-----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, FDlxUb7RZndQuqzJSsFj1ZM2yYhYUdwJA62+cNd9cjmk58nubYRitg6CaDafDXY+ 72vBCRQBaDyN4Fd4nPKM5w== 0000040730-04-000054.txt : 20040506 0000040730-04-000054.hdr.sgml : 20040506 20040506111156 ACCESSION NUMBER: 0000040730-04-000054 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040506 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00043 FILM NUMBER: 04783706 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-Q 1 march04q050604.txt GENERAL MOTORS CORP. 10-Q FIRST QUARTER 2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549-1004 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 OR TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF - ---- 1934 For the transition period from to Commission file number 1-143 GENERAL MOTORS CORPORATION -------------------------- (Exact Name of Registrant as Specified in its Charter) STATE OF DELAWARE 38-0572515 ----------------- ---------- (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 300 Renaissance Center, Detroit, Michigan 48265-3000 - ----------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (313) 556-5000 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes X No . --- --- As of April 30, 2004, there were outstanding 564,617,724 shares of the issuer's $1-2/3 par value common stock. Website Access to Company's Reports General Motor's (GM's) internet website address is www.gm.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. 1 GENERAL MOTORS CORPORATION AND SUBSIDIARIES INDEX Page No. -------- Part I - Financial Information Item 1. Financial Statements (Unaudited) Consolidated Statements of Income for the Three Months Ended March 31, 2004 and 2003 3 Supplemental Information to the Consolidated Statements of Income for the Three Months Ended March 31, 2004 and 2003 4 Consolidated Balance Sheets as of March 31, 2004, December 31, 2003, and March 31, 2003 5 Supplemental Information to the Consolidated Balance Sheets as of March 31, 2004, December 31, 2003, and March 31, 2003 6 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 7 Supplemental Information to the Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 8 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 28 Item 4. Controls and Procedures 28 Part II - Other Information (Unaudited) Item 1. Legal Proceedings 29 Item(2e). Purchase of equity securities 29 Item 6. Exhibits and Reports on Form 8-K 30 Signatures 30 Certifications Exhibit 31.1 Section 302 Certification of the Chief Executive Officer 31 Exhibit 31.2 Section 302 Certification of the Chief Financial Officer 32 Exhibit 32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley 33 Exhibit 32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley 34 2 PART I GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, -------------------- 2004 2003 ---- ---- (dollars in millions except per share amounts) Total net sales and revenues $47,779 $47,146 ------ ------ Cost of sales and other expenses 38,663 37,762 Selling, general, and administrative expenses 5,048 5,106 Interest expense 2,767 2,080 ------ ------ Total costs and expenses 46,478 44,948 Income from continuing operations before income taxes, equity income and minority interests 1,301 2,198 Income tax expense 273 682 Equity income (loss) and minority interests 252 21 ----- ----- Income from continuing operations 1,280 1,537 Loss from discontinued operations (Note 2) - (54) ----- ----- Net income $1,280 $1,483 ===== ===== Basic earnings (loss) per share attributable to common stocks (Note 9) $1-2/3 par value Continuing Operations $2.27 $2.74 Discontinued Operations $ - $(0.03) ---- ---- Earnings per share attributable to $1-2/3 par value $2.27 $2.71 ==== ==== Losses per share from discontinued operations attributable to Class H $ - $(0.04) ==== ==== Earnings (loss) per share attributable to common stocks assuming dilution (Note 9) $1-2/3 par value Continuing Operations $2.25 $2.74 Discontinued Operations $ - $(0.03) ---- ---- Earnings per share attributable to $1-2/3 par value $2.25 $2.71 ==== ==== Losses per share from discontinued operations attributable to Class H $ - $(0.04) ==== ==== Reference should be made to the notes to consolidated financial statements. 3 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, -------------------- 2004 2003 ---- ---- (dollars in millions) AUTOMOTIVE AND OTHER OPERATIONS Total net sales and revenues $40,137 $39,815 ------ ------ Cost of sales and other expenses 36,440 35,824 Selling, general, and administrative expenses 3,036 2,625 ------ ------ Total costs and expenses 39,476 38,449 ------ ------ Interest expense 562 249 Net expense from transactions with Financing and Insurance Operations 35 41 --- ----- Income from continuing operations before income taxes, equity income, and minority interests 64 1,076 Income tax expense (benefit) (176) 252 Equity income (loss) and minority interests 254 31 --- ----- Income from continuing operations 494 855 Loss from discontinued operations (Note 2) - (54) --- --- Net income - Automotive and Other Operations $494 $801 === === FINANCING AND INSURANCE OPERATIONS Total revenues $7,642 $7,331 ----- ----- Interest expense 2,205 1,831 Depreciation and amortization expense 1,455 1,506 Operating and other expenses 1,943 2,161 Provisions for financing and insurance losses 837 752 ----- ----- Total costs and expenses 6,440 6,250 ----- ----- Net income from transactions with Automotive and Other Operations (35) (41) ----- ----- Income before income taxes, equity income, and minority interests 1,237 1,122 Income tax expense 449 430 Equity income (loss) and minority interests (2) (10) ----- ----- Net income - Financing and Insurance Operations $786 $682 === === The above Supplemental Information is intended to facilitate analysis of General Motors Corporation's businesses: (1) Automotive and Other Operations; and (2) Financing and Insurance Operations. Reference should be made to the notes to consolidated financial statements. 4 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Mar. 31, Mar. 31, 2004 Dec.31, 2003 (Unaudited) 2003 (Unaudited) --------- ---- --------- ASSETS (dollars in millions) Cash and cash equivalents $28,535 $32,554 $24,020 Marketable securities 21,036 22,215 16,841 ------ ------ ------ Total cash and marketable securities 49,571 54,769 40,861 Finance receivables - net 184,563 173,137 140,764 Loans held for sale 18,285 19,609 12,496 Accounts and notes receivable (less allowances) 19,515 20,532 16,784 Inventories (less allowances) (Note 3) 11,718 10,960 10,479 Assets of discontinued operations - - 20,414 Deferred income taxes 27,357 27,190 38,915 Net equipment on operating leases - (less 33,624 34,383 35,068 accumulated depreciation) Equity in net assets of nonconsolidated 6,054 6,032 5,027 affiliates Property - net 37,664 38,211 36,133 Intangible assets - net (Note 4) 4,727 4,760 10,821 Other assets 61,149 58,924 14,729 ------- ------- ------- Total assets $454,227 $448,507 $382,491 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable (principally trade) $27,163 $25,422 $22,489 Notes and loans payable 278,972 271,756 208,151 Liabilities of discontinued operations - - 9,773 Postretirement benefits other than pensions 31,512 36,292 38,205 Pensions 7,795 8,024 22,446 Deferred income taxes 7,660 7,508 6,738 Accrued expenses and other liabilities 74,440 73,930 65,052 ------- ------- ------- Total liabilities 427,542 422,932 372,854 Minority interests 319 307 271 Stockholders' equity $1-2/3 par value common stock (outstanding, 564,488,127; 561,997,725; and 560,616,422 shares) 941 937 934 Class H common stock (outstanding 1,107,517,793 shares at March 31, 2003) - - 111 Capital surplus (principally additional paid-in capital) 15,135 15,185 22,808 Retained earnings 13,750 12,752 11,234 ------ ------ ------ Subtotal 29,826 28,874 35,087 Accumulated foreign currency translation adjustments (1,768) (1,815) (2,665) Net unrealized gains (losses) on derivatives (8) 51 (196) Net unrealized gains on securities 762 618 344 Minimum pension liability adjustment (2,446) (2,460) (23,204) ------- ------ ------- Accumulated other comprehensive loss (3,460) (3,606) (25,721) ------- ------ ------- Total stockholders' equity 26,366 25,268 9,366 ------- ------- ------- Total liabilities and stockholders' equity $454,227 $448,507 $382,491 ======= ======= ======= Reference should be made to the notes to consolidated financial statements. 5 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED BALANCE SHEETS Mar. 31, Mar. 31, 2004 Dec.31, 2003 (Unaudited) 2003 (Unaudited) --------- ---- --------- ASSETS (dollars in millions) Automotive and Other Operations Cash and cash equivalents $11,262 $14,424 $14,015 Marketable securities 8,763 9,067 3,239 ------ ------ ------ Total cash and marketable securities 20,025 23,491 17,254 Accounts and notes receivable (less allowances) 6,868 5,380 4,975 Inventories (less allowances) (Note 3) 11,718 10,960 10,479 Assets of discontinued operations - - 20,414 Net equipment on operating leases - (less accumulated depreciation) 6,519 7,173 5,661 Deferred income taxes and other current assets 10,855 10,851 9,858 ------ ------ ------ Total current assets 55,985 57,855 68,641 Equity in net assets of nonconsolidated affiliates 6,054 6,032 5,027 Property - net 35,768 36,071 34,308 Intangible assets - net (Note 4) 1,438 1,479 7,483 Deferred income taxes 18,302 18,086 30,473 Other assets 42,103 42,262 1,451 ------- ------- ------- Total Automotive and Other Operations assets 159,650 161,785 147,383 Financing and Insurance Operations Cash and cash equivalents 17,273 18,130 10,005 Investments in securities 12,273 13,148 13,602 Finance receivables - net 184,563 173,137 140,764 Loans held for sale 18,285 19,609 12,496 Net equipment on operating leases (less accumulated depreciation) 27,105 27,210 29,407 Other assets 35,078 35,488 28,834 Net receivable from Automotive and Other Operations 1,660 1,492 486 ------- ------- ------- Total Financing and Insurance Operations assets 296,237 288,214 235,594 ------- ------- ------- Total assets $455,887 $449,999 $382,977 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Automotive and Other Operations Accounts payable (principally trade) $23,970 $21,542 $19,076 Loans payable 2,868 2,813 2,212 Liabilities of discontinued operations - - 9,773 Accrued expenses 45,255 45,417 40,412 Net payable to Financing and Insurance Operations 1,660 1,492 486 ------- ------ ------- Total current liabilities 73,753 71,264 71,959 Long-term debt 29,557 29,593 14,248 Postretirement benefits other than pensions 27,519 32,285 34,260 Pensions 7,731 7,952 22,398 Other liabilities and deferred income taxes 15,617 15,567 13,684 ------- ------- ------- Total Automotive and Other Operations liabilities 154,177 156,661 156,549 Financing and Insurance Operations Accounts payable 3,193 3,880 3,413 Debt 246,547 239,350 191,691 Other liabilities and deferred income taxes 25,285 24,533 21,687 ------- ------- ------- Total Financing and Insurance Operations liabilities 275,025 267,763 216,791 ------- ------- ------- Total liabilities 429,202 424,424 373,340 Minority interests 319 307 271 Total stockholders' equity 26,366 25,268 9,366 ------- ------- ------- Total liabilities and stockholders' equity $455,887 $449,999 $382,977 ======= ======= ======= The above Supplemental Information is intended to facilitate analysis of General Motors Corporation's businesses: (1) Automotive and Other Operations; and (2) Financing and Insurance Operations. Reference should be made to the notes to consolidated financial statements. 6 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, --------------------- 2004 2003 ---- ---- (dollars in millions) Net cash provided by operating activities $1,098 $8,938 Cash flows from investing activities Expenditures for property (1,399) (1,612) Investments in marketable securities - acquisitions (2,652) (2,830) Investments in marketable securities - liquidations 2,905 2,906 Net originations and purchases of mortgage servicing rights (300) (455) Increase in finance receivables (34,156) (33,947) Proceeds from sales of finance receivables 25,034 23,446 Proceeds from sale of business units - 1,076 Operating leases - acquisitions (3,163) (3,661) Operating leases - liquidations 2,028 2,510 Investments in companies, net of cash acquired 5 (21) Other (2,626) 78 ------ ------ Net cash used in investing activities (14,324) (12,510) Cash flows from financing activities Net increase (decrease) in loans payable 2,217 (19) Long-term debt - borrowings 20,677 16,832 Long-term debt - repayments (15,068) (10,019) Proceeds from issuing common stocks 34 - Cash dividends paid to stockholders (282) (280) Other 1,730 809 ----- ----- Net cash provided by financing activities 9,308 7,323 Effect of exchange rate changes on cash and cash equivalents (101) (51) ----- ----- Net (decrease) increase in cash and cash equivalents (4,019) 3,700 Cash and cash equivalents at beginning of the period 32,554 20,320 ------ ------ Cash and cash equivalents at end of the period $28,535 $24,020 ====== ====== Reference should be made to the notes to consolidated financial statements. 7 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION TO THE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Automotive and Financing and Other Insurance Three Months Ended March 31, ---------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- (dollars in millions) Net cash (used in) provided by operating activities $(1,809) $4,447 $2,907 $4,491 Cash flows from investing activities Expenditures for property (1,298) (1,508) (101) (104) Investments in marketable securities - acquisitions (700) (1,155) (1,952) (1,675) Investments in marketable securities - liquidations 1,004 90 1,901 2,816 Net change in mortgage services rights - - (300) (455) Increase in finance receivables - - (34,156) (33,947) Proceeds from sales of finance receivables - - 25,034 23,446 Proceeds from sale of business units - 1,076 - - Operating leases - acquisitions - - (3,163) (3,661) Operating leases - liquidations - - 2,028 2,510 Investments in companies, net of cash acquired (16) (21) 21 - Other (16) (176) (2,610) 254 ----- ----- ------ ------ Net cash used in investing activities (1,026) (1,694) (13,298) (10,816) Cash flows from financing activities Net (decrease) increase in loans payable (149) (23) 2,366 4 Long-term debt - borrowings 24 7 20,653 16,825 Long-term debt - repayments (26) (1) (15,042) (10,018) Proceeds from issuing common stocks 34 - - - Cash dividends paid to stockholders (282) (280) - - Other - - 1,730 809 ------ ------ ----- ------ Net cash (used in) provided by financing activities (399) (297) 9,707 7,620 Effect of exchange rate changes on cash and cash equivalents (96) 1 (5) (52) Net transactions with Automotive/Financing 168 (604) (168) 604 ------ ------ --- ------ Operations Net (decrease) increase in cash and cash (3,162) 1,853 (857) 1,847 equivalents Cash and cash equivalents at beginning of teh period 14,424 12,162 18,130 8,158 ------ ------ ------ ------ Cash and cash equivalents at end of the period $11,262 $14,015 $17,273 $10,005 ====== ====== ====== ====== The above Supplemental Information is intended to facilitate analysis of General Motors Corporation's businesses: (1) Automotive and Other Operations; and (2) Financing and Insurance Operations. Reference should be made to the notes to consolidated financial statements. 8 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. Financial Statement Presentation The consolidated financial statements include the accounts of General Motors Corporation and domestic and foreign subsidiaries that are more than 50% owned, principally General Motors Acceptance Corporation and Subsidiaries (GMAC), (collectively referred to as the "Corporation," "General Motors" or "GM"). In addition, GM consolidates variable interest entities (VIEs) for which it is deemed to be the primary beneficiary. General Motors' share of earnings or losses of affiliates is included in the consolidated operating results using the equity method of accounting when GM is able to exercise significant influence over the operating and financial decisions of the investee. GM encourages reference to the GM and GMAC Annual Reports on Form 10-K for the period ended December 31, 2003 and the GMAC Quarterly Report on form 10-Q for the period ended March 31, 2004, filed separately with the U.S. Securities and Exchange Commission (SEC). GM presents its primary financial statements on a fully consolidated basis. Transactions between businesses have been eliminated in the Corporation's consolidated financial statements. These transactions consist principally of borrowings and other financial services provided by Financing and Insurance Operations (FIO) to Automotive and Other Operations (Auto & Other). To facilitate analysis, GM presents supplemental information to the statements of income, balance sheets, and statements of cash flows for the following businesses: (1) Auto & Other, which consists of the design, manufacturing, and marketing of cars, trucks, locomotives, and related parts and accessories; and (2) FIO, which consists primarily of GMAC. GMAC provides a broad range of financial services, including consumer vehicle financing, full-service leasing and fleet leasing, dealer financing, car and truck extended service contracts, residential and commercial mortgage services, vehicle and homeowners' insurance, and asset-based lending. Certain amounts for 2003 have been reclassified to conform with the 2004 classifications. New Accounting Standards Beginning January 1, 2003, the Corporation began expensing the fair market value of newly granted stock options and other stock based compensation awards to employees pursuant to Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." The fair value of stock option grants are estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of other stock compensation awards is determined by the market price of GM $1-2/3 common stock on the date of grant. The total expense for the three months ended March 31, 2004 and 2003 was $35 million ($22 million net of tax) and $47 million ($29 million net of tax), respectively, recorded in cost of sales and other expenses. For 2002 and prior years, as permitted by SFAS No. 123, GM applied the intrinsic value method of recognition and measurement under Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees," to its stock options and other stock-based employee compensation awards. No compensation expense related to employee stock options is reflected in net income for these periods, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of the grant. In accordance with the disclosure requirements of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," since GM adopted the fair value based method of accounting for stock-based employee compensation pursuant to SFAS No. 123 effective January 1, 2003 for newly granted stock based compensation awards only, the following table illustrates the effect on net income and earnings per share if compensation cost for all outstanding and unvested stock options and other stock-based employee compensation awards had been determined based on their fair values at the grant date (dollars in millions except per share amounts): 9 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. Financial Statement Presentation (continued) New Accounting Standards (continued) Three Months Ended March 31, ------------------ 2004 2003 ---- ---- Income from continuing operations, as reported $1,280 $1,537 Add: stock-based compensation expense, included in reported net income, net of related tax effects 22 29 Deduct: total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects (26) (41) ----- ----- Pro forma income from continuing operations $1,276 $1,525 ===== ===== Earnings from continuing operations attributable to GM $1-2/3 par value common stock - as reported $1,280 $1,537 - pro forma $1,276 $1,525 Basic earnings per share from continuing operations attributable to GM $1-2/3 par value - as reported $2.27 $2.74 - pro forma $2.26 $2.72 Diluted earnings per share from continuing operations attributable to GM $1-2/3 par value - as reported $2.25 $2.74 - pro forma $2.24 $2.72 In December 2003, the Financial Accounting Standards Board (FASB) published a revision to FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46R) to clarify certain provisions of the original interpretation and to exempt certain entities from its requirements. GM adopted FIN 46R as of January 1, 2004. The adoption of FIN 46R did not have a significant effect on the Corporation's financial condition or results of operations. Sale of GM Defense Business On March 1, 2003 GM closed the transaction to sell its GM Defense operations (light armored vehicle business) to General Dynamics Corporation for net proceeds of approximately $1.1 billion in cash. The sale resulted in a pre-tax gain of approximately $814 million, or approximately $505 million after-tax ($0.90 per diluted share of GM $1-2/3 par value common stock), which was recorded in net sales and revenues in GM's Consolidated Statements of Income for Automotive and Other Operations. NOTE 2. Discontinued Operations On December 22, 2003, GM completed a series of transactions that resulted in the split-off of Hughes Electronics Corporation (Hughes) from GM and the simultaneous sale of GM's approximately 19.8 percent economic interest in Hughes to The News Corporation, Ltd. (News Corporation). All News Corporation Preferred ADSs, received as a result of the transaction, were sold by GM in January 2004. The financial data related to GM's investment in Hughes through December 22, 2003 is classified as discontinued operations. The financial data of Hughes reflect the historical results of operations and cash flows of the businesses that were considered part of the Hughes business segment of GM during the respective period and the assets and liabilities of Hughes as of the respective dates. Hughes' net sales included in discontinued operations were $2.2 billion for the period ended March 31, 2003, and Hughes' net losses from discontinued operations were $54 million for the period ending March 31, 2003. 10 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 2. Discontinued Operations (concluded) The Hughes amounts reported as assets and liabilities of discontinued operations were as follows (in millions): March 31, 2003 --------- Current assets $5,461 Property and equipment - net 1,548 Intangible assets -net 7,140 Other assets 6,265 ------ Assets of discontinued operations $20,414 ====== Current liabilities $2,493 Long-term debt 4,980 Other liabilities 2,300 ----- Liabilities of discontinued operations $9,773 ===== NOTE 3. Inventories Inventories included the following for Automotive and Other Operations (dollars in millions): March 31, Dec. 31, March 31, 2004 2003 2003 ----- ---- ---- Productive material, work in process, and $5,155 $4,899 $4,688 supplies Finished product, service parts, etc. 8,149 7,642 7,572 ------ ------ ------ Total inventories at FIFO 13,304 12,541 12,260 Less LIFO allowance (1,586) (1,581) (1,781) ------ ------ ------ Total inventories (less allowances) $11,718 $10,960 $10,479 ====== ====== ====== NOTE 4. Goodwill and Acquired Intangible Assets The components of the Corporation's acquired intangible assets as of March 31, 2004, were as follows (dollars in millions): Gross Accumulated Net Carrying Amortization Carrying Amount Amount ----------------------------------- Automotive and Other Operations - ------------------------------- Amortizing intangible assets: Patents and intellectual property rights $303 $37 $266 Non-amortizing intangible assets: Goodwill 536 Pension intangible asset 636 ----- Total goodwill and intangible assets $1,438 ===== Financing and Insurance Operations - ---------------------------------- Amortizing intangible assets: Customer lists and contracts $65 $33 32 Trademarks and other 40 17 23 Covenants not to compete 18 18 - --- -- -- Total $123 $68 $55 === == == Non-amortizing intangible assets: Goodwill 3,234 ----- Total goodwill and intangible assets 3,289 ===== Total consolidated goodwill and intangible assets $4,727 ===== 11 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 4. Goodwill and Acquired Intangible Assets (concluded) Annual amortization expense relating to the existing intangible assets for each of the next five years is estimated at $30 million to $40 million. The changes in the carrying amounts of goodwill for the quarter ended March 31, 2004, were as follows (dollars in millions): Total Auto & GMNA GME Other GMAC Total GM ---- --- ----- ---- -------- Balance as of December 31, 2003 $154 $413 $567 $3,223 $3,790 Goodwill acquired during the period - - - 3 3 Goodwill written off related to sale of business units - - - - - Effect of foreign currency translation (2) (24) (26) 8 (18) Impairment/ Other (5) - (5) - (5) --- --- --- ----- ----- Balance as of March 31,2004 $147 $389 $536 $3,234 $3,770 === === === ===== ===== NOTE 5. Investment in Nonconsolidated Affiliates Nonconsolidated affiliates of GM identified herein are those entities in which GM owns an equity interest and for which GM uses the equity method of accounting, because GM has the ability to exert significant influence over decisions relating to their operating and financial affairs. GM's significant affiliates, and the percent of GM's current equity ownership, or voting interest, in them include the following: Italy - GM-Fiat Powertrain (50% at March 31, 2004 and 2003); Japan - Fuji Heavy Industries Ltd. (20.1% and 21.1% at March 31, 2004 and 2003, respectively), Suzuki Motor Corporation (20.3% at March 31, 2004 and 2003); China - Shanghai General Motors Co., Ltd (50% at March 31, 2004 and 2003), SAIC GM Wu Ling Automobile Co., Ltd (34% at March 31, 2004 and 2003); Korea - GM Daewoo (44.6% at March 31, 2004 and 2003). Information regarding GM's share of income for all affiliates in the following countries is included in the table below (in millions): GM's share of affiliates' net income (loss) March 31, - ------------------------------------- ------------ 2004 2003 ---- ---- Italy $18 $8 Japan $106 $32 China $162 $44 Korea $(8) $(12) NOTE 6. Product Warranty Liability Policy, product warranty and recall campaigns liability included the following (dollars in millions): Three Months Twelve Months Three Months Ended Ended Ended March 31, 2004 Dec. 31, 2003 March 31, 2003 -------------- ------------- -------------- Beginning balance $8,674 $8,850 $8,856 Payments (1,131) (4,435) (1,096) Increase in liability (warranties issued during period) 1,483 4,390 1,072 Adjustments to liability (pre-existing warranties) 6 (367) 4 Effect of foreign currency translation (80) 236 27 ----- ----- ----- Ending balance $8,952 $8,674 $8,863 ===== ===== ===== The change in "increase in liability," from $1.1 billion at March 31, 2003 to $1.5 billion at March 31, 2004, is attributable to higher North American recall campaigns of approximately $200 million, a favorable adjustment made in 2003 related to the sale of GM Defense, and other regional volume and cost factors. 12 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued NOTE 7. Commitments and Contingent Matters Commitments GM has guarantees related to its performance under operating lease arrangements and the residual value of lease assets totaling $604 million. Expiration dates vary, and certain leases contain renewal options. The fair value of the underlying assets is expected to fully mitigate GM's obligations under these guarantees. Accordingly, no liabilities were recorded with respect to such guarantees. Also, GM has entered into agreements with certain suppliers that guarantee the value of the supplier's assets and agreements with third parties that guarantee fulfillment of certain suppliers' commitments. The maximum exposure under these commitments amounts to $94 million. The Corporation has guaranteed certain amounts related to the securitization of mortgage loans. In addition, GMAC issues financial standby letters of credit as part of their financing and mortgage operations. At March 31, 2004 approximately $54 million was recorded with respect to these guarantees, the maximum exposure under which is approximately $3.0 billion. In addition to guarantees, GM has entered into agreements indemnifying certain parties with respect to environmental conditions pertaining to ongoing or sold GM properties. Due to the nature of the indemnifications, GM's maximum exposure under these agreements cannot be estimated. No amounts have been recorded for such indemnities. In connection with certain divestitures prior to January 1, 2003, GM has provided guarantees with respect to benefits for former GM employees relating to income protection, pensions, post-retirement healthcare and life insurance. Due to the nature of these indemnities, the maximum exposure under these agreements cannot be estimated. No amounts have been recorded for such indemnities as the Corporation's obligations under them are not probable and estimable. In addition to the above, in the normal course of business GM periodically enters into agreements that incorporate indemnification provisions. While the maximum amount to which GM may be exposed under such agreements cannot be estimated, it is the opinion of management that these guarantees and indemnifications are not expected to have a material adverse effect on the Corporation's consolidated financial position or results of operations Contingent Matters Litigation is subject to uncertainties and the outcome of individual litigated matters is not predictable with assurance. Various legal actions, governmental investigations, claims, and proceedings are pending against the Corporation, including those arising out of alleged product defects; employment-related matters; governmental regulations relating to safety, emissions, and fuel economy; product warranties; financial services; dealer, supplier, and other contractual relationships; and environmental matters. GM has established reserves for matters in which losses are probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or other treble damage claims, or demands for recall campaigns, environmental remediation programs, or sanctions, that if granted, could require the Corporation to pay damages or make other expenditures in amounts that could not be estimated at March 31, 2004. After discussion with counsel, it is the opinion of management that such liability is not expected to have a material adverse effect on the Corporation's consolidated financial condition or results of operations. Investment in Fiat Auto Holdings (FAH) At the April 23, 2003, Annual General Shareholders Meeting of FAH, FAH adopted a euro 5 billion recapitalization plan that provides shareholders the option to make pro-rata capital contributions over the eighteen months following adoption of the plan. When the plan was adopted, Fiat S.p.A. (Fiat) held 80% of FAH and GM 20%. Fiat participated in the recapitalization by making a euro 3 billion contribution, which FAH used to repay inter-company debts owed to Fiat or its affiliates. Currently, GM does not plan to participate. Due to Fiat's participation in the recapitalization, and GM's non-participation, Fiat has reported that GM's interest in FAH has been reduced from 20% to 10%. The Master Agreement between GM and Fiat provides that, from January 24, 2004 to July 24, 2009, Fiat may seek to exercise a put option (the Put) to require GM to purchase Fiat's FAH shares at their fair market value. Whether and when Fiat may seek to exercise the Put is unknown, although Fiat stated in its 2002 Annual Report on Form 20F, filed with the SEC, that it views the exercise of the Put only as a secondary possibility. Fiat has also stated that it believes that the Put is enforceable in accordance with the terms of the Master Agreement. GM has, however, asserted to Fiat that the sale of certain assets of the financing business of Fiat Auto S.p.A. (Fiat Auto) and the recapitalization of FAH represent material breaches of the Master Agreement, with the result that the Master Agreement, including the Put, is terminable by GM. Notwithstanding these different views, GM is continuing to build on the cooperation the parties have worked on for the past several years in the joint ventures and other cooperative contractual arrangements they have entered into which are independent of 13 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 7. Commitments and Contingent Matters (concluded) Investment in Fiat Auto Holdings (concluded) the Master Agreement, and is pursuing a resolution of these different views. Towards that end, Fiat and GM entered into a standstill agreement on October 26, 2003, the provisions of which enable GM to defer until December 15, 2004, the necessity of electing the remedy of termination of the Master Agreement, and with it the Put, without such deferral prejudicing the right of GM to elect that remedy after December 15, 2004. On October 26, 2003, Fiat and GM also entered into an amendment to the Master Agreement that shifts the Put period by one year, so that it begins on January 24, 2005 and runs to July 24, 2010. If the Put were implemented, the fair market value of FAH shares would be determined by the averaging of the three closest of four valuations that would be prepared by four investment banks after conducting due diligence under procedures set forth in the Master Agreement and based upon terms and conditions to be incorporated in a purchase agreement which, at this time, the parties have not prepared. Unless such a process and valuation is completed, the amount, if any, that GM might have to pay for Fiat's FAH shares if there were to be a valid exercise of the Put, is not quantifiable. If there were a valid exercise of the Put, GM would have the option to pay for Fiat's FAH shares entirely in shares of GM $1-2/3 par value common stock, entirely in cash, or in whatever combination thereof GM may choose. Under such circumstances, if and to the extent GM chose to pay in cash, that portion of the purchase price could be paid to Fiat in four installments over a three-year period and GM would expect to fund any such payments from normal operating cash flows or financing activities. If and when GM were to acquire Fiat's FAH shares, and thus become the sole owner of FAH, GM would decide what, if any, additional capitalization would then be appropriate for FAH and Fiat Auto. Specifically, if Fiat Auto were to need additional funding, GM would have to decide whether or not to provide such funding and under what conditions it might do so. Unless FAH or Fiat Auto were subject to liquidation or insolvency, FAH's consolidated financial statements would be required for financial reporting purposes to be consolidated with those of GM. Any indebtedness, losses and capital needs of FAH and Fiat Auto after their acquisition by GM are not presently determinable, but they could have a material adverse effect on GM if GM chooses to fund such needs or allows the consolidation of GM's financial statements with those of FAH and Fiat Auto. GM has discussed with Fiat potential alternatives to the Master Agreement and expects to have further discussions regarding the relationship between the parties. NOTE 8. Comprehensive Income GM's total comprehensive income was as follows (in millions): Three Months Ended March 31, --------------------- 2004 2003 ---- ---- Net income $1,280 $1,483 Other comprehensive income 126 111 ----- ----- Total $1,406 $1,594 ===== ===== NOTE 9. Earnings Per Share Attributable to Common Stocks Earnings per share (EPS) attributable to each class of GM common stock was determined based on the attribution of earnings to each such class of common stock for the period divided by the weighted-average number of common shares for each such class outstanding during the period. Diluted EPS attributable to each class of GM common stock considers the effect of potential common shares, unless the inclusion of the potential common shares would have an antidilutive effect. The attribution of earnings to each class of GM common stock was as follows (in millions): 14 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 9. Earnings Per Share Attributable to Common Stocks Three Months Ended March 31, ------------------ 2004 2003 ---- ---- Earnings attributable to common stocks $1-2/3 par value Continuing operations $1,280 $1,537 Discontinued operations - (16) ----- ----- Earnings attributable to $1-2/3 par value $1,280 $1,521 Earnings from discontinued operations attributable to Class H $ - $(38) ----- ----- Total earnings attributable to common stocks $1,280 $1,483 ===== ===== Earnings attributable to GM $1-2/3 par value common stock for each period represent the earnings attributable to all GM common stocks, reduced by the Available Separate Consolidated Net Income (ASCNI) of Hughes for the respective period. The calculated losses used for computation of the ASCNI of Hughes are then multiplied by a fraction, the numerator of which is equal to the weighted-average number of shares of GM Class H common stock outstanding (990 million as of March 31, 2003) and the denominator of which is a number equal to the weighted-average number of shares of GM Class H common stock, which if issued and outstanding, would represent a 100% interest in the earnings of Hughes (the "Average Class H dividend base"). The Average Class H dividend base was 1.4 billion for the three months ended March 31, 2003. The reconciliation of the amounts used in the basic and diluted earnings per share computations for income from continuing operations was as follows (in millions except per share amounts): $1-2/3 Par Value Common Stock ------------------------------- Per Share Income Shares Amount ------ ------ ------ Three Months Ended March 31, 2004 Basic EPS Income from continuing operations attributable to common stocks $1,280 564 $2.27 ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 5 ----- --- Diluted EPS Adjusted income attributable to common stocks $1,280 569 $2.25 ===== === ==== Three Months Ended March 31, 2003 Basic EPS Income from continuing operations attributable to common stocks $1,537 561 $2.74 ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - - ----- --- Diluted EPS Adjusted income attributable to common stock $1,537 561 $2.74 ===== === ==== Certain stock options and convertible securities were not included in the computation of diluted earnings per share for the periods presented since the instruments' underlying exercise prices were greater than the average market prices of GM $1-2/3 par value common stock and inclusion would be antidilutive. Such shares not included in the computation of diluted earnings per share were 223 million as of March 31, 2004 and 157 million as of March 31, 2003. 15 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 10. Depreciation and Amortization Depreciation and amortization included in cost of sales and other expenses and selling, general and administrative expenses for Automotive and Other Operations was as follows (in millions): Three Months Ended March 31, ------------------ 2004 2003 ---- ---- Depreciation $1,148 $986 Amortization of special tools 726 702 Amortization of intangible assets 7 5 ----- ----- Total $1,881 $1,693 ===== ===== NOTE 11. Pensions and Other Postretirement Benefits U.S. Plans Non-U.S. Plans Pension Benefits Pension Benefits Other Benefits ---------------------------------------------------- Three Months Three Months Three Months Ended Ended Ended March 31, March 31, March 31, ---------------------------------------------------- 2004 2003 2004 2003 2004 2003 ---------------------------------------------------- Components of expense (in millions) Service cost $273 $230 $62 $54 $151 $134 Interest cost 1,260 1,291 223 189 980 947 Expected return on plan assets (1,953) (1,541) (163) (135) (273) (102) Amortization of prior service cost 319 287 24 25 (20) (3) Amortization of transition obligation/(asset) - - 1 2 - - Recognized net actuarial loss/(gain) 464 436 48 40 302 178 Curtailments, settlements, and other 34 6 6 9 - 1 --- --- --- --- ----- ----- Net expense $397 $709 $201 $184 $1,140 $1,155 === === === === ===== ===== During the first quarter of 2004, GM contributed $5 billion to its VEBA trust. GM is considering making additional contributions to its VEBA trust in the future. 16 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded (Unaudited) NOTE 12. Segment Reporting
Auto & Other Total GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing ---- --- ------ ---- --- ----- ----- ---- --------- --------- For the Three Months Ended March 31, 2004 Manufactured products sales and revenues: External customers $29,643 $7,278 $1,729 $1,428 $40,078 $59 $40,137 $7,634 $ 8 $7,642 Intersegment (540) 265 104 171 - - - - - - ------ ----- ----- ----- ------ -- ------ ----- -- ----- Total manufactured products $29,103 $7,543 $1,833 $1,599 $40,078 $59 $40,137 $7,634 $ 8 $7,642 ====== ===== ===== ===== ====== == ====== ===== == ===== Interest income (a) $186 $81 $11 $2 $280 $(123) $157 $242 $(69) $173 Interest expense $639 $87 $(6) $7 $727 $(165) $562 $2,206 $(1) $2,205 Net income (loss) from continuing operations $451 $(116) $1 $275 $611 $(117) $494 $786 $ - $786 Segment assets $129,926 $24,013 $3,595 $3,791 $161,325 $(1,675) $159,650 $296,839 $(602) $296,237 For the Three Months Ended March 31, 2003 Manufactured products sales and revenues: External customers $30,471 $6,357 $933 $1,016 $38,777 $1,042 $39,819 $7,338 $(7) $7,331 Intersegment (508) 265 112 131 - (4) (4) - - - ------ ----- ----- ----- ------ ----- ------ ----- -- ----- Total manufactured products $29,963 $6,622 $1,045 $1,147 $38,777 $1,038 $39,815 $7,338 $(7) $7,331 ====== ===== ===== ===== ====== ===== ====== ===== == ===== Interest income (a) $111 $82 $7 $1 $201 $(131) $70 $998 $(70) $928 Interest expense $320 $91 $17 $2 $430 $(181) $249 $1,794 $37 $1,831 Net income (loss) from continuing operations $548 $(65) $(12) $75 $546 $309 $855 $699 $(17) $682 Segment assets $111,538 $19,536 $3,010 $1,833 $135,917 $(8,948) $147,383(b) $235,583 $11 $235,594
(a) Interest income is included in net sales and revenues from external customers. (b) Includes assets of discontinued operations of $20,414 at March 31, 2003. * * * * * * 17 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the December 31, 2003 consolidated financial statements and notes thereto (the 2003 Consolidated Financial Statements), along with the MD&A included in General Motors Corporation's (the Corporation, General Motors, or GM) 2003 Annual Report on Form 10-K, as well as General Motors Acceptance Corporation's (GMAC) Annual Report on Form 10-K for the period ended December 31, 2003 and the Quarterly Report on Form 10-Q for the period ended March 31, 2004, filed separately with the Securities and Exchange Commission (SEC). All earnings per share amounts included in the MD&A are reported on a fully diluted basis. GM presents separate supplemental financial information for the following businesses: Automotive and Other Operations (Auto & Other) and Financing and Insurance Operations (FIO). GM's reportable operating segments within its Auto & Other business consist of: - GM Automotive (GMA), which is comprised of four regions: GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM Asia Pacific (GMAP); and - Other, which includes the design, manufacturing and marketing of locomotives, the elimination of intersegment transactions, certain non-segment specific revenues and expenditures, and certain corporate activities. GM's reportable operating segments within its FIO business consist of GMAC and Other Financing, which includes financing entities that are not consolidated by GMAC. The disaggregated financial results for GMA have been prepared using a management approach, which is consistent with the basis and manner in which GM management internally disaggregates financial information for the purpose of assisting in making internal operating decisions. In this regard, certain common expenses were allocated among regions less precisely than would be required for stand-alone financial information prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The financial results represent the historical information used by management for internal decision-making purposes; therefore, other data prepared to represent the way in which the business will operate in the future, or data prepared in accordance with GAAP, may be materially different. Consistent with industry practice, market share information employs estimates of sales in certain countries where public reporting is not legally required or otherwise available on a consistent basis. 18 GENERAL MOTORS CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS Consolidated Results GM's total net sales and revenues were $47.8 billion and $47.1 billion for the first quarter of 2004 and 2003, respectively, and GM's net income was $1.3 billion and $1.5 billion for the first quarter of 2004 and 2003, respectively. Three Months Ended March 31, ---------------------- 2004 2003 ---- ---- (dollars in millions) Total net sales and revenues $47,779 $47,146 Income from continuing operations $1,280 $1,537 Net income $1,280 $1,483 Net margin from continuing operations 2.7% 3.3% The increase in first quarter 2004 total net sales and revenues, compared with first quarter 2003, was due to increases in GMA revenue of $1.3 billion, primarily driven by foreign exchange, despite lower global production volumes and worldwide pricing competitiveness, and increases in FIO revenue of $311 million. Consolidated net income decreased $203 million to $1.3 billion in the first quarter of 2004, compared to the first quarter of 2003. Net income in the first quarter of 2003 included a gain of $505 million from the sale of GM's Defense operations to General Dynamics Corporation. GMA net income increased in the first quarter of 2004 $65 million over the year-earlier quarter, despite lower net income in GMNA and higher losses in GME, primarily from higher equity income in GMAP. GMAC had record first quarter net income of $786 million in 2004, compared to $699 million in the first quarter of 2003, due to higher net income from financing and insurance operations. In addition, tax benefits associated with the recently enacted Medicare legislation in the U.S. had a favorable effect on consolidated net income, and contributed to the Corporation's reduced effective tax rate of 21% compared to the first quarter of 2003. First quarter 2004 highlights included: o Increased market share in three of four automotive regions; o Increased net income at GMAC and GMAP; and o Contributions of $5.0 billion to fund part of GM's other postretirement employee benefits (OPEB) liability. GM Automotive Financial Review GMA's total net sales and revenues were $40.1 billion and $38.8 billion for the first quarter of 2004 and 2003, respectively, and GMA's net income was $611 million and $546 million for the first quarter of 2004 and 2003, respectively. Three Months Ended March 31, --------------------- 2004 2003 ---- ---- (dollars in millions) GMA total net sales and revenues $40,078 $38,777 GMA net income $611 $546 GMA net margin 1.5% 1.4% Net income (loss) by region GMNA $451 $548 GME (116) (65) GMLAAM 1 (12) GMAP 275 75 --- --- Net income $611 $546 === === GM global market share 13.7% 13.6% 19 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive Financial Review (continued) The increase in first quarter 2004 total net sales and revenues, compared with the first quarter of 2003, was the result of increased revenues in GME, GMLAAM and GMAP, partially offset by lower revenue in GMNA. GM's global market share was 13.7% and 13.6% for the first quarter of 2004 and 2003, respectively. Market share gains were recognized in three out of four automotive regions (see discussion below under each region) with GME posting a slight decline, to 9.5%. As GM introduces several new models for 2004 and overall economic conditions improve, GM's goal is to achieve market share growth in all regions during 2004. GMA's first quarter 2004 net income was $611 million, an increase of $65 million compared with the first quarter of 2003. The increase was due primarily to higher equity earnings in GMAP, as well as significant material cost savings and favorable foreign currency exchange. These items were partially offset by product volume and mix, which were unfavorable, negative pricing in GMNA and GME, and increased product recall campaigns. Decreased pension expense was almost fully offset by increased interest expense due to GM's mid-year 2003 debt issuances. GM Automotive Regional Results GM North America Three Months Ended March 31, ---------------------- 2004 2003 ---- ---- GMNA: (dollars in millions) Net income $451 $548 Net margin 1.5% 1.8% Wholesale sales (volumes in thousands) Cars 584 598 Trucks 799 840 ----- ----- Total GMNA 1,383 1,438 Vehicle unit sales Industry - North America 4,657 4,474 GM as a percentage of industry 26.4% 26.1% Industry - U.S. 3,993 3,821 GM as a percentage of industry 26.7% 26.7% GM cars 25.9% 24.9% GM trucks 27.3% 28.2% North American industry vehicle unit sales increased to 4.7 million in the first quarter of 2004 from 4.5 million in the first quarter of 2003. With this increase in industry sales, GMNA's market share increased by 0.3 percentage points. GMNA achieved a market share of 26.4% in the first quarter of 2003, compared to 26.1% in the first quarter of 2003. During the first quarter of 2004, industry vehicle unit sales in the United States increased 4.5% to 4.0 million units from 3.8 million units in the first quarter of 2003. GM's U.S. market share increased by 0.07 percentage point to 26.7% compared to the first quarter of 2003. U.S. car market share rose by 1.0 percentage point to 25.9%, while U.S. truck market share declined to 27.3%, down 0.9 percentage point. As GM introduces several new models in North America during 2004, GM's goal remains to increase market share in the United States and North America during 2004. Net income from GMNA totaled $451 million and $548 million in the first quarter of 2004 and 2003, respectively. The decrease in GMNA's 2004 first quarter net income compared to 2003 was primarily due to lower production volume, unfavorable pricing, higher product recall campaigns, and higher interest expense related to the mid-year 2003 debt issuances. These factors were partially offset by lower pension expense and material cost savings. 20 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive Financial Review (continued) GM North America (concluded) Vehicle revenue per unit was $19,084 for the first quarter of 2004, compared with $19,089 for the first quarter of 2003. Trucks as a percent of total sales were higher by 1.4 percentage points, offset by higher fleet sales compared to the first quarter of 2003, resulting in essentially flat revenue per unit. GM Europe Three Months Ended March 31, ---------------------- 2004 2003 ---- ---- (dollars in millions) GME net loss $(116) $(65) GME net margin (1.5%) (1.0%) Wholesale sales (volumes in thousands) Cars 409 400 Trucks 24 27 --- --- Total GME 433 427 Vehicle unit sales Industry 5,279 4,970 GM as a percentage of industry 9.5% 9.6% GM market share - Germany 10.6% 11.1% GM market share - United Kingdom 14.0% 14.3% Industry vehicle unit sales increased in Europe during the first quarter of 2004 by approximately 6% to 5.3 million, from 5.0 million in the first quarter of 2003, with strong year-over-year growth in Central and Eastern Europe, and moderate growth in Western Europe. However, GME's market share decreased 0.1 percentage point to 9.5% over the same period. In two of GM's largest markets in Europe, GM lost market share: share declined to 10.6% in Germany, a 0.5 percentage point decrease versus the first quarter of 2003, and declined to 14.0% in the United Kingdom, a decrease of 0.3 percentage points versus the same period. Market share improved in the smaller Eastern and Central European markets. Net loss from GME totaled $116 million and $65 million in the first quarter of 2004 and 2003 respectively. Lower income at Opel/Vauxhall was partially offset by improved results at Saab. The increase in GME's first quarter 2004 net loss over 2003 was primarily due to decreased volume, continued price pressure, and lower aftermarket sales. In addition, movement of the euro and Swedish krona against the Great Britain pound and U.S. dollar, respectively, continued to negatively affect GME's results. These unfavorable factors were partially offset by reduced material and structural cost. GM Latin America/Africa/Mid-East Three Months Ended March 31, ---------------------- 2004 2003 ---- ---- (dollars in millions) GMLAAM net income (loss) $1 $(12) GMLAAM net margin 0.1% (1.1%) Wholesale sales (volumes in thousands) Cars 127 97 Trucks 40 24 --- --- Total GMLAAM 167 121 Vehicle unit sales Industry 937 841 GM as a percentage of industry 17.1% 15.7% GM market share - Brazil 23.6% 23.6% 21 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive Financial Review (concluded) GM Latin America/Africa/Mid-East (concluded) Industry vehicle unit sales in the LAAM region increased over 11% in the first quarter of 2004, to 937 thousand units, compared to the first quarter of 2003. Overall, GMLAAM's market share for the region was up 1.4 percentage points, to 17.1% in the first quarter of 2004. GMLAAM achieved net income of $1 million in the quarter, up from a loss of $12 million in the first quarter of 2003. Higher volumes and improved results in Venezuela and South Africa offset continued losses in Brazil, which remains a major concern due to continued economic problems. Effective January 1, 2004, GM increased its ownership of Delta Motor Co. in South Africa to 100%, from 49% previously, moving from the equity method of accounting to full consolidation. The company is now known as General Motors South Africa. GM Asia Pacific Three Months Ended March 31, ---------------------- 2004 2003 ---- ---- (dollars in millions) GMAP net income $275 $75 GMAP net margin 17.2% 6.5% Wholesale sales (volumes in thousands) Cars 47 51 Trucks 15 11 -- -- Total GMAP 62 62 Vehicle unit sales Industry 4,556 4,129 GM as a percentage of industry 4.7% 4.3% GM market share - Australia 20.1% 20.6% GM market share - China 9.5% 6.7% Industry vehicle unit sales in the Asia Pacific region increased more than 10% in the first quarter of 2004, to 4.6 million units, from 4.1 million units in the first quarter of 2003. The greatest increase in volume was in China, where sales increased to 1.3 million from 1.0 million units. GMAP increased its retail (including affiliates) sales in the Asia Pacific region more than 20% in the period, to 215 thousand units from 178 thousand in 2003, which drove GMAP's first quarter 2004 market share to 4.7%, from 4.3% in the first quarter of 2003. GMAP's market share in China increased to 9.5% in the first quarter of 2004, from 6.7% in the first quarter of 2003. In the first quarter of 2004, China was GM's second largest market, surpassing Canada and the United Kingdom for the first time. Net income from GMAP was $275 million and $75 million in the first quarter of 2004 and 2003, respectively. The increase in GMAP's net income, compared with the first quarter of 2003, was primarily due to strong equity earnings from Shanghai GM and equity investees in Japan, as well as improved earnings at GM operations in Thailand and India, and lower losses at GM Daewoo Auto & Technology Company in South Korea. Other Operations In the first quarter of 2003, Other Operations' total net sales and revenues included a pre-tax gain of approximately $814 million, or approximately $505 million after-tax ($0.90 per diluted share), related to the sale of GM's Defense operations (light armored vehicle business) to General Dynamics Corporation on March 1, 2003. The sale generated net proceeds of approximately $1.1 billion in cash. 22 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Discontinued Operations In December 2003, GM split off Hughes Electronics Corporation (Hughes) by distributing Hughes common stock to the holders of GM Class H common stock in exchange for all the outstanding shares of GM Class H common stock. Simultaneously, GM sold its 19.8 percent economic interest in Hughes to The News Corporation Ltd. (News Corporation) in exchange for cash and News Corporation Preferred American Depositary Shares (Preferred ADSs). These transactions are referred to as "the Hughes transactions." As of the completion of the Hughes transactions on December 22, 2003, the results of operations, cash flows, and the assets and liabilities of Hughes were classified as discontinued operations for all periods through such date presented in GM's consolidated financial statements. See Note 2 to the 2003 Consolidated Financial Statements for further discussion. GMAC Financial Review GMAC's net income was $786 million and $699 million in the first quarter of 2004 and 2003, respectively. Three Months Ended March 31, ------------------------ 2004 2003 ---- ---- (in millions) Financing operations $442 $302 Mortgage operations 253 371 Insurance operations 91 26 --- --- Net income $786 $699 === === Net income from financing operations totaled $442 million and $302 million in the first quarter of 2004 and 2003, respectively. The increase in net income in the first quarter of 2004, compared with 2003, was primarily due to increased revenues from higher asset levels, lower credit loss provisions, improved remarketing performance of off-lease vehicles, and favorable foreign currency movements (primarily the euro relative to the U.S. dollar). These more than offset the unfavorable effect of lower net interest margins. Net income from mortgage operations totaled $253 million and $371 million in the first quarter of 2004 and 2003, respectively. The decrease in net income in the first quarter of 2004, compared with 2003, was primarily due to a decrease in gains on sales of loans during the first quarter of 2004, compared to the same period in 2003, as a result of lower loan production volume and decreased price margins as residential mortgage refinance activity decreased year-over-year. This was partially offset by a decrease of amortization and impairment charges with respect to mortgage servicing rights, reflecting larger valuation adjustments in the first quarter of 2003, compared to the first quarter of 2004. In addition, net financing revenue, including provision for credit losses, increased year-over-year, primarily due to continued growth in the balance of mortgage loans held as collateral for secured financings. Net income from insurance operations totaled $91 million and $26 million in the first quarter of 2004 and 2003, respectively. The increase in net income in the first quarter of 2004, compared with 2003, was primarily due to both higher earned premiums and underwriting income, and increased investment income resulting from capital gains realized in the first quarter of 2004, compared with capital losses realized, including the write down of certain investment securities, in the first quarter of 2003. 2004 Priorities / Targets As previously reported, GM's operating priorities and financial targets for 2004 are as follows: o Attaining earnings per share of $7.00 for the calendar year, compared to $6.00 to $6.50 previously estimated, and between $2.00 and $2.25 for the second quarter of 2004, at current dilution levels; o GME's target income of breakeven to income of $100 million for 2004 may be difficult to achieve; o GM expects a lower effective tax rate in the second quarter due to settlements of prior years' tax matters; o GM expects interest rates to rise somewhat in late 2004. The effect of this is comprehended in the earnings per share outlook for the year; and o GMNA incentives in the second quarter are expected to reflect seasonal patterns of spending. 23 GENERAL MOTORS CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES Financing Structure In the first quarter of 2004, GM and GMAC experienced adequate access to the capital markets as GM and GMAC were able to issue various securities to raise capital and extend borrowing terms consistent with GM's and GMAC's need for financial flexibility. On April 16, 2004 Standard & Poor's affirmed GMAC's rating at BBB with negative outlook. On April 22, 2004 DBRS affirmed GM's and GMAC's ratings at A (low), with a rating outlook of stable. On April 29, 2004 Moody's affirmed GM's and GMAC's ratings at Baa1 and A3 respectively, with a rating outlook of negative. On May 4, 2004 Fitch affirmed GM's and GMAC's ratings at BBB+ with negative outlook. These rating actions are not expected to have a material effect on GM's and GMAC's ability to obtain bank credit or to sell asset-backed securities. Accordingly, GM and GMAC expect that they will continue to have adequate access to the capital markets sufficient to meet the Corporation's needs for financial flexibility. The table below summarizes GM's and GMAC's credit ratings as of March 31, 2004. -------------------- ------------------- ------------------- GM GMAC GM GMAC GM GMAC -------------------- ------------------- ------------------- Rating Agency Senior Debt Commercial Paper Outlook - ------------- -------------------- ------------------- ------------------- DBRS A (low) A (low) R1 (low) R1 (low) Stable Stable Fitch BBB+ BBB+ F2 F2 Negative Negative Moody's Baa1 A3 Prime-2 Prime-2 Negative Negative S&P BBB BBB A2 A2 Negative Negative As an additional source of funds, GM currently has unrestricted access to a $5.6 billion line of credit with a syndicate of banks which is committed through June 2008. GM also has an additional $0.8 billion in undrawn committed facilities with various maturities and undrawn uncommitted lines of credit of $1.7 billion. Similarly, GMAC currently has a $4.2 billion syndicated line of credit committed through June 2004, $4.3 billion committed through June 2008, $4.6 billion of bilateral committed lines with various maturities, and uncommitted lines of credit of $17.8 billion. In addition, New Center Asset Trust (NCAT) has $19.2 billion of liquidity facilities committed through June 2004. Mortgage Interest Networking Trust (MINT) has $3.4 billion of liquidity facilities committed through April 2005. NCAT and MINT are non-consolidated qualified special purpose entities administered by GMAC for the purpose of purchasing assets as part of GMAC's securitization and mortgage warehouse funding programs. These entities fund the purchases of assets through the issuance of asset-backed commercial paper and represent an important source of liquidity to the Corporation. Automotive and Other Operations At March 31, 2004, cash, marketable securities, and $3.5 billion of assets of the Voluntary Employees' Beneficiary Association (VEBA) trust invested in fixed-income securities totaled $23.5 billion, compared with cash, marketable securities, and $3.4 billion of assets of the VEBA trust invested in fixed-income securities totaling $26.9 billion at December 31, 2003 and $20.6 billion at March 31, 2003. The decrease of approximately 13% from December 31, 2003 was primarily due to $5.0 billion of VEBA cash contributions in the first quarter of 2004, which resulted in $1.8 billion of net cash used in operating activities. Total assets in the VEBA trust used to pre-fund part of GM's other postretirement benefits liability approximated $15.9 billion at March 31, 2004, $10.0 billion at December 31, 2003, and $6.4 billion at March 31, 2003. In addition to the first quarter 2004 contribution of $5.0 billion noted above, strong cash flows from operations during 2003 enabled GM to make a cash contribution of $3.0 billion to its VEBA trust in August 2003, in addition to the $0.3 billion of GM Class H common stock contributed to the VEBA in March 2003. At December 22, 2003, under terms of the Hughes transactions, these shares of GM Class H common stock were converted into or were exchanged for approximately 34 million shares of Hughes Electronics Corporation common stock and approximately 4 million News Corporation Preferred ADSs. Long-term debt was $29.6 billion at March 31, 2004 and December 31, 2003, compared with $14.2 billion at March 31, 2003. The increase from March 31, 2003 is due to net debt issuances of $14.5 billion in the second and third quarters of 2003. The proceeds from these issuances of debt securities were used to fund GM's U.S. hourly and salaried pension plans. The ratio of long-term debt to the total of long-term debt and GM's net assets of Automotive and Other Operations was 84.4% at March 31, 2004, 85.2% at December 31, 2003, and 280.4% at March 31, 2003. The ratio of long-term debt and short-term loans payable to the total of this debt and GM's net assets of Automotive and Other Operations was 85.6% at March 31, 2004, 86.4% at December 31, 2003, and 225.7% at March 31, 2003. The decrease in these ratios compared to March 31, 2003 was due to the improvement in GM's net asset position resulting from the improved funded status of GM's U.S. hourly and salaried pension plans. 24 GENERAL MOTORS CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES (continued) Automotive and Other Operations (concluded) Net liquidity, calculated as cash, marketable securities, and $3.5 billion of assets of the VEBA trust invested in fixed-income securities less the total of loans payable and long-term debt, was a negative $8.9 billion at March 31, 2004, compared with a negative $5.5 billion at December 31, 2003, and compared to $4.2 billion, including $3.4 billion of assets of the VEBA, at March 31, 2003. Financing and Insurance Operations At March 31, 2004, GMAC's consolidated assets totaled $296.8 billion, compared with $288.2 billion at December 31, 2003 and $235.5 billion at March 31, 2003. The increase from December 31, 2003 was primarily due to an increase in net finance receivables and loans, from $172.7 billion at December 31, 2003 to $184.7 billion at March 31, 2004, driven by increases in residential mortgages and wholesale automotive receivables. The increase in GMAC's consolidated assets at March 31, 2004 compared with March 31, 2003 was also due to higher net finance receivables and loans, primarily residential mortgages. The higher mortgage balances are primarily the result of the increased use of securitizations structured as financing transactions. The increase in wholesale automotive receivables outstanding is primarily due to higher dealer inventories. Consistent with the growth in assets, GMAC's total debt increased to $247.1 billion at March 31, 2004, compared with $238.9 billion at December 31, 2003 and $191.0 at March 31, 2003. GMAC's ratio of total debt to total stockholder's equity at March 31, 2004 was 11.7:1, compared with 11.8:1 at December 31, 2003, and 10.3:1 at March 31, 2003. GMAC's liquidity, as well as its ongoing profitability, in large part depends on its timely access to capital and the costs associated with raising funds in different segments of the capital markets. GMAC's strategy in managing liquidity risk has been to develop diversified funding sources across a global investor base. As an important part of its overall funding and liquidity strategy, GMAC maintains substantial bank lines of credit. These bank lines of credit, which totaled $53 billion at March 31, 2004, provide "back-up" liquidity and represent additional funding sources, if required. In addition, GMAC has $30 billion in funding commitments (with $19 billion used) with third party asset-backed commercial paper conduits that GMAC's Financing and Mortgage operations may use as additional secured funding sources. Investment in Fiat Auto Holdings (FAH) At the April 23, 2003, Annual General Shareholders Meeting of FAH, FAH adopted a euro 5 billion recapitalization plan that provides shareholders the option to make pro-rata capital contributions over the eighteen months following adoption of the plan. When the plan was adopted, Fiat S.p.A. (Fiat) held 80% of FAH and GM 20%. Fiat participated in the recapitalization by making a euro 3 billion contribution, which FAH used to repay inter-company debts owed to Fiat or its affiliates. Currently, GM does not plan to participate. Due to Fiat's participation in the recapitalization, and GM's non-participation, Fiat has reported that GM's interest in FAH has been reduced from 20% to 10%. The Master Agreement between GM and Fiat provides that, from January 24, 2004 to July 24, 2009, Fiat may seek to exercise a put option (the Put) to require GM to purchase Fiat's FAH shares at their fair market value. Whether and when Fiat may seek to exercise the Put is unknown, although Fiat stated in its 2002 Annual Report on Form 20F, filed with the SEC, that it views the exercise of the Put only as a secondary possibility. Fiat has also stated that it believes that the Put is enforceable in accordance with the terms of the Master Agreement. GM has, however, asserted to Fiat that the sale of certain assets of the financing business of Fiat Auto S.p.A. (Fiat Auto) and the recapitalization of FAH represent material breaches of the Master Agreement, with the result that the Master Agreement, including the Put, is terminable by GM. Notwithstanding these different views, GM is continuing to build on the cooperation the parties have worked on for the past several years in the joint ventures and other cooperative contractual arrangements they have entered into which are independent of the Master Agreement, and is pursuing a resolution of these different views. Towards that end, Fiat and GM entered into a standstill agreement on October 26, 2003, the provisions of which enable GM to defer until December 15, 2004, the necessity of electing the remedy of termination of the Master Agreement, and with it the Put, without such deferral prejudicing the right of GM to elect that remedy after December 15, 2004. On October 26, 2003, Fiat and GM also entered into an amendment to the Master Agreement that shifts the Put period by one year, so that it begins on January 24, 2005 and runs to July 24, 2010. 25 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Investment in Fiat Auto Holdings (concluded) If the Put were implemented, the fair market value of FAH shares would be determined by the averaging of the three closest of four valuations that would be prepared by four investment banks after conducting due diligence under procedures set forth in the Master Agreement and based upon terms and conditions to be incorporated in a purchase agreement which, at this time, the parties have not prepared. Unless such a process and valuation is completed, the amount, if any, that GM might have to pay for Fiat's FAH shares if there were to be a valid exercise of the Put, is not quantifiable. If there were a valid exercise of the Put, GM would have the option to pay for Fiat's FAH shares entirely in shares of GM $1-2/3 par value common stock, entirely in cash, or in whatever combination thereof GM may choose. Under such circumstances, if and to the extent GM chose to pay in cash, that portion of the purchase price could be paid to Fiat in four installments over a three-year period and GM would expect to fund any such payments from normal operating cash flows or financing activities. If and when GM were to acquire Fiat's FAH shares, and thus become the sole owner of FAH, GM would decide what, if any, additional capitalization would then be appropriate for FAH and Fiat Auto. Specifically, if Fiat Auto were to need additional funding, GM would have to decide whether or not to provide such funding and under what conditions it might do so. Unless FAH or Fiat Auto were subject to liquidation or insolvency, FAH's consolidated financial statements would be required for financial reporting purposes to be consolidated with those of GM. Any indebtedness, losses and capital needs of FAH and Fiat Auto after their acquisition by GM are not presently determinable, but they could have a material adverse effect on GM if GM chooses to fund such needs or allows the consolidation of GM's financial statements with those of FAH and Fiat Auto. GM has discussed with Fiat potential alternatives to the Master Agreement and expects to have further discussions regarding the relationship between the parties. Off-Balance Sheet Arrangements GM and GMAC use off-balance sheet arrangements where economics and sound business principles warrant their use. GM's principal use of off-balance sheet arrangements occurs in connection with the securitization and sale of financial assets generated or acquired in the ordinary course of business by GMAC and its subsidiaries and, to a lesser extent, by GM. The assets securitized and sold by GMAC and its subsidiaries consist principally of mortgages, and wholesale and retail loans secured by vehicles sold through GM's dealer network. The assets sold by GM consist principally of trade receivables. In addition, GM leases real estate and equipment from various off-balance sheet entities that have been established to facilitate the financing of those assets for GM by nationally prominent lessors that GM believes are creditworthy. These assets consist principally of office buildings, warehouses, and machinery and equipment. The use of such entities allows the parties providing the financing to isolate particular assets in a single entity and thereby syndicate the financing to multiple third parties. This is a conventional financing technique used to lower the cost of borrowing and, thus, the lease cost to a lessee such as GM. There is a well-established market in which institutions participate in the financing of such property through their purchase of ownership interests in these entities and each is owned by institutions that are independent of, and not affiliated with, GM. GM believes that no officers, directors or employees of GM, GMAC, or their affiliates hold any direct or indirect equity interests in such entities. The amounts outstanding in off-balance sheet facilities used by the Financing and Insurance Operations have decreased since March 31, 2003 as GMAC continues to use securitization transactions that, while similar in legal structure to off-balance sheet securitizations, are accounted for as secured financings and are recorded as receivables and debt on the balance sheet. Assets in off-balance sheet entities were as follows (dollars in millions): March 31, Dec. 31, March 31, Automotive and Other Operations 2004 2003 2003 - ------------------------------- ---- ---- ---- Assets leased under operating leases $2,303 $2,287 $2,143 Trade receivables sold (1) 795 759 747 ----- ----- ----- Total $3,098 $3,046 $2,890 ===== ===== ===== Financing and Insurance Operations - ---------------------------------- Receivables sold or securitized: - Mortgage loans $84,267 $80,798 $108,854 - Retail finance receivables 8,501 9,548 14,855 - Wholesale finance receivables 18,702 21,142 17,520 ------- ------- ------- Total $111,470 $111,488 $141,229 ======= ======= ======= (1) In addition, trade receivables sold to GMAC were $506 million, $553 million and $435 million for the periods ended March 31, 2004, December 31, 2003, and March 31, 2003, respectively. 26 GENERAL MOTORS CORPORATION AND SUBSIDIARIES BOOK VALUE PER SHARE Book value per share was determined based on the liquidation rights of the common stockholders. Book value per share of GM $1-2/3 par value common stock was $46.71 at March 31, 2004, $44.96 at December 31, 2003, and $11.98 at March 31, 2003. DIVIDENDS Dividends may be paid on GM's $1-2/3 par value common stock only when, as, and if declared by the GM Board in its sole discretion. The amount available for the payment of dividends on common stock will be reduced on occasion by dividends paid and will be adjusted on occasion for changes to the amount of surplus attributed to the stock resulting from the repurchase or issuance of shares of stock. GM's policy is to distribute dividends on its $1-2/3 par value common stock based on the outlook and indicated capital needs of the business. On February 3, 2004, the GM Board declared a quarterly cash dividend of $0.50 per share on GM $1-2/3 par value common stock, paid March 10, 2004, to holders of record on February 13, 2004. EMPLOYMENT AND PAYROLLS Worldwide employment for GM and its wholly-owned subsidiaries at March 31, (in thousands) 2004 2003 ---- ---- GMNA 186 194 GME 63 66 GMLAAM * 25 23 GMAP 14 12 GMAC 33 31 Other 5 7 --- --- Total employees 326 333 === === Three Months Ended March 31 -------------------- 2004 2003 ---- ---- Worldwide payrolls - (in billions) $5.5 $5.3 === === * 2004 includes 3,000 employees as a result of the consolidation of GM South Africa. CRITICAL ACCOUNTING ESTIMATES Accounting policies are integral to understanding this MD&A. The consolidated financial statements of GM are prepared in conformity with GAAP, which requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. GM's accounting policies are described in Note 1 to the 2003 Consolidated Financial Statements. Critical accounting estimates are described in this section. An accounting estimate is considered critical if: the estimate requires management to make assumptions about matters that were highly uncertain at the time the estimate was made; different estimates reasonably could have been used; or if changes in the estimate that would have a material impact on the Corporation's financial condition or results of operations are reasonably likely to occur from period to period. Management believes that the accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The Corporation has discussed the development, selection and disclosures of its critical accounting estimates with the Audit Committee of GM's Board of Directors, and the Audit Committee has reviewed the Corporation's disclosures relating to these estimates. 27 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 3. Quantitative and Qualitative Disclosures About Market Risk There have been no significant changes in the Corporation's exposure to market risk since December 31, 2003. See Item 7A in GM's Annual Report on Form 10-K for the year ended December 31, 2003. * * * * * * * ITEM 4. Controls and Procedures The Corporation maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods. As of the end of the period covered by this report, the Corporation's Chief Executive Officer and Chief Financial Officer evaluated, with the participation of GM's management, the effectiveness of the Corporation's disclosure controls and procedures. Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, the Corporation's Chief Executive Officer and Chief Financial Officer concluded that the Corporation's disclosure controls and procedures are effective. There were no changes in the Corporation's internal control over financial reporting that occurred during the Corporation's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting. * * * * * * * 28 GENERAL MOTORS CORPORATION AND SUBSIDIARIES PART II ITEM 1. LEGAL PROCEEDINGS (a) Material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Corporation, or its principal subsidiaries, became a party during the quarter ended March 31, 2004, or subsequent thereto, but before the filing of this report are summarized below: Other Matters In previously reported litigation against automobile manufacturers in the United States and Canada, including GM and GM of Canada, alleging that restrictions on the export of vehicles from Canada to the U.S. by Canadian dealers violates federal antitrust and various state laws, the U.S. District Court in Maine responsible for coordinated pretrial proceedings in the 26 federal cases has granted in part the defendants' motion to dismiss. On March 5, 2004, the Court issued a decision holding that the purported indirect purchaser classes failed to state a claim for damages. The Court allowed a separate claim seeking to enjoin future alleged violations to continue. On April 23, 2004, plaintiffs filed an amended complaint that added claims under state laws for alleged state antitrust violations, violation of state unfair trade practices acts and unjust enrichment. The California State Court responsible for the consolidated California State Court cases denied defendants' demurrers. State Courts in New York and New Jersey granted motions to dismiss statewide purported class actions. Environmental Matters As previously reported, the U.S. EPA Region V filed an Administrative complaint against General Motors on October 17, 2003 seeking unspecified penalties for alleged multiple violations of hazardous waste rules with respect to GM's painting and purge operations at GM plants in Moraine, Ohio; Pontiac, Michigan; and Orion, Michigan. GM filed a lawsuit on August 2, 2002 in the DC Circuit Court of Appeals seeking an order by the Court declaring that the position of the EPA in its Administrative complaint constituted an "unlawful rulemaking." On April 2, 2004, the DC Circuit Court of Appeals ruled that it did not have jurisdiction to consider GM's claims. Therefore, the EPA Region V Administrative complaint will now proceed as a normal enforcement matter. GM will vigorously defend. * * * * * * * * * ITEM 2(e). Purchases of Equity Securities GM made the following purchases of GM $1-2/3 par value common stock during the three months ended March 31, 2004: (d) Maximum Number (c) Total Number (or Approximate of Shares Dollar Value) (or Units) of Shares (or (a) Total Number (b) Average Purchased as Units) that May of Shares Price Paid Part of Publicly Yet Be Purchased (or Units per Share Announced Plans Under the Plans Purchased) (or Unit) or Program or Programs - ------------------------------------------------------------------------------- January 1 to January 31, 2004 12,305 $54.15 NA NA February 1 to February 29, NA NA 2004 677 $49.22 March 1 to March 31, 2004 2,215 $46.56 NA NA - -------------------------------------------------------------------------------- Total 15,197 $52.82 NA NA - -------------------------------------------------------------------------------- * * * * * * * * * 29 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit Page Number Exhibit Name Number - ------ ------------- ------- (31.1) Section 302 Certification of the Chief Executive Officer 31 (31.2) Section 302 Certification of the Chief Financial Officer 32 (32.1) Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 33 (32.2) Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 34 (b) Reports on Form 8-K Eight reports on Form 8-K, were filed January 5, 2004, January 8, 2004*, January 20, 2004 (2)*, February 3, 2004, February 4, 2004, March 2, 2004, and March 30, 2004 during the quarter ended March 31, 2004 reporting matters under Item 5, Other Events, reporting certain agreements under Item 7, Financial Statements, Pro Forma Financial Information, and Exhibits. - -------------------------- * This asterisk indicates Reports submitted to the Securities and Exchange Commission which include information "furnished" pursuant to Items 9 and 12 of Form 8-K, which pursuant to General Instruction B of Form 8-K is not deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934. The information furnished pursuant to Items 9 and 12 in such reports is not subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, is not incorporated into this Report on Form 10-Q and GM does not intend to incorporate these reports by reference into any filing under the Securities Act or the Exchange Act. * * * * * * SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GENERAL MOTORS CORPORATION (Registrant) Date: May 6, 2004 By: /s/PETER R. BIBLE --- ----------------- (Peter R. Bible, Chief Accounting Officer) 30 EX-31 2 exhibit311grw.txt CERTIFICATION OF CEO G. RICHARD WAGONER, JR. (31.1) EXHIBIT 31.1 CERTIFICATION I, G. Richard Wagoner, Jr., Chairman and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of General Motors Corporation; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly 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: May 6, 2004 /s/ G. RICHARD WAGONER, JR. --------------------------- G. Richard Wagoner, Jr. Chairman and Chief Executive Officer 31 EX-31 3 exhibit312jmd.txt CERTIFICATION OF CFO JOHN M. DEVINE (31.2) EXHIBIT 31.2 CERTIFICATION I, John M. Devine, Vice Chairman and Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of General Motors Corporation; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 quarterly 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: May 6, 2004 /s/ JOHN M. DEVINE -------------------------- John M. Devine Vice Chairman and Chief Financial Officer 32 EX-32 4 exhibit321grw.txt CERTIFICATION OF CEO G. RICHARD WAGONER, JR. (32.1) 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 Quarterly Report of General Motors Corporation (the "Corporation") on Form 10-Q for the period ended March 31, 2004 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 May 6, 2004 33 EX-32 5 exhibit322jmd.txt CERTIFICATION OF CFO JOHN M. DEVINE (32.2) 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 Quarterly Report of General Motors Corporation (the "Corporation") on Form 10-Q for the period ended March 31, 2004 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 May 6, 2004 34 -----END PRIVACY-ENHANCED MESSAGE-----