-----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, Ia4uccGNUpkBpA6KhzYECsa0iZNmig4YGJmjA+5tEthFE0O5HdGAccuu2CV2ShFN jY0aJTDh/BQbj8eK9F1BFA== 0000040730-04-000075.txt : 20040805 0000040730-04-000075.hdr.sgml : 20040805 20040805093002 ACCESSION NUMBER: 0000040730-04-000075 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040805 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: 04953328 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 june2004_10q080504.txt GMC SECOND QUARTER 2004 10-Q 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 June 30, 2004 OR TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF - ---- 1934 For the transition period from ------------- to ---------------- Commission file number 1-143 ----- GENERAL MOTORS CORPORATION -------------------------- (Exact Name of Registrant as Specified in its Charter) STATE OF DELAWARE 38-0572515 ----------------- ---------- (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 300 Renaissance Center, Detroit, Michigan 48265-3000 - ----------------------------------------- ---------- (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 July 31, 2004, there were outstanding 564,747,915 shares of the issuer's $1-2/3 par value common stock. Website Access to Company's Reports General Motor's (GM's) internet website address is www.gm.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. 1 GENERAL MOTORS CORPORATION AND SUBSIDIARIES INDEX Page No. -------- Part I - Financial Information (Unaudited) Item 1. Financial Statements Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2004 and 2003 3 Supplemental Information to the Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2004 and 2003 4 Consolidated Balance Sheets as of June 30, 2004, December 31, 2003, and June 30, 2003 5 Supplemental Information to the Consolidated Balance Sheets as of June 30, 2004, December 31, 2003, and June 30, 2003 6 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 7 Supplemental Information to the Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 8 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk 32 Item 4. Controls and Procedures 33 Part II - Other Information (Unaudited) Item 1. Legal Proceedings 33 Item 2(e).Purchases of equity securities 33 Item 4. Submission of Matters to a Vote of Security Holders 34 Item 6. Exhibits and Reports on Form 8-K 36 Signatures 36 Exhibit 31.1 Section 302 Certification of the Chief Executive Officer 37 Exhibit 31.2 Section 302 Certification of the Chief Financial Officer 38 Exhibit 32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 39 Exhibit 32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 40 2 PART I GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 ---- ---- ---- ---- (dollars in millions except per share amounts) Total net sales and revenues $49,148 $45,881 $96,833 $92,932 ------ ------ ------ ------ Cost of sales and other expenses 39,464 37,253 78,127 75,015 Selling, general, and administrative expenses 5,413 5,480 10,367 10,491 Interest expense 2,814 2,217 5,581 4,297 ------ ------ ------ ------ Total costs and expenses 47,691 44,950 94,075 89,803 ------ ------ ------ ------ Income from continuing operations before income taxes, equity income, and minority interests 1,457 931 2,758 3,129 Income tax expense 306 244 579 926 Equity income (loss) and minority interests 190 192 442 213 ----- --- ------ ------ Income from continuing operations 1,341 879 2,621 2,416 Income (loss) from discontinued operations (Note 2) - 22 - (32) ----- --- ----- ----- Net Income $1,341 $901 $2,621 $2,384 ===== === ===== ===== Basic earnings (loss) per share attributable to common stocks (Note 9) $1-2/3 par value Continuing Operations $2.37 $1.57 $4.64 $4.31 Discontinued Operations - $0.01 - $(0.01) ---- ---- ---- ---- Earnings per share attributable to $1-2/3 par value $2.37 $1.58 $4.64 $4.30 ==== ==== ==== ==== Earnings (loss) per share from discontinued operations attributable to Class H $ - $0.02 $ - $(0.02) === ==== === ==== Earnings (loss) per share attributable to common stocks assuming dilution (Note 9) $1-2/3 par value Continuing Operations $2.36 $1.57 $4.61 $4.30 Discontinued Operations - $0.01 - $(0.01) ---- ---- ---- ---- Earnings per share attributable to $1-2/3 par value $2.36 $1.58 $4.61 $4.29 ==== ==== ==== ==== Earnings (loss) per share from discontinued operations attributable to Class H $ - $0.02 $ - $(0.02) === ==== === ==== 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 Six Months Ended June 30, June 30, 2004 2003 2004 2003 ---- ---- ---- ---- (dollars in millions) AUTOMOTIVE AND OTHER OPERATIONS Total net sales and revenues $41,202 $38,343 $81,339 $78,158 ------ ------ ------ ------ Cost of sales and other expenses 37,307 35,331 73,747 71,155 Selling, general, and administrative expenses 3,144 3,065 6,180 5,690 ------ ------ ------ ------ Total costs and expenses 40,451 38,396 79,927 76,845 Interest expense 596 326 1,158 575 Net expense from transactions with Financing and Insurance Operations 32 34 67 75 ---- ---- ---- ---- Income (loss) from continuing operations before income taxes, equity income, and minority interests 123 (413) 187 663 Income tax (benefit) (182) (256) (358) (4) Equity income (loss) and minority interests 190 193 444 224 --- --- --- --- Income from continuing operations 495 36 989 891 Income (loss) from discontinued operations (Note 2) - 22 - (32) --- -- --- --- Net Income - Automotive and $495 $58 $989 $859 === == === === Other Operations FINANCING AND INSURANCE OPERATIONS Total revenues $7,946 $7,538 $15,494 $14,774 ----- ----- ------ ------ Interest expense 2,218 1,891 4,423 3,722 Depreciation and amortization expense 1,145 1,578 2,600 3,084 Operating and other expenses 2,434 2,015 4,283 4,081 Provisions for financing and insurance losses 847 744 1,684 1,496 ----- ----- ------ ------ Total costs and expenses 6,644 6,228 12,990 12,383 ----- ----- ------ ------ Net income from transactions with Automotive and Other Operations (32) (34) (67) (75) ----- ----- ----- ----- Income before income taxes, equity income, and minority interests 1,334 1,344 2,571 2,466 Income tax expense 488 500 937 930 Equity income (loss) and minority interests - (1) (2) (11) ----- ----- ----- ----- Net income - Financing and Insurance Operations $846 $843 $1,632 $1,525 === === ===== ===== 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 June 30, June 30, 2004 Dec. 31, 2003 (Unaudited) 2003 (Unaudited) ----------- ---- ----------- ASSETS (dollars in millions) Cash and cash equivalents $29,901 $32,554 $27,824 Marketable securities 20,816 22,215 18,777 ------ ------ ------ Total cash and marketable securities 50,717 54,769 46,601 Finance receivables - net 191,563 174,731 154,449 Loans held for sale 17,393 19,609 17,385 Accounts and notes receivable (less allowances) 16,989 20,532 20,019 Inventories (less allowances) (Note 3) 11,576 10,960 10,796 Assets of discontinued operations (Note 2) - - 20,417 Deferred income taxes 27,379 27,190 39,027 Net equipment on operating leases - (less accumulated depreciation) 32,800 32,790 33,207 Equity in net assets of nonconsolidated affiliates 6,381 6,032 5,325 Property - net 37,578 38,211 36,859 Intangible assets - net (Note 4) 4,696 4,760 10,944 Other assets 58,408 58,923 15,894 ------- ------- ------- Total assets $455,480 $448,507 $410,923 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable (principally trade) $26,377 $25,422 $22,974 Notes and loans payable 277,027 271,756 228,281 Liabilities of discontinued operations (Note 2) - - 9,724 Postretirement benefits other than pensions 31,691 36,292 38,583 Pensions 7,559 8,024 23,873 Deferred income taxes 8,101 7,508 6,773 Accrued expenses and other liabilities 76,624 73,930 69,920 ------- ------- ------- Total liabilities 427,379 422,932 400,128 Minority interests 328 307 414 Stockholders' equity $1-2/3 par value common stock (outstanding, 564,721,304; 561,997,725; and 560,712,564 shares) 941 937 935 Class H common stock (outstanding, 1,108,139,876 shares at June 30, 2003) - - 111 Capital surplus (principally additional paid-in capital) 15,181 15,185 22,815 Retained earnings 14,809 12,752 11,855 ------ ------ ------ Subtotal 30,931 28,874 35,716 Accumulated foreign currency translation adjustments (1,685) (1,815) (2,292) Net unrealized gain (loss) on derivatives 369 51 (205) Net unrealized gains on securities 557 618 612 Minimum pension liability adjustment (2,399) (2,460) (23,450) ------ ------ ------ Accumulated other comprehensive loss (3,158) (3,606) (25,335) ------ ------- ------ Total stockholders' equity 27,773 25,268 10,381 ------- ------- ------- Total liabilities and stockholders' equity $455,480 $448,507 $410,923 ======= ======= ======= Reference should be made to the notes to consolidated financial statements. 5 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED BALANCE SHEETS June 30, June 30, 2004 Dec. 31, 2003 (Unaudited) 2003 (Unaudited) ----------- ---- ----------- ASSETS (dollars in millions) Automotive and Other Operations Cash and cash equivalents $13,182 $14,424 $15,397 Marketable securities 8,319 9,067 4,913 ------ ------ ------ Total cash and marketable securities 21,501 23,491 20,310 Accounts and notes receivable (less allowances) 6,396 5,380 5,528 Inventories (less allowances) (Note 3) 11,576 10,960 10,796 Assets of discontinued operations (Note 2) - - 20,417 Net equipment on operating leases (less accumulated depreciation) 6,914 7,173 5,946 Deferred income taxes and other current assets 10,876 10,851 9,884 ------ ------ ------ Total current assets 57,263 57,855 72,881 Equity in net assets of nonconsolidated affiliates 6,381 6,032 5,325 Property - net 35,684 36,071 34,882 Intangible assets - net (Note 4) 1,412 1,479 7,591 Deferred income taxes 18,316 18,086 30,496 Other assets 41,657 42,262 1,743 ------- ------- ------- Total Automotive and Other Operations assets 160,713 161,785 152,918 Financing and Insurance Operations Cash and cash equivalents 16,719 18,130 12,427 Investments in securities 12,497 13,148 13,864 Finance receivables - net 191,563 174,731 154,449 Loans held for sale 17,393 19,609 17,385 Net equipment on operating leases (less accumulated depreciation) 25,886 25,617 27,261 Other assets 30,709 35,487 32,619 Net receivable from Automotive and Other Operations 2,004 1,492 1,128 ------- ------- ------- Total Financing and Insurance Operations assets 296,771 288,214 259,133 ------- ------- ------- Total assets $457,484 $449,999 $412,051 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Automotive and Other Operations Accounts payable (principally trade) $23,084 $21,542 $19,371 Loans payable 2,625 2,813 1,599 Liabilities of discontinued operations (Note 2) - - 9,724 Accrued expenses 46,726 45,417 42,286 Net payable to Financing and Insurance Operations 2,004 1,492 1,128 ------- ------- ------- Total current liabilities 74,439 71,264 74,108 Long-term debt 29,814 29,593 15,567 Postretirement benefits other than pensions 27,721 32,285 34,642 Pensions 7,489 7,952 23,812 Other liabilities and deferred income taxes 15,467 15,567 14,074 ------- ------- ------- Total Automotive and Other Operations liabilities 154,930 156,661 162,203 Financing and Insurance Operations Accounts payable 3,293 3,880 3,603 Debt 244,588 239,350 211,115 Other liabilities and deferred income taxes 26,572 24,533 24,335 ------- ------- ------- Total Financing and Insurance Operations liabilities 274,453 267,763 239,053 ------- ------- ------- Total liabilities 429,383 424,424 401,256 Minority interests 328 307 414 Total stockholders' equity 27,773 25,268 10,381 ------- ------- ------- Total liabilities and stockholders' equity $457,484 $449,999 $412,051 ======= ======= ======= 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) Six Months Ended June 30, ------------------------- 2004 2003 ---- ---- (dollars in millions) Net cash provided by operating activities $7,599 $10,648 Cash flows from investing activities Expenditures for property (3,201) (3,146) Investments in marketable securities - acquisitions (6,466) (7,198) Investments in marketable securities - liquidations 7,064 5,804 Net originations and purchases of mortgage servicing rights (816) (1,152) Increase in finance receivables (66,456) (71,799) Proceeds from sales of finance receivables 51,172 49,635 Proceeds from sale of business unit - 1,076 Operating leases - acquisitions (7,015) (6,131) Operating leases - liquidations 4,019 5,362 Investments in companies, net of cash acquired (32) (59) Other 552 (606) ------ ------ Net cash used in investing activities (21,179) (28,214) Cash flows from financing activities Net increase in loans payable 2,137 1,100 Long-term debt - borrowings 37,784 40,063 Long-term debt - repayments (30,986) (17,302) Cash dividends paid to stockholders (564) (560) Other 2,804 1,333 ------ ------ Net cash provided by financing activities 11,175 24,634 Effect of exchange rate changes on cash and cash equivalents (248) 436 ------ ------ Net increase (decrease) in cash and cash equivalents (2,653) 7,504 Cash and cash equivalents at beginning of the period 32,554 20,320 ------ ------ Cash and cash equivalents at end of the period $29,901 $27,824 ====== ====== 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 Six Months Ended June 30, ------------------------------------ 2004 2003 2004 2003 ---- ---- ---- ---- (dollars in millions) Net cash provided by operating activities $955 $6,844 $6,644 $3,804 Cash flows from investing activities Expenditures for property (3,038) (2,762) (163) (384) Investments in marketable securities - acquisitions (855) (2,837) (5,611) (4,361) Investments in marketable securities - liquidations 1,603 100 5,461 5,704 Net change in mortgage servicing rights - - (816) (1,152) Increase in finance receivables - - (66,456) (71,799) Proceeds from sales of finance receivables - - 51,172 49,635 Proceeds from sale of business unit - 1,076 - - Operating leases - acquisitions - - (7,015) (6,131) Operating leases - liquidations - - 4,019 5,362 Investments in companies, net of cash acquired (53) (59) 21 - Other 110 (35) 442 (571) ----- ----- ------ ------ Net cash used in investing activities (2,233) (4,517) (18,946) (23,697) Cash flows from financing activities Net increase (decrease) in loans payable (437) (427) 2,574 1,527 Long-term debt - borrowings 756 1,501 37,028 38,562 Long-term debt - repayments (55) (18) (30,931) (17,284) Cash dividends paid to stockholders (564) (560) - - Other - - 2,804 1,333 --- --- ------ ------ Net cash provided by (used in) financing activities (300) 496 11,475 24,138 Effect of exchange rate changes on cash and cash equivalents (176) 373 (72) 63 Net transactions with Automotive/Financing Operations 512 39 (512) (39) ----- ------- ----- ------- Net increase (decrease) in cash and cash (1,242) 3,235 (1,411) 4,269 equivalents Cash and cash equivalents at beginning of the period 14,424 12,162 18,130 8,158 ------ ------ ------ ------ Cash and cash equivalents at end of the period $13,182 $15,397 $16,719 $12,427 ====== ====== ====== ====== The above Supplemental Information is intended to facilitate analysis of General Motors Corporation's businesses: (1) Automotive and Other Operations; and (2) Financing and Insurance Operations. Reference should be made to the notes to consolidated financial statements. 8 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. Financial Statement Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information. In the opinion of management, all adjustments (consisting of only normal recurring items), which are necessary for a fair presentation have been included. The results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. The consolidated financial statements include the accounts of General Motors Corporation and domestic and foreign subsidiaries that are more than 50% owned, principally General Motors Acceptance Corporation and Subsidiaries (GMAC), (collectively referred to as the Corporation, General Motors or GM). In addition, GM consolidates variable interest entities (VIEs) for which it is deemed to be the primary beneficiary. General Motors' share of earnings or losses of affiliates is included in the consolidated operating results using the equity method of accounting when GM is able to exercise significant influence over the operating and financial decisions of the investee. GM encourages reference to the GM and GMAC Annual Reports on Form 10-K for the period ended December 31, 2003 and the GMAC Quarterly Report on form 10-Q for the period ended June 30, 2004, filed separately with the U.S. Securities and Exchange Commission (SEC). GM presents its primary financial statements on a fully consolidated basis. Transactions between businesses have been eliminated in the Corporation's consolidated financial statements. These transactions consist principally of borrowings and other financial services provided by Financing and Insurance Operations (FIO) to Automotive and Other Operations (Auto & Other). To facilitate analysis, GM presents supplemental information to the statements of income, balance sheets, and statements of cash flows for the following businesses: (1) Auto & Other, which consists principally of the design, manufacturing, and marketing of cars, trucks, locomotives, and related parts and accessories; and (2) FIO, which consists primarily of GMAC. GMAC provides a broad range of financial services, including consumer vehicle financing, full-service leasing and fleet leasing, dealer financing, car and truck extended service contracts, residential and commercial mortgage services, vehicle and homeowners' insurance, and asset-based lending. Certain amounts for 2003 have been reclassified to conform with the 2004 classifications. New Accounting Standards Beginning January 1, 2003, the Corporation began expensing the fair market value of newly granted stock options and other stock-based compensation awards to employees pursuant to Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of other stock compensation awards is determined by the market price of GM $1-2/3 par value common stock on the date of grant. The total expense was $19 million ($12 million net of tax) and $55 million ($34 million net of tax), respectively, for the three and six months ended June 30, 2004 and $9 million ($6 million net of tax) and $56 million ($35 million net of tax), respectively, for the three and six months ended June 30, 2003, recorded in cost of sales and other expenses. For 2002 and prior years, as permitted by SFAS No.123, GM applied the intrinsic value method of recognition and measurement under Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees," to its stock options and other stock-based employee compensation awards. No compensation expense related to employee stock options is reflected in net income for these periods, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of the grant. In accordance with the disclosure requirements of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," since GM adopted the fair value based method of accounting for stock-based employee compensation pursuant to SFAS No. 123 effective January 1, 2003 for newly-granted stock-based compensation awards only, the following table illustrates the effect on net income and earnings per share if compensation cost for all outstanding and unvested stock options and other stock-based employee compensation awards had been determined based on their fair values at the grant date (dollars in millions except per share amounts): 9 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 1. Financial Statement Presentation (continued) New Accounting Standards (continued) Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2004 2003 2004 2003 ---- ---- ---- ---- Income from continuing operations, as reported $1,341 $879 $2,621 $2,416 Add: stock-based compensation expense, included in reported net income, net of related tax effects 12 6 34 35 Deduct: total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects (17) (20) (43) (61) ----- ---- ----- ----- Pro forma income from continuing operations $1,336 $865 $2,612 $2,390 ===== === ===== ===== Earnings from continuing operations attributable to GM $1-2/3 par value common stock - as reported $1,341 $879 $2,621 $2,416 - pro forma $1,336 $865 $2,612 $2,390 Basic earnings per share from continuing operations attributable to GM $1-2/3 par value - as reported $2.37 $1.57 $4.64 $4.31 - pro forma $2.37 $1.54 $4.63 $4.26 Diluted earnings per share from continuing operations attributable to GM $1-2/3 par value - as reported $2.36 $1.57 $4.61 $4.30 - pro forma $2.35 $1.54 $4.59 $4.26 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 sold its GM Defense operations (light armored vehicle business) to General Dynamics Corporation for net proceeds of approximately $1.1 billion in cash. The sale resulted in a pre-tax gain of approximately $814 million, or approximately $505 million after-tax ($0.90 per diluted share of GM $1-2/3 par value common stock), which was recorded in net sales and revenues in GM's Consolidated Statements of Income for Automotive and Other Operations. NOTE 2. Discontinued Operations On December 22, 2003, GM completed a series of transactions that resulted in the split-off of Hughes Electronics Corporation (Hughes) from GM and the simultaneous sale of GM's approximately 19.8% economic interest in Hughes to The News Corporation, Ltd. (News Corporation). 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 periods and the assets and liabilities of Hughes as of the respective dates. Hughes' net sales were $2.4 billion and net income was $22 million for the three months ended June 30, 2003. Hughes' net sales were $4.6 billion and net losses were $32 million for the six months ended June 30, 2003. 10 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 2. Discontinued Operations (concluded) The Hughes amounts reported as assets and liabilities of discontinued operations were as follows (in millions): June 30, 2003 ------------- Current assets $5,571 Property and equipment - net 1,524 Intangible assets - net 7,124 Other assets 6,198 ------ Assets of discontinued operations $20,417 ====== Current liabilities $2,520 Long-term debt 4,946 Other liabilities 2,258 ----- Liabilities of discontinued operations $9,724 ===== NOTE 3. Inventories Inventories included the following for Automotive and Other Operations (dollars in millions): June 30, Dec. 31, June 30, 2004 2003 2003 ----- ---- ---- Productive material, work in process, and supplies $5,324 $4,899 $4,691 Finished product, service parts, etc. 7,838 7,642 7,881 ------ ------ ------ Total inventories at FIFO 13,162 12,541 12,572 Less LIFO allowance (1,586) (1,581) (1,776) ------ ------ ------ Total inventories (less allowances) $11,576 $10,960 $10,796 ====== ====== ====== NOTE 4. Goodwill and Acquired Intangible Assets The components of the Corporation's acquired intangible assets as of June 30, 2004 and 2003 were as follows (dollars in millions): Gross Net June 30, 2004 Carrying Accumulated Carrying - ------------- Amount Amortization Amount ----------------------------------- Automotive and Other Operations - ------------------------------- Amortizing intangible assets: Patents and intellectual property rights $303 $50 $253 Non-amortizing intangible assets: Goodwill 540 Pension intangible asset 619 ----- Total goodwill and intangible assets $1,412 ===== Financing and Insurance Operations - ---------------------------------- Amortizing intangible assets: Customer lists and contracts $65 $35 30 Trademarks and other 40 18 22 Covenants not to compete 18 18 - --- -- -- Total $123 $71 $52 === == == Non-amortizing intangible assets: Goodwill 3,232 ----- Total goodwill and intangible assets 3,284 ===== Total consolidated goodwill and intangible assets $4,696 ===== 11 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 4. Goodwill and Acquired Intangible Assets (concluded) Gross Net June 30, 2003 Carrying Accumulated Carrying - ------------- Amount Amortization Amount ----------------------------------- Automotive and Other Operations - ------------------------------- Amortizing intangible assets: Patents and intellectual property rights $304 $10 $294 Non-amortizing intangible assets: Goodwill 523 Pension intangible asset 6,774 ----- Total goodwill and intangible assets $7,591 ===== Financing and Insurance Operations - ---------------------------------- Amortizing intangible assets: Customer lists and contracts $71 $30 41 Trademarks and other 40 14 26 Covenants not to compete 18 18 - --- -- -- Total $129 $62 $67 === == == Non-amortizing intangible assets: Goodwill 3,286 ----- Total goodwill and intangible assets 3,353 ===== Total consolidated goodwill and intangible assets $10,944 ====== Annual amortization expense relating to the existing intangible assets for each of the next five years is estimated to range between $40 million and $50 million. The changes in the carrying amounts of goodwill for the six months ended June 30, 2004 and 2003, were as follows (dollars in millions): Total Auto & GMNA GME Other GMAC Total GM ---- --- ----- ---- -------- Balance as of December 31, 2003 $154 $413 $567 $3,223 $3,790 Goodwill acquired during the period - - - 5 5 Effect of foreign currency translation (2) (20) (22) 4 (18) Impairment / Other (5) - (5) - (5) --- --- --- ----- ----- Balance as of June 30, 2004 $147 $393 $540 $3,232 $3,772 === === === ===== ===== Balance as of December 31, 2002 $139 $338 $477 $3,273 $3,750 Goodwill acquired during the period 16 - 16 8 24 Effect of foreign currency translation - 30 30 14 44 Impairment / Other - - - (9) (9) --- --- --- ----- ----- Balance as of June 30, 2003 $155 $368 $523 $3,286 $3,809 === === === ===== ===== 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 June 30, 2004 and 2003); Japan - Fuji Heavy Industries Ltd. (20.1% and 21.1% at June 30, 2004 and 2003, respectively), Suzuki Motor Corporation (20.3% at June 30, 2004 and 2003); China - Shanghai General Motors Co., Ltd (50% at June 30, 2004 and 2003), SAIC GM Wu Ling Automobile Co., Ltd (34% at June 30, 2004 and 2003); South Korea - GM Daewoo Auto & Technology Company (44.6% at June 30, 2004 and 2003). 12 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 5. Investment in Nonconsolidated Affiliates (concluded) Information regarding GM's share of income for all affiliates in the following countries is included in the table below (in millions): Three Months Ended Six Months Ended GM's share of affiliates' net income June 30, June 30, (loss) --------------------------------------- - ------------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Italy $11 $15 $29 $23 Japan $53 $51 $159 $83 China $148 $124 $310 $168 South Korea $(8) $(16) $(16) $(28) NOTE 6. Product Warranty Liability Policy, product warranty and recall campaigns liability included the following (dollars in millions): Six Months Twelve Months Six Months Ended Ended Ended June 30, 2004 Dec. 31, 2003 June 30, 2003 ------------- ------------- -------------- Beginning balance $8,674 $8,850 $8,856 Payments (2,261) (4,435) (2,132) Increase in liability (warranties issued during period) 2,754 4,390 2,240 Adjustments to liability (pre-existing warranties) (157) (367) (264) Effect of foreign currency translation (23) 236 65 ----- ----- ----- Ending balance $8,987 $8,674 $8,765 ===== ===== ===== The change in "increase in liability," from $2.2 billion at June 30, 2003 to $2.8 billion at June 30, 2004, is attributable to higher North American recall campaigns of approximately $400 million, a favorable adjustment made in 2003 at the time of the sale of GM Defense, and other regional volume and cost factors. 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 $90 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 June 30, 2004 approximately $37.6 million was recorded with respect to these guarantees, the maximum exposure under which is approximately $2.8 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. 13 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 7. Commitments and Contingent Matters (concluded) Contingent Matters Litigation is subject to uncertainties and the outcome of individual litigated matters is not predictable with assurance. Various legal actions, governmental investigations, claims, and proceedings are pending against the Corporation, including those arising out of alleged product defects; employment-related matters; governmental regulations relating to safety, emissions, and fuel economy; product warranties; financial services; dealer, supplier, and other contractual relationships; and environmental matters. GM has established reserves for matters in which losses are probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or other treble damage claims, or demands for recall campaigns, environmental remediation programs, or sanctions, that if granted, could require the Corporation to pay damages or make other expenditures in amounts that could not be estimated at June 30, 2004. After discussion with counsel, it is the opinion of management that such liability is not expected to have a material adverse effect on the Corporation's consolidated financial condition or results of operations. Investment in Fiat Auto Holdings (FAH) At the April 23, 2003, Annual General Shareholders Meeting of FAH, FAH adopted a euro 5 billion recapitalization plan that provides shareholders the option to make pro-rata capital contributions over the eighteen months following adoption of the plan. When the plan was adopted, Fiat S.p.A. (Fiat) held 80% of FAH and GM 20%. Fiat participated in the recapitalization by making a euro 3 billion contribution, which FAH used to repay inter-company debts owed to Fiat or its affiliates. Currently, GM does not plan to participate. Due to Fiat's participation in the recapitalization, and GM's non-participation, Fiat has reported that GM's interest in FAH has been reduced from 20% to 10%. When originally entered into in March 2000, the Master Agreement between GM and Fiat provided that, from January 24, 2004 to July 24, 2009, Fiat could seek to exercise a put option (the Put) to require GM to purchase Fiat's FAH shares at their fair market value. Whether and when Fiat may seek to exercise the Put is unknown. GM has asserted to Fiat that the sale of certain assets of the financing business of Fiat Auto S.p.A. (Fiat Auto) and the recapitalization of FAH represent material breaches of the master Agreement, with the result that the Put is unenforceable. Fiat has stated that it believes that the Put is enforceable in accordance with the terms of the Master Agreement. Notwithstanding these different views, GM and Fiat are continuing to build on the cooperation the parties have worked on for the past several years in the joint ventures and other cooperative contractual arrangements they have entered into which are independent of the Master Agreement. Fiat and GM entered into a standstill agreement on October 26, 2003, the provisions of which enable GM to defer until December 15, 2004, the necessity of electing the remedy of termination of the Master Agreement, and with it the Put, without such deferral prejudicing the right of GM to elect that remedy after December 15, 2004. On October 26, 2003, Fiat and GM also entered into an amendment to the Master Agreement that shifts the Put period by one year, so that it begins on January 24, 2005 and runs to July 24, 2010. Fiat has stated that it does not intend to renew the standstill agreement. Discussions on these topics are continuing between the two companies. If the Put were implemented, the fair market value of FAH shares would be determined by the averaging of the three closest of four valuations that would be prepared by four investment banks after conducting due diligence under procedures set forth in the Master Agreement and based upon terms and conditions to be incorporated in a purchase agreement which, at this time, the parties have not prepared. Unless such a process and valuation is completed, the amount, if any, that GM might have to pay for Fiat's FAH shares if there were to be a valid exercise of the Put, is not quantifiable. If there were a valid exercise of the Put, GM would have the option to pay for Fiat's FAH shares entirely in shares of GM $1-2/3 par value common stock, entirely in cash, or in whatever combination thereof GM may choose. Under such circumstances, if and to the extent GM chose to pay in cash, that portion of the purchase price could be paid to Fiat in four installments over a three-year period and GM would expect to fund any such payments from normal operating cash flows or financing activities. If and when GM were to acquire Fiat's FAH shares, and thus become the sole owner of FAH, GM would decide what, if any, additional capitalization would then be appropriate for FAH and Fiat Auto. Specifically, if Fiat Auto were to need additional funding, GM would have to decide whether or not to provide such funding and under what conditions it might do so. Unless FAH or Fiat Auto were subject to liquidation or insolvency, FAH's consolidated financial statements would be required for financial reporting purposes to be consolidated with those of GM. Any indebtedness, losses and capital needs of FAH and Fiat Auto after their acquisition by GM are not presently determinable, but they could have a material adverse effect on GM if GM chooses to fund such needs or allows the consolidation of GM's financial statements with those of FAH and Fiat Auto. 14 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 8. Comprehensive Income GM's total comprehensive income was as follows (in millions): Three Months Six Months Ended Ended June 30, June 30, ---------------- ---------------- 2004 2003 2004 2003 ---- ---- ---- ---- Net income $1,341 $901 $2,621 $2,384 Other comprehensive income 302 386 448 497 ----- ----- ----- ----- Total $1,643 $1,287 $3,069 $2,881 ===== ===== ===== ===== NOTE 9. Earnings Per Share Attributable to Common Stocks Earnings per share (EPS) attributable to each class of GM common stock was determined based on the attribution of earnings to each such class of common stock for the period divided by the weighted-average number of common shares for each such class outstanding during the period. Diluted EPS attributable to each class of GM common stock considers the effect of potential common shares, unless the inclusion of the potential common shares would have an antidilutive effect. The attribution of earnings to each class of GM common stock was as follows (in millions): Three Months Six Months Ended Ended June 30, June 30, --------------- -------------- 2004 2003 2004 2003 ---- ---- ---- ---- Earnings (loss) attributable to common stocks $1-2/3 par value Continuing operations $1,341 $879 $2,621 $2,416 Discontinued operations - 5 - (8) ----- --- ----- ----- Earnings attributable to $1-2/3 par value $1,341 $884 $2,621 $2,408 Earnings (loss) from discontinued operations attributable to Class H - 17 - (24) ----- --- ----- ----- Total earnings attributable to common stocks $1,341 $901 $2,621 $2,384 ===== === ===== ===== Earnings attributable to GM $1-2/3 par value common stock for each period represent the earnings attributable to all GM common stocks, reduced by the Available Separate Consolidated Net Income (ASCNI) of Hughes for the respective period. The calculated losses used for computation of the ASCNI of Hughes are then multiplied by a fraction, the numerator of which is equal to the weighted-average number of shares of GM Class H common stock outstanding (1,108 million and 1,049 million for the three and six months ended June 30, 2003, respectively) and the denominator of which is a number equal to the weighted-average number of shares of GM Class H common stock, which if issued and outstanding, would represent a 100% interest in the earnings of Hughes (the Average Class H dividend base). The Average Class H dividend base was 1.4 billion for the three and six months ended June 30, 2003, respectively. 15 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 9. Earnings Per Share Attributable to Common Stocks (continued) The reconciliation of the amounts used in the basic and diluted earnings per share computations for income from continuing operations was as follows (in millions except per share amounts): $1-2/3 Par Value Common Stock ------------------------------- Per Share Income Shares Amount Three Months Ended June 30, 2004 Basic EPS Income from continuing operations attributable to common stocks $1,341 565 $2.37 ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 3 ----- --- Diluted EPS Adjusted income attributable to common stocks $1,341 568 $2.36 ===== === ==== Three Months Ended June 30, 2003 Basic EPS Income from continuing operations attributable to common stocks $879 561 $1.57 ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - - --- --- Diluted EPS Adjusted income attributable to common stocks $879 561 $1.57 === === ==== Six Months Ended June 30, 2004 Basic EPS Income from continuing operations attributable to common stocks $2,621 565 $4.64 ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 4 ----- --- Diluted EPS Adjusted income attributable to common stocks $2,621 569 $4.61 ===== === ==== Six Months Ended June 30, 2003 Basic EPS Income from continuing operations attributable to common stocks $2,416 561 $4.31 ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - - ----- --- Diluted EPS Adjusted income attributable to common stocks $2,416 561 $4.30 ===== === ==== Certain stock options and the contingently convertible securities discussed below were not included in the computation of diluted earnings per share for the periods presented since the instruments' underlying exercise prices were greater than the average market prices of GM $1-2/3 par value common stock and inclusion would be antidilutive. Such shares not included in the computation of diluted earnings per share were 223 million for the three and six months ended June 30, 2004 and 156 million for the three and six months ended June 30, 2003. 16 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 9. Earnings Per Share Attributable to Common Stocks (concluded) As of June 30, 2004 GM had $8.1 billion of convertible debentures outstanding, including $1.2 billion principal amount of 4.5% Series A convertible senior debentures due 2032 (Series A), $2.6 billion principal amount of 5.25% Series B convertible senior debentures due 2032 (Series B), and $4.3 billion principal amount of 6.25% Series C convertible senior debentures due 2033 (Series C). The various circumstances under which conversion of the securities may occur are described in the paragraphs 1-4 below, while paragraph 5 describes the circumstances under which GM might be required to repurchase the securities. Upon a conversion or repurchase event, GM may satisfy its payment obligations with cash, shares of GM $1-2/3 par value common stock or a combination of cash and stock, with the choice of using cash, stock or a combination being in the sole discretion of GM, subject to the terms of the indenture. 1) If the closing sale price of GM's $1-2/3 par value common stock exceeds 120% of the conversion price (of $70.20 for Series A, of $64.90 for Series B and of $47.62 for Series C respectively) for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; or 2) During the five business day period after any nine consecutive trading day period in which the trading price of the debentures for each day of such period was less than 95% of the product of the closing sale price of GM's $1-2/3 par value common stock multiplied by the number of shares issuable upon conversion of $25.00 principal amount of the debentures; or 3) If the debentures have been called for redemption (Series A on March 6, 2007, Series B on March 6, 2009 and Series C on July 20, 2010); or 4) Upon the occurrence of specified corporate events; or 5) If the investor requires GM to repurchase the debentures (Series A: on March 6 of 2007, 2012, 2017, 2022 and 2027, or, if any of those days is not a business day, on the next succeeding business day; Series B: on March 6 of 2014, 2019, 2024 and 2029, or, if any of those days is not a business day, on the next succeeding business day; Series C: on July 15 of 2018, 2023 and 2028 or, if any of those days is not a business day, on the next succeeding business day). The number of shares potentially convertible is 16,380,600 for Series A, 40,060,800 for Series B, and 90,300,000 for Series C. The contingently convertible shares are not included in diluted earnings per share as of June 30, 2004, as they have not met the requirements for conversion. NOTE 10. Depreciation and Amortization Depreciation and amortization included in cost of sales and other expenses and selling, general and administrative expenses for Automotive and Other Operations was as follows (in millions): Three Months Ended Six Months Ended June 30, June 30, --------------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Depreciation $1,441 $1,097 $2,589 $2,083 Amortization of special tools 774 651 1,500 1,353 Amortization of intangible assets 9 5 16 10 ----- ----- ----- ----- Total $2,224 $1,753 $4,105 $3,446 ===== ===== ===== ===== 17 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 11. Pensions and Other Postretirement Benefits U.S. Plans Non-U.S.Plans Pension Benefits Pension Benefits Other Benefits ---------------------------------------------------- Three Months Three Months Three Months Ended Ended Ended June 30, June 30, June 30, ---------------------------------------------------- 2004 2003 2004 2003 2004 2003 ---------------------------------------------------- Components of expense (in millions) Service cost $275 $230 $60 $57 $151 $134 Interest cost 1,263 1,291 216 200 979 949 Expected return on plan assets (1,955) (1,541) (163) (143) (275) (101) Amortization of prior service cost 319 287 23 26 (20) (3) Amortization of transition obligation/(asset) - - 1 2 - - Recognized net actuarial loss/(gain) 464 436 47 42 302 180 Curtailments, settlements, and other - - - 11 - - --- --- --- --- ----- ----- Net expense $366 $703 $184 $195 $1,137 $1,159 === === === === ===== ===== ---------------------------------------------------- Six Months Ended Six Months Ended Six Months Ended June 30, June 30, June 30, ---------------------------------------------------- 2004 2003 2004 2003 2004 2003 ---------------------------------------------------- Components of expense (in millions) Service cost $548 $460 $122 $111 $302 $268 Interest cost 2,523 2,582 439 389 1,959 1,896 Expected return on plan assets (3,908) (3,082) (326) (278) (548) (203) Amortization of prior service cost 638 574 47 51 (40) (6) Amortization of transition obligation/(asset) - - 2 4 - - Recognized net actuarial loss/(gain) 928 872 95 82 604 358 Curtailments, settlements, and other 34 6 6 20 - 1 --- ----- --- --- ----- ----- Net expense $763 $1,412 $385 $379 $2,277 $2,314 === ===== === === ===== ===== During the second quarter of 2004, GM made no contributions to its VEBA trust. For the six months ended June 30, 2004 GM contributed $5 billion to its VEBA trust. GM is considering making additional contributions to its VEBA trust in the future. During the second quarter of 2004, GM contributed $0.3 billion to certain of its GM of Canada Ltd. pension plans. 18 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 12. Segment Reporting GM's reportable operating segments within its Auto & Other business consist of General Motors Automotive (GMA) (which is comprised of four regions: GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM Asia Pacific (GMAP)), and Other. GM's reportable operating segments within its FIO business consist of GMAC and Other. Selected information regarding GM's reportable operating segments was as follows (dollars in millions):
Auto & Other Total GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing ---- --- ------ ---- --- ----- ----- ---- --------- --------- For the Three Months Ended (dollars in millions) June 30, 2004 Manufactured products sales and revenues: External customers $29,988 $7,917 $1,764 $1,456 $41,125 $77 $41,202 $7,709 $237 $7,946 Intersegment (559) 177 145 237 - - - - - - ------ ----- ----- ----- ------ -- ------ ----- -- ----- Total manufactured products $29,429 $8,094 $1,909 $1,693 $41,125 $77 $41,202 $7,709 $237 $7,946 ====== ===== ===== ===== ====== == ====== ===== === ===== Interest income (a) $212 $92 $(3) $4 $305 $(170) $135 $256 $(68) $188 Interest expense $655 $88 $16 $5 $764 $(168) $596 $2,228 $(10) $2,218 Net income (loss) from continuing operations $328 $(45) $10 $236 $529 $(34) $495 $860 $(14) $846 Segment assets $129,862 $24,829 $3,672 $3,925 $162,288 $(1,575) $160,713 $296,988 $(217) $296,771 For the Three Months Ended June 30, 2003 Manufactured products sales and revenues: External customers $29,034 $7,064 $984 $1,165 $38,247 $100 $38,347 $7,542 $(4) $7,538 Intersegment (476) 239 135 102 - (4) (4) - - - ------ ------ ----- ----- ------ --- ------ ----- -- ----- Total manufactured products $28,558 $7,303 $1,119 $1,267 $38,247 $96 $38,343 $7,542 $(4) $7,538 ====== ===== ===== ===== ====== == ====== ===== == ===== Interest income (a) $133 $68 $4 $1 $206 $(105) $101 $1,180 $(64) $1,116 Interest expense $333 $100 $26 $1 $460 $(134) $326 $1,850 $41 $1,891 Net income (loss) from continuing operations $83 $(3) $(103) $163 $140 $(104) $36 $834 $9 $843 Segment assets $113,010 $21,509 $3,093 $2,255 $139,867 $(7,366)(b) $152,918 $258,646 $487 $259,133
See notes on next page. 19 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) Note 12. Segment Reporting (concluded)
Auto & Other Total GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing ---- --- ------ ---- --- ----- ----- ---- --------- --------- For the Six Months Ended (dollars in millions) June 30, 2004 Manufactured products sales and revenues: External customers $59,631 $15,195 $3,493 $2,884 $81,203 $136 $81,339 $15,249 $245 $15,494 Intersegment (1,099) 442 249 408 - - - - - - ------ ------ ----- ----- ------ --- ------ ------ --- ------ Total manufactured products $58,532 $15,637 $3,742 $3,292 $81,203 $136 $81,339 $15,249 $245 $15,494 ====== ====== ===== ===== ====== === ====== ====== === ====== Interest income (a) $398 $173 $8 $6 $585 $(293) $292 $498 $(137) $361 Interest expense $1,294 $175 $10 $12 $1,491 $(333) $1,158 $4,434 $(11) $4,423 Net income (loss) from continuing operations $779 $(161) $11 $511 $1,140 $(151) $989 $1,646 $(14) $1,632 For the Six Months Ended June 30, 2003 Manufactured products sales and revenues: External customers $59,505 $13,421 $1,917 $2,181 $77,024 $1,142 $78,166 $14,785 $(11) $14,774 Intersegment (984) 504 247 233 - (8) (8) - - - ------ ------ ----- ----- ------ ----- ------ ------ -- ------ Total manufactured products $58,521 $13,925 $2,164 $2,414 $77,024 $1,134 $78,158 $14,785 $(11) $14,774 ====== ====== ===== ===== ====== ===== ====== ====== === ====== Interest income (a) $244 $150 $11 $2 $407 $(236) $171 $2,178 $(134) $2,044 Interest expense $653 $191 $43 $3 $890 $(315) $575 $3,648 $74 $3,722 Net income (loss) from continuing operations $631 $(68) $(115) $238 $686 $205 $891 $1,533 $(8) $1,525
(a) Interest income is included in net sales and revenues from external customers. (b) Includes assets of discontinued operations of $20,417 at June 30, 2003. * * * * * * 20 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the December 31, 2003 consolidated financial statements and notes thereto (the 2003 Consolidated Financial Statements), along with the MD&A included in General Motors Corporation's (the Corporation, General Motors, or GM) 2003 Annual Report on Form 10-K, as well as General Motors Acceptance Corporation's (GMAC) Annual Report on Form 10-K for the period ended December 31, 2003 and GMAC's Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed separately with the U.S. Securities and Exchange Commission (SEC). All earnings per share amounts included in the MD&A are reported on a diluted basis. GM presents separate supplemental financial information for 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: o 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 o 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. 21 GENERAL MOTORS CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS Consolidated Results GM's total net sales and revenues were $49.1 billion and $45.9 billion for the second quarter of 2004 and 2003, respectively, and GM's net income was $1.3 billion and $901 million for the second quarter of 2004 and 2003, respectively. Total net sales and revenues were $96.8 billion and $92.9 billion for the six months ended June 30, 2004 and 2003, respectively, and net income was $2.6 billion and $2.4 billion for the same periods. Three Months Ended Six Months Ended June 30, June 30, ---------------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- (dollars in millions) Total net sales and revenues $49,148 $45,881 $96,833 $92,932 Income from continuing operations $1,341 $879 $2,621 $2,416 Net income $1,341 $901 $2,621 $2,384 Net margin from continuing operations 2.7% 1.9% 2.7% 2.6% The increase of $3.3 billion in second quarter 2004 total net sales and revenues, compared with second quarter 2003, was due to increases in GMA revenue of $2.9 billion, primarily driven by higher wholesale unit sales across all regions and overall favorable pricing, and increases in FIO revenue of $408 million. The increase of $3.9 billion in year-to-date 2004 total net sales and revenues compared to the year-earlier period was due to higher GMA revenue of $4.2 billion, led by increases in GMLAAM and GME, and increases in FIO revenue of $720 million. Total net sales and revenues in Other Operations for the six months ended June 30, 2003 decreased $1.0 billion, primarily due to the gain on sale of GM Defense in the first quarter of 2003. Consolidated net income increased $440 million to $1.3 billion in the second quarter of 2004, compared to the second quarter of 2003. GMA net income increased $389 million in the second quarter of 2004 over the year-earlier quarter due to higher net income in three of four regions, while GME incurred increased net losses. GMA net income in the second quarter of 2003 included an estimated loss of $168 million after-tax from damage and lost production due to a tornado that struck GM's Oklahoma City Car Assembly plant. GMAC had second quarter net income of $860 million in 2004, compared to $834 million in the second quarter of 2003. In addition, tax benefits associated with the Medicare legislation enacted in the U.S. in the first quarter of 2004 had a favorable effect on consolidated net income, and contributed to the Corporation's reduced effective tax rate of 21% compared to 26% in the second quarter of 2003. Net income for the six months ended June 30, 2004 increased $237 million compared with the year-earlier period. Income increased in all automotive regions except GME, as did GMAC net income. Net income for the six months ended June 30, 2003 included a gain of $505 million from the sale of GM's Defense operations to General Dynamics Corporation in the first quarter of 2003, recorded in Other, as well as the estimated loss of $168 million in GMA noted above. Net income for the quarter and six months ended June 30, 2003 included income of $22 million and a loss of $32 million, respectively, from Hughes Electronics Corporation (Hughes), classified as income (loss) from discontinued operations. Second quarter 2004 highlights included: o Net income growth in three of four automotive regions; o Record quarterly net income at GMAC; and o Continued improvement in North American manufacturing productivity and product quality as measured by independent surveys. GM Automotive Financial Review GMA's total net sales and revenues were $41.1 billion and $38.2 billion for the second quarter of 2004 and 2003, respectively, and GMA's net income was $529 million and $140 million for the second quarter of 2004 and 2003, respectively. Total net sales and revenues were $81.2 billion and $77.0 billion for the six months ended June 30, 2004 and 2003, respectively, and net income was $1.1 billion and $686 million for the same periods. 22 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive Financial Review (continued) Three Months Ended Six Months Ended June 30, June 30, -------------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- (dollars in millions) GMA total net sales and revenues $41,125 $38,247 $81,203 $77,024 GMA net income $529 $140 $1,140 $686 GMA net margin 1.3% 0.4% 1.4% 0.9% Net income (loss) by region GMNA $328 $83 $779 $631 GME (45) (3) (161) (68) GMLAAM 10 (103) 11 (115) GMAP 236 163 511 238 --- --- ------ --- Net income $529 $140 $1,140 $686 === === ===== === GM global market share 14.7% 14.9% 14.1% 14.2% The increase of $2.9 billion in second quarter 2004 total net sales and revenues, compared with the second quarter of 2003, was the result of increased revenues in all regions, in conjunction with a 5.3% increase in global production volume. GM's global market share was 14.7% and 14.9% for the second 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 GMNA posting a one percentage-point decline, to 26.2%. 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 second quarter 2004 net income was $529 million, an increase of $389 million compared with the second quarter of 2003. The increase was due primarily to higher net income at GMNA and GMLAAM. Favorable pricing and material cost savings were partially offset by higher GMNA recall campaigns and less favorable product mix. For the six months ended June 30, 2004, GMA's total net sales and revenues increased $4.2 billion over the year-earlier period, with increases in all regions except GMNA, which was essentially flat. Over the same period, GMA net income increased $454 million to $1.1 billion, with increases at GMNA and GMLAAM, higher equity earnings at GMAP, and increased losses at GME. GM Automotive Regional Results GM North America Three Months Ended Six Months Ended June 30, June 30, -------------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- (dollars in millions) GMNA net income $328 $83 $779 $631 GMNA net margin 1.1% 0.3% 1.3% 1.1% Wholesale sales (volumes in thousands) Cars 611 589 1,195 1,187 Trucks 837 844 1,636 1,684 ----- ----- ----- ----- Total GMNA 1,448 1,433 2,831 2,871 ===== ===== ===== ===== Vehicle unit sales Industry - North America 5,391 5,309 10,066 9,783 GM as a percentage of industry 26.2% 27.2% 26.3% 26.7% GMNA revenue per unit (dollars) $18,801 $18,565 Industry - U.S. 4,597 4,541 8,591 8,362 GM as a percentage of industry 26.7% 27.9% 26.7% 27.3% GM cars 23.5% 24.8% 24.6% 24.9% GM trucks 29.4% 30.4% 28.4% 29.4% GM dealer inventories - U.S. (units in thousands) 1,367 1,248 North American industry vehicle unit sales increased slightly to 5.4 million in the second quarter of 2004 from 5.3 million in the second quarter of 2003, while GMNA's market share decreased by 1.0 percentage point to 26.2% in the 23 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive Financial Review (continued) second quarter of 2004, compared to 27.2% in the second quarter of 2003. During the second quarter of 2004, industry vehicle unit sales in the United States increased to 4.6 million units from 4.5 million units in the second quarter of 2003. GM's U.S. market share decreased by 1.2 percentage points to 26.7%, compared to the second quarter of 2003. U.S. car market share fell by 1.3 percentage points to 23.5%, while U.S. truck market share declined to 29.4%, down 1.0 percentage point. Net income from GMNA totaled $328 million and $83 million in the second quarter of 2004 and 2003, respectively. The increase in GMNA's 2004 second-quarter net income compared to 2003 was primarily due to material cost savings and improved price, including improved auction results for off-lease vehicles, partially offset by unfavorable product mix and recall campaigns. North American industry vehicle unit sales increased 2.9% to 10.1 million in the first six months of 2004 from 9.8 million in the first six months of 2003, while GMNA's market share decreased by 0.4 percentage point to 26.3% in 2004 year-to-date, compared to 26.7% in 2003. For the first six months of 2004, industry vehicle unit sales in the United States increased 2.7% to 8.6 million units from 8.4 million units in the year-earlier period. GM's 2004 year-to-date U.S. market share decreased by 0.6 percentage point, compared to 2003, to 26.7%. U.S. car market share fell by 0.3 percentage point to 24.6%, while U.S. truck market share declined to 28.4%, down 1.0 percentage point from 2003. As GM continues to introduce new models in North America during 2004, GM's goal remains to increase market share in the United States and North America during 2004. For the six months ended June 30, 2004, GMNA's net income increased $148 million, to $779 million, primarily due to continued material cost savings and improved price in the second quarter, partially offset by unfavorable mix, lower production in the first quarter, and higher recall expense. Vehicle revenue per unit was $18,801 for the second quarter of 2004, compared with $18,565 for the second quarter of 2003. The increase of $236 per unit was primarily due to year-over-year invoice price increases and improved auction results for off-lease vehicles, partially offset by negative mix. Two major independent survey organizations recognized GMNA's continued progress in important measures of quality and productivity. The 2004 J.D. Power and Associates Initial Quality Study reported that GMNA's products achieved a 10% improvement in initial quality overall compared to 2003, and named Cadillac as the top luxury-car brand for initial quality. The Harbour Report North America 2004 indicated that GM improved its North American manufacturing productivity 5.2% over 2003. GM Europe Three Months Ended Six Months Ended June 30, June 30, -------------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- (dollars in millions) GME net loss $(45) $(3) $(161) $(68) GME net margin (0.6%) - (1.0%) (0.5%) Wholesale sales (volumes in thousands) Cars 455 424 864 825 Trucks 22 23 46 49 --- ---- ---- ---- Total GME 477 447 910 874 === === === === Vehicle unit sales Industry 5,511 5,146 10,857 10,112 GM as a percentage of industry 9.8% 9.4% 9.6% 9.5% GM market share - Germany 10.8% 10.4% 10.7% 10.7% GM market share - United Kingdom 13.9% 13.2% 14.0% 13.8% Industry vehicle unit sales increased in Europe during the second quarter of 2004 by approximately 7% to 5.5 million, from 5.1 million in the second quarter of 2003, with strong year-over-year growth in central and eastern Europe, and moderate growth in western Europe. GM's market share in Europe increased 0.4 percentage point to 9.8% over the same period, led by gains in GM's two largest markets in Europe. GM's market share was 10.8% in Germany, a 0.4 percentage point increase versus the second quarter of 2003, and 13.9% in the United Kingdom, an increase of 0.7 percentage point over the second quarter 2003. Market share also improved in the smaller eastern and central European markets. 24 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive Financial Review (continued) Net loss from GME totaled $45 million and $3 million in the second quarter of 2004 and 2003 respectively. The greater loss in 2004 is primarily due to increasing price pressure, higher structural costs, mainly related to the launch of the new Astra, and continuing restructuring costs related to GM's share of its powertrain joint venture with Fiat Auto S.p.A. (Fiat Auto). In addition, the relative strength of the Swedish krona against the U.S. dollar continued to negatively affect GME's results. These unfavorable factors were partially offset by reduced material cost. For the first six months of 2004, the European industry trends noted above generally held, with industry vehicle unit sales showing more than 7% growth to 10.9 million units in 2004, and stronger year-over-year increases in the central and eastern regions than in western Europe. GM's market share in Europe for the first six months of 2004 showed smaller gains over 2003 levels than for the second quarter, up 0.1 percentage point to 9.6%. GM's share was flat in Germany, at 10.7%, and increased 0.2 percentage point in the U.K. to 14.0%. For the six months ended June 30, 2004, GME's net loss increased $93 million to $161 million, again primarily due to intense price pressure and foreign exchange losses, partially offset by material cost savings. GM Latin America/Africa/Mid-East Three Months Ended Six Months Ended June 30, June 30, -------------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- (dollars in millions) GMLAAM net income (loss) $10 $(103) $11 $(115) GMLAAM net margin 0.5% (9.2%) 0.3% (5.3%) Wholesale sales (volumes in thousands) Cars 135 96 263 192 Trucks 41 26 81 51 --- --- --- --- Total GMLAAM 176 122 344 243 === === === === Vehicle unit sales Industry 999 831 1,970 1,679 GM as a percentage of industry 17.4% 15.6% 17.0% 15.6% GM market share - Brazil 23.5% 23.0% 23.5% 23.3% Industry vehicle unit sales in the LAAM region increased over 20% in the second quarter of 2004, to 999 thousand units, compared to the second quarter of 2003. Industry sales in Brazil, where GM is the market leader, increased 17% over low, recessionary levels in 2003, and Argentina and Venezuela's industries showed significant improvement. Overall, GMLAAM's market share for the region was up 1.8 percentage points, to 17.4% in the second quarter of 2004. Industry vehicle unit sales in the LAAM region increased over 17% in the first six months of 2004, to 2.0 million units, compared to 1.7 million in the same period of 2003. Overall, GMLAAM's market share for the region was up 1.4 percentage points, to 17.0% for the first half of 2004. GMLAAM earned net income of $10 million in the quarter, up from a loss of $103 million in the second quarter of 2003. For the six-month periods ended June 30, 2004 and 2003, GMLAAM's results were net income of $11 million and net loss of $115 million, respectively. Overall, the improvement in 2004 was the result of favorable pricing and volume and mix improvements, which more than offset increased costs. Effective January 1, 2004, GM increased its ownership of Delta Motor Co. in South Africa to 100%, from 49% previously, moving from the equity method of accounting to full consolidation. The company is now known as General Motors South Africa. 25 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive Financial Review (concluded) GM Asia Pacific Three Months Ended Six Months Ended June 30, June 30, -------------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- (dollars in millions) GMAP net income $236 $163 $511 $238 GMAP net margin 13.9% 12.9% 15.5% 9.9% Wholesale sales (volumes in thousands) Cars 48 50 95 101 Trucks 23 19 38 30 -- -- --- --- Total GMAP 71 69 133 131 == == === === Vehicle unit sales Industry 4,053 3,769 8,617 7,898 GM as a percentage of industry 5.4% 4.8% 5.0% 4.6% GM market share - China 9.2% 7.4% 9.2% 7.7% GM market share - Australia 19.3% 20.5% 19.7% 20.6% Industry vehicle unit sales in the Asia Pacific region increased more than 7% in the second quarter of 2004, to 4.1 million units, from 3.8 million units in the second quarter of 2003. The greatest increase in volume was in China, where sales increased to 1.3 million from 1.1 million units. GMAP increased its retail sales (including affiliates) in the Asia Pacific region more than 21% in the period, to 220 thousand units from 181 thousand in 2003, which drove GMAP's second quarter 2004 market share to 5.4%, from 4.8% in the second quarter of 2003. GMAP's market share in China increased to 9.2% in the second quarter of 2004, from 7.4% in the second quarter of 2003. For the first six months of 2004, industry vehicle unit sales in the Asia Pacific region increased 719 thousand units, more than 9%, to 8.6 million. GM's retail sales (including affiliates) over the same period increased almost 21%, from 360 thousand in 2003 to 435 thousand in 2004. GM's first-half 2004 Asia Pacific market share increased to 5.0%, up 0.4 percentage point from the first six months of 2003. GM's share in China increased to 9.2% from 7.7% over the same period. Net income from GMAP was $236 million and $163 million in the second quarters of 2004 and 2003, respectively. For the six months ended June 30, 2004, GMAP's net income increased $273 million to $511 million. The increase in GMAP's 2004 net income, compared with the corresponding periods 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. In June 2004, GM announced plans to increase the investment in its joint ventures in China by $3 billion, pending approval by the Chinese government, over the next three years. The funding for these investments is expected to be generated by profits of the operations. The funds will be used to introduce new vehicles and powertrains, increase manufacturing capacity, and create new engineering and design facilities. Other Operations In the first six months 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. Discontinued Operations In December 2003, GM split off Hughes by distributing Hughes common stock to the holders of GM Class H common stock in exchange for all the outstanding shares of GM Class H common stock. Simultaneously, GM sold its 19.8% economic interest in Hughes to The News Corporation Ltd. (News Corporation) in exchange for cash and News Corporation Preferred American Depositary Shares. These transactions are referred to as "the Hughes transactions." As of the completion of the Hughes transactions on December 22, 2003, the results of operations, cash flows, and the assets and liabilities of Hughes were classified as discontinued operations for all periods through such date presented in GM's consolidated financial statements. See Note 2 to the 2003 Consolidated Financial Statements for further discussion. 26 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMAC Financial Review GMAC's net income was $860 million and $834 million in the second quarter of 2004 and 2003, respectively. Net income for the second quarter of 2004 was GMAC's highest ever for a quarter. Net income for the six-month periods ended June 30, 2004 and 2003 was $1.6 billion and $1.5 billion, respectively. Three Months Ended Six Months Ended June 30, June 30, ------------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- (in millions) Financing $452 $396 $894 $698 Mortgage 333 415 586 786 Insurance 75 23 166 49 --- --- ----- ----- Net income $860 $834 $1,646 $1,533 === === ===== ===== Net income from financing operations totaled $452 million and $396 million in the second quarter of 2004 and 2003, respectively, and $894 million and $698 million for the first six months of 2004 and 2003, respectively. The increase in net income for 2004, compared with 2003, was primarily due to lower credit loss provisions and improved remarketing results for off-lease vehicles, which more than offset the unfavorable effect of lower net interest margins. The lower level of loss provisions reflects an improvement in the credit quality of the consumer automotive loan portfolio, resulting from a general improvement in the U.S. economy and stabilizing loss severity trends helped by strengthening in the used car market. During the second quarter of 2004, remarketing results of off-lease vehicles continued to improve, with the average gain per vehicle increasing from $148 in 2003 to $587 per vehicle in 2004. Net income from mortgage operations was $333 million and $415 million in the second quarter of 2004 and 2003, respectively, and $586 million and $786 million for the six month periods ending June 30, 2004 and 2003, respectively. The decrease in net income in 2004, compared with 2003, was primarily due to lower mortgage volume versus the prior year and decreased pricing margins, somewhat offset by higher earning assets. The lower volume, coupled with decreased pricing margins and growth in residential mortgages loans held as collateral for secured financings, resulted in significant year-over-year decreases in gains on sales of loans for both the second quarter and six months ended June 30, 2004. Net income from insurance operations totaled $75 million and $23 million in the second quarter of 2004 and 2003, respectively, and $166 million and $49 million for the first six months of 2004 and 2003, respectively. The increase in net income in 2004, compared with 2003, was primarily due to favorable underwriting results and net capital gains in the investment portfolio instead of the net capital losses realized in 2003, which included the write down of certain investment securities. 2004 Priorities / Targets With respect to GM's previously reported operating priorities and financial targets for 2004: o GM's estimate of 2004 calendar-year earnings per share of $7.00, at current dilution levels, remains unchanged, o Third quarter 2004 earnings per share are expected to be between $0.75 and $1.00, at current dilution levels; o GM's goal to increase market share in all regions is on track, except for GMNA; o For the calendar year: o GMNA is expected to earn between $1.0 billion and $1.4 billion; o GME is expected to incur a net loss; o GMLAAM is expected to lose between $(100) million and $(200) million; o GMAP is expected to earn between $700 million and $800 million; and o GMAC is expected to earn more than $2.0 billion; and o GM expects a lower effective tax rate in the second half of 2004 due to settlements of prior years' tax matters. LIQUIDITY AND CAPITAL RESOURCES Financing Structure In the second 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 and on May 7, 2004 affirmed GM'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 27 GENERAL MOTORS CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES (continued) Financing Structure (concluded) 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 term debt or asset-backed securities. Accordingly, GM and GMAC expect that they will continue to have adequate access to the capital markets sufficient to meet the Corporation's needs for financial flexibility. The table below summarizes GM's and GMAC's credit ratings as of June 30, 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 $4.6 billion syndicated line of credit committed through June 2005, $4.3 billion committed through June 2008, $4.3 billion of bilateral committed lines with various maturities, and uncommitted lines of credit of $20.4 billion. In addition, New Center Asset Trust (NCAT) has $19.5 billion of liquidity facilities committed through June 2005. Mortgage Interest Networking Trust (MINT) has $3.4 billion of liquidity facilities committed through April 2005. NCAT and MINT are 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 purchase of assets through the issuance of asset-backed commercial paper and represent an important source of liquidity to the Corporation. GMAC also has $53 billion in funding commitments (with $26 billion used) with third parties (including third party asset-backed commercial paper conduits) that may be used as additional secured funding sources. Automotive and Other Operations At June 30, 2004, cash, marketable securities, and $3.5 billion of short-term assets of the Voluntary Employees' Beneficiary Association (VEBA) trust totaled $25.0 billion, compared with $26.9 billion at December 31, 2003 and $23.7 billion at June 30, 2003. The decrease of approximately 7% from December 31, 2003 was primarily due to $5.0 billion of VEBA cash contributions in the first quarter and a $0.3 billion cash contribution to certain GM of Canada Ltd. pension plans in the second quarter of 2004, partially offset by operating cash flow generation and net debt issuances. Total assets in the VEBA trust used to pre-fund part of GM's other postretirement benefits liability approximated $15.9 billion at June 30, 2004, $10.0 billion at December 31, 2003, and $6.7 billion at June 30, 2003. Long-term debt was $29.8 billion at June 30, 2004, $29.6 billion at December 31, 2003, and $15.6 billion at June 30, 2003. The increase from June 30, 2003 is primarily due to debt issuances of $0.7 billion in the second quarter of 2004 and $13.5 billion in the third quarter of 2003. The proceeds from the 2003 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 83.8% at June 30, 2004, 85.2% at December 31, 2003, and 247.8% at June 30, 2003. The ratio of long-term debt and short-term loans payable to the total of this debt and GM's net assets of Automotive and Other Operations was 84.9% at June 30, 2004, 86.3% at December 31, 2003, and 217.8% at June 30, 2003. The decrease in these ratios compared to June 30, 2003 was due to the improvement in GM's net asset position resulting from the improved funded status of GM's U.S. hourly and salaried pension plans. Net liquidity, calculated as cash, marketable securities, and $3.5 billion of short-term assets of the VEBA trust less the total of loans payable and long-term debt, was a negative $7.4 billion at June 30, 2004, compared with a negative $5.5 billion at December 31, 2003, and compared to $6.5 billion, including $3.4 billion of short-term assets of the VEBA, at June 30, 2003. 28 GENERAL MOTORS CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES (concluded) Financing and Insurance Operations At June 30, 2004, GMAC's consolidated assets totaled $297.0 billion, compared with $288.2 billion at December 31, 2003 and $258.6 billion at June 30, 2003. The increase from December 31, 2003 was primarily due to an increase in net finance receivables and loans, from $174.3 billion at December 31, 2003 to $191.7 billion at June 30, 2004, driven by increases in residential mortgages and wholesale automotive receivables. The increase in GMAC's consolidated assets at June 30, 2004 compared with June 30, 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 $245.1 billion at June 30, 2004, compared with $238.9 billion at December 31, 2003 and $210.2 at June 30, 2003. GMAC's ratio of total debt to total stockholder's equity at June 30, 2004 was 11.1:1, compared with 11.8:1 at December 31, 2003, and 10.7:1 at June 30, 2003. GMAC's liquidity, as well as its ongoing profitability, in large part depends on its timely access to capital and the costs associated with raising funds in different segments of the capital markets. GMAC's strategy in managing liquidity risk has been to develop diversified funding sources across a global investor base. As an important part of its overall funding and liquidity strategy, GMAC maintains substantial bank lines of credit. These bank lines of credit, which totaled $57 billion at June 30, 2004, provide "back-up" liquidity and represent additional funding sources, if required. In addition, GMAC has $53 billion in funding commitments (with $26 billion used) through a variety of committed facilities with third parties (including third party asset- backed commercial paper conduits) that GMAC's Financing and Mortgage operations may use as additional secured funding sources. Investment in Fiat Auto Holdings (FAH) At the April 23, 2003, Annual General Shareholders Meeting of FAH, FAH adopted a euro 5 billion recapitalization plan that provides shareholders the option to make pro-rata capital contributions over the eighteen months following adoption of the plan. When the plan was adopted, Fiat S.p.A. (Fiat) held 80% of FAH and GM 20%. Fiat participated in the recapitalization by making a euro 3 billion contribution, which FAH used to repay inter-company debts owed to Fiat or its affiliates. Currently, GM does not plan to participate. Due to Fiat's participation in the recapitalization, and GM's non-participation, Fiat has reported that GM's interest in FAH has been reduced from 20% to 10%. When originally entered into in March of 2000, the Master Agreement between GM and Fiat provides that, from January 24, 2004 to July 24, 2009, Fiat could seek to exercise a put option (the Put) to require GM to purchase Fiat's FAH shares at their fair market value. Whether and when Fiat may seek to exercise the Put is unknown. GM has asserted to Fiat that the sale of certain assets of the financing business of Fiat Auto S.p.A. (Fiat Auto) and the recapitalization of FAH represent material breaches of the Master Agreement, with the result that the Put is unenforceable. Fiat has stated that it believes that the Put is enforceable in accordance with the terms of the Master Agreement. Notwithstanding these different views, GM and Fiat are continuing to build on the cooperation the parties have worked on for the past several years in the joint ventures and other cooperative contractual arrangements they have entered into which are independent of the Master Agreement. Fiat and GM entered into a standstill agreement on October 26, 2003, the provisions of which enable GM to defer until December 15, 2004, the necessity of electing the remedy of termination of the Master Agreement, and with it the Put, without such deferral prejudicing the right of GM to elect that remedy after December 15, 2004. On October 26, 2003, Fiat and GM also entered into an amendment to the Master Agreement that shifts the Put period by one year, so that it begins on January 24, 2005 and runs to July 24, 2010. Fiat has stated that it does not intend to renew the standstill agreement. Discussions on these topics are continuing between the two companies. If the Put were implemented, the fair market value of FAH shares would be determined by the averaging of the three closest of four valuations that would be prepared by four investment banks after conducting due diligence under procedures set forth in the Master Agreement and based upon terms and conditions to be incorporated in a purchase agreement which, at this time, the parties have not prepared. Unless such a process and valuation is completed, the amount, if any, that GM might have to pay for Fiat's FAH shares if there were to be a valid exercise of the Put, is not quantifiable. If there were a valid exercise of the Put, GM would have the option to pay for Fiat's FAH shares entirely in shares of GM $1-2/3 par value common stock, entirely in cash, or in whatever combination thereof GM may choose. Under such circumstances, if and to the extent GM chose to pay in cash, that portion of the purchase price could be paid to Fiat in four installments over a three-year period and GM would expect to fund any such payments from normal operating cash flows or financing activities. 29 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Investment in Fiat Auto Holdings (FAH) (concluded) If and when GM were to acquire Fiat's FAH shares, and thus become the sole owner of FAH, GM would decide what, if any, additional capitalization would then be appropriate for FAH and Fiat Auto. Specifically, if Fiat Auto were to need additional funding, GM would have to decide whether or not to provide such funding and under what conditions it might do so. Unless FAH or Fiat Auto were subject to liquidation or insolvency, FAH's consolidated financial statements would be required for financial reporting purposes to be consolidated with those of GM. Any indebtedness, losses and capital needs of FAH and Fiat Auto after their acquisition by GM are not presently determinable, but they could have a material adverse effect on GM if GM chooses to fund such needs or allows the consolidation of GM's financial statements with those of FAH and Fiat Auto. Off-Balance Sheet Arrangements GM and GMAC use off-balance sheet arrangements where economics and sound business principles warrant their use. GM's principal use of off-balance sheet arrangements occurs in connection with the securitization and sale of financial assets by GMAC and, to a lesser extent, by GM. The assets securitized and sold by GMAC and its subsidiaries consist principally of mortgages, and wholesale and retail loans secured by vehicles sold through GM's dealer network. The assets sold by GM consist principally of trade receivables. In addition, GM leases real estate and equipment from various off-balance sheet entities that have been established to facilitate the financing of those assets for GM by nationally prominent lessors that GM believes are creditworthy. These assets consist principally of office buildings, warehouses, and machinery and equipment. The use of such entities allows the parties providing the financing to isolate particular assets in a single entity and thereby syndicate the financing to multiple third parties. This is a conventional financing technique used to lower the cost of borrowing and, thus, the lease cost to a lessee such as GM. There is a well-established market in which institutions participate in the financing of such property through their purchase of ownership interests in these entities and each is owned by institutions that are independent of, and not affiliated with, GM. GM believes that no officers, directors or employees of GM, GMAC, or their affiliates hold any direct or indirect equity interests in such entities. The amounts outstanding in off-balance sheet facilities used by the Financing and Insurance Operations have decreased since December 31, 2003 as GMAC continues to use securitization transactions that, while similar in legal structure to off-balance sheet securitizations, are accounted for as secured financings and are recorded as receivables and debt on the balance sheet. Assets in off-balance sheet entities were as follows (dollars in millions): June 30, Dec. 31, June 30, Automotive and Other Operations 2004 2003 2003 - ------------------------------- ---- ---- ---- Assets leased under operating leases $2,293 $2,287 $2,141 Trade receivables sold (1) 910 759 742 ----- ----- ----- Total $3,203 $3,046 $2,883 ===== ===== ===== Financing and Insurance Operations - ---------------------------------- Receivables sold or securitized: - Mortgage loans $82,852 $80,798 $106,415 - Retail finance receivables 7,072 9,548 13,436 - Wholesale finance receivables 17,231 21,142 17,422 ------- ------- ------- Total $107,155 $111,488 $137,273 ======= ======= ======= (1) In addition, trade receivables sold to GMAC were $456 million, $578 million and $470 million for the periods ended June 30, 2004, December 31, 2003, and June 30, 2003, respectively. BOOK VALUE PER SHARE Book value per share was determined based on the liquidation rights of the common stockholders. Book value per share of GM $1-2/3 par value common stock was $49.18 at June 30, 2004, $44.96 at December 31, 2003, and $13.27 at June 30, 2003. 30 GENERAL MOTORS CORPORATION AND SUBSIDIARIES 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 May 4, 2004, the GM Board declared a quarterly cash dividend of $0.50 per share on GM $1-2/3 par value common stock, paid June 10, 2004, to holders of record on May 14, 2004. EMPLOYMENT AND PAYROLLS Worldwide employment for GM and its wholly-owned subsidiaries at June 30, (in thousands) 2004 2003 ---- ---- GMNA 186 192 GME 62 64 GMLAAM * 27 23 GMAP 14 13 GMAC 33 31 Other 5 7 --- --- Total employees 327 330 === === Three Months Ended Six Months Ended June 30, June 30, ------------------------------------ 2004 2003 2004 2003 ---- ---- ---- ---- Worldwide payrolls - (in billions) $5.5 $5.1 $11.0 $10.4 === === ==== ==== * 2004 includes 3,000 employees as a result of the increase in ownership of GM South Africa from 49% to 100%. CRITICAL ACCOUNTING ESTIMATES The consolidated financial statements of GM are prepared in conformity with GAAP, which requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. GM's accounting policies are described in Note 1 to the 2003 Consolidated Financial Statements. Critical accounting estimates are described in this section, as follows. 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 could reasonably 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. NEW ACCOUNTING STANDARDS In July 2004, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) announced that it had reached a tentative consensus with respect to Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share." The EITF's tentative consensus states that shares of common stock contingently issuable pursuant to contingent convertible securities should be included in diluted earnings per share computations (if dilutive) regardless of whether their market price triggers (or other contingent features) have been met. Additionally, in its efforts to converge with international accounting standards, the FASB has issued an Exposure Draft, "Earnings Per Share - an amendment of FASB Statement No. 128." This Exposure Draft requires contracts that contain an option to settle in cash or stock be assumed to settle in stock for diluted earnings per share computations. If these proposals become effective, they could require GM to include an additional 146.7 million shares, using the if-converted method (under which net income would also be adjusted to exclude imputed interest expense) in 31 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NEW ACCOUNTING STANDARDS (concluded) its computation of diluted earnings per share for the year ending December 31, 2004 and subsequent years. Depending upon the text of any final changes in applicable accounting principles and their effect on GM, GM may be required to restate prior period earnings per share and amounts presented for comparative purposes. GM currently has $8.1 billion of outstanding contingently convertible securities. GM has the option of unilaterally and irrevocably waiving, or giving up, its right (the waiver option) to use stock to settle the principal amount of the securities, and commit to settle the principal amount of the securities in cash, if holders ever choose to convert the securities or require GM to repurchase them. If GM were to give up its right to settle the principal amount using stock, it would nevertheless retain the right to use either cash or stock to settle any amount that might become due to security holders in excess of the principal amount (the in-the-money amount). If GM chooses to implement its waiver option, GM's fully diluted earnings per share would be affected only at such time in the future as and when GM's stock price were to rise above the conversion prices specified for the various series of securities GM has issued. The level of dilution would be equal to the number of shares needed to satisfy the in-the-money amount. Under such circumstances, GM's earnings per share would not experience any dilution at today's stock price. Management of the Corporation has recommended to the Board of Directors that the Corporation elect to employ the waiver option described above in the event that the FASB adopts either of the proposals. See Note 9 to the consolidated financial statements for a discussion of GM's convertible securities. FORWARD-LOOKING STATEMENTS In this report, in reports subsequently filed or furnished by GM with the SEC on Form 8-K, and in related comments by management of GM our use of the words "expect," "anticipate," "estimate," "forecast," "objective," "plan," "goal," "project," "priorities/targets," and similar expressions is intended to identify forward-looking statements. While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, actual results may differ materially due to numerous important factors that are described below and other factors that may be described in subsequent reports that GM may file or furnish with the SEC on Form 8-K: . Changes in economic conditions, currency exchange rates or political stability; . Shortages of and price increase for fuel, labor strikes or work stoppages, market acceptance of the Corporation's new products; . Significant changes in the competitive environment . Changes in the laws, regulations, and tax rates; and . The ability of the Corporation to achieve reductions in cost and employment levels, to realize production efficiencies, and to implement capital expenditures, all at the levels and times planned by management. * * * * * * * ITEM 3. Quantitative and Qualitative Disclosures About Market Risk There have been no significant changes in the Corporation's exposure to market risk since December 31, 2003. See Item 7A in GM's Annual Report on Form 10-K for the year ended December 31, 2003. * * * * * * * 32 GENERAL MOTORS CORPORATION AND SUBSIDIARIES 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. * * * * * * * PART II ITEM 1. LEGAL PROCEEDINGS (a) There were no material 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 June 30, 2004, or subsequent thereto, but before the filing of this report. * * * * * * * * * 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 June 30, 2004: (d)Maximum Number (or Approximate Dollar Value) of Shares (c)Total Number (or Units) of Shares (or that May Yet (a) Total (b) Average Units)Purchased Be Purchased Number of Price as Part of Under the Shares (or Paid Publicly Plans Units per Share Announced Plans or Period Purchased) (or Unit) or Program Programs - -------------------------------------------------------------------------------- April 1 to April 30 2,207 $49.38 NA NA May 1 to May 31 527 $42.63 NA NA June 1 to June 30 1,011 $47.34 NA NA - -------------------------------------------------------------------------------- Total 3,745 $47.85 NA NA - -------------------------------------------------------------------------------- * * * * * * * * * 33 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) The annual meeting of stockholders of the Registrant was held on June 2, 2004. At that meeting, the following matters were submitted to a vote of the stockholders of General Motors Corporation: 2004 General Motors Annual Meeting Final Voting Results (Common Stock, $1-2/3 Par Value) Proposal Voting Results - -------- --------------------- Votes Percent ----- ------- Item No. 1 Nomination and Election of Directors The Judges subscribed and delivered a certificate reporting that the following nominees for directors had received the number of votes* set opposite their respective names. Percy N. Barnevik For 449,892,523 97.4% Withheld 11,859,760 2.6 John H. Bryan For 427,974,436 92.7 Withheld 33,777,847 7.3 Armando M. Codina For 449,981,360 97.5 Withheld 11,770,923 2.5 George M. C. Fisher For 429,910,161 93.1 Withheld 31,842,122 6.9 Karen Katen For 429,991,943 93.1 Withheld 31,760,340 6.9 Kent Kresa For 447,313,272 96.9 Withheld 14,439,011 3.1 Alan G. Lafley For 447,356,755 96.9 Withheld 14,395,528 3.5 Philip A. Laskawy For 450,049,994 97.5 Withheld 11,702,289 2.5 E. Stanley O'Neal For 441,301,510 95.6 Withheld 20,450,773 4.4 Eckhard Pfeiffer For 449,903,239 97.4 Withheld 11,849,044 2.6 G. Richard Wagoner, Jr. For 448,131,986 97.1 Withheld 13,620,297 2.9 In addition, 1,289 votes were cast 0.0 for each of the following: John Chevedden, James Dollinger, William Dean Fitzpatrick, Lucy Kessler, John Lauve, Louis Lauve III, Steve Mahac, Erik Nielsen, Larry Parks, Danny Taylor, William L. Walde, William Woodward, M.D. Item No. 2 A proposal for stockholders For 443,761,806 96.1 to ratify the selection by Against 9,381,402 2.0 the Audit Committee with Abstain 8,609,075 1.9 concurrence by the Board of Directors of Deloitte & Touche LLP as independent public accountants for the year 2004. Item No. 3 A stockholder proposal to For 21,871,790 6.0 eliminate awarding, repricing, Against 334,744,414 91.0 or renewingstock options. Abstain 11,092,659 3.0 34 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Proposal Voting Results - -------- --------------------- Votes Percent ----- ------- Item No. 4 A stockholder proposal to For 21,036,347 5.7 consider deleting all rights, Against 335,475,046 91.2 options, SARs, and severance Abstain 11,197,470 3.1 payments to top management after expiration of existing plans or commitments. Item No. 5 A stockholder proposal to For 48,646,964 13.2 require an independent Against 308,215,225 83.8 director separate from the Abstain 10,846,674 3.0 chief executive officer to serve as chairman of the Board of Directors. Item No. 6 A stockholder proposal that For 39,693,240 10.8 only strictly independent Against 316,927,931 86.2 directors are nominated Abstain 11,087,692 3.0 to key Board committees. Item No. 7 A stockholder proposal that For 23,260,630 6.3 GM report by August 2004 Against 308,275,227 83.8 estimated total greenhouse Abstain 36,173,006 9.9 gas emissions from its products, how GM will be competitive in light of regulatory requirements, and how GM can reduce greenhouse gas emissions from its vehicles. Item No. 8 A stockholder proposal For 85,091,772 23.1 requesting stockholder Against 270,813,188 73.7 approval of future golden Abstain 11,803,903 3.2 parachutes for senior executives, which would apply to benefits exceeding 200% of base salary and bonus. Item No. 9 A stockholder proposal that For 29,543,362 8.0 senior executives and Against 327,226,001 89.0 directors hold throughout Abstain 10,939,500 3.0 their tenure at least half of all GM shares obtained by exercising stock options. * * * * * * 35 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 37 (31.2) Section 302 Certification of the Chief Financial Officer 38 (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 39 (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 40 (b) Reports on Form 8-K Nine reports on Form 8-K, were filed April 1, 2004, April 20, 2004* (2), April 29, 2004, May 4, 2004, May 20, 2004, June 2, 2004, June 14, 2004*, and June 16, 2004*(amendment) during the quarter ended June 30, 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: August 5, 2004 By: /s/PETER R. BIBLE --- ----------------- (Peter R. Bible, Chief Accounting Officer) 36 EX-31 2 exhibit31-1grw.txt CERTIFICATION OF G. RICHARD WAGONER CEO 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: August 6, 2004 /s/ G. RICHARD WAGONER, JR. --------------------------- G. Richard Wagoner, Jr. Chairman and Chief Executive Officer 37 EX-31 3 exhibit31-2jmd.txt CERTIFICATION OF JOHN M. DEVINE CFO 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. August 6, 2004 /s/ JOHN M. DEVINE -------------------------- John M. Devine Vice Chairman and Chief Financial Officer 38 EX-32 4 exhibit32-1grw.txt CERTIFICATION OF G. RICHARD WAGONER CEO 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 June 30, 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 August 6, 2004 39 EX-32 5 exhibit32-2jmd.txt CERTIFICATION OF JOHN M. DEVINE CFO 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 June 30, 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 August 6, 2004 40 -----END PRIVACY-ENHANCED MESSAGE-----