632) $(869) $1,591 $9 $1,600 Earnings (losses) of nonconsolidated associates $113 $102 $7 $560 $782 $(48) $734 $(3) $(4) $(7) Net income (loss) from continuing operations $811 $(504) $(331) $577 $553 $(518) $35 $2,793 $34 $2,827 Investments in nonconsolidated affiliates $462 $1,139 $431 $3,944 $5,976 $56 $6,032 $50 $(50) - Segment assets $130,279 $23,835 $3,039 $3,349 $160,502 $1,283 $161,785 $288,163 $51 $288,214 Expenditures for property $4,650 $1,202 $110 $576 $6,538 $78 $6,616 $712 $2 $714 2002 Manufactured products sales and revenues: External customers $115,041 $22,409 $4,698 $3,663 $145,811 $1,253 $147,064 $ - $ - $ - Intersegment (2,038) 1,057 327 654 - (18) (18) - - - ------- ------ ----- ----- ------- ----- ------- ----- --- ------ Total manufactured products 113,003 23,466 5,025 4,317 145,811 1,235 147,046 - - - Financing revenue - - - - - - - 14,758 726 15,484 Other income 2,806 446 85 207 3,544 (340) 3,204 12,083 (493) 11,590 ------- ------ ----- ----- ------- ----- ------- ----- --- ------ Total net sales and revenues $115,809 $23,912 $5,110 $4,524 $149,355 $895 $150,250 $26,841 $233 $27,074 ======= ====== ===== ===== ======= === ======= ====== === ====== Depreciation and amortization $4,853 $1,080 $178 $143 $6,254 $70 $6,324 $5,136 $405 $5,541 Interest income (a) $1,003 $316 $24 $12 $1,355 $(450) $905 $3,221 $(270) $2,951 Interest expense $738 $304 $145 $8 $1,195 $(716) $479 $6,834 $190 $7,024 Income tax expense (benefit) $1,213 $(436) $(76) $55 $756 $(1,134) $(378) $1,071 $(49) $1,022 Earnings (losses) of nonconsolidated associates $46 $76 $(3) $231 $350 $11 $361 $(1) $(7) $(8) Net income (loss) from continuing operations $2,992 $(1,011) $(181) $188 $1,988 $(1,895) $93 $1,870 $12 $1,882 Investments in nonconsolidated affiliates $534 $890 $397 $3,233 $5,054 $43 $5,097 $237 $(237) - Segment assets $105,382 $20,344 $3,035 $1,689 $130,450 $(7,129) $141,974(b) $227,728 $440 $228,168 Expenditures for property $4,448 $1,448 $200 $263 $6,359 $55 $6,414 $451 $6 $457
See notes on next page II-69 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 26. Segment Reporting (continued)
Auto & Other Total GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing ---- --- ------ ---- --- ---- ----- ---- --------- --------- 2001 (dollars in millions) Manufactured products sales and revenues: External customers $107,087 $22,249 $5,615 $3,262 $138,213 $1,711 $139,924 $ - $ - $ - Intersegment (1,772) 820 200 752 - (25) (25) - - - ------- ------ ----- ----- ------- ----- ------- ------ ----- ------ Total manufactured products 105,315 23,069 5,815 4,014 138,213 1,686 139,899 - - - Financing revenue - - - - - - - 15,189 1,011 16,200 Other income 2,859 631 49 187 3,726 (452) 3,274 10,392 (714) 9,678 ------- ------ ----- ----- ------- ----- ------- ------ ----- ------ Total net sales and revenues $108,174 $23,700 $5,864 $4,201 $141,939 $1,234 $143,173 $25,581 $297 $25,878 ======= ====== ===== ===== ======= ===== ======= ====== === ====== Depreciation and amortization $4,597 $994 $146 $117 $5,854 $53 $5,907 $5,305 $552 $5,857 Interest income (a) $831 $369 $27 $14 $1,241 $(527) $714 $2,696 $(427) $2,269 Interest expense $986 $349 $95 $8 $1,438 $(866) $572 $7,755 $(10) $7,745 Income tax expense (benefit) $468 $(282) $(18) $24 $192 $(136) $56 $1,047 $(9) $1,038 (Losses) earnings of nonconsolidated associates $(37) $41 $(6) $(61) $(63) $(5) $(68) $(5) $3 $(2) Net income (loss) from continuing operations $1,348 $(765) $(81) $(57) $445 $(991) $(546) $1,786 $(18) $1,768 Investments in nonconsolidated affiliates $665 $886 $614 $2,700 $4,865 $30 $4,895 $1,062 $(1,062) $ - Segment assets $91,086 $18,552 $4,181 $896 $114,715 $(3,659) $130,210(b) $192,855 $904 $193,759 Expenditures for property $5,914 $1,476 $125 $194 $7,709 $103 $7,812 $13 $7 $20
(a)Interest income is included in net sales and revenues from external customers. (b)Includes assets of discontinued operations of $18,653 and $19,154 at December 31, 2002 and 2001 respectively. II-70 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 26. Segment Reporting (concluded) Information concerning principal geographic areas was as follows (dollars in millions):
2003 2002 2001 ------------------------------------------------------------------ Net Sales Long Net Sales Long Net Sales Long & Lived & Lived & Lived Revenues Assets(1) Revenues Assets (1) Revenues Assets (1) ---------- -------- --------- -------- -------- -------- North America United States $133,897 $47,594 $129,781 $45,964 $124,543 $46,908 Canada and Mexico 14,619 8,529 15,023 6,897 11,712 6,087 ------- ------- ------- ------ ------- ------ Total North America 148,516 56,123 144,804 52,861 136,255 52,995 Europe France 2,429 216 2,078 183 1,825 130 Germany 6,361 5,593 5,824 4,605 5,901 4,165 Spain 2,143 1,256 1,744 1,076 1,771 738 United Kingdom 6,474 2,275 5,672 2,096 5,062 1,549 Other 12,350 3,537 10,565 2,953 10,602 2,500 ------ ------ ------ ------ ------ ----- Total Europe 29,757 12,877 25,883 10,913 25,161 9,082 Latin America Brazil 2,319 584 2,479 619 2,889 946 Other Latin America 1,674 186 2,265 185 2,285 278 ----- --- ----- --- ----- ----- Total Latin America 3,993 770 4,744 804 5,174 1,224 All Other 3,258 2,824 1,893 2,404 2,461 3,529 ------- ------ ------- ------ ------- ------ Total $185,524 $72,594 $177,324 $66,982 $169,051 $66,830 ======= ====== ======= ====== ======= ======
(1) Consists of property (Note 12), equipment on operating leases (Note 10), net of accumulated depreciation. Il-71 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION Selected Quarterly Data (Unaudited) (1) 2003 Quarters ------------- 1st (2) 2nd 3rd 4th (3) --- --- --- --- (dollars in millions except per share amounts) Total net sales and revenues $47,146 $45,944 $43,351 $49,084 Income (losses) from continuing operations before income taxes and minority interests $2,198 $931 $387 $(536) Income tax expense (benefit) 682 244 134 (329) Minority interests (20) (11) 19 (103) Earnings of nonconsolidated associates 41 203 176 308 ----- --- --- - ---- Income (losses) from continuing operations 1,537 879 448 (2) Income (losses) from discontinued operations (54) 22 (23) (164) Gain from sale of discontinued operations - - - 1,179 ----- --- --- ----- Net income $1,483 $901 $425 $1,013 ===== === === ===== Earnings (losses) attributable to $1-2/3 par value Continuing operations $1,537 $879 $448 $(2) Discontinued operations (16) 5 (5) 1,218 ----- --- --- ----- Earnings attributable to $1-2/3 par value $1,521 $884 $443 $1,216 ===== === === ===== Earnings (losses) from discontinued operations attributable to Class H $(38) $17 $(18) $(203) Basic earnings (losses) per share attributable to common stocks $1-2/3 par value Continuing operations $2.74 $1.57 $0.80 $- Discontinued operations (0.03) 0.01 (0.01) 2.17 ---- ---- ---- ---- Earnings per share attributable to $1-2/3 par value $2.71 $1.58 $0.79 $2.17 ==== ==== ==== ==== Earnings (losses) per share from discontinued operations attributable to Class H $(0.04) $0.02 $(0.02) $(0.18) Average number of shares of common stocks outstanding - basic (in millions) $1-2/3 par value 561 561 561 561 Class H 990 1,108 1,108 1,109 Earnings (loss) per share attributable to common stocks assuming dilution $1-2/3 par value Continuing operations $2.74 $1.57 $0.80 $- Discontinued operations (0.03) 0.01 (0.01) 2.13 ---- ---- ---- ---- Earnings per share attributable to $1-2/3 par value $2.71 $1.58 $0.79 $2.13 ==== ==== ==== ==== Earnings (losses) per share from discontinued operations attributable to Class H $(0.04) $0.02 $(0.02) $(0.18) Average number of shares of common stocks outstanding - diluted (in millions) $1-2/3 par value 561 561 561 571 Class H 990 1,111 1,108 1,109 II-72 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION Selected Quarterly Data (Unaudited) - continued (1) Previously reported quarters have been restated to reflect the results of Hughes as discontinued operations. (2) First quarter 2003 results include a $505 million after-tax gain from the sale of GM's light armored vehicle business (GM Defense) to General Dynamics Corporation. Net proceeds were approximately $1.1 billion. (3) Fourth quarter 2003 results include the following: o A $725 million after-tax charge for lump-sum payments and vehicle discount vouchers for retirees as provided by the October 2003 contract with the United Auto Workers; o A $103 million after-tax favorable adjustment related primarily to previously established reserves for idled workers at the Janesville, Wisconsin plant; and o A $218 million after-tax charge for an initiative implemented to improve competitiveness of GM's automotive operations in Europe. II-73 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION Selected Quarterly Data (Unaudited) - continued (4) 2002 Quarters ------------- 1st (5) 2nd (6) 3rd (7) 4th --- --- --- --- (dollars in millions except per share amounts) Total net sales and revenues $44,210 $46,113 $41,417 $45,584 Income (losses) from continuing operations before income taxes and minority interests $585 $2,011 $(1,410) $1,152 Income tax expense 217 656 (546) 317 Minority interests (15) (16) (28) (13) Earnings of nonconsolidated associates 31 109 101 112 ---- ----- --- ----- Income from continuing operations 384 1,448 (791) 934 Income (loss) from discontinued operations (156) (156) (13) 86 --- ----- ---- ----- Net income (loss) 228 1,292 (804) 1,020 Dividends on preference stocks (24) (23) - - --- ----- --- ------ Earnings (losses) attributable to common stocks $204 $1,269 $(804) $1,020 === ===== === ===== Earnings (losses) attributable to $1-2/3 par value Continuing operations $384 $1,448 $(791) $934 Discontinued operations (59) (59) (4) 27 -- -- - -- Earnings (losses) attributable to $1-2/3 par value $325 $1,389 $(795) $961 === ===== === === Earnings (losses) from discontinued operations attributable to Class H $(121) $(120) $(9) $59 Basic earnings (losses) per share attributable to Common stocks $1-2/3 par value Continuing operations $0.69 $2.58 $(1.41) $1.67 Discontinued operations (0.11) (0.10) (0.01) 0.04 ---- ---- ---- ---- Earnings per share attributable to $1-2/3 par value $0.58 $2.48 $(1.42) $1.71 ==== ==== ==== ==== (Losses) earnings per share from discontinued operations attributable to Class H $(0.14) $(0.14) $(0.01) $0.06 Average number of shares of common stocks outstanding - basic (in millions) $1-2/3 par value 559 560 560 560 Class H 878 884 958 958 Earnings (losses) per share attributable to Common stocks assuming dilution $1-2/3 par value Continuing operations $0.67 $2.53 $(1.41) $1.67 Discontinued operations (0.10) (0.10) (0.01) 0.04 ---- ---- ---- ---- Earnings (losses) per share attributable to $1-2/3 par value $0.57 $2.43 $(1.42) $1.71 ==== ==== ==== ==== (Losses) earnings per share from discontinued operations attributable to Class H $(0.14) $(0.14) $(0.01) $0.06 Average number of shares of common stocks outstanding - diluted (in millions) $1-2/3 par value 570 572 560 561 Class H 878 884 958 959 II-74 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INFORMATION Selected Quarterly Data (Unaudited) - concluded (4) Previously reported quarters have been restated to reflect the results of Hughes as discontinued operations. (5) First quarter 2002 results include a $407 million after-tax restructuring charge related to severance payments and asset impairments at GME that were part of the restructuring of GM's automotive operations in Europe; (6) Second quarter 2002 results include a $55 million after-tax charge at GME related to the European Union's directive requiring member states to enact legislation regarding end-of-life vehicles to be the responsibility of manufacturers for dismantling and recycling vehicles they have sold. (7) Third quarter 2002 results include the following: o A $1.4 billion after-tax charge related to the write-down of GM's investment in Fiat Auto Holdings, B.V. as a result of the completion of an impairment study of the carrying value of GM's investment; and o A $116 million after-tax charge primarily related to GM's costs associated with the transfer of commercial truck production from Janesville, Wisconsin, to Flint, Michigan. II-75 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 9. Changes in and disagreements with accountants on accounting and financial disclosure None * * * * * * * ITEM 9A. Controls and Procedures The Corporation maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods. As of the end of the period covered by this report, the Corporation's Chief Executive Officer and Chief Financial Officer evaluated, with the participation of GM's management, the effectiveness of the Corporation's disclosure controls and procedures. Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, the Corporation's Chief Executive Officer and Chief Financial Officer concluded that the Corporation's disclosure controls and procedures are effective. There were no changes in the Corporation's internal control over financial reporting that occurred during the Corporation's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting. * * * * * * * II-76 PART III GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 10. Code of Ethics for Senior Executives General Motors Corporation has adopted a code of ethics that applies to the Corporation's directors, officers, and employees, including the Chief Executive Officer, Chief Financial Officer, Controller, Chief Accounting Officer, and any other persons performing similar functions. The text of GM's code of ethics, "Winning With Integrity," has been posted on the Corporation's Internet website at http://investor.gm.com at "Investor Information - Corporate Governance." * * * * * * * ITEMS 10, 11, 12, 13, and 14 Information required by Part III (Items 10, 11, 12, 13, and 14) of this Form 10-K is incorporated by reference from General Motors Corporation's definitive Proxy Statement for its 2004 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year, all of which information is hereby incorporated by reference in, and made part of, this Form 10-K, except that the information required by Item 10 with respect to executive officers of the Registrant is included in Item 4A of Part I of this report. * * * * * * * III-1 PART IV GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K Page Number ------ (a) 1. All Financial Statements See Part II 2. Financial Statement Schedule II - Allowances for the Years Ended December 31, 2003, 2002, and 2001 IV-3 3. Exhibits (Including Those Incorporated by Reference) Exhibit Number - --------- (3)(i) Restated Certificate of Incorporation filed March 1, 2004 N/A (3)(ii) Bylaws, of General Motors Corporation, as amended, February 29, 2004 N/A (4)(a) Form of Indenture relating to the $500,000,000 8-1/8% Debentures Due April 15, 2016 dated as of April 1, 1986 between General Motors Corporation and Citibank, N.A., Trustee, incorporated by reference to Exhibit 4 to Amendment No. 1 to Form S-3 Registration Statement No. 33-4452 and resolutions adopted by the Special Committee on April 15, 1986, incorporated by reference to Exhibit 4(a) to the Current Report on Form 8-K of General Motors Corporation dated April 24, 1986. N/A (4)(c) Form of Indenture relating to the $377,377,000 7.75% Debentures Due March 15, 2036 dated as of December 7, 1995 between General Motors Corporation and Citibank, N.A., Trustee, filed as Exhibit 4(a) to Amendment No. 1 to Form S-3 Registration Statement No. 33-64229. N/A (4)(d) Instruments defining the rights of holders of nonregistered debt of the Registrant have been omitted from this exhibit index because the amount of debt authorized under any such instrument does not exceed 10% of the total assets of the Registrant and its subsidiaries. The Registrant agrees to furnish a copy of any such instrument to the Commission upon request. N/A (4)(f)(i) Indenture between General Motors Corporation and Wilmington Trust Company, incorporated by reference to Exhibit 4(d)(i) to the Current Report on Form 8-K of General Motors Corporation dated July 1, 1997. N/A (4)(f)(ii)First Supplemental Indenture, dated March 4, 2002, between General Motors Corporation and Citibank, N.A. With Respect To The 4.50% Series A Convertible Senior Debentures due 2032 and 5.25% Series B Convertible Senior Debentures due 2032, incorporated by reference to Exhibit 2 to the Current Report on Form 8-K of General Motors Corporation dated March 6, 2002. N/A (10)(a)** General Motors 2002 Annual Incentive Plan, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation dated April 18, 2002. N/A (10)(b)** General Motors 2002 Stock Incentive Plan, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation dated April 18, 2002. N/A (10)(c)** General Motors 2002 Long-term Incentive Plan, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation dated April 18, 2002. N/A (10)(d)** Compensation Plan for Nonemployee Directors, incorporated by reference to Exhibit A to the Proxy Statement of General Motors Corporation dated April 16,1997. N/A (10)(f) Employment Contract with Robert A. Lutz dated September 1, 2001, incorporated by reference. N/A (10)(g) Extension to Employment Contract with Robert A. Lutz dated December 20, 2002. N/A (12) Computation of Ratios of Earnings to Fixed Charges for the Years Ended December 31, 2003, 2002, and 2001. IV-6 (21) Subsidiaries of the Registrant as of December 31, 2003 IV-7 (23) Consent of Independent Auditors IV-12 (31.1) Section 302 Certification of the Chief Executive Officer IV-13 (31.2) Section 302 Certification of the Chief Financial Officer IV-14 (32.1) Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. IV-15 (32.2) Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. IV-16 * The registrant hereby undertakes to furnish supplementally a copy of any omitted schedule or other attachment to the Securities and Exchange Commission upon request. ** Required to be filed as an exhibit pursuant to Item 15 of Form 10-K. IV-1 GENERAL MOTORS CORPORATION AND SUBSIDIARIES PART IV - continued ITEM 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K (concluded) (b) Reports on Form 8-K Thirteen reports on Form 8-K, were filed October 1, 2003, October 15, 2003* (2), October 27, 2003, November 3, 2003, November 21, 2003, December 2, 2003, December 3, 2003, December 12, 2003*, December 15, 2003*, December 22, 2003 (2), and December 30, 2003 during the quarter ended December 31, 2003 reporting matters under Item 5, Other Events, reporting certain agreements under Item 7, Financial Statements, Pro Forma Financial Information, and Exhibits. - -------------------------- * This asterisk indicates Reports submitted to the Securities and Exchange Commission which include information "furnished" pursuant to Items 9 and 12 of Form 8-K, which pursuant to General Instruction B of Form 8-K is not deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934. The information furnished pursuant to Items 9 and 12 in such reports is not subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, is not incorporated into this Report on Form 10-K and GM does not intend to incorporate these reports by reference into any filing under the Securities Act or the Exchange Act. IV-2 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SCHEDULE II - ALLOWANCES
Additions Additions Balance at charged to charged to beginning costs and other Balance at of year expenses accounts Deductions end of year ------- -------- -------- ---------- ----------- Description (dollars in millions) - ----------- For the Year Ended December 31, 2003 Allowances Deducted from Assets Allowance for credit losses $3,059 $1,608 $90 $1,514(b) $3,243 Accounts and notes receivable (for doubtful receivables) 166 63 15(a) 32(b) 212 Inventories (principally for obsolescence of service parts) 255 138(c) - - 393 Other investments and miscellaneous assets (receivables and other) 26 - 58 - 84 Miscellaneous allowances (mortgage and other) 225 135 9 52 317 ----- ----- --- ----- ----- Total Allowances Deducted from Assets $3,731 $1,944 $172 $1,598 $4,249 ===== ===== === ===== ===== For the Year Ended December 31, 2002 Allowances Deducted from Assets Allowance for credit losses $2,167 $2,028 $- $1,136(b) $3,059 Accounts and notes receivable (for doubtful receivables) 159 57 - 50(b) 166 Inventories (principally for obsolescence of service parts) 220 35(c) - - 255 Other investments and miscellaneous assets (receivables and other) 8 - 18 - 26 Miscellaneous allowances (mortgage and other) 176 108 16 75 225 ----- ----- -- ----- ----- Total Allowances Deducted from Assets $2,730 $2,228 $34 $1,261 $3,731 ===== ===== == ===== ===== For the Year Ended December 31, 2001 Allowances Deducted from Assets Allowance for credit losses $1,493 $1,472 $32 $830(b) $2,167 Accounts and notes receivable (for doubtful receivables) 151 76 - 68(b) 159 Inventories (principally for obsolescence of service parts) 265 - - 45(c) 220 Other investments and miscellaneous assets (receivables and other) 6 - 2 - 8 Miscellaneous allowances (mortgage and other) 102 98 5 29 176 ----- ----- -- --- ----- Total Allowances Deducted from Assets $2,017 $1,646 $39 $972 $2,730 ===== ===== == === =====
- ----------------------- Notes: (a) Primarily reflects the recovery of accounts previously written-off. (b) Accounts written off. (c) Represents net change of inventory allowances. Reference should be made to the notes to the GM consolidated financial statements. IV-3 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. GENERAL MOTORS CORPORATION (Registrant) Date: February 29, 2004 By: /s/G. RICHARD WAGONER, JR. --- -------------------------- G. Richard Wagoner, Jr. Chairman and Chief Executive Offier Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 29th day of February 2004 by the following persons on behalf of the Registrant and in the capacities indicated. Signature Title /s/G. RICHARD WAGONER, JR. Chairman and Chief Executive Officer - -------------------------- (G. Richard Wagoner, Jr.) /s/JOHN M. DEVINE Vice Chairman and - ----------------- Chief Financial Officer (John M. Devine) /s/WALTER G. BORST Treasurer - ------------------ (Walter G. Borst) /s/PAUL W. SCHMIDT Controller - ------------------ (Paul W. Schmidt) /s/PETER R. BIBLE Chief Accounting Officer - ----------------- (Peter R. Bible) IV-4 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SIGNATURES - concluded Signature Title - ----------- ----------- /s/PERCY BARNEVIK Director - ----------------- (Percy Barnevik) /s/JOHN H. BRYAN Director - ---------------- (John H. Bryan) /s/ARMANDO M. CODINA Director - -------------------- (Armando Codina) /s/GEORGE M.C. FISHER Director - --------------------- (George M.C. Fisher) /s/KAREN KATEN Director - -------------- (Karen Katen) /s/KENT KRESA Director - -------------- (Kent Kresa) /s/ Director - ----------------- (Alan G. Lafley) /s/PHILIP A. LASKAWY Director - -------------------- (Philip A. Laskawy) /s/E. STANLEY O'NEAL Director - -------------------- (E. Stanley O'Neal) /s/ECKHARD PFEIFFER Director - ------------------- (Eckhard Pfeiffer) IV-5 EX-3 3 exhibit3i.txt EXHIBIT 3.I RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.i GENERAL MOTORS CORPORATION ----------------------------- RESTATED CERTIFICATE OF INCORPORATION AS RESTATED AND FILED MARCH 1, 2004 GENERAL MOTORS CORPORATION Restated Certificate of Incorporation As Restated and Filed March 1, 2004 FIRST: The name of the Corporation is GENERAL MOTORS CORPORATION SECOND: The registered office of the Corporation shall be located at 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware. The name of its registered agent in charge thereof is The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware. THIRD: The nature of the business of the Corporation and the objects and purposes proposed to be transacted, promoted, or carried on by it, are as follows, to-wit: (a) To manufacture, buy, sell and deal in automobiles, trucks, cars, boats, flying machines and other vehicles, their parts and accessories, and kindred articles, and generally to conduct an automobile business in all its branches. (b) To purchase or otherwise acquire, lease, assign, mortgage, pledge or otherwise dispose of any trade names, trade marks, concessions, inventions, formulae, improvements, processes of any nature whatsoever, copyrights, and letters patent of the United States and of foreign countries, and to accept and grant licenses thereunder. (c) To subscribe or cause to be subscribed for, and to purchase or otherwise acquire, hold for investment, sell, assign, transfer, mortgage, pledge, exchange, distribute or otherwise dispose of the whole or any part of the shares of the capital stock, bonds, coupons, mortgages, deeds of trust, debentures, securities, obligations, notes and other evidences of indebtedness of any corporation, stock company or association, now or hereafter existing, and whether created by or under the laws of the State of Delaware, or otherwise; and while owners of any of said shares of capital stock or bonds or other property to exercise all the rights, powers and privileges of ownership of every kind and description, including the right to vote thereon, with power to designate some person for that purpose from time to time to the same extent as natural persons might or could do. (d) To purchase, hold, sell and reissue the shares of its own capital stock. (e) To buy, lease, or otherwise acquire, so far as may be permitted by law, the whole or any part of the business, goodwill, and assets of any person, firm, association or corporation (either foreign or domestic) engaged in a business of the same general character as that for which this Corporation is organized. (f) To endorse, guarantee and secure the payment and satisfaction of bonds, coupons, mortgages, deeds of trust, debentures, securities, obligations and evidences of indebtedness, and also to guarantee and secure the payment or satisfaction of interest on obligations and of dividends on shares of the capital stock of other corporations; also to assume the whole or any part of the liabilities, existing or prospective, of any person, corporation, firm or association; and to aid in any manner any other person or corporation with which it has business dealings, or whose stocks, bonds, or other obligations are held or are in any manner guaranteed by the Corporation, and to do any other acts and things for the preservation, protection, improvement, or enhancement of the value of such stocks, bonds, or other obligations. (g) To engage in any other manufacturing or mercantile business of any kind or character whatsoever, and to that end to acquire, hold, own and dispose of any and all property, assets, stocks, bonds and rights of any and every kind. (h) Without in any particular limiting any of the objects and powers of the Corporation, it is hereby expressly declared and provided that the Corporation shall have power to do all things herein before enumerated, and also to issue or exchange stocks, bonds, and other obligations in payment for property purchased or acquired by it, or for any other object in or about its business; to borrow money without limit; to mortgage or pledge its franchises, real or personal property, income and profits accruing to it, any stocks, bonds or other obligations, or any property which may be acquired by it, and to secure any bonds or other obligations by it issued or incurred. (i) To carry on any business whatsoever which the Corporation may deem proper or convenient in connection with any of the foregoing purposes or otherwise, or which may be calculated, directly or indirectly, to promote the interests of the Corporation or to enhance the value of its property; to conduct its business in this State, in other States, in the District of Columbia, in the Territories and Colonies of the United States, and in foreign countries; and to hold, purchase, mortgage and convey real and personal property, either in or out of the State of Delaware, and to have and to exercise all the powers conferred by the laws of Delaware upon corporations formed under the act pursuant to and under which this Corporation is formed. FOURTH: The total authorized capital stock of the Corporation is as follows: 2,106,000,000 shares, of which 6,000,000 shares shall be Preferred Stock, without par value ("Preferred Stock"), 100,000,000 shares shall be Preference Stock, $0.10 par value ("Preference Stock"), and 2,000,000,000 shares shall be Common Stock, $1 2/3 par value ("Common Stock"). DIVISION I: COMMON STOCK. The privileges and restrictions of the shares of the Common Stock are as follows: (a) Dividend Rights. Subject to the express terms of any outstanding series of Preferred Stock or Preference Stock, dividends may be paid in cash or otherwise upon the Common Stock out of the assets of the Corporation and may be declared and paid only to the extent of the assets of the Corporation legally available for the payment of dividends. Subject to the foregoing, the declaration and payment of dividends on the Common Stock, and the amount thereof, shall at all times be solely in the discretion of the Board of Directors of the Corporation. (b) Voting Rights. The holders of Common Stock shall be entitled to vote as a single class on all matters to be voted on by the stockholders of the Corporation. Each holder of Common Stock shall be entitled to one vote, in person or by proxy, for each share of Common Stock standing in his name on the stock transfer books of the Corporation. (c) Liquidation Rights. In the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after there shall have been paid or set apart for the holders of Preferred Stock and Preference Stock the full preferential amounts to which they are entitled, the holders of Common Stock shall be entitled to receive the assets of the Corporation remaining for distribution to its stockholders ratably on a per share basis. None of the consolidation or merger of the Corporation into or with any other entity or entities, the sale or transfer by the Corporation of all or any part of its assets, or the reduction of the capital stock of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this paragraph. DIVISION II: PREFERRED STOCK. A statement of the relative rights of the holders of Preferred Stock and a statement of the limits of variation between each series of Preferred Stock as to rate of dividends and price of redemption and a statement of the voting powers and the designations, powers, privileges and rights, and the qualifications, limits or restrictions thereof of the various series thereof, except so far as the Board of Directors is expressly authorized to fix the same by resolution or resolutions for the various series of the Preferred Stock, are as follows: Preferred Stock of the Corporation may be issued in various series as may be determined from time to time by the Board of Directors, each such series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, and all series shall rank equally and be identical in all respects except as to the dividend rate and the amount payable upon the exercise of the right to redeem. The dividend on the Preferred Stock of each series shall be such rate as may be fixed by the Board of Directors in the resolution or resolutions providing for the issuance of the Preferred Stock of such series, and as shall be stated on the face or back of the certificates of stock therefor. The amount payable on the exercise of the right to redeem Preferred Stock of each series shall be an amount as may be fixed by the Board of Directors in the resolution or resolutions providing for the issuance of the Preferred Stock of such series, and as shall be stated on the face or back of the certificates of stock therefor. All other provisions herein set forth in respect of the Preferred Stock of the Corporation shall apply to all the Preferred Stock of the Corporation, irrespective of any variations between the Preferred Stock of the different series. The holders of the Preferred Stock shall be entitled to receive cumulative dividends, when and as declared by the Board of Directors, at the rates fixed for the respective series in the Certificate of Incorporation or in the resolution or resolutions of the Board of Directors providing for the issuance of the respective series, and no more, payable quarterly on the dates to be fixed by the By-Laws. The periods between such dates commencing on such dates are herein designated as "dividend periods." Dividends on all shares of any one series shall commence to accrue and be cumulative from the first day of the current dividend period within which shares of such series are first issued, but in the event of the issue of additional shares of such series subsequent to the date of the first issue of said shares of such series, all dividends paid on the shares of such series prior to the issue of such additional shares and all dividends declared payable to holders of record of shares of such series of a date prior to such issue shall be deemed to have been paid in respect of the additional shares so issued. Such dividends on the Preferred Stock shall be in preference and priority to any payment on any other class of stock of the Corporation. The dividends on the Preferred Stock shall be cumulative and shall be payable before any dividend on the Common Stock or any series of the Preference Stock shall be paid or set apart so that if in any year dividends at the rates determined for the respective series of the Preferred Stock shall not be paid thereon, the deficiency shall be payable before any dividend shall be paid upon or set apart for the Common Stock or any series of the Preference Stock. Dividends shall not be declared and paid on the shares of Preferred Stock of any one series for any dividend period unless dividends have been or are contemporaneously paid or declared and set apart for payment thereof on the shares of Preferred Stock of all series, for all the dividend periods terminating on the same or an earlier date. Whenever all cumulative dividends on the Preferred Stock outstanding shall have been paid and a sum sufficient for the payment of the next ensuing quarterly dividend on the Preferred Stock outstanding shall have been set aside from the surplus or net profits, the Board of Directors may declare dividends on the Common Stock or any series of the Preference Stock, payable then or thereafter, out of any remaining surplus or net profits, and no holders of any shares of any series of Preferred Stock, as such, shall be entitled to share therein. At the option of the Board of Directors, the Preferred Stock shall be subject to redemption at the amounts fixed for the respective series in the Certificate of Incorporation or in the resolution or resolutions of the Board of Directors providing for the issuance of the respective series, together, in the case of each class or series, with accrued dividends on the shares to be redeemed, on any dividend paying date in such manner as the Board of Directors may determine. The holders of the Preferred Stock shall not have any voting power whatsoever, except upon the question of selling, conveying, transferring or otherwise disposing of the property and assets of the Corporation as an entirety and except as otherwise required by law. DIVISION III: PREFERENCE STOCK. The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article FOURTH, to provide for the issuance of Preference Stock from time to time in one or more series of any number of shares, with a distinctive serial designation for each series, provided that the aggregate number of shares issued and not cancelled of any and all such series shall not exceed the total number of shares of Preference Stock authorized by this Article FOURTH, all as shall hereafter be stated and expressed in the resolution or resolutions providing for the issue of such Preference Stock from time to time adopted by the Board of Directors. Subject to said limitations, and provided that each series of Preference Stock shall rank junior to the Preferred Stock with respect to the payment of dividends and distributions in liquidation, each series of Preference Stock (a) may have such voting powers, full or limited, or may be without voting powers; (b) may be subject to redemption at such time or times and at such prices; (c) may be entitled to receive dividends (which may be cumulative or noncumulative) at such rate or rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or series of stock; (d) may have such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; (e) may be made convertible into, or exchangeable for, shares of any other class or classes of or any other series of the same or any other class or classes of stock of the Corporation or any other issuer, at such price or prices or at such rates of exchange, and with such adjustments; (f) may be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of such series in such amount or amounts; (g) may be entitled to the benefit of conditions and restrictions upon the creation of indebtedness of the Corporation or any subsidiary, upon the issue of any additional stock (including additional shares of such series or of any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Corporation or any subsidiary of any outstanding stock of the Corporation; and (h) may have such other relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof; all as shall be stated in said resolution or resolutions providing for the issue of such series of Preference Stock. Shares of any series of Preference Stock which have been redeemed (whether through the operation of a sinking fund or otherwise) or which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or classes shall have the status of authorized and unissued shares of Preference Stock of the same series and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of Preference Stock to be created by resolution or resolutions of the Board of Directors or as part of any other series of Preference Stock, all subject to the conditions or restrictions on issuance set forth in the resolution or resolutions adopted by the Board of Directors providing for the issue of any series of Preference Stock. DIVISION IV: MISCELLANEOUS. From time to time, the Preferred Stock, the Preference Stock, and the Common Stock may be increased or decreased according to law, and may be issued in such amounts and proportions as shall be determined by the Board of Directors, and as may be permitted by law. In the event of any liquidation or dissolution or winding up, whether voluntary or otherwise, of the Corporation, the holders of the Preferred Stock shall be entitled to be paid the redemption price of each series in full, as aforesaid, out of the assets whether capital or surplus, and, in every case, the unpaid dividends accrued on such shares, whether or not earned or declared, before any distribution of the assets to be distributed shall be made to the holders of Common Stock or any series of the Preference Stock; but the holders of such shares shall be entitled to no further participation in such distribution. If the assets distributable on such liquidation, dissolution or winding up shall be insufficient to permit the payment to the holders of the Preferred Stock of the full amount of the redemption price of each series in full as aforesaid and accrued dividends as aforesaid, the said assets shall be distributed pro rata among the holders of the respective series of the Preferred Stock. After all payments are made as aforesaid, any required payments shall be made with respect to the Preference Stock, if any, outstanding, and the remaining assets and funds shall be divided among and paid to the holders of Common Stock ratably on a per share basis. The merger or consolidation of the Corporation into or with any other corporation shall not be or be deemed to be a distribution of assets or a dissolution, liquidation or winding up for the purposes of this paragraph. Any Preferred Stock, Preference Stock, or Common Stock, authorized hereunder or under any amendment hereof, in the discretion of the Board of Directors, may be issued, except as herein otherwise provided, in payment for property or services, or as bonuses to employees of the Corporation or employees of subsidiary companies, or for other assets or securities including cash, necessary or desirable, in the judgment of the Board of Directors, to be purchased or acquired from time to time for the Corporation, or for any other lawful purpose of the Corporation. If it seems desirable so to do, the Board of Directors may from time to time issue scrip for fractional shares of stock. Such scrip shall not confer upon the holder any right to dividends or any voting or other rights of a stockholder of the Corporation, but the Corporation shall from time to time, within such time as the Board of Directors may determine or without limit of time if the Board of Directors so determines, issue one or more whole shares of stock upon the surrender of scrip for fractional shares aggregating the number of whole shares issuable in respect of the scrip so surrendered, provided that the scrip so surrendered shall be properly endorsed for transfer if in registered form. FIFTH: The Corporation is to have perpetual existence. SIXTH: The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. SEVENTH: The number of Directors of the Corporation, not less than three, shall be fixed from time to time by the Bylaws and the number may be altered as therein provided. In case of any increase in the number of Directors, the additional Directors shall be elected as provided by the Bylaws, by the Directors, or by the stockholders at an annual or special meeting. In case of any vacancy in the Board of Directors, the remaining Directors, by affirmative vote of a majority thereof, may elect a successor to hold office for the unexpired portion of the term of the Director whose place is vacant and until his successor shall be duly elected and qualified. No Director shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174, or any successor provision thereto, of the Delaware General Corporation Law, or (iv) for any transaction from which the Director derived an improper personal benefit. In furtherance, and not in limitation of the powers conferred by law, the Board of Directors are expressly authorized: (a) To make, alter, amend and repeal the Bylaws of the Corporation. (b) To remove at any time any officer elected or appointed by the Board of Directors but only by the affirmative vote of a majority of the whole Board of Directors. Any other officer or employee of the Corporation may be removed at any time by a vote of the Board of Directors, or by any committee or superior officer upon whom such power of removal may be conferred by the Bylaws or by the vote of the Board of Directors. (c) To designate, by resolution passed by a majority of the whole Board, two or more of their number to constitute an executive committee, who, to the extent provided in said resolution or in the Bylaws of the Corporation, shall have and exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. A majority of such committee shall constitute a quorum for the transaction of business. (d) To designate any other standing committees by the affirmative vote of a majority of the whole Board, and such standing committees shall have and may exercise such powers as shall be conferred or authorized by the Bylaws, including the power to cause the seal of the Corporation to be affixed to any papers which may require it. (e) Every right of action by or on behalf of the Corporation or by any stockholder against any past, present or future member of the Board of Directors, officer or employee of the Corporation arising out of or in connection with any bonus, stock option, performance achievement or other incentive plan at any time approved by the stockholders of the Corporation, irrespective of the place where action may be brought and irrespective of the place of residence of any such Director, officer or employee, shall cease and be barred by the expiration of three years from whichever is the later of (a) the date of the act or omission in respect of which such right of action arises or (b) the first date upon which there has been made generally available to stockholders an annual report of the Corporation and a proxy statement for the annual meeting of stockholders following the issuance of such annual report, which annual report and proxy statement alone or together set forth, for the related period, the amount of any credit to a reserve for the purpose of any such plan, and the aggregate bonus, performance achievement or other awards, and the aggregate options or other grants, made under any such plan; and every right of action by any employee (past, present or future) against the Corporation arising out of or in connection with any such plan shall, irrespective of the place where action may be brought, cease and be barred by the expiration of three years from the date of the act or omission in respect of which such right of action arises. (f) From time to time to fix and to vary the sum to be reserved over and above its capital stock paid in before declaring any dividends; to direct and determine the use and disposition of any surplus or net profits over and above the capital stock paid in; to fix the time of declaring and paying any dividend, and, unless otherwise provided in this Certificate or in the Bylaws, to determine the amount of any dividend. All sums reserved as working capital or otherwise may be applied from time to time to the acquisition or purchase of its bonds or other obligations or shares of its own capital stock or other property to such extent and in such manner and upon such terms as the Board of Directors shall deem expedient and neither the stocks, bonds, or other property so acquired shall be regarded as accumulated profits for the purpose of declaring or paying dividends unless otherwise determined by the Board of Directors, but shares of such capital stock so purchased or acquired may be resold, unless such shares shall have been retired for the purpose of decreasing the Company's capital stock as provided by law. (g) From time to time to determine whether and to what extent, and at what time and places and under what conditions and regulations the accounts and books of the Corporation (other than the stock ledger), or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by statute or authorized by the Board of Directors or by a resolution of the stockholders. (h) With the written assent of the holders of two-thirds of its issued and outstanding stock of all classes without a meeting, or pursuant to the affirmative vote in person or by proxy of the holders of two-thirds of its issued and outstanding stock of all classes, at any meeting, either annual or special, called as provided in the Bylaws, the Board of Directors may sell, convey, assign, transfer or otherwise dispose of, any part or all of the property, assets, rights and privileges of the Corporation as an entirety, for the stock, bonds, obligations or other securities of another corporation of this or of any other State, Territory, Colony or foreign country, or for cash, or partly cash, credit, or property, or for such other consideration as the Board of Directors, in their absolute and uncontrolled discretion, may determine. (i) The Corporation may by its Bylaws confer upon the Directors powers and authorities additional to the foregoing and to those expressly conferred upon them by statute. EIGHTH: Both the stockholders and the Directors of the Corporation may hold their meetings and the Corporation may have an office or offices in such place or places outside of the State of Delaware as the Bylaws may provide, and the Corporation may keep its books outside of the State of Delaware except as otherwise provided by law. NINTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner, now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. EX-3 4 exhibit3ii.txt EXHIBIT 3.II BYLAWS EXHIBIT 3.ii GENERAL MOTORS CORPORATION ------------------ BYLAWS As of February 29, 2004 GENERAL MOTORS CORPORATION BYLAWS INDEX ARTICLE I -- MEETINGS OF STOCKHOLDERS Page 1.1. Annual Meetings ................................................3 1.2. Special Meetings................................................3 1.3. Notice of Meetings..............................................3 1.4. List of Stockholders Entitled to Vote...........................3 1.5. Quorum..........................................................3 1.6. Conduct of Meeting..............................................4 1.7. Voting; Proxies.................................................4 1.8. Fixing Date for Determination of Stockholders of Record.........4 1.9. Adjournments....................................................5 1.10. Judges..........................................................5 1.11. Notice of Stockholder Nomination and Stockholder Business.......5 ARTICLE II -- BOARD OF DIRECTORS 2.1. Responsibility and Number.......................................6 2.2. Election; Resignation; Vacancies................................6 2.3. Regular Meetings................................................7 2.4. Special Meetings................................................7 2.5. Quorum; Vote Required for Action................................7 2.6. Conduct of Meeting..............................................7 2.7. Transactions with Corporation...................................8 2.8. Ratification....................................................8 2.9. Written Action by Directors ....................................8 2.10. Telephonic Meetings Permitted ..................................9 2.11. Independent Directors...........................................9 2.12. Access to Books and Records.....................................9 ARTICLE III -- COMMITTEES 3.1. Committees of the Board of Directors............................9 3.2. Election; Vacancies; Independence..............................10 3.3. Procedure; Quorum..............................................10 3.4. Investment Funds Committee.....................................10 3.5. Audit Committee................................................10 3.6. Executive Compensation Committee...............................11 3.7. Public Policy Committee........................................11 3.8. Directors and Corporate Governance Committee....................11 1 ARTICLE IV -- OFFICERS 4.1. Election of Officers...........................................12 4.2. Chief Executive Officer........................................12 4.3. President......................................................12 4.4. Vice Chairman of the Corporation...............................12 4.5. Chief Financial Officer........................................12 4.6. Treasurer......................................................13 4.7. Secretary......................................................13 4.8. Controller.....................................................13 4.9. General Counsel................................................13 4.10. General Auditor................................................13 4.11. Chief Tax Officer..............................................13 4.12. Subordinate Officers...........................................13 4.13. Resignation; Removal; Suspension; Vacancies....................14 ARTICLE V -- INDEMNIFICATION 5.1. Right to Indemnification of Directors and Officers.............14 5.2. Advancement of Expenses of Directors and Officers..............15 5.3. Claims by Officers or Directors................................15 5.4. Indemnification of Employees...................................15 5.5. Advancement of Expenses of Employees...........................15 5.6. Non-Exclusivity of Rights......................................16 5.7. Other Indemnification..........................................16 5.8. Insurance......................................................16 5.9. Amendment or Repeal............................................16 ARTICLE VI -- MISCELLANEOUS 6.1. Prohibition on Certain Stock Purchases..........................16 6.2. Seal...........................................................18 6.3. Fiscal Year....................................................18 6.4. Notice.........................................................18 6.5. Waiver of Notice...............................................18 6.6. Voting of Stock Owned by the Corporation.......................18 6.7. Form of Records.................................................19 6.8. Offices........................................................19 6.9. Amendment of Bylaws............................................19 6.10. Gender Pronouns................................................19 DEFINITION OF CERTAIN TERMS USED IN BYLAW 6.1.........................i 2 GENERAL MOTORS CORPORATION BYLAWS ARTICLE I MEETINGS OF STOCKHOLDERS 1.1. Annual Meetings. The annual meeting of stockholders for the election of directors, ratification or rejection of the selection of auditors, and the transaction of such other business as may properly be brought before the meeting shall be held on the first Tuesday in June in each year, or on such other date and such place and time as the chairman of the board or the board of directors shall designate. 1.2. Special Meetings. Special meetings of stockholders may be called by the board of directors or the chairman of the board at such place, date, and time and for such purpose or purposes as shall be set forth in the notice of such meeting. 1.3. Notice of Meetings. Written notice of each meeting of stockholders shall be given by the chairman of the board and/or the secretary in compliance with the provisions of Delaware law. 1.4. List of Stockholders Entitled to Vote. The secretary shall prepare or have prepared before every meeting of stockholders a complete list of the stockholders entitled to vote at the meeting in compliance with the provisions of Delaware law. 1.5. Quorum. At each meeting of stockholders, except where otherwise provided by law or the certificate of incorporation or these bylaws, the holders of one-third of the voting power of the outstanding shares of stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 1.9 of these bylaws until a quorum shall attend. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. 3 1.6. Conduct of Meeting. The chairman of the board or, if he so designates, a vice chairman of the Corporation, an executive vice president or vice president shall preside at each meeting of the stockholders; provided, however, that if the chairman of the board does not preside and has not designated an officer of the Corporation to preside, the board of directors may designate any person to preside over the meeting. The secretary of the Corporation shall record the proceedings of meetings of the stockholders, but in the absence of the secretary, the person presiding over the meeting shall designate any person to record the proceedings. 1.7. Voting; Proxies. Each stockholder shall be entitled to vote in accordance with the number of shares and voting powers of the voting shares held of record by him. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but such proxy, whether revocable or irrevocable, shall comply with the requirements of Delaware law. Voting at meetings of stockholders, on other than the election of directors, need not be by written ballot unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of stockholders for the election of directors a plurality of the voting power of the shares of stock present in person or represented by proxy and entitled to vote shall be sufficient. All other elections and questions shall, unless otherwise provided by law or by the certificate of incorporation or these bylaws, be decided by the vote of the holders of a majority of the voting power of the shares of stock entitled to vote thereon present in person or by proxy at the meeting. 1.8. Fixing Date for Determination of Stockholders of Record. To determine the stockholders of record, the board of directors may fix a record date, provided that the record date shall not precede the date upon which the board adopts the resolution fixing the record date and provided further that the record shall be: (a) in the case of determination of stockholders entitled to receive notice of or to vote at any meeting of stockholders or adjournment thereof, not more than 60 nor less than ten days before the date of such meeting; (b) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, not more than ten days from the date upon which the resolution fixing the record date is adopted by the board; and (c) in the case of any other action, not more than 60 days prior to such other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board may choose to fix a new record date for the adjourned meeting. 4 1.9. Adjournments. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place, if any, thereof, and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 1.10. Judges. All votes by ballot at any meeting of stockholders shall be conducted by two judges appointed for the purpose, either by the board of directors or by the chairman of the meeting. The judges shall decide upon the qualifications of voters, count the votes, and declare the result. 1.11. Notice of Stockholder Nomination and Stockholder Business. At a meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. Nominations for the election of directors may be made by the board of directors or by any stockholder entitled to vote for the election of directors who complies with the notice requirements set forth in this section. Other matters to be properly brought before the meeting must be: (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board, including matters covered by rule 14a-8 of the Securities and Exchange Commission (the "SEC"); (b) otherwise properly brought before the meeting by or at the direction of the board; or (c) otherwise properly brought before the meeting by a stockholder pursuant to the notice requirements of this section. A stockholder who intends to make a nomination or to bring any other matter before a meeting of stockholders must give notice of his intent in writing or by electronic transmission. Such notice must be received by the secretary, in the case of an annual meeting not more than 180 days and not less than 120 days before the date of the meeting, or in the case of a special meeting, not more than 15 days after the day on which notice of the special meeting is first mailed to stockholders. Every such notice by a stockholder shall state: (a) the name and address of the stockholder of the Corporation who intends to make a nomination or bring up any other matter; 5 (b) a representation that the stockholder is a holder of the Corporation's voting stock and intends to appear in person or by proxy at the meeting to make the nomination or bring up the matter specified in the notice; (c) if he intends to make a nomination, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) if he intends to make a nomination, such other information regarding each nominee proposed by such stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the SEC if each nominee had been nominated by the board; and (e) if he intends to bring up any other matter, a description of the matter and of any material interest of the stockholder in the matter. Notice of intent to make a nomination shall be accompanied by the written consent of each nominee to serve as director of the Corporation if elected. At the meeting of stockholders, the presiding officer may declare out of order and disregard any nomination or other matter not presented in accordance with this section. ARTICLE II BOARD OF DIRECTORS 2.1. Responsibility and Number. The business and affairs of the Corporation shall be managed by or under the direction of a board of directors. The number of directors shall be determined from time to time by resolution of the board, but the total number of directors shall not be less than eight or more than 20. 2.2. Election; Resignation; Vacancies. At each annual meeting of stockholders, the stockholders shall elect directors who shall each hold office for a term commencing on the date of the annual meeting, or such later date as shall be determined by the board of directors, and ending on the next annual meeting of stockholders, or until his successor is elected and qualified. Any director may resign at any time upon notice given in writing or by electronic transmission to the chairman of the board or to the secretary. Any vacancy occurring in the board for any cause may be filled by a majority of the remaining members of the board, although such majority is less than a quorum. Each director so elected shall hold office until the expiration of the term of the other directors or until his successor is elected and qualified. 6 2.3. Regular Meetings. Unless otherwise determined by resolution of the board of directors, a meeting of the board for the election of officers and the transaction of such other business as may come before it shall be held as soon as practicable following the annual meeting of stockholders, and other regular meetings of the board shall be held either on the first Tuesday of each month designated by the chairman of the board, or if that is a legal holiday, then on the next Tuesday that is not a legal holiday, or such other days as may from time to time be designated by the chairman of the board. 2.4. Special Meetings. Special meetings of the board of directors may be called by the chairman of the board, or the chairman of the board may by written designation appoint a vice chairman of the Corporation, an executive vice president, or a vice president to call such meeting. Special meetings may also be called by the chairman of the directors and corporate governance committee or by written request of one-third of the directors then in office. Notice of a special meeting of the board of directors shall be sent by the secretary of the Corporation either by first class United States mail at least four days before such meeting, or by overnight mail, courier service, electronic transmission, or hand delivery at least 24 hours before the special meeting. 2.5. Quorum; Vote Required for Action. At all meetings of the board of directors, one-third of the whole board shall constitute a quorum for the transaction of business. Except in cases in which applicable law, the certificate of incorporation, or these bylaws otherwise provide, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the board. 2.6. Conduct of Meeting. The board of directors shall annually elect one of its members to be chairman of the board and shall fill any vacancy in the position of chairman of the board at such time and in such manner as the board shall determine. The chairman of the board may but need not be an officer of or employed in an executive or any other capacity by the corporation. The chairman of the board shall preside at meetings of the board and lead the board in fulfilling its responsibilities as defined in section 2.1. In the absence of the chairman of the board, the chairman of the directors and corporate governance committee or, in his absence, a member of the board selected by the members present, shall preside at meetings of the board. The secretary of the corporation shall act as secretary of the meetings of the board, but in his absence the presiding officer may appoint a secretary for the meeting. 7 2.7. Transactions with Corporation. No contract or transaction between the Corporation and one or more of its directors, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board of directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose: (1) if the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors are less than a quorum; or (2) if the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) if the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the board, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board or of a committee which authorizes the contract or transaction. 2.8. Ratification. Any transaction questioned in any stockholders' derivative suit on the grounds of lack of authority, defective or irregular execution, adverse interest of director, officer or stockholder, non-disclosure, miscomputation, or the application of improper principles or practices of accounting may be ratified before or after judgment, by the board of directors or by the stockholders in case less than a quorum of directors are qualified; and, if so ratified, shall have the same force and effect as if the questioned transaction had been originally duly authorized, and said ratification shall be binding upon the Corporation and its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction. 2.9. Written Action by Directors. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or such committee, as the case may be, consent thereto in writing or by electronic transmission, and written evidence of such consent is filed with the minutes of proceedings of the board or committee. 8 2.10. Telephonic Meetings Permitted. Members of the board of directors, or any committee of the board, may participate in a meeting of such board or committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this bylaw shall constitute presence in person at such meeting. 2.11. Independent Directors. (a) A majority of the individuals nominated by the board of directors as candidates for election to the board by the stockholders at the next annual meeting of stockholders shall qualify to be Independent Directors (as defined in this section). (b) If the board elects directors between annual meetings of stockholders, the majority of all directors holding office immediately after such election shall be Independent Directors. (c) For purposes of this bylaw, the term "Independent Director" shall mean a director who qualifies as independent under any definition or standard of "independence" adopted by the SEC or the New York Stock Exchange. 2.12 Access to Books and Records The records, books, and accounts of the Corporation maintained by or under the supervision of the chief financial officer, the secretary, or any other officer shall be open, during the usual hours for business of the Corporation, to the examination of any director for any purpose reasonably related to his role as a director. ARTICLE III COMMITTEES 3.1. Committees of the Board of Directors. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, consisting of one or more of the directors of the corporation, to be committees of the board. To the extent provided in any resolution of the board, these bylaws, or any charter adopted by such committee and approved by the board, and to the extent permissible under Delaware law and the certificate of incorporation, any such committee shall have and may exercise all the powers and authority of the board in the management of the business and affairs of the Corporation. The standing committees of the board shall be the audit committee, the directors and corporate governance committee, the executive compensation committee, the investment funds committee, and the public policy committee. The board (but not 9 a committee thereof) may designate additional committees of the board and may prescribe for each committee such powers and authority as may properly be granted to such committees in the management of the business and affairs of the Corporation. 3.2. Election; Vacancies; Independence. The members and the chairman of each standing committee of the board of directors shall be designated annually by the board at its first meeting after each annual meeting of stockholders or at any other time the board shall determine. The members of other committees of the board may be designated at such time as the board may determine. Vacancies in any committee may be filled at such time and in such manner as the board shall determine. Only Independent Directors as defined in section 2.11 of these bylaws shall be members of any standing committee. 3.3. Procedure; Quorum. Except to the extent otherwise provided in these bylaws or any resolution of the board of directors, each committee of the board may fix its own rules of procedure. At all meetings of any committee of the board, one-third of the members thereof shall constitute a quorum for the transaction of business. The vote of a majority of the members present at a meeting of a committee of the board at which a quorum is present shall be the act of the committee unless the certificate of incorporation, these bylaws, or a resolution of the board requires the vote of a greater number. 3.4. Investment Funds Committee. The investment funds committee shall have general oversight responsibility for the investment funds of the Corporation and its subsidiaries. The committee shall serve as named fiduciary of all benefit plans of the Corporation covered by the Employee Retirement Income Security Act of 1974 (ERISA), unless and to the extent that the documents governing such plans designate a different person, committee, or entity. The committee also shall serve as the named fiduciary of the employee benefit plans of any subsidiary of the Corporation covered by ERISA, if and to the extent the documents governing such plans so designate. 3.5. Audit Committee. The audit committee shall have and may exercise the powers, authority, and responsibilities that are normally appropriate for the functions of an audit committee. The committee shall also annually select the independent accountants for the following calendar year, and that selection shall be submitted to the board of directors for their concurrence and to the stockholders for their ratification or rejection at the annual meeting of stockholders. 10 3.6. Executive Compensation Committee. The executive compensation committee shall be responsible for matters related to executive compensation and all other equity-based incentive compensation plans of the Corporation. The committee shall determine the compensation of: (a) employees of the Corporation who are directors of the Corporation; and (b) upon the recommendation of the chief executive officer, all senior officers of the Corporation and any other employee of the Corporation who occupies such other position as may be designated by the committee from time to time. The committee shall review the compensation of any director, officer or other employee of any direct or indirect subsidiary of the Corporation as may be designated by the committee from time to time to determine if it has any objection to such compensation. The committee shall have and may exercise the powers and authority granted to it by any incentive compensation plan for employees of the Corporation. Where any employee benefit or incentive compensation plan affects employees of the Corporation or its subsidiaries and the compensation of such employees is determined or subject to review by the committee, such plan shall be submitted to the committee for its review before adoption by the Corporation or its subsidiary. Any such plan or amendment or modification shall be made effective with respect to employees of the Corporation only if and to the extent approved by the committee. 3.7. Public Policy Committee. The public policy committee shall, upon its own initiative or otherwise, inquire into all phases of the Corporation's business activities that relate to matters of public policy. The committee may make recommendations to the board of directors to assist it in formulating and adopting basic policies calculated to promote the best interests of the Corporation and the community. 3.8. Directors and Corporate Governance Committee. The directors and corporate governance committee shall be responsible for matters related to service on the board of directors of the corporation, and associated issues of corporate governance. The committee from time to time shall conduct studies of the size and composition of the board. Prior to each annual meeting of stockholders, the committee shall recommend to the board the individuals to constitute the nominees of the board, so that the board may solicit proxies for their election. The committee shall review the qualifications of individuals for consideration as director candidates and shall recommend to the board, for its consideration, the names of individuals for election by the board. In addition, the committee shall from time to time conduct studies and make recommendations to the board regarding compensation of directors. 11 ARTICLE IV OFFICERS 4.1. Election of Officers. The board of directors shall elect such officers of the Corporation with the titles and duties that it designates, provided that the Corporation shall have at least two officers at any time. There may be a chief executive officer, a president, one or more chairmen of the Corporation, one or more executive vice presidents, one or more vice presidents, a chief financial officer. a secretary, a treasurer, a controller, a general counsel, a general auditor, and a chief tax officer. The officers, other than the chief executive officer and the president, shall each have the powers, authority, and responsibilities of those officers provided by the bylaws or as the board or the chief executive officer may determine. One person may hold any number of offices. Elected officers shall hold their offices at the pleasure of the board or until their earlier resignation. 4.2. Chief Executive Officer. The chief executive officer shall have the general executive responsibility for the conduct of the business and affairs of the Corporation. He shall exercise such other powers, authority, and responsibilities as the board of directors may determine. In the absence of or during the physical disability of the chief executive officer, the board may designate an officer who shall have and exercise the powers, authority, and responsibilities of the chief executive officer. 4.3. President. The president shall have and exercise such powers, authority and responsibilities as the board of directors may determine. 4.4. Vice Chairman of the Corporation The vice chairman shall have and exercise such powers, authority, and responsibilities as the board of directors may determine. The vice chairman may be, but not is required to be, a member of the board of directors. 4.5. Chief Financial Officer The chief financial officer shall be the principal financial officer of the Corporation. He shall render such accounts and reports as may be required by the board of directors or any committee of the board. The financial records, books and accounts of the Corporation shall be maintained subject to his direct or indirect supervision. 12 4.6. Treasurer. The treasurer shall have direct or indirect custody of all funds and securities of the Corporation and shall perform all acts incident to the position of treasurer. 4.7. Secretary. The secretary shall keep the minutes of all meetings of stockholders and directors and shall give all required notices and have charge of such books and papers as the board of directors may require. He shall submit such reports to the board or to any committee as the board or such committee may request. Any action or duty required to be performed by the secretary may be performed by an assistant secretary. 4.8. Controller. The controller shall be in charge of the accounts of the Corporation and shall perform all acts incident to the position of controller. 4.9. General Counsel. The general counsel shall be the chief legal officer of the Corporation and shall have general control of all matters of legal import concerning the Corporation. 4.10. General Auditor. The general auditor shall have such powers, authority and responsibilities as are incident to the position of general auditor in the performance of an independent audit activity of the Corporation and shall have direct access to the audit committee. 4.11. Chief Tax Officer. The chief tax officer shall have responsibility for all tax matters involving the Corporation, with authority to sign and to delegate to others authority to sign all returns, reports, agreements and documents involving the administration of the Corporation's tax affairs. 4.12. Subordinate Officers. The board of directors may from time to time appoint one or more assistant officers to the officers of the Corporation, and such other subordinate officers as the board of directors may deem advisable. Such subordinate officers shall have such powers, authority and responsibilities as the board or the chief executive officer may from time to time determine. The board may grant to any committee of the board or the chief executive officer the power and authority to appoint subordinate officers and to prescribe their respective terms of office, powers, authority, and responsibilities. Each subordinate officer shall hold his 13 position at the pleasure of the board, the committee of the board appointing him, the chief executive officer, and any other officer to whom such subordinate officer reports. 4.13. Resignation; Removal; Suspension; Vacancies. Any officer may resign at any time by giving written notice to the chief executive officer or the secretary. Unless stated in the notice of resignation, the acceptance thereof shall not be necessary to make it effective. It shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. Any officer elected by the board of directors may be suspended or removed at any time by the affirmative vote of a majority of the board. Any subordinate officer of the Corporation appointed by the board, a committee of the board, or the chief executive officer may be suspended or removed at any time by a majority vote of a quorum of the board, the committee that appointed such subordinate officer, the chief executive officer, or any other officer to whom such subordinate officer reports. Subject to any contractual limitations, the chief executive officer may suspend the powers, authority, responsibilities and compensation of any employee, including any elected officer or appointed subordinate officer, for a period of time sufficient to permit the board or the appropriate committee of the board a reasonable opportunity to consider and act upon a resolution relating to the reinstatement, further suspension, or removal of such person. As appropriate, the board, a committee of the board, and/or the chief executive officer may fill any vacancy created by the resignation, death, retirement, or removal of an officer in the same manner as provided for the election or appointment of such person. ARTICLE V INDEMNIFICATION 5.1. Right to Indemnification of Directors and Officers. Subject to the other provisions of this article, the corporation shall indemnify and advance expenses to every director and officer (and to such person's heirs, executors, administrators or other legal representatives) in the manner and to the full extent permitted by applicable law as it presently exists, or may hereafter be amended, against any and all amounts (including judgments, fines, payments in settlement, attorneys' fees and other expenses) reasonably incurred by or on behalf of such person in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative ("a proceeding"), in which such director or officer was or is made or is threatened to be made a party or is otherwise involved by reason of the fact that such person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, fiduciary or member of any other corporation, partnership, joint venture, trust, organization or other enterprise. The Corporation shall not be 14 required to indemnify a person in connection with a proceeding initiated by such person if the proceeding was not authorized by the board of directors of the Corporation. 5.2. Advancement of Expenses of Directors and Officers. The Corporation shall pay the expenses of directors and officers incurred in defending any proceeding in advance of its final disposition ("advancement of expenses"); provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this article or otherwise. 5.3. Claims by Officers or Directors. If a claim for indemnification or advancement of expenses by a director or officer under this article is not paid in full within 90 days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or advancement of expenses under applicable law. 5.4. Indemnification of Employees. Subject to the other provisions of this article, the Corporation may indemnify and advance expenses to every employee who is not a director or officer (and to such person's heirs, executors, administrators, or other legal representatives) in the manner and to the full extent permitted by applicable law as it presently exists, or may hereafter be amended against any and all amounts (including judgments, fines, payments in settlement, attorneys' fees, and other expenses) reasonably incurred by or on behalf of such person in connection with any proceeding, in which such employee was or is made or is threatened to be made a party or is otherwise involved by reason of the fact that such person is or was an employee of the corporation, or is or was serving at the request of the Corporation as a director, officer, employee, fiduciary, or member of any other corporation, partnership, joint venture, trust, organization, or other enterprise. The ultimate determination of entitlement to indemnification of employees who are not officers and directors shall be made in such manner as is provided by applicable law. The Corporation shall not be required to indemnify a person in connection with a proceeding initiated by such person if the proceeding was not authorized by the board of the Corporation. 5.5. Advancement of Expenses of Employees. The advancement of expenses of an employee who is not a director or officer shall be made by or in the manner provided by resolution of the board of directors or by a committee of the board. 15 5.6. Non-Exclusivity of Rights. The rights conferred on any person by this article shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, any provision of the certificate of incorporation or of these bylaws or of any agreement, any vote of stockholders or disinterested directors, or otherwise. 5.7. Other Indemnification. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer or employee of another corporation, partnership, joint venture, trust, organization, or other enterprise shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, organization, or other enterprise. 5.8. Insurance. The board of directors may, to the full extent permitted by applicable law as it presently exists, or may hereafter be amended from time to time, authorize an appropriate officer or officers to purchase and maintain at the Corporation's expense insurance: (a) to reimburse the corporation for any obligation which it incurs under the provisions of this article as a result of the indemnification of past, present or future directors, officers, employees, agents, and any persons who has served in the past, is now serving, or in the future will serve at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise; and (b) to pay on behalf of or to indemnify such persons against liability in instances in which they may not otherwise be indemnified by the Corporation under the provisions of this article, whether or not the Corporation would have the power to indemnify such persons against such liability under this article. 5.9. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this article shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE VI MISCELLANEOUS 6.1. Prohibition on Certain Stock Purchases. (a) Except as set forth in subsection (b) hereof, in addition to any affirmative vote of stockholders required by any provision of law, the certificate of 16 incorporation or bylaws of the Corporation, or any policy adopted by the board of directors, neither the Corporation nor any subsidiary shall knowingly effect any direct or indirect purchase or other acquisition of any GM Equity Security of any class or classes issued by the Corporation at a price which is in excess of the highest Market Price of such GM Equity Security on the largest principal national securities exchange in the United States on which such security is listed for trading on the date that the understanding to effect such transaction is entered into by the Corporation (whether or not such transaction is concluded or a written agreement relating to such transaction is executed on such date, such date to be conclusively established by determination of the board), from any Interested Person (i.e., any person who is the direct or indirect beneficial owner of more than three percent (3%) of the aggregate voting power of the Voting Shares of the Corporation) who has beneficially owned such GM Equity Securities for less than two years prior to such date, without the affirmative vote of the holders of the Voting Shares which represent at least a majority of the aggregate voting power of the Corporation, excluding Voting Shares beneficially owned by such Interested Person, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be otherwise required, or that a lesser percentage may be specified, by law or any agreement with any national securities exchange, or otherwise. (b) The provisions of Section (a) hereof shall not be applicable with respect to: (i) any purchase, acquisition, redemption or exchange of GM Equity Securities, the purchase, acquisition, redemption or exchange of which, at the time any such transaction is entered into, is provided for in the certificate of incorporation (including any resolution or resolutions of the board providing for the issuance of Preferred Stock or Preference Stock by the corporation); (ii) any purchase or other acquisition of GM Equity Securities made as part of a tender or exchange offer by the corporation to purchase securities of the same class made on the same terms to all holders of such securities and complying with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any successor provisions to such Act, rules or regulations); (iii) any purchase or acquisition of GM Equity Securities made pursuant to an open market purchase program which has been approved by the board of directors; or (iv) any purchase or acquisition of GM Equity Securities made from, or any purchase or acquisition of GM Equity Securities made pursuant to or on behalf of, an employee benefit plan maintained by the Corporation, or any subsidiary or any trustee of, or fiduciary with respect to any such plan when acting in such capacity. (c) The board shall have the exclusive right and power to interpret the provisions of this bylaw, including, without limitation, the adoption of written definitions of terms used in this bylaw (any such definitions shall be filed 17 with the secretary of the Corporation, and such definitions as may prevail shall be made available to any stockholder upon written request); any such interpretation made in good faith shall be binding and conclusive upon all holders of GM Equity Securities. 6.2. Seal. The corporate seal shall have inscribed upon it the name of the Corporation, the year of its organization and the words "Corporate Seal," and "Delaware." The seal and any duplicate of the seal shall be in the charge of the secretary or an assistant secretary. 6.3. Fiscal Year. The fiscal year of the Corporation shall begin on January 1 and terminate on December 31 of each year. 6.4. Notice. Unless otherwise stated, any notice required to be given by these bylaws must be given in writing delivered in person, by first class United States mail, overnight mail or courier service, or by facsimile or other electronic transmission followed by a paper copy of such notice delivered by overnight mail or courier service. 6.5. Waiver of Notice. Whenever any notice is required to be given, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except if the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such written notice of waiver need not specify the business to be transacted at or the purpose of any regular or special meeting of the stockholders, board of directors, or committee of the board. 6.6. Voting of Stock Owned by the Corporation. The board of directors, the investment funds committee or the chairman of the board may authorize any person and delegate to one or more officers or subordinate officers the authority to authorize any person to vote or to grant proxies to vote in behalf of the Corporation at any meeting of stockholders or in any solicitation of consent of any corporation in which the Corporation may hold stock or other voting securities. 18 6.7. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. Upon the request of any person entitled to inspect records, the Corporation shall so convert such records. 6.8. Offices. The Corporation shall maintain a registered office inside the State of Delaware and may also have other offices outside or inside the State of Delaware. The books of the Corporation may be kept outside or inside the State of Delaware. 6.9. Amendment of Bylaws. The board of directors shall have power to adopt, amend, or repeal the bylaws at any regular or special meeting of the board. The stockholders shall also have power to adopt, amend, or repeal the bylaws at any annual or special meeting, subject to compliance with the notice provisions provided in section 1.11. 6.10. Gender Pronouns. Whenever the masculine pronoun is used in these bylaws, it shall be deemed to refer to either the masculine or the feminine gender. 19 DEFINITION OF CERTAIN TERMS USED IN BYLAW 6.1 OF GENERAL MOTORS CORPORATION For the purposes of section 6.1 (formerly section 6.12) of the bylaws of General Motors Corporation, the board of directors adopted the following definitions effective March 5, 1990: (i) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange, as in effect on January 1, 1990. (ii) "Beneficial Owner" and "Beneficial Ownership" shall have the meanings ascribed to such terms in Rule 13d-3 and Rule 13d-5 of the General Rules and Regulations under the Exchange Act, as in effect on January 1, 1990. (iii) "GM Equity Security" shall mean any security described in Section 3(a) (11) of the Exchange Act, as in effect on January 1, 1990, which is issued by GM and traded on a national securities exchange or the NASDAQ National Market System. (iv) "Interested Person" shall mean any person (other than the Corporation or any Subsidiary) that is the direct or indirect Beneficial Owner of more than three percent (3%) of the aggregate voting power of the Voting Shares, and any affiliate or associate of any such person. For the purpose of determining whether a Person is an Interested Person, the outstanding Voting Shares shall include unissued shares of voting stock of the Corporation of which the Interested Person is the Beneficial Owner, but shall not include any other shares of voting stock of the corporation which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise, to any Person who is not the Interested Person. (v) "Market Price" of shares of a class of GM Equity Security on any day shall mean the highest sale price (regular way) of shares of such class of GM Equity Security on such day, or, if that day is not a trading day, on the trading day immediately preceding such day, on the largest principal national securities exchange on which such class of stock is then listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, then the highest reported sale price for such shares in the over-the-counter market as reported on the NASDAQ National Market System, or if such sale prices shall not be reported thereon, the highest bid price so reported, or, if such price shall not be reported thereon, as the same shall be reported by the National Quotation Bureau Incorporated; in the case of any GM Equity Security which is the Preferred Stock or Preference Stock of the Corporation (of any series), the Market Price thereof shall be the Market Price, as hereinabove defined, of the Voting Shares which the holder of such Preferred Stock or Preference Stock may then acquire by reason of the redemption, exchange, conversion or exercise of other rights as may be provided for in the terms of such securities. i (vi) "Person" shall mean any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, as well as any syndicate or group deemed to be a person pursuant to Section 13(d)(3) of the Exchange Act, as in effect on January 1, 1990. (vii) "Subsidiary" shall mean any company of which the corporation owns, directly or indirectly, (A) a majority of the outstanding shares of equity securities, or (B) shares having a majority of the voting power represented by all of the outstanding voting stock of such company. For the purpose of determining whether a company is a Subsidiary, the outstanding voting stock and shares of equity securities thereof shall include unissued shares of which the corporation is the Beneficial Owner but, except for the purpose of determining whether a company is a Subsidiary for purposes of the definition of Interested Person as used in Bylaw Section 6.12 [now section 6.1], shall not include any other shares which may be issuable pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, warrants or options, or otherwise, to any Person who is not the Corporation. (viii) "Voting Shares" shall mean the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors. EX-12 5 exhibit12.txt EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 GENERAL MOTORS CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES Years Ended December 31, ----------------------------------------- 2003 2002 2001 ---- ---- ---- (dollars in millions) Income from continuing operations $2,862 $1,975 $1,222 Income tax expense 731 644 1,094 (Income)/losses of and dividends from nonconsolidated associates (364) (135) 172 Amortization of capitalized interest 79 73 73 ----- ----- ----- Income before income taxes, undistributed income of nonconsolidated associates and capitalized interest 3,308 2,557 2,561 ----- ----- ----- Fixed charges included in income Interest and related charges on debt 9,522 8,115 8,496 Portion of rentals deemed to be interest 268 295 311 ------ ------ ------ Total fixed charges included in income from continuing operations 9,790 8,410 8,807 ----- ----- ----- Earnings available for fixed charges $13,098 $10,967 $11,368 ====== ====== ====== Fixed charges Fixed charges included in income $9,790 $8,410 $8,807 Interest capitalized in the period 33 74 94 ------ ------ ------ Total fixed charges $9,823 $8,484 $8,901 ===== ===== ===== Ratios of earnings to fixed charges 1.33 1.29 1.28 ==== ==== ==== IV-6 EX-21 6 exhibit21.txt EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 2003 Subsidiary companies of the Registrant are listed below. State or Sovereign Power Name of Subsidiary of Incorporation - ------------------ ---------------- Subsidiaries included in the Registrant's consolidated financial statements Aisin GM Allison Co., Ltd. Japan Annunciata Corporation Delaware Argonaut Holdings, Inc. Delaware Chevrolet Sociedad Anonima de Ahorro para Fines Determinados Argentina Controladora General Motors, S.A. de C.V. Mexico Electro-Motive de Mexico, S.A. de C. V. Mexico General Motors de Mexico, S. de R.L. de C.V. Mexico General Motors de Argentina S.r.L. Argentina GMAC Holding S.A. de C.V. Mexico Servicios GMAC S.A. de C.V. Mexico Sistemas Para Automotores de Mexico, S.A. de C.V. Mexico Convesco Vehicle Sales GmbH Germany Dealership Liquidations, Inc. Delaware DMAX, Ltd.* Ohio Doraville Bond Corporation Delaware Electro-Motive Maintenance Operations Pty Ltd. Australia EL-MO Leasing II Corporation Delaware EL-MO Leasing III Corporation Delaware El-Mo-Mex, Inc. Delaware EMD Argentina, Inc. Delaware EMD Holding Corporation Delaware Environmental Corporate Remediation Company, Inc Delaware GMAC Auto Lease Purchase Corporation (GM sub) Cayman Islands GM Auslandsprojekte GmbH Germany GM Auto Receivables Co. Delaware GM Automotive UK Limited England GMC Truck Motors Development Corporation Delaware GM-DI Leasing Corporation Delaware GMI Diesel Engineering Limited K.K. Japan GM Imports & Trading Ltd. Bermuda GM International Sales Ltd. Cayman Islands GM Plats (Proprietary ) Limited South Africa General International Limited Bermuda General Motors Acceptance Corporation (active) Delaware AccuTel, Inc. Delaware Auto Lease Payment Corporation Cayman Islands North American New Cars, Inc Delaware Bankruptcy Solutions, Inc. Delaware Basic Credit Holding Company, L.L.C. Delaware Alexium Financial Services, Inc. Delaware Nuvell Credit Corporation Delaware Nuvell Financial Services Corp. Delaware Saab Financial Services Corporation Delaware Capital Auto Receivables, Inc. Delaware Facilities Real Estate LLC Delaware GMAC, a.s. Czech Republic GMAC Arrendamiento S.A. de C.V. Mexico GMAC, Australia (Finance) Limited Australia GMAC Bank GmbH Austria GMAC Bank Polska S.A Poland GMAC Banque S.A. France GMAC Hungary Financial Services Rt. Hungary GMAC Comercial Automotriz Chile S.A. Chile GMAC Automotriz Limitada Chile GMAC Commercial Corporation Delaware * Joint Venture Partnership IV-7 GENERAL MOTORS CORPORATION AND SUBSIDIARIES State or Sovereign Power Name of Subsidiary of Incorporation - ------------------ ---------------- GMAC Commercial Finance LLC Delaware Commercial Finance EFD 2002-I, LLC Delaware Commercial Finance EFD 2002-II, LLC Delaware Commercial Credit Land One LLC New York Commercial Credit Land Two LLC New York Commercial Credit Land Three LLC New York GMAC Commercial Finance Corporation-Canada, Societe Financiera Commerciale GMAC-Canada Canada GMAC Commercial Finance (HK) Limited Hong Kong Patriot Constructors, LLC Delaware G.M.A.C. Comercio e Aluguer de Veiculos, Lta. Portugal Produgar, Mediacao de Seguros, Lda. Portugal GMAC Compania Financiera S.A. Argentina GMAC del Ecuador S.A. Ecuador GMAC d.o.o. Croatia GMAC Insurance Holdings, Inc. Delaware ABA Seguros, S.A. de C.V. Mexico CoverageOne Corporation / Compagnie Protection Premiere Canada CoverageOne, Inc. Delaware CoverageOne Purchasing Group, Inc. Michigan GMAC Insurance Management Corporation Delaware GMAC RE Corp. Delaware GMAC Risk Services, Inc, Delaware GMAC Securities Corporation, Inc. Delaware GMAC Service Agreement Corporation Michigan GM Motor Club, Inc. North Carolina Motors Insurance Corporation Michigan Motors Mechanical Reinsurance Company, Limited Barbados MRP Service Agreement Corporation Michigan SmartCoverage Insurance Agency Inc. Canada Trinity General Agency, Inc. Texas Universal Warrenty Corporation Michigan GMAC International Corporation Delaware GMAC International Finance B.V. Netherlands GMAC Lease B.V. Netherlands Masterlease Europe Renting, S.L. Spain GMAC Leasing Corporation Delaware Patlan Corporation Delaware GMAC Leasing G.m.b.H. (Austrian entity) Austria GMAC Mexicana, S.A. de C.V. Sociedad Financiera de Objeto Limitado Filial Mexico GMAC Mortgage Group, Inc. Michigan GMAC Commercial Holding Corp. Nevada GMAC Mortgage Holdings, Inc. Delaware GMAC Residential Holding Corp. Nevada GMAC-RFC Holding Corp. Michigan HELM Company, LLC Delaware GMAC Sverige AB Sweden GMAC Taiwan, Inc. Delaware Masterlease Motors, Inc. Taiwan GMAC-TCFC Finance Limited India General Motors Acceptance Corporation, Australia Delaware CARI Australia Pty. Ltd. Australia Interleasing (Australia) Limited Australia General Motors Acceptance Corporation of Canada, Limited Canada Canadian Securitized Auto Receivables Corporation Canada Canadian Securitized Auto Receivables One Corporation Canada GMAC Leaseco Limited Canada General Motors Acceptance Corporation, Colombia S.A. Delaware G.M.A.C. Financiera de Colombia S.A. Compania de Financiamiento Comercial Colombia General Motors Acceptance Corporation, Continental Delaware GMAC Finansiering A/S Denmark GM Finance HB Sweden General Motors Acceptance Corporation Hungary Commercial Limited Liability Company Hungary IV-8 GENERAL MOTORS CORPORATION AND SUBSIDIARIES State or Sovereign Power Name of Subsidiary of Incorporation - ------------------ ---------------- General Motors Acceptance Corporation Italia S.p.A. Italy General Motors Acceptance Corporation Nederland N.V. Netherlands GMAC Espana, Sociedad Anonima de Financiacion, E.F.C Spain General Motors Acceptance Corporation, North America Delaware General Motors Acceptance Corporation (N.Z.) Limited New Zealand CARI New Zealand New Zealand General Motors Acceptance Corporation de Portugal - Servicos Financeiros, S.A. Portugal General Motors Acceptance Corporation, South America Delaware General Motors Acceptance Corporation de Venezuela, C.A. Venezuela Servicios, Representacion y Asesoramiento de Personal Persoserv S.A. Ecuador General Motors Acceptance Corporation Suisse S.A. Switzerland General Motors Acceptance Corporation (Thailand) Limited Thailand Master Lease Austria GmbH Germany On:Line Finance Holdings Limited England On:Line Finance Limited England P.T. GMAC Lippo Finance* Indonesia SA Holding One LLC Delaware SA Holding Two LLC Delaware Wholesale Auto Receivables Corporation Delaware General Motors Asia, Inc. Delaware GM Autoworld Korea Company, Ltd. Japan General Motors Asia Pacific (Pte) Ltd. Singapore General Motors Asia Pacific Holdings, LLC Delaware General Motors India Private Limited India General Motors Limited (active) England ISPOL-IMG Holdings B.V. Netherlands GM APO Holdings, LLC Delaware GM LAAM Holdings, LLC Delaware PT General Motors Indonesia Indonesia General Motors Asset Management Corporation Delaware General Motors Investment Management Corporation Delaware General Motors Trust Bank, N.A. New York General Motors Trust Company New Hampshire General Motors Automobiles Philippines, Inc. Philippines General Motors Automotive Limited England General Motors do Brasil Ltda. Brazil Banco General Motors S.A. Brazil Consorcio Nacional GM Ltda Brazil BGM Prestadora de Servicos S.A. Brazil Brazauto Trading (Cayman) Limited Cayman Islands Funcap-Comerico e Administracao de Ben Movies e Valores Ltda Brazil General Motors Prestadorade de Servicos Ltda. Brazil GM Factoring Sociedade de Fomento Comercial Ltda. Brazil General Motors of Canada Limited Canada General Motors Coordination Center N.V. Belgium Saab Automobile AB Sweden GM Credit AB Sweden Oy Saab Auto AB Finland Saab Automobile Australia Pty Ltd Australia Saab Automobile Schweiz AG Switzerland Saab Automobili Italia S.p.A. Italy Saab France S.A. France Saab Great Britian Ltd. England Saab Opel Sverige AB Sweden General Motors Chile S.A., Industria Automotriz Chile General Motors China, Inc. Delaware General Motors Warehousing and Trading (Shanghai) Co. Ltd. China General Motors (China) Investment Company Limited China TaiJin International Automotive Distribution Co., Ltd. Taiwan General Motors Colmotores, S.A. Colombia General Motors Commercial Corporation Delaware * Joint Venture Partnership IV-9 GENERAL MOTORS CORPORATION AND SUBSIDIARIES State or Sovereign Power Name of Subsidiary of Incorporation - ------------------ ---------------- General Motors del Ecuador S.A. Ecuador General Motors East Africa Limited Kenya General Motors Export Corporation Delaware General Motors Foreign Sales Corporation Barbados General Motors Finance (Barbados) Ltd. Barbados General Motors Global Industries Co. Ltd. Taiwan General Motors Holding Espana, S.A. Spain Opel Espana de Automoviles, S.A. Spain Opel Polska Sp. Z oo. Poland General Motors Indonesia, Inc. Delaware General Motors International Holdings, Inc. Delaware General Motors Automotive Holdings, S.L. Spain Adam Opel Aktiengesellschaft Germany General Motors Poland Spolka, zo.o. Poland Opel Belgium N.V. Belgium General Motors Europe Holdings, S.L. Spain GM Automotive UK (No. 3) Limited England General Motors Europe AG Switzerland General Motors Netherlands, B.V. Netherlands General Motors Nordiska AB Sweden General Motors Norge AS Norway General Motors Strasbourg S.A.S. France Opel Austria Vertrieb GmbH Austria Opel Ireland Limited Ireland Opel Italia s.r.l. Italy Opel Oy Finland Opel Portugal - Comerico e Industria de Veiculos S.A. Portugal Opel Suisse S.A. Switzerland General Motors International Operations, Inc. Delaware General Motors Investment Services Company N.V. Belgium General Motors Japan Ltd. Japan General Motors Korea, Inc. Delaware GM Korea Co., Ltd. Korea General Motors Nova Scotia Finance Company Canada General Motors Nova Scotia Investments Ltd. Canada General Motors Overseas Corporation (active) Delaware GMOC Administrative Services Corporation Delaware General Motors Australia Ltd. Australia General Motors Investments Pty. Ltd. Australia General Motors Overseas Commercial Vehicle Corporation Delaware General Motors Venezolana, C.A. Venezuela Holden Ltd. Australia General Motors-Holden's Sales Pty Limited Australia GM Daewoo Australia Pty. Ltd. Australia Lidlington Engineering Company, Ltd. Delaware Truck and Bus Engineering U.K., Limited Delaware General Motors Overseas Distribution Corporation Delaware GMODC Finance N.V. Netherlands Antilles Saab Danmark A/S Denmark General Motors Peru S.A. Peru General Motors Product Services, Inc. Delaware General Motors Receivables Corporation Delaware General Motors Uruguay, S.A. Uruguay General Motors U.S. Trading Corp. Nevada Holden New Zealand Limited New Zealand General Motors New Zealand Pensions Limited New Zealand IBC Vehicles (Distribution) Limited England Jennings Motors, Inc. Delaware Manual Transmission of Muncie, LLC Delaware Metal Casting Technology, Inc. Delaware Motor Enterprise, Inc. Delaware Motors Holding San Fernando Valley, Inc. Delaware * Joint Venture IV-10 GENERAL MOTORS CORPORATION AND SUBSIDIARIES State or Sovereign Power Name of Subsidiary of Incorporation - ------------------ ---------------- Multiple Dealerships Holdings of Albany, Inc. Delaware OnStar Corporation Delaware Pims Co Delaware Premier Investment Group, Inc. Delaware Riverfront Development Corporation Delaware Riverfront Holdings, Inc. Delaware Riverfront Holdings Phase II, Inc. Delaware Saab Cars Holding Corp. Delaware Saturn Corporation Delaware Daniels/Florida Automotive Group, LLC Delaware Saturn Distribution Corp. Delaware Saturn County Bond Corporation Delaware Sistemas de Compra Programada Chevrolet, CA Venezuela TX Holdco, LLC Delaware WRE, Inc. Michigan Grand Pointe Holdings, Inc. Michigan 256 directly or indirectly owned subsidiaries Companies not included in the Registrant's consolidated financial statements, for which no financial statements are submitted: 44 other directly or indirectly owned domestic and foreign subsidiaries 5 active subsidiaries 39 inactive subsidiaries 11 fifty-percent owned companies and 57 less than fifty-percent owned companies the investments in which are accounted for by the equity method. In addition, the Registrant owns 100% of the voting control of the following companies: 216 dealerships, including certain dealerships operating under dealership assistance plans, engaged in retail distribution of General Motors products 158 dealerships operating in the United States 58 dealerships operating in foreign countries The number of dealerships operating under dealership assistance plans decreased by a net of 2 during 2003. Companies not shown by name, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. * * * * * * * During 2003, there were changes in the number of subsidiaries and companies of the Registrant, as follows: 1 directly and 46 indirectly owned domestic subsidiaries, and no directly and 66 indirectly owned foreign subsidiaries were organized or acquired. No direct owned and 76 indirectly owned domestic subsidiaries, and no direct owned and 94 indirectly owned foreign subsidiaries were dissolved, sold, or spun-off. 1 domestic 50% owned company was organized or acquired. A less than 50% interest was acquired in 4 companies (3 domestic and 1 foreign), while interests in 1 domestic 50% owned and 25 (9 domestic and 16 foreign) less than 50% owned companies were terminated. Domestic and foreign companies had 54 changes in ownership or percentage in ownership; 5 moved from inactive to active; 8 moved from active to inactive; I new company was added to inactive; 9 moved to less than 50% owned, 1 moved to 50% owned; 1 moved from 50% owned to 100% owned; 1 moved from less than 50% owned to over 50% owned; 2 moved from 100% owned by GM to 100% owned by GMAC. There were 29 company name changes in domestic and foreign subsidiaries. * * * * * * * IV-11 EX-23 7 exhibit23.txt EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS The Board of Directors General Motors Corporation: We consent to the incorporation by reference of our report on page II-23 dated March 10, 2004 appearing in this Annual Report on Form 10-K of General Motors Corporation (the Corporation) for the year ended December 31, 2003, in the following Registration Statements: Registration Form Statement No. Description ---- ------------ ----------- S-3 333-88508 General Motors Corporation and GM Nova Scotia Finance Company Debt Securities, Preferred Stock, Preference Stock and Common Stock S-8 333-109615 The General Motors Personal Savings Plan for Hourly-Rate Employees in the United States S-8 333-90097 General Motors Stock Incentive Plan S-8 333-109616 General Motors Savings-Stock Purchase Program for Salaried Employees in the United States S-8 333-100271 The GMAC Mortgage Group Savings Incentive Plan S-8 333-47200 Saturn Individual Savings Plan for Represented Members S-8 333-17937 Saturn Personal Choices Savings Plan for Non-Represented Members S-8 333-44957 General Motors 1998 Stock Option Plan S-8 333-66653 ASEC Manufacturing Savings Plan S-8 333-31846 General Motors Deferred Compensation Plan for Executive Employees S-8 333-55118 The GMAC Insurance Personal Lines Retirement Savings Plan S-8 333-55122 The Holden Employee Share Ownership Plan S-8 333-110780 GMAC Mortgage Group Deferred Compensation Plan for Executive Employees Our report express an unqualified opinion and includes an explanatory paragraph relating to: (1) the consolidation of certain variable interest entities to conform to FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," (2) the expensing of the fair market value of newly granted stock options and other stock-based compensation awards issued to employees to conform to Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" and (3) the change in the method of accounting for goodwill and other intangible assets to conform to SFAS No. 142, "Goodwill and Other Intangible Assets," as described in Note 1 to the consolidated financial statements contained within this Annual Report on Form 10-K of the Corporation. /s/DELOITTE & TOUCHE LLP - ------------------------ DELOITTE & TOUCHE LLP Detroit, Michigan March 10, 2004 IV-12 EX-31 8 exhibit31grw.txt EXHIBIT 31.1 CHAIRMAN AND CEO CERTIFICATION EXHIBIT 31.1 CERTIFICATION I, G. Richard Wagoner, Jr., Chairman and Chief Executive Officer, certify that: 1. I have reviewed this annual report on Form 10-K of General Motors Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 11, 2004 /s/ G. RICHARD WAGONER, JR. --------------------------- G. Richard Wagoner, Jr. Chairman and Chief Executive Officer IV-13 EX-31 9 exhibit31jmd.txt EXHIBIT 31.2 VICE CHAIRMAN AND CFO CERTIFICATION EXHIBIT 31.2 CERTIFICATION I, John M. Devine, Vice Chairman and Chief Financial Officer, certify that: 1. I have reviewed this annual report on Form 10-K of General Motors Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 11, 2004 /s/ JOHN M. DEVINE -------------------------- John M. Devine Vice Chairman and Chief Financial Officer IV-14 EX-32 10 exhibit32grw.txt EXHIBIT 32.1 CHAIRMAN AND CEO CERTIFICATION EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of General Motors Corporation (the "Corporation") on Form 10-K for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, G. Richard Wagoner, Jr., Chairman and Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. /s/ G. RICHARD WAGONER, JR. - --------------------------- G. Richard Wagoner, Jr. Chairman and Chief Executive Officer March 11, 2004 IV-15 EX-32 11 exhibit32jmd.txt EXHIBIT 32.2 VICE CHAIRMAN AND CFO CERTIFICATION EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of General Motors Corporation (the "Corporation") on Form 10-K for the period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John M. Devine, Vice Chairman and Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. /s/ JOHN M. DEVINE - ------------------- John M. Devine Vice Chairman and Chief Financial Officer March 11, 2004 IV-16 -----END PRIVACY-ENHANCED MESSAGE-----