-----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, La1xZdx99Ktinv3u2aB0azBuTiX89DjmTk/S/Yr/9NFzimoJD/aw7U+wxob3zD5e Fbw8mqLnnx0jgBXIiVjAXA== 0000040730-05-000083.txt : 20050808 0000040730-05-000083.hdr.sgml : 20050808 20050808155108 ACCESSION NUMBER: 0000040730-05-000083 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050808 DATE AS OF CHANGE: 20050808 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: 051005952 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 june0510q080805.txt SECOND QUARTER 2005 10-Q FOR GENERAL MOTORS CORP. 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, 2005 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, 2005, there were outstanding 565,503,422 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 THIS PAGE LEFT BLANK INTENTIONALLY GENERAL MOTORS CORPORATION AND SUBSIDIARIES INDEX Page No. Part I - Financial Information Item 1. Condensed Financial Statements (Unaudited) Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2005 and 2004 (as restated) 3 Supplemental Information to the Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2005 and 2004 (as restated) 4 Consolidated Balance Sheets as of June 30, 2005, December 31, 2004, and June 30, 2004 (as restated) 5 Supplemental Information to the Consolidated Balance Sheets as of June 30, 2005, December 31, 2004, and June 30, 2004 (as restated) 6 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004 (as restated) 7 Supplemental Information to the Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004 (as restated) 8 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 22 Item 3. Quantitative and Qualitative Disclosures About Market Risk 38 Item 4. Controls and Procedures 39 Part II - Other Information Item 1. Legal Proceedings 39 Item 2(c) Purchases of equity securities 39 Item 4. Submission of Matters to a Vote of Security Holders 40 Item 6. Exhibits 41 Signatures 42 Certifications Exhibit 31.1 Section 302 Certification of the Chief Executive Officer 43 Exhibit 31.2 Section 302 Certification of the Chief Financial Officer 44 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 45 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 46 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, ------------------ ---------------- (As (As restated) restated) 2005 2004 2005 2004 ---- ---- ---- ---- (dollars in millions except per share amounts) Total net sales and revenues $48,469 $49,254 $94,242 $97,084 ------ ------ ------ ------ Cost of sales and other expenses 40,089 39,778 79,402 78,551 Selling, general, and administrative expenses 5,432 5,171 10,321 10,180 Interest expense 3,712 2,839 7,391 5,623 ------ ------ ------ ------ Total costs and expenses 49,233 47,788 97,114 94,354 ------ ------ ------ ------ Income (loss) before income taxes, equity income and minority interests (764) 1,466 (2,872) 2,730 Income tax expense (benefit) (305) 302 (1,240) 610 Equity income (loss) and minority interests 173 213 242 465 --- ----- ----- ----- Net income (loss) $(286) $1,377 $(1,390) $2,585 === ===== ===== ===== Basic earnings (loss) per share attributable to common stock (Note 9) $(0.51) $2.44 $(2.46) $4.58 ==== ==== ==== ==== Earnings (loss) per share attributable to common stock assuming dilution (Note 9) $(0.51) $2.42 $(2.46) $4.54 ==== ==== ==== ==== 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, ------------------ ---------------- (As (As restated) restated) 2005 2004 2005 2004 ---- ---- ---- ---- (dollars in millions) AUTOMOTIVE AND OTHER OPERATIONS Total net sales and revenues $40,178 $41,202 $77,481 $81,339 ------ ------ ------ ------ Cost of sales and other expenses 38,048 37,259 74,954 73,690 Selling, general, and administrative expenses 3,320 3,144 6,157 6,167 ------ ------ ------ ------ Total costs and expenses 41,368 40,403 81,111 79,857 ------ ------ ------ ------ Interest expense 671 596 1,356 1,158 Net expense from transactions with Financing and Insurance Operations 100 59 187 127 --- --- ----- ----- Income (loss) before income taxes, equity income, and minority interests (1,961) 144 (5,173) 197 Income tax (benefit) (694) (188) (2,001) (325) Equity income (loss) and minority interests 173 213 245 467 ------ --- ------ --- Net income (loss) - Automotive and Other Operations $(1,094) $545 $(2,927) $989 ===== === ===== === FINANCING AND INSURANCE OPERATIONS Total revenues $8,291 $8,052 $16,761 $15,745 ----- ----- ------ ------ Interest expense 3,041 2,243 6,035 4,465 Depreciation and amortization expense 1,404 1,333 2,802 2,663 Operating and other expenses 1,952 2,190 4,095 4,109 Provisions for financing and insurance losses 797 1,023 1,715 2,102 ----- ----- ------ ------ Total costs and expenses 7,194 6,789 14,647 13,339 Net income from transactions with Automotive and Other Operations (100) (59) (187) (127) ----- ----- ------ ------ Income before income taxes, equity income, and minority interests 1,197 1,322 2,301 2,533 Income tax expense 389 490 761 935 Equity income (loss) and minority interests - - (3) (2) ----- ----- ----- ----- Net income - Financing and Insurance Operations $808 $832 $1,537 $1,596 === === ===== ===== 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 (As restated) June 30, June 30, 2005 Dec. 31, 2004 (Unaudited) 2004 (Unaudited) ---------- ---- ---------- ASSETS (dollars in millions) Cash and cash equivalents $32,261 $35,993 $29,901 Marketable securities 23,013 21,737 20,816 ------ ------ ------ Total cash and marketable securities 55,274 57,730 50,717 Finance receivables - net 178,137 199,600 192,023 Loans held for sale 26,903 19,934 17,393 Accounts and notes receivable (less allowances) 18,465 21,236 16,989 Inventories (less allowances) (Note 3) 13,350 12,247 12,274 Deferred income taxes 27,640 26,241 27,379 Net equipment on operating leases (less accumulated depreciation) 36,076 34,214 32,321 Equity in net assets of nonconsolidated affiliates 4,969 6,776 6,381 Property - net 40,325 39,020 37,578 Intangible assets - net (Note 4) 4,947 4,925 4,696 Other assets 60,512 57,680 57,709 ------- ------- ------- Total assets $466,598 $479,603 $455,460 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable (principally trade) $28,694 $28,830 $26,377 Notes and loans payable 283,621 300,279 277,027 Postretirement benefits other than pensions 30,525 28,111 31,691 Pensions 9,722 9,455 7,559 Deferred income taxes 6,657 7,078 8,101 Accrued expenses and other liabilities 81,425 77,727 76,641 ------- ------- ------- Total liabilities 440,644 451,480 427,396 Minority interests 902 397 328 Stockholders' equity $1-2/3 par value common stock (outstanding, 565,503,422; 565,132,021; and 564,721,304 shares) 943 942 941 Capital surplus (principally additional paid-in capital) 15,255 15,241 15,181 Retained earnings 12,468 14,428 14,772 ------ ------ ------ Subtotal 28,666 30,611 30,894 Accumulated foreign currency translation adjustments (1,645) (1,194) (1,685) Net unrealized gains on derivatives 331 589 369 Net unrealized gains on securities 687 751 557 Minimum pension liability adjustment (2,987) (3,031) (2,399) ------- ------- ------- Accumulated other comprehensive loss (3,614) (2,885) (3,158) ------- ------- ------- Total stockholders' equity 25,052 27,726 27,736 ------- ------- ------- Total liabilities and stockholders' equity $466,598 $479,603 $455,460 ======= ======= ======= Reference should be made to the notes to consolidated financial statements. 5 GENERAL MOTORS CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED BALANCE SHEETS (As restated) June 30, June 30, 2005 Dec. 31, 2004 (Unaudited) 2004 (Unaudited) ---------- ---- ---------- ASSETS (dollars in millions) Automotive and Other Operations Cash and cash equivalents $12,445 $13,148 $13,182 Marketable securities 3,629 6,655 8,319 ------ ------- ------ Total cash and marketable securities 16,074 19,803 21,501 Accounts and notes receivable (less allowances) 8,087 6,713 6,396 Inventories (less allowances) (Note 3) 12,818 11,717 11,576 Net equipment on operating leases (less accumulated depreciation) 6,723 6,488 6,914 Deferred income taxes and other current assets 10,570 10,794 10,876 ------ ------ ------ Total current assets 54,272 55,515 57,263 Equity in net assets of nonconsolidated affiliates 4,969 6,776 6,381 Property - net 38,480 37,170 35,684 Intangible assets - net (Note 4) 1,658 1,599 1,412 Deferred income taxes 18,976 17,399 18,316 Other assets 41,415 40,844 41,657 ------- ------- ------- Total Automotive and Other Operations assets 159,770 159,303 160,713 Financing and Insurance Operations Cash and cash equivalents 19,816 22,845 16,719 Investments in securities 19,384 15,082 12,497 Finance receivables - net 178,137 199,600 192,023 Loans held for sale 26,903 19,934 17,393 Net equipment on operating leases (less accumulated depreciation) 29,353 27,726 25,407 Other assets 33,235 35,113 30,708 Net receivable from Automotive and Other Operations 2,846 2,426 2,004 ------- ------- ------- Total Financing and Insurance Operations assets 309,674 322,726 296,751 ------- ------- ------- Total assets $469,444 $482,029 $457,464 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Automotive and Other Operations Accounts payable (principally trade) $25,361 $24,257 $23,084 Loans payable 1,563 2,062 2,625 Accrued expenses 44,390 46,147 46,726 Net payable to Financing and Insurance Operations 2,846 2,426 2,004 ------ ------- ------ Total current liabilities 74,160 74,892 74,439 Long-term debt 31,043 30,460 29,814 Postretirement benefits other than pensions 25,815 23,406 27,721 Pensions 9,629 9,371 7,489 Other liabilities and deferred income taxes 15,946 15,657 15,467 ------- ------- ------- Total Automotive and Other Operations liabilities 156,593 153,786 154,930 Financing and Insurance Operations Accounts payable 3,333 4,573 3,293 Debt 251,015 267,757 244,588 Other liabilities and deferred income taxes 32,549 27,790 26,589 ------- ------- ------- Total Financing and Insurance Operations liabilities 286,897 300,120 274,470 ------- ------- ------- Total liabilities 443,490 453,906 429,400 Minority interests 902 397 328 Total stockholders' equity 25,052 27,726 27,736 ------- ------- ------- Total liabilities and stockholders' equity $469,444 $482,029 $457,464 ======= ======= ======= 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, -------------------------- (As restated) 2005 2004 ---- ---- (dollars in millions) Net cash provided by operating activities (Note 1) $2,489 $559 Cash flows from investing activities Expenditures for property (2,944) (3,201) Investments in marketable securities - acquisitions (10,830) (6,466) Investments in marketable securities - liquidations 10,269 7,064 Net originations and purchases of mortgage servicing rights (784) (816) Increase in finance receivables (5,970) (17,556) Proceeds from sales of finance receivables 17,692 9,012 Operating leases - acquisitions (8,378) (7,118) Operating leases - liquidations 3,258 3,992 Investments in companies, net of cash acquired 1,355 (32) Other (2,411) 982 ----- ------ Net cash provided by (used in) investing activities (Note 1) 1,257 (14,139) Cash flows from financing activities Net (decrease) increase in loans payable (8,411) 2,137 Long-term debt - borrowings 30,440 37,784 Long-term debt - repayments (32,144) (30,986) Cash dividends paid to stockholders (570) (564) Other 3,619 2,804 ----- ------ Net cash (used in) provided by financing activities (7,066) 11,175 Effect of exchange rate changes on cash and cash equivalents (412) (248) ------ ------ Net decrease in cash and cash equivalents (3,732) (2,653) Cash and cash equivalents at beginning of the period 35,993 32,554 ------ ------ Cash and cash equivalents at end of the period $32,261 $29,901 ====== ====== 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, ------------------------------------ (As restated) 2005 2004 2005 2004 ---- ---- ---- ---- (dollars in millions) Net cash (used in) provided by operating activities (Note 1) $(2,138) $955 $4,627 $(396) Cash flows from investing activities Expenditures for property (2,813) (3,038) (131) (163) Investments in marketable securities - acquisitions (271) (855) (10,559) (5,611) Investments in marketable securities - liquidations 3,137 1,603 7,132 5,461 Net change in mortgage services rights - - (784) (816) Increase in finance receivables - - (5,970) (17,556) Proceeds from sales of finance receivables - - 17,692 9,012 Operating leases - acquisitions - - (8,378) (7,118) Operating leases - liquidations - - 3,258 3,992 Net investing activity with Financing and Insurance Operations 1,000 - - - Investments in companies, net of cash acquired 1,355 (53) - 21 Other (591) 110 (1,820) 872 ----- ----- ----- ------ Net cash provided by (used in) investing activities (Note 1) 1,817 (2,233) 440 (11,906) Cash flows from financing activities Net increase (decrease) in loans payable 46 (437) (8,457) 2,574 Long-term debt - borrowings 25 756 30,415 37,028 Long-term debt - repayments (20) (55) (32,124) (30,931) Net financing activity with Automotive & Other - - (1,000) - Cash dividends paid to stockholders (570) (564) - - Other - - 3,619 2,804 --- --- ----- ------ Net cash (used in) provided by financing activities (519) (300) (7,547) 11,475 Effect of exchange rate changes on cash and cash equivalents (283) (176) (129) (72) Net transactions with Automotive/Financing Operations 420 512 (420) (512) --- ----- ----- ----- Net decrease in cash and cash equivalents (703) (1,242) (3,029) (1,411) Cash and cash equivalents at beginning of the period 13,148 14,424 22,845 18,130 ------ ------ ------ ------ Cash and cash equivalents at end of the period $12,445 $13,182 $19,816 $16,719 ====== ====== ====== ====== The above Supplemental Information is intended to facilitate analysis of General Motors Corporation's businesses: (1) Automotive and Other Operations; and (2) Financing and Insurance Operations. Classification of cash flows for Financing and Insurance Operations is consistent with presentation in GM's Consolidated Statement of Cash Flows. See Note 1. Reference should be made to the notes to consolidated financial statements. 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 which 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, 2004 and the GMAC Quarterly Report on Form 10-Q for the period ended June 30, 2005, filed separately with the U.S. Securities and Exchange Commission (SEC). GM presents its primary financial statements on a fully consolidated basis. Transactions between businesses have been eliminated in the Corporation's consolidated financial statements. These transactions consist principally of borrowings and other financial services provided by Financing and Insurance Operations (FIO) to Automotive and Other Operations (Auto & Other). To facilitate analysis, GM presents supplemental information to the statements of income, balance sheets, and statements of cash flows for the following businesses: (1) Auto & Other, which consists of the design, manufacturing, and marketing of cars, trucks 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. Restatement of Quarterly 2004 Financial Statements for Out-of-Period Adjustments GM has made certain adjustments to restate previously reported quarterly financial results for 2004 that do not affect GM's 2004 total annual results, cash flows, or year-end 2004 financial position. During the fourth quarter of 2004, internal controls that had been put into place in connection with GM's Sarbanes-Oxley Section 404 program at GMAC's residential mortgage businesses identified certain out-of-period adjustments. The majority of these amounts resulted from items detected and recorded in the fourth quarter of 2004 that relate to prior 2004 quarters. As a result, GM has restated its 2004 quarterly and year-to-date financial statements. The most significant of these restatement adjustments relate to: (1) the estimation of fair values of certain interests in securitized assets, (2) the accounting for deferred income taxes related to certain secured financing transactions; and (3) the income statement effects of consolidating certain mortgage transfers previously recognized as sales. Upon identification of these out-of-period adjustments, GM analyzed their effect, together with the effect of out-of-period adjustments related to Auto & Other that had been previously considered immaterial to GM on a consolidated basis, and concluded that, in the aggregate, they were significant enough to warrant restatement of GM's 2004 quarterly results. The most significant of the Auto & Other out-of-period adjustments relates to GM's accounting for the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which was initially reported in the first quarter of 2004 pursuant to FASB Staff Position (FSP) No. FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." FSP 106-1 permitted companies to recognize the effect of the Act beginning with its enactment date (December 8, 2003), or defer recognition until the issuance of final rules by the FASB. In the second quarter of 2004, FSP 106-2 was issued which superseded FSP 106-1 and clarified how to account for the effect of the Act under circumstances where a company's other postretirement employee benefits (OPEB) plan has a plan year-end that is different from the company's fiscal year-end. This second quarter clarification provided guidance on the accounting for the effect of the Act in a manner different than GM had applied prior to restatement. A summary of the significant effects of the restatement follows: 9 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 1. Financial Statement Presentation (continued) Three Months Ended Six Months Ended June 30, 2004 June 30, 2004 As As previously previously reported * As restated reported * As restated ---------- ----------- ---------- ----------- (dollars in millions except per share amounts) Total net sales and revenues $49,148 $49,254 $96,833 $97,084 Income before income taxes, equity income, and minority interests $1,457 $1,466 $2,758 $2,730 Income tax expense 306 302 579 610 Minority interests (23) (23) (46) (46) Earnings of nonconsolidated associates 213 236 488 511 ----- ----- ----- ----- Net income $1,341 $1,377 $2,621 $2,585 ===== ===== ===== ===== Basic earnings per share attributable to common stock $2.37 $2.44 $4.64 $4.58 ==== ==== ==== ==== Average number of shares of common stock outstanding - basic (in millions) 565 565 565 565 Earnings per share attributable to common stock assuming dilution $2.36 $2.42 $4.61 $4.54 ==== ==== ==== ==== Average number of shares of common stock outstanding - diluted (in millions) 568 568 569 569 Net income (loss) by reportable operating segment / region Automotive and Other Operations GM North America (GMNA) $328 $355 $779 $756 GM Europe (GME) (45) (45) (161) (161) GM Latin America/Africa/Mid-East (GMLAAM) 10 10 11 11 GM Asia Pacific (GMAP) 236 259 511 534 Other Operations (34) (34) (151) (151) -- -- --- --- Net income - Automotive and Other Operations 495 545 989 989 Financing and Insurance Operations Net income - Financing and Insurance Operations 846 832 1,632 1,596 ----- ----- ----- ----- Net income $1,341 $1,377 $2,621 $2,585 ===== ===== ===== ===== *As reported in Form 10-Q for the quarter ended June 30, 2004. Statements of Cash Flows After considering the concerns raised by the staff of the SEC as of December 31, 2004, management concluded that certain amounts in the Consolidated Statements of Cash Flows for the year ended December 31, 2004 should be reclassified to appropriately present net cash used in operating activities and net cash used in investing activities. These amounts for the six months ended June 30, 2004 have been reclassified to be consistent with the six months ended June 30, 2005. The Corporation's previous policy was to classify all the cash flow effects of providing wholesale loans to its independent dealers by GM's Financing and Insurance Operations as an investing activity in its Consolidated Statements of Cash Flows. This policy, when applied to the financing of inventory sales, had the effect of presenting an investing cash outflow and an operating cash inflow even though there was no cash inflow or outflow on a consolidated basis. The Corporation has changed its policy to eliminate this intersegment activity from its Consolidated Statements of Cash Flows and, as a result of this change, all 10 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 1. Financial Statement Presentation (continued) cash flow effects related to wholesale loans are reflected in the operating activities section of the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2005 and 2004. This reclassification better reflects the financing of the sale of inventory as a non-cash transaction to GM on a consolidated basis and eliminates the effects of intercompany transactions. The following table shows the effects of this reclassification for the six months ended June 30, 2004, consistent with the 2005 presentation (dollars in millions): Net cash provided by operating activities as previously reported $7,599 Reclassification (7,040) ----- Revised net cash provided by operating activities $559 === Net cash used in investing activities as previously reported $(21,179) Reclassification 7,040 ------ Revised net cash used in investing activities $(14,139) ====== Presentation of Delphi Receivable As of June 30, 2005 GM's Consolidated Balance Sheet reflects a change in presentation of a receivable due from Delphi Corporation (Delphi). The receivable represents amounts that Delphi owes to GM for OPEB relating to Delphi employees who were formerly GM employees and subsequently transferred back to GM as job openings at GM became available to them under certain employee "flowback" arrangements included in the 1999 Separation Agreement between GM and Delphi. GM is responsible to pay for the OPEB of the subject employees. In accordance with the terms of the 1999 Separation Agreement, Delphi will compensate GM for the total OPEB attributable to services rendered by the subject employees from their original GM service date through the date the subject employees flowed back to GM from Delphi. In prior periods this amount was netted against the OPEB liability carried on GM's balance sheet. As a result of the change in presentation, GM's June 30, 2005 Consolidated Balance Sheet reflects an $819 million increase in the amount presented under "Other Assets" and a corresponding liability increase under "Postretirement Benefits Other than Pensions." Cash settlement between GM and Delphi with respect to this receivable is scheduled to occur at the time of the employees' estimated retirement dates. GM has the right to offset the amounts owed by Delphi under this arrangement against amounts GM owes to Delphi for the purchase of Delphi products. At June 30, 2005, GM owed approximately $1.8 billion to Delphi for such purchases in North America. New Accounting Standards In December 2004, the Financial Accounting Standards Board (FASB) revised Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123R), requiring companies to record share-based payment transactions as compensation expense at fair market value. SFAS No. 123R further defines the concept of fair market value as it relates to such arrangements. Based on SEC guidance issued in Staff Accounting Bulletin (SAB) 107 in April 2005, the provisions of this statement will be effective for General Motors as of January 1, 2006. The Corporation began expensing the fair market value of newly granted stock options and other stock based compensation awards to employees pursuant to SFAS No. 123 in 2003; therefore this statement is not expected to have a material effect on GM's consolidated financial position or results of operations. In March 2005, the FASB released FASB Staff Position (FSP) FIN 46(R)-5, which addresses whether a corporation should consider whether it holds an implicit interest in a variable interest entity (VIE) or potential VIE when specific conditions exist to determine if the guidance in FASB Interpretation No. 46 (Revised 2003), "Consolidation of Variable Interest Entities" (FIN 46(R)), should be applied. GM had adopted FIN 46(R) as of January 1, 2004. GM adopted FSP FIN 46(R)-5 upon issuance. The Interpretation did not have an effect on GM's consolidated financial position or results of operations. 11 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 1. Financial Statement Presentation (concluded) In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143, Accounting for Asset Retirement Obligations." FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. This interpretation is effective for fiscal years ending after December 15, 2005. Management does not expect this interpretation to have a material impact on GM's consolidated financial position or results of operations. In April 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," requiring retrospective application as the required method for reporting a change in accounting principle, unless impracticable or a pronouncement includes specific transition provisions. This statement also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. This statement carries forward the guidance in APB Opinion No. 20, "Accounting Changes," for the reporting of the correction of an error and a change in accounting estimate. This statement is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. This statement is not expected to have a material effect on GM's consolidated financial position or results of operations. NOTE 2. Acquisition and Disposal of Businesses On February 3, 2005, GM completed the purchase of 16.6 million newly-issued shares of common stock in GM Daewoo Auto & Technology Company (GM Daewoo, formerly referred to as GM-DAT) for approximately $49 million. This increased GM's ownership in GM Daewoo to 48.2% from 44.6%. No other shareholders in GM Daewoo participated in the issue. On June 28, 2005, GM purchased from Suzuki Motor Corporation (Suzuki) 6.9 million shares of outstanding common stock in GM Daewoo for approximately $21 million. This increased GM's ownership in GM Daewoo to 50.9%. Accordingly, as of June 30, 2005, GM Daewoo was consolidated by GM. This increased GM's total assets and liabilities by approximately $4.7 billion and $4.5 billion, respectively, including one-time increases of $1.6 billion of cash and marketable securities and $1.3 billion of long-term debt. GM has not yet completed its allocation of the total purchase price of GM Daewoo to its net assets. The following unaudited financial information for the three and six months ended June 30, 2005 and 2004 represents amounts attributable to GM Daewoo on a basis consistent with giving effect to the increased ownership and consolidation as of January 1, 2004 (dollars in millions). The pro forma effect on net income is not significant compared to equity income recognized. Pro-forma Pro-forma Three Months Ended Six Months Ended June 30, June 30 ----------------------------------------------- 2005 2004 2005 2004 ---- ---- ---- ---- Total net sales and revenues $1,497 $1,047 $2,668 $2,039 Income (loss) before income taxes, equity income and minority interests $59 $34 $43 $18 On February 13, 2005, GM entered into certain agreements with Fiat S.p.A. (Fiat), under which GM and Fiat agreed to terminate and liquidate all joint ventures between them and GM would acquire certain strategic assets from Fiat. Effective May 13, 2005 the liquidation of these joint ventures and GM's acquisition of certain strategic assets from Fiat was completed. As a result, GM regained complete ownership of all of its respective assets originally contributed to each joint venture, GM acquired a 50% interest in a new joint venture limited to operating the powertrain manufacturing plant in Bielsko-Biala, Poland, that currently produces the 1.3 SDE diesel engine, and GM will co-own with Fiat key powertrain intellectual property, including the SDE and JTD diesel engines and the M20-32 six-speed manual transmission. This resulted in an increase of approximately $1.4 billion and $2.0 billion to assets and liabilities, respectively, in GM's Consolidated Balance Sheet as of June 30, 2005. On April 4, 2005, GM completed the sale of Electro-Motive Division (EMD) to an investor group led by Greenbriar Equity Group LLC and Berkshire Partners LLC. The sale covered substantially all of the EMD businesses, and both the LaGrange, Illinois and London, Ontario manufacturing facilities. This transaction did not have a material effect on GM's consolidated financial position or results of operations. The final consideration is contingent upon a closing date balance sheet audit. 12 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 3. Inventories Inventories included the following (dollars in millions): June 30, Dec. 31, June 30, 2005 2004 2004 ----- ---- ---- Automotive and Other Operations - ------------------------------- Productive material, work in process, and supplies $5,364 $4,838 $5,324 Finished product, service parts, etc. 8,757 8,321 7,838 ------ ------ ------ Total inventories at FIFO 14,121 13,159 13,162 Less LIFO allowance (1,303) (1,442) (1,586) ------ ------ ------ Total inventories (less allowances) $12,818 $11,717 $11,576 Financing and Insurance Operations - ---------------------------------- Off-lease vehicles 532 530 698 ------ ------ ------ Total consolidated inventories (less allowances) $13,350 $12,247 $12,274 ====== ====== ====== NOTE 4. Goodwill and Acquired Intangible Assets The components of the Corporation's acquired intangible assets as of June 30, 2005, and 2004 were as follows (dollars in millions): Gross Net Carrying Accumulated Carrying June 30, 2005 Amount Amortization Amount ------------------------------------ Automotive and Other Operations - ------------------------------- Amortizing intangible assets: Patents and intellectual property rights $510 $93 $417 Non-amortizing intangible assets: Goodwill 526 Pension intangible asset 715 ----- Total goodwill and intangible assets $1,658 ----- Financing and Insurance Operations - ---------------------------------- Amortizing intangible assets: Customer lists and contracts $74 $45 29 Trademarks and other 40 22 18 Covenants not to compete 18 18 - --- -- -- Total $132 $85 $47 === == Non-amortizing intangible assets: Goodwill 3,242 ----- Total goodwill and intangible assets 3,289 ----- Total consolidated goodwill and intangible assets $4,947 ===== 13 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 4. Goodwill and Acquired Intangible Assets (concluded) Gross Net Carrying Accumulated Carrying June 30, 2004 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 ===== Annual amortization expense relating to the existing intangible assets for each of the next five years is estimated at $33 million to $61 million. The changes in the carrying amounts of goodwill for the six months ended June 30, 2005, and 2004, were as follows (dollars in millions): Total Auto & GMNA GME Other GMAC Total GM ---- --- ----- ---- -------- Balance as of December 31, 2004 $154 $446 $600 $3,274 $3,874 Goodwill acquired during the period - - - 3 3 Effect of foreign currency translation (7) (67) (74) (35) (109) --- --- --- ----- ----- Balance as of June 30, 2005 $147 $379 $526 $3,242 $3,768 === === === ===== ===== 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) Other (5) - (5) - (5) --- --- --- ----- ----- Balance as of June 30, 2004 $147 $393 $540 $3,232 $3,772 === === === ===== ===== 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: Japan - Fuji Heavy Industries Ltd. (20.1% at June 30, 2005 and 2004), Suzuki Motor Corporation (20.2% at June 30, 2005 and 20.3% at June 30, 2004); China - Shanghai General Motors Co., Ltd (50% at June 30, 2005 and 2004), SAIC GM Wuling Automobile Co., Ltd (34% at June 30, 2005 and 2004); Korea - GM Daewoo (50.9% at June 30, 2005 and 44.6% at June 30, 2004) With the increase in ownership, GM Daewoo was consolidated by GM at June 30, 2005 - see Note 2; Italy - GM-Fiat Powertrain (FGP) (50% at March 31, 2004). Information regarding GM's share of income for all nonconsolidated affiliates in the following countries is included in the table below (in millions): 14 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 5. Investment in Nonconsolidated Affiliates (concluded) GM's share of nonconsolidated affiliates' net income (loss): Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------------- 2005 2004 2005 2004 ---- ---- ---- ---- Italy $11 $11 $32 $29 Japan $45 $53 $95 $159 China $99 $148 $132 $310 Korea $25 $15 $17 $7 On February 13, 2005, GM entered into certain agreements with Fiat, under which GM and Fiat have terminated and liquidated all joint ventures between them in existence at that time - see Note 2. Separately, during the second quarter of 2005, GM entered into a new joint venture with Fiat in Poland, GM Fiat Powertrain Polska, with each party owning 50% of the joint venture. 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, 2005 Dec. 31, 2004 June 30, 2004 ------------- ------------- ------------- Beginning balance $9,315 $8,832 $8,832 Payments (2,366) (4,669) (2,290) Increase in liability (warranties issued during period) 2,867 5,065 2,794 Adjustments to liability (pre-existing warranties) (264) (85) (157) Effect of foreign currency translation and other adjustments (263) 172 (23) ----- ----- ----- Ending balance $9,289 $9,315 $9,156 ===== ===== ===== Warranty liability amounts in the table above have been revised to include amounts with respect to certified-used vehicles. December 31 and June 30, 2004 balances have been revised accordingly to provide a comparative basis. 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 $639 million. Expiration dates vary, and certain leases contain renewal options. The fair value of the underlying assets is expected to fully mitigate GM's obligations under these guarantees. Accordingly, no liabilities were recorded with respect to such guarantees. Also, GM has entered into agreements with certain suppliers and service providers that guarantee the value of the suppliers' assets and agreements with third parties that guarantee fulfillment of certain suppliers' commitments. The maximum exposure under these commitments amounts to $154 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, 2005 approximately $32 million was recorded with respect to these guarantees, the maximum exposure under which is approximately $7.4 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. 15 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 7. Commitments and Contingent Matters (concluded) In connection with the Delphi spinoff, completed May 28, 1999, GM has provided limited guarantees with respect to benefits for former GM employees relating to pensions, post-retirement healthcare, and life insurance. In addition, GM has provided limited guarantees with respect to benefits for former GM employees relating to pensions, post-retirement healthcare, and life insurance in connection with certain other divestitures. 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. Delphi has given GM an indemnification with respect to all amounts for which GM may be obligated under the guarantee obligation GM has with respect to employees of Delphi. In addition to the above, in the normal course of business GM periodically enters into agreements that incorporate indemnification provisions. While the maximum amount to which GM may be exposed under such agreements cannot be estimated, it is the opinion of management that these guarantees and indemnifications are not expected to have a material adverse effect on the Corporation's consolidated financial position or results of operations. Contingent Matters Litigation is subject to uncertainties and the outcome of individual litigated matters is not predictable with assurance. Various legal actions, governmental investigations, claims, and proceedings are pending against the Corporation, including those arising out of alleged product defects; employment-related matters; governmental regulations relating to safety, emissions, and fuel economy; product warranties; financial services; dealer, supplier, and other contractual relationships; and environmental matters. GM has established reserves for matters in which losses are probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or other treble damage claims, or demands for recall campaigns, environmental remediation programs, or sanctions, that if granted, could require the Corporation to pay damages or make other expenditures in amounts that could not be estimated at June 30, 2005. After discussion with counsel, it is the opinion of management that such liability is not expected to have a material adverse effect on the Corporation's consolidated financial condition or results of operations. NOTE 8. Comprehensive Income (Loss) GM's total comprehensive income (loss), net of tax, was as follows (in millions): Three Months Ended Six Months Ended June 30, June 30 --------------------------------------------- 2005 2004 2005 2004 ---- ---- ---- ---- Net income (loss) $(286) $1,377 $(1,390) $2,585 Other comprehensive income (loss) 2 302 (729) 448 --- ----- ----- ----- Total $(284) $1,679 $(2,119) $3,033 === ===== ===== ===== 16 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 9. Earnings Per Share Attributable to Common Stock The reconciliation of the amounts used in the basic and diluted earnings per share computations was as follows (in millions except per share amounts): $1-2/3 Par Value Common Stock ------------------------------- Income Per Share (Loss) Shares Amount Three Months Ended June 30, 2005 Basic EPS (Losses) attributable to common stock $(286) 565 $(0.51) ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - - - --- --- ---- Diluted EPS Adjusted (losses) attributable to common stock $(286) 565 $(0.51) === === ==== Three Months Ended June 30, 2004 Basic EPS Earnings attributable to common stock $1,377 565 $2.44 ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 3 - ----- --- ---- Diluted EPS Adjusted earnings attributable to common stock $1,377 568 $2.42 ===== === ==== Six Months Ended June 30, 2005 Basic EPS (Losses) attributable to common stock $(1,390) 565 $(2.46) ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - - - ----- --- ---- Diluted EPS Adjusted (losses) attributable to common stock $(1,390) 565 $(2.46) ===== === ==== Six Months Ended June 30, 2004 Basic EPS Earnings attributable to common stock $2,585 565 $4.58 ==== Effect of Dilutive Securities Assumed exercise of dilutive stock options - 4 - ----- --- ---- Diluted EPS Adjusted earnings attributable to common stock $2,585 569 $4.54 ===== === ==== Certain stock options and convertible securities were not included in the computation of diluted earnings per share for the periods presented since the instruments' underlying exercise prices were greater than the average market prices of GM $1-2/3 par value common stock and inclusion would be antidilutive. Such shares not included in the computation of diluted earnings per share were 112 million as of June 30, 2005 and 223 million as of June 30, 2004. In addition, for periods in which there was a loss attributable to common stocks, options to purchase shares of GM $1-2/3 par value common stock with underlying exercise prices less than the average market prices were outstanding, but were excluded from the calculations of diluted loss per share, as inclusion of these securities would have reduced the net loss per share. 17 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 10. Depreciation and Amortization Depreciation and amortization included in cost of sales and other expenses and selling, general and administrative expenses for Automotive and Other Operations was as follows (in millions): Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------ 2005 2004 2005 2004 ---- ---- ---- ---- Depreciation $1,292 $1,441 $2,562 $2,589 Amortization of special tools 803 774 1,619 1,500 Amortization of intangible assets 13 9 23 16 ----- ----- ----- ----- Total $2,108 $2,224 $4,204 $4,105 ===== ===== ===== ===== 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, --------------------------------------------------- 2005 2004 2005 2004 2005 2004 --------------------------------------------------- Components of expense (dollars in millions) Service cost $274 $275 $70 $60 $188 $149 Interest cost 1,237 1,263 235 216 1,079 967 Expected return on plan assets (1,974) (1,955) (182) (163) (421) (274) Amortization of prior service cost 291 319 26 23 (15) (20) Recognized net actuarial loss 479 464 69 47 586 278 Curtailments, settlements, and other 21 - 25 1 2 - --- --- --- --- ----- ----- Net expense $328 $366 $243 $184 $1,419 $1,100 === === === === ===== ===== --------------------------------------------------- Six Months Ended Six Months Ended Six Months Ended June 30, June 30, June 30, --------------------------------------------------- 2005 2004 2005 2004 2005 2004 --------------------------------------------------- Components of expense (dollars in millions) Service cost $548 $548 $142 $122 $376 $306 Interest cost 2,474 2,523 476 439 2,160 1,984 Expected return on plan assets (3,948) (3,908) (367) (326) (842) (547) Amortization of prior service cost 582 638 53 47 (31) (40) Recognized net actuarial loss 958 928 138 95 1,172 652 Curtailments, settlements, and other 112 34 84 8 2 - --- --- --- --- ----- ----- Net expense $726 $763 $526 $385 $2,837 $2,355 === === === === ===== ===== During the second quarter of 2005, GM withdrew $1 billion from its Voluntary Employees' Beneficiary Association (VEBA) trust as a reimbursement for its retiree health care payments. On July 1, 2005, GM withdrew an additional $1 billion from the VEBA, and on a quarter-by-quarter basis is evaluating the need for additional withdrawals as the cost of health care continues to adversely affect GM's liquidity. NOTE 12. 2005 Initiatives Results in the first quarter of 2005 include after-tax charges of $140 million recorded in GMNA and $8 million recorded in Other Operations related to voluntary early retirement and other separation programs with respect to certain salaried employees in the U.S. GMNA results in the first quarter of 2005 include a charge of $84 million, after tax, for the write-down to fair market value of various plant assets in connection with the first quarter announcement to discontinue production at the Lansing assembly plant during the second quarter of 2005. 18 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 12. 2005 Initiatives (concluded) GME results in the first and second quarters of 2005 include after-tax separation charges of $422 million and $126 million, respectively, related to the restructuring plan announced in the fourth quarter of 2004. This plan targets a reduction in annual structural costs of an estimated $600 million by 2006. A total reduction of 12,000 employees, including 10,000 in Germany, over the period 2005 through 2007 through separation programs, early retirements, and selected outsourcing initiatives is expected. The charge incurred in the first quarter of 2005 covers approximately 5,650 people, of whom 4,900 are in Germany. The charge in the second quarter of 2005 covers approximately 600 additional people, as well as those charges related to previous separations that are required to be amortized over future periods, and costs related to the dissolution of the FGP joint ventures. 19 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited) NOTE 13. Segment Reporting
Auto & Other Total GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing ---- --- ------ ---- --- ----- ----- ---- --------- --------- For the Three Months Ended (dollars in millions) June 30, 2005 Manufactured products sales and revenues: External customers $28,038 $8,025 $2,742 $1,640 $40,445 $(267) $40,178 $8,319 $(28) $8,291 Intersegment (913) 438 193 282 - - - - - - ------ ----- ----- ----- ------ --- ------ ----- -- ----- Total manufactured products $27,125 $8,463 $2,935 $1,922 $40,445 $(267) $40,178 $8,319 $(28) $8,291 ====== ===== ===== ===== ====== ==== ====== ===== == ===== Interest income (a) $318 $112 $10 $2 $442 $(252) $190 $432 $(70) $362 Interest expense $755 $132 $38 $9 $934 $(263) $671 $3,050 $(9) $3,041 Net income (loss) $(1,194) $(89) $33 $176 $(1,074) $(20) $(1,094) $816 $ (8) $808 Segment assets $124,188 $24,087 $4,876 $10,219 $163,370 $(3,600) $159,770 $309,991 $(317) $309,674 For the Three Months Ended June 30, 2004 Manufactured products sales and revenues: External customers $29,988 $7,917 $1,764 $1,456 $41,125 $77 $41,202 $7,703 $349 $8,052 Intersegment (559) 177 145 237 - - - - - - ------ ----- ----- ----- ------ --- ------ ----- -- ----- Total manufactured products $29,429 $8,094 $1,909 $1,693 $41,125 $77 $41,202 $7,703 $349 $8,052 ====== ===== ===== ===== ====== ==== ====== ===== == ===== Interest income (a) $212 $92 $(3) $4 $305 $(170) $135 $329 $(68) $261 Interest expense $655 $88 $16 $5 $764 $(168) $596 $2,253 $(10) $2,243 Net income (loss) $355 $(45) $10 $259 $579 $(34) $545 $846 $(14) $832 Segment assets $129,862 $24,829 $3,672 $3,925 $162,288 $(1,575) $160,713 $296,968 $(217) $296,751 For the Six Months Ended June 30, 2005 Manufactured products sales and revenues: External customers $54,123 $15,598 $4,876 $3,175 $77,772 $(291) $77,481 $16,540 $ 221 $16,761 Intersegment (1,620) 822 358 441 1 (1) - - - - ------ ----- ----- ----- ------ --- ------ ------ -- ----- Total manufactured products $52,503 $16,420 $5,234 $3,616 $77,773 $(292) $77,481 $16,540 $221 $16,761 ====== ===== ===== ===== ====== ==== ====== ====== == ===== Interest income (a) $614 $203 $29 $5 $851 $(452) $399 $909 $(164) $745 Interest expense $1,513 $243 $62 $16 $1,834 $(478) $1,356 $6,051 $(16) $6,035 Net income (loss) $(2,754) $(614) $79 $236 $(3,053) $126 $(2,927) $1,544 $(7) $1,537 For the Six Months Ended June 30, 2004 Manufactured products sales and revenues: External customers $59,631 $15,195 $3,493 $2,884 $81,203 $136 $81,339 $15,273 $472 $15,745 Intersegment (1,099) 442 249 408 - - - - - - ------ ----- ----- ----- ------ --- ------ ------ --- ------ Total manufactured products $58,532 $15,637 $3,742 $3,292 $81,203 $136 $81,339 $15,273 $472 $15,745 ====== ===== ===== ===== ====== ==== ====== ====== === ====== Interest income (a) $398 $173 $8 $6 $585 $(293) $292 $662 $(137) $525 Interest expense $1,294 $175 $10 $12 $1,491 $(333) $1,158 $4,476 $(11) $4,465 Net income (loss) $756 $(161) $11 $534 $1,140 $(151) $989 $1,610 $(14) $1,596
- ------------------------------------ (a) Interest income is included in net sales and revenues from external customers. 20 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded (Unaudited) Note 14. Subsequent Event On August 3, 2005, GMAC announced that it had entered into a definitive binding agreement to sell a 60% equity interest in GMAC Commercial Holding Corp. (GMAC Commercial Mortgage). The transaction will allow GMAC Commercial Mortgage increased access to capital for continued growth of its business and GMAC to retain a significant economic interest. The transaction closing is contingent upon GMAC Commercial Mortgage securing an investment grade senior debt rating by Standard & Poor's, Moody's, and Fitch. It is expected that the transaction will be completed during the fourth quarter of 2005, subject to all necessary conditions and approvals. 21 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, 2004 consolidated financial statements and notes thereto (the 2004 Consolidated Financial Statements), along with the MD&A included in General Motors Corporation's (the Corporation, General Motors, or GM) 2004 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, 2004 and the Quarterly Report on Form 10-Q for the period ended June 30, 2005, 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 fully diluted basis. GM presents separate supplemental financial information for its reportable operating segments: o Automotive and Other Operations (Auto & Other); and o Financing and Insurance Operations (FIO). GM's Auto & Other reportable operating segment consists of: o GM's four automotive regions: GM North America (GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM Asia Pacific (GMAP), which constitute GM Automotive (GMA); and o Other, which includes the elimination of intersegment transactions, certain non-segment specific revenues and expenditures, including egacy costs related to postretirement benefits for certain Delphi and other retirees, and certain corporate activities. GM's FIO reportable operating segment consists of GMAC and Other Financing, which includes financing entities that are not consolidated by GMAC. The disaggregated financial results for GMA have been prepared using a management approach, which is consistent with the basis and manner in which GM management internally disaggregates financial information for the purpose of assisting in making internal operating decisions. In this regard, certain common expenses were allocated among regions less precisely than would be required for stand-alone financial information prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The financial results represent the historical information used by management for internal decision-making purposes; therefore, other data prepared to represent the way in which the business will operate in the future, or data prepared in accordance with GAAP, may be materially different. Consistent with industry practice, market share information employs estimates of sales in certain countries where public reporting is not legally required or otherwise available on a consistent basis. The accompanying MD&A gives effect to the restatement of the 2004 Quarterly Consolidated Financial Statements discussed in Note 1 to the Consolidated Financial Statements. 22 GENERAL MOTORS CORPORATION AND SUBSIDIARIES RESULTS OF OPERATIONS Consolidated Results Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------ Restated Restated 2005 2004 2005 2004 ---- ---- ---- ---- (dollars in millions) Consolidated: Total net sales and revenues $48,469 $49,254 $94,242 $97,084 Net income (loss) $(286) $1,377 $(1,390) $2,585 Net margin (0.6%) 2.8% (1.5%) 2.7% Automotive and Other Operations: Total net sales and revenues $40,178 $41,202 $77,481 $81,339 Net income (loss) $(1,094) $545 $(2,927) $989 Financing and Insurance Operations: Total revenues $8,291 $8,052 $16,761 $15,745 Net income $808 $832 $1,537 $1,596 The decrease in second quarter 2005 total net sales and revenues, compared with second quarter 2004, was due to decreased GMA revenue of $680 million, primarily driven by lower production volume and unfavorable product mix at GMNA, partly offset by revenue increases in all other automotive regions. FIO revenue increased $239 million. Consolidated net income decreased $1.7 billion to a net loss of $286 million in the second quarter of 2005, compared to income of $1.4 billion in the second quarter of 2004. The net loss at Auto & Other of $1.1 billion is primarily attributable to GMNA, which had a net loss of $1.2 billion, and GME, which had a net loss of $89 million, partially offset by net income at GMLAAM and GMAP. GMAC earned $816 million in the second quarter of 2005, down $30 million from the 2004 level, reflecting lower financing income partially offset by higher income from mortgage and insurance operations. For the six months ended June 30, 2005, GM incurred a net loss of $1.4 billion, compared with net income of $2.6 billion in 2004. A significant loss at GMNA, primarily due to lower production volume, weaker product mix, material cost pressure, and higher healthcare costs, is the primary reason for the overall net loss for the first half of the year. On a consolidated basis, GM recognized a net tax benefit of $305 million on a loss before taxes, equity income, and minority interests of $764 million, resulting in an effective tax rate for the second quarter of 2005 of 40%. For 2005, GM expects to recognize substantial permanent tax benefits that do not vary with pre-tax income, such as Medicare Part D benefits in the U.S. For the second quarter of 2005, GM's income tax provision was based on the total of pre-tax income at statutory tax rates plus one-fourth of these expected benefits. Taxes were allocated to GM's automotive regions based on tax rates used by management for evaluating their performance. Tax benefits in excess of those recognized in GMA are allocated to Other Operations. GM's quarterly tax provisions for the remainder of 2005 will be consistent with this approach. Second quarter 2005 results, compared to second quarter 2004, included: o Global automotive market share increased 0.5 percentage point to 15.2%; o GMNA incurred a significant loss due to lower volumes, unfavorable mix, material cost pressure, and increased health-care expense; o GME achieved improved operating results, which were more than offset by a restructuring charge related to ongoing initiatives; o GMLAAM was profitable for the sixth consecutive quarter; o GMAP earned lower net income resulting from conditions in China and lower income at GM Holden; and o GMAC earned significant net income despite a lower net interest margin environment. 23 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive and Other Operations Financial Review Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------ Restated Restated 2005 2004 2005 2004 ---- ---- ---- ---- (dollars in millions) Auto & Other: Total net sales and revenues $40,178 $41,202 $77,481 $81,339 Net income (loss) $(1,094) $545 $(2,927) $989 GMA net income (loss) by region: GMNA $(1,194) $355 $(2,754) $756 GME (89) (45) (614) (161) GMLAAM 33 10 79 11 GMAP 176 259 236 534 ------ --- ------ ------ Net income (loss) $(1,074) $579 $(3,053) $1,140 Net margin (2.7%) 1.4% (3.9%) 1.4% GM global automotive market share 15.2% 14.7% 14.3% 14.1% Other: Net income (loss) $(20) $(34) $126 $(151) GM Auto & Other net sales and revenues declined $1.0 billion, or 2.5%, in the second quarter of 2005, compared to the year-earlier quarter. The decrease was more than accounted for by a 7.8% decline in GMNA's total revenues, while all other regions increased revenues over the second quarter of 2004. GM's global market share was 15.2% and 14.7% for the second quarters of 2005 and 2004, respectively. GMNA's market share increased 1.1 percentage points, to 27.3% for the quarter, compared to 2004. Market share gains were achieved in GMLAAM and GMAP, while GME's share remained unchanged despite an increase in sales volume. See discussion below under each region. GMA incurred a net loss of $1.1 billion in the second quarter 2005, compared to net income of $579 million in 2004, primarily due to a substantial loss at GMNA and a restructuring charge at GME. For the six months ended June 30, 2005, GMA total net sales and revenues decreased $3.4 billion over the year-earlier period, with a decrease in GMNA of $6.0 billion more than offsetting increases in all other automotive regions. Over the same period, GMA incurred a net loss of $3.1 billion, compared to net income of $1.1 billion in 2004, primarily resulting from a loss of $2.8 billion at GMNA in 2005 and restructuring charges at GME. Other Operations incurred losses of $20 million and $34 million in the second quarters of 2005 and 2004, respectively, and earned net income of $126 million for the first six months of 2005, compared to a net loss of $151 million for the year-earlier period. The improved performance in 2005 was primarily due to tax benefits allocated to Other Operations, partly offset by interest expense and legacy costs. 24 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive and Other Operations Financial Review (continued) GM Automotive Regional Results GM North America Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------ Restated Restated 2005 2004 2005 2004 ---- ---- ---- ---- (dollars in millions) GMNA: Net income (loss) $(1,194) $355 $(2,754) $756 Net margin (4.4%) 1.2% (5.2%) 1.3% Production volume (volume in thousands) Cars 458 543 928 1,068 Trucks 789 846 1,502 1,666 ----- ----- ----- ----- Total GMNA 1,247 1,389 2,430 2,734 Vehicle unit sales Industry - North America 5,631 5,393 10,318 10,068 GM as a percentage of industry 27.3% 26.2% 26.4% 26.3% Industry - U.S. 4,801 4,598 8,801 8,592 GM as a percentage of industry 27.9% 26.7% 26.7% 26.7% GM cars 23.5% 23.5% 23.4% 24.6% GM trucks 31.3% 29.4% 29.4% 28.4% North American industry vehicle unit sales increased to 5.6 million in the second quarter of 2005 compared to 5.4 million in 2004, and GMNA's market share increased 1.1 percentage points to 27.3% from 26.2% in the second quarter of 2004. Over this period U.S. industry sales increased 4.4% to 4.8 million units. GM's U.S. market share increased by 1.2 percentage points, to 27.9%, compared to the second quarter of 2004. U.S. car market share remained unchanged at 23.5%, while U.S. truck market share increased to 31.3%, up 1.9 percentage points. Increased volume of new models and successful marketing programs, in particular employee pricing offers, were primary drivers of the increased retail sales in the 2005 period. In the second quarter of 2005, GMNA recorded a net loss of $1.2 billion, a deterioration of $1.5 billion from 2004 net income of $355 million. The decrease was primarily due to lower production volume, higher health-care expense, unfavorable product mix, and unfavorable material costs. Production volume was lower in 2005 by 142 thousand units, at 1.247 million for the quarter, compared to 1.389 million in the second quarter of 2004. Dealer inventories in the U.S. declined by 349 thousand units as a result of decreased production and strong retail sales in the quarter, to 1.018 million at June 30, 2005, from 1.367 million units at June 30, 2004. Product mix was unfavorable primarily due to a decrease in sales of large utility vehicles, resulting from the need to reduce dealer inventory levels in light of the upcoming launch of the GMT 900 full-size sport utility vehicle later this year. In addition, GMNA produced more fleet vehicles (28.4% of production in the second quarter of 2005, compared to 25.1% in the second quarter of 2004) that are less profitable than retail units. Country of sale mix, with higher sales in Canada and Mexico, and model mix were unfavorable, as well. In the second quarter of 2005, GMNA completed its annual study of warranty reserves. This resulted in a favorable pretax adjustment of $237 million, compared to $138 million in the second quarter of 2004 ($147 million and $86 million after tax, respectively). North American industry vehicle unit sales increased 2.5% to 10.3 million in the first six months of 2005 from 10.1 million in the first six months of 2004, while GMNA's market share increased by 0.1 percentage point to 26.4% in 2005 year-to-date, compared to 26.3% in 2004. For the first six months of 2005, industry vehicle unit sales in the United States increased 2.4% to 8.8 million units from 8.6 million units in the year-earlier period. GM's 2005 year-to-date U.S. market share remained unchanged, at 26.7%. U.S. car market share declined by 1.2 percentage points to 23.4%, while U.S. truck market share increased to 29.4%, up 1.0 percentage point from 2004. 25 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive and Other Operations Financial Review (continued) GM Automotive Regional Results (concluded) For the first six months of 2005 GMNA incurred a net loss of $2.8 billion, compared to net income of $756 million in 2004, primarily due to lower production volume, higher health-care expense, and unfavorable product mix. In addition, results in the first half of 2005 included an after-tax charge of $140 million related to voluntary early retirement and other separation programs with respect to certain salaried employees in the U.S. The first half of 2005 also included a charge of $84 million, after tax, for the write-down to fair market value of various plant assets in connection with the cessation of production at the Lansing assembly plant during the second quarter of 2005. Vehicle revenue per unit was $18,811 for the second quarter of 2005, slightly higher compared to $18,801 for the second quarter of 2004. GM North America Recovery Plan GM has announced plans to improve results at GMNA. The key elements of these plans and actions to date are as follows: - Execution of new products: o Increasing capital spending by approximately $1 billion in 2005, concentrated on new products; o Advancing the timing of several high volume, high profit programs, including large pick-ups and mid- and large-utilities; o Achieving strong sales of recently launched products, such as the Cobalt and H3, and o Launching additional products in the near term, including the Chevrolet HHR, Pontiac Solstice, and Cadillac DTS. - Retool sales and marketing strategy: o Clarifying, focusing, and differentiating the role of each North American brand; o Increasing advertising to support new products; o Implementing pricing and/or content changes on approximately half of 2006 model year products, emphasizing total value to customers, and decreasing reliance on sales incentives; o Focusing on improving GM's sales performance in major metropolitan markets; and o Improving the retail distribution network. - Reduce cost and improve quality: o Continuing the improvements in quality and productivity that have been recognized in recent surveys by J.D. Power and the Harbour Report; o Continuing to implement capacity reductions; and o Continuing efforts to reduce material costs through global sourcing efforts. - Address health care cost burden: o GM is engaged in discussions with the UAW and other unions, focused on a cooperative approach to significantly reduce GM's health care cost disadvantage. Delphi Matters Delphi Corporation, a major supplier to GM's automotive operations and a former subsidiary of GM, has presented GM with information regarding its intention to address its existing legacy liabilities and the high cost structure of its U.S. operations. Delphi has stated that it has also outlined this information to its largest union, the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW), and separately to its other U.S. unions. Delphi has stated that it is seeking a comprehensive restructuring of its U.S. operations in which it obtains participation by its unions and financial support from GM. Delphi has also stated that, if it is not successful in achieving a restructuring by October 17, 2005, it would consider other strategic alternatives, including a judicial reorganization under Federal bankruptcy laws. GM is considering Delphi's request in order to determine what participation by GM, if any, would be in the best interests of GM and its stockholders. Delphi has notified GM that, assuming GM participates in Delphi's restructuring in a manner satisfactory to Delphi, it is Delphi's view there is not a likelihood that GM would become obligated to provide any benefits pursuant to the benefit guarantee agreement GM entered into with certain of its unions in 1999 (see Note 7 to the Consolidated Financial Statements), but has indicated that without GM's financial participation in Delphi's restructuring proposal, it expects that its view as to that matter would change. 26 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive and Other Operations Financial Review (continued) GM Europe Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------ Restated Restated 2005 2004 2005 2004 ---- ---- ---- ---- (dollars in millions) GME net loss $(89) $(45) $(614) $(161) GME net margin (1.1%) (0.6%) (3.7%) (1.0%) (volume in thousands) Production volume 501 503 1,003 976 Vehicle unit sales Industry 5,673 5,576 10,945 10,929 GM as a percentage of industry 9.7% 9.7% 9.7% 9.5% GM market share - Germany 11.1% 10.8% 11.0% 10.7% GM market share - United Kingdom 15.5% 13.9% 15.2% 14.0% Industry vehicle unit sales increased in Europe during the second quarter of 2005 by 1.7% to 5.7 million, from 5.6 million in the second quarter of 2004, with strong year-over-year growth in most of the region, partly offset by declines in the U.K., Italy, and Central Europe. In line with higher industry volumes, GME's vehicle unit sales increased by 10 thousand units over the second quarter of 2004, to 549 thousand units. GME's market share remained unchanged at 9.7%. In GM's two largest markets in Europe, GM gained market share: share was 11.1% in Germany, a 0.3 percentage point increase versus the second quarter of 2004, and 15.5% in the United Kingdom, an increase of 1.6 percentage points versus the same period in 2004. Market share was mixed in the rest of the region, with improvements in Italy and Eastern Europe, and declines in France, Spain, and other markets. Net loss for GME totaled $89 million and $45 million in the second quarters of 2005 and 2004, respectively. The second quarter 2005 loss includes an after-tax restructuring charge of $126 million, related to the initiative announced in the fourth quarter of 2004 and costs of dissolving GM's powertrain and purchasing joint ventures with Fiat S.p.A (Fiat). This charge and continued unfavorable price pressure more than offset improvements in structural costs (including the initial effects of the restructuring initiative), favorable material costs, and the effects of positive product mix. For the first six months of 2005, industry unit sales were essentially unchanged from the 2004 period in Europe, at 10.9 million units. GM's market share in the region increased 0.2 percentage point in the first half of 2005, to 9.7%. GM's share improved in both the U.K., up 1.2 percentage points to 15.2%, and in Germany, up 0.3 percentage point to 11.0%, compared to the first six months of 2004. For the six months ended June 30, 2005, GME's net loss was $614 million, compared to $161 million for the same period in 2004. The increased loss was more than accounted for by after-tax restructuring charges totaling $548 million (including $422 million in the first quarter). These charges and unfavorable price more than offset favorable mix and material and structural cost improvements. The restructuring plan noted above targets a reduction in annual structural costs of an estimated $600 million by 2006. A total reduction of 12,000 employees, including 10,000 in Germany, over the period 2005 through 2007 through separation programs, early retirements, and selected outsourcing initiatives is expected. The charge incurred in the second quarter of 2005 covers approximately 600 people, as well as those charges related to previous separations that are required to be amortized over future periods. The charge incurred in the first quarter of 2005 covered approximately 5,650 people, of whom 4,900 are in Germany. The Corporation's plan is on track and anticipates further separations and associated charges in the remainder of 2005 and into 2006 and 2007. The amount of such future separation charges will be recognized in the respective periods, and will depend both on the type of separations and associated workforce demographics. 27 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Latin America/Africa/Mid-East Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------ Restated Restated 2005 2004 2005 2004 ---- ---- ---- ---- (dollars in millions) GMLAAM net income $33 $10 $79 $11 GMLAAM net margin 1.1% 0.5% 1.5% 0.3% (volume in thousands) Production volume 196 172 381 331 Vehicle unit sales Industry 1,237 1,020 2,381 2,004 GM as a percentage of industry 18.3% 17.1% 17.2% 16.6% GM market share - Brazil 21.9% 23.5% 20.6% 23.5% Industry vehicle unit sales in the LAAM region increased over 21% in the second quarter of 2005, to 1.237 million units, compared to the second quarter of 2004. Overall, GMLAAM's market share for the region increased 1.2 percentage points, to 18.3% in the second quarter of 2005. This increase was primarily the result of a 3.4 percentage point increase in South Africa market share, and increases in Argentina and the Middle East, partly offset by a decrease of 1.6 percentage points in Brazil. GM's market share in Brazil was adversely affected by the lack of a 1.0 liter flex-fuel vehicle in the low market segment. This will be addressed in the third quarter of 2005 with the launch of the Chevrolet Celta with flex-fuel. GMLAAM earned net income of $33 million in the quarter, up from net income of $10 million in the second quarter of 2004. The increase in net income was primarily the result of higher production volume, partly offset by negative foreign exchange, especially in Brazil. The second quarter of 2005 is the sixth consecutive quarter of profitability for GMLAAM. In the first half of 2005, industry vehicle unit sales grew to 2.381 million units, up 18.8% over the first half of 2004. GM's market share in the region increased to 17.2%, from 16.6% in 2004, despite a decrease in share in Brazil, down 2.9 percentage points to 20.6%. For the first half of 2005, GMLAAM earned $79 million, compared to $11 million a year earlier, primarily due to higher income in South Africa, Venezuela, and Colombia, partially offset by unfavorable results in Brazil. GM Asia Pacific Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------ Restated Restated 2005 2004 2005 2004 ---- ---- ---- ---- (dollars in millions) GMAP net income $176 $259 $236 $534 GMAP net margin 9.2% 15.3% 6.5% 16.2% (volume in thousands) Production volume 400 337 735 633 Vehicle unit sales Industry 4,500 4,048 9,142 8,620 GM as a percentage of industry 6.3% 5.6% 5.6% 5.2% GM market share - Australia 18.0% 19.3% 18.2% 19.7% GM market share - China 11.4% 9.8% 10.9% 9.8% 28 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GM Automotive and Other Operations Financial Review (concluded) GM Asis Pacific (concluded) Industry vehicle unit sales in the Asia Pacific region increased 11.2% in the second quarter of 2005 compared to the second quarter of 2004, to 4.5 million units, with slightly over half the unit increase in China, and growth throughout the region. GMAP increased its vehicle unit sales (including GM Daewoo Auto & Technology Company [GM Daewoo] and China affiliates) in the region by 55 thousand units, or 24.7% in the period, to 281 thousand units from 226 thousand in 2004, driven primarily by higher sales in China. GMAP's second quarter 2005 market share increased to 6.3%, from 5.6% in the second quarter of 2004. GMAP increased its market share in China to 11.4% in the second quarter of 2005, up from 9.8% in the second quarter of 2004. Market share in Australia decreased in the period to 18.0%, compared to 19.3% in the second quarter of 2004, primarily due to lower sales of full-sized cars. In the first six months of 2005, industry vehicle unit sales in the region increased 522 thousand units, or 6.1%, to 9.1 million, over the year earlier period, while GMAP's sales increased 63 thousand units, or 13.9%, to 513 thousand. The bulk of GMAP's growth, 49 thousand units, was in China, where market share grew 1.1 percentage points to 10.9% for the first half of 2005. Overall in the region, GMAP's market share increased 0.4 percentage point, to 5.6%, in the period, compared to 2004. Net income from GMAP was $176 million and $259 million in the second quarters of 2005 and 2004, respectively. For the six-month periods ending June 30, 2005 and 2004, GMAP's net income was $236 million and $534 million, respectively. The decrease in income was primarily due to lower equity earnings from Shanghai GM, largely due to unfavorable product mix and unfavorable price. In addition, GM Holden's 2005 results have been lower than in 2004 due to reduced sales of locally produced vehicles and the unfavorable effect of the failure ION, a local supplier. On June 28, 2005 GM increased its ownership in GM Daewoo to 50.9% from 48.2%. Accordingly, as of June 30, 2005, GM Daewoo was consolidated by GM. See Note 2 to the Consolidated Financial Statements. Other Operations Three Months Ended Six Months Ended June 30, June 30, ----------------------------------------- 2005 2004 2005 2004 ---- ---- ---- ---- (dollars in millions) Other: Total net sales, revenues, and eliminations $(267) $77 $(292) $136 Net income (loss) $(20) $(34) $126 $(151) Other Operations incurred net losses of $20 million and $34 million in the second quarters of 2005 and 2004, respectively. Results for 2005 include tax benefits of $158 million recognized in Other Operations. As discussed above, these benefits relate to various items that generally do not vary with changes in pre-tax income. These benefits were partially offset by legacy costs, interest expense, and exchange. Other Operations' results include after-tax legacy costs of $129 million and $102 million for the second quarters of 2005 and 2004, respectively, related to employee benefit costs of divested businesses, primarily Delphi, for which GM has retained responsibility. For the first half of 2005, Other Operations earned net income of $126 million, compared to a net loss of $151 million in the 2004 period. The improvement is attributable to tax benefits, as discussed above, of $547 million allocated to Other Operations in 2005, partially reduced by increases in legacy costs, interest expense, and exchange. Legacy costs of $241 million and $204 million were included in Other Operations' results for 2005 and 2004, respectively. Other Operations' results for the first half of 2005 also include $8 million, after tax, related to the early retirement and other separation programs, in the first quarter, described above for certain salaried employees in the U.S. 29 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Health-Care Costs GM is currently exposed to significant and growing liabilities for other postretirement employee benefits (OPEB), including retiree health care and life insurance, for both its hourly and salaried workforces. GM discontinued offering OPEB to salaried workers hired after 1992. Such employees now comprise approximately 30% of GM's U.S. active salaried workforce. GM's OPEB liabilities have grown to $77.5 billion as of December 31, 2004 with increases in recent years primarily resulting from increases in health-care inflation. GM's OPEB liabilities affect GM's short-term and long-term financial condition in several ways. GM's OPEB liabilities affect GM's OPEB expense, which affects GM's net income. GM's pre-tax OPEB expense is expected to grow to an estimated $5.7 billion in 2005, up $1.1 billion from 2004, primarily as a result of rising retiree health-care costs and falling discount rates. GM's total pre-tax health-care expense for 2005 is estimated to be $7.4 billion. This cost increase has challenged GM's ability to reduce its structural costs. In recent years, GM has paid its OPEB expenditures from operating cash flow, which reduces GM's liquidity and cash flow from operations. GM's OPEB spending is expected to be $4.2 billion in 2005, up $0.4 billion from 2004. GM's total cash spending for healthcare in 2005 is estimated to be $5.8 billion, also up approximately $0.4 billion from 2004 spending levels. However, GM has Voluntary Employees' Beneficiary Association (VEBA) and 401(h) trusts totaling $20.4 billion as of June 30, 2005 that could be used to reimburse GM for its OPEB expenditures under certain circumstances. During the second quarter of 2005, GM withdrew $1 billion from its VEBA trust as a reimbursement for its retiree health care payments. On July 1, 2005, GM withdrew an additional $1 billion from the VEBA, and on a quarter-by-quarter basis is evaluating the need for additional withdrawals as the cost of health care continues to adversely affect GM's liquidity. GM's OPEB liabilities also negatively affect GM's credit ratings, which are discussed at "Status of Debt Ratings" below. Because of the importance of OPEB liabilities to GM's financial condition, GM management is pursuing an aggressive strategy on several fronts to mitigate the continued growth of these liabilities. These efforts include public policy initiatives, improvements to the health-care delivery system, enhanced consumer awareness of the effect of health-care choices and on-going discussions with our labor unions about the level of OPEB benefits provided to hourly employees. GMAC Financial Review GMAC's net income was $816 million and $846 million in the second quarters of 2005 and 2004, respectively. Net income for the first six months of 2005 and 2004 was $1.5 billion and $1.6 billion, respectively. Three Months Ended Six Months Ended June 30, June 30, ----------------------------------------- Restated Restated 2005 2004 2005 2004 ---- ---- ---- ---- (dollars in millions) Financing operations $378 $452 $626 $894 Mortgage operations 338 319 723 550 Insurance operations 100 75 195 166 --- --- ----- ----- Net income $816 $846 $1,544 $1,610 === === ===== ===== Net income from financing operations totaled $378 million in the second quarter of 2005, as compared with $452 million earned in the same period of the prior year. For the first six months of 2005 and 2004, financing operations' net income was $626 million and $894 million, respectively. The decrease for the 2005 periods reflects the unfavorable effect of lower net interest margins as a result of increased borrowing costs. The decline in net interest margins was somewhat mitigated by the effect of improved used vehicle prices on lease terminations and lower credit loss provisions in 2005, compared to 2004. Mortgage operations earned $338 million in the second quarter of 2005, up from $319 million in the second quarter of 2004. For the first six months of 2005, mortgage operations' net income was $723 million, compared to $550 million in 2004. These results represent increases of 6% and 31% over the same periods of 2004, despite lower overall U.S. mortgage industry volume in 2005 as compared to 2004. On a combined basis, loan production for GMAC's residential based mortgage companies for the second quarter of 2005 remained consistent with that experienced for the second quarter of 2004, despite a decline of approximately 11% in total U.S. residential mortgage industry volume during the same time period. In addition, the favorable effects of valuation gains on the investment 30 GENERAL MOTORS CORPORATION AND SUBSIDIARIES GMAC Financial Review (concluded) portfolio and favorable mortgage servicing results mitigated the impact of lower gains on sales of loans and lower net interest margins due to increased borrowing costs. GMAC's commercial mortgage operations' earnings were down $5 million from the second quarter of 2004, primarily due to lower gains on sales of loans as a result of certain valuation adjustments, which occurred during the quarter. However, as a result of increased volume and higher gains on sales in the first quarter of 2005, net income for the first six months of 2005 increased by $25 million to $101 million as compared to the first six months of 2004. Net income from insurance operations totaled $100 million and $75 million for the second quarter of 2005 and 2004, respectively, and $195 million and $166 million for the first six months of 2005 and 2004, respectively. The increases in 2005 are primarily the result of favorable underwriting results due to increases in insurance premiums and service revenue earned and written from contract growth across the majority of product lines. In addition, incurred losses attributable to severe weather in the United States were lower in the second quarter of 2005 than in the second quarter of 2004. 2005 Priorities / Targets With respect to GM's and GMNA's earnings for the remainder of 2005, GM has determined not to provide a forecast at this time due to the uncertainty affecting key elements of its outlook, such as a resolution of the current health-care cost issues facing GM. GME, GMLAAM, GMAP and GMAC are expected to meet or exceed their net income targets of $(500) million, $100 million, $600 million, and $2,500 million or more, respectively, for 2005. LIQUIDITY AND CAPITAL RESOURCES Statements of Cash Flows Reclassifications After considering the concerns raised by the staff of the SEC as of December 31, 2004, management concluded that certain amounts in the Consolidated Statements of Cash Flows for the year ended December 31, 2004 should be reclassified to appropriately present net cash provided by operating activities and net cash used in investing activities. These amounts have been reclassified consistently as of June 30, 2004. The Corporation's previous policy was to classify all the cash flow effects of providing wholesale loans to its independent dealers by GM's Financing and Insurance Operations as an investing activity in its Consolidated Statements of Cash Flows. This policy, when applied to the financing of inventory sales, had the effect of presenting an investing cash outflow and an operating cash inflow even though there was no cash inflow or outflow on a consolidated basis. The Corporation has changed its policy to eliminate this intersegment activity from its Consolidated Statements of Cash Flows and, as a result of this change, all cash flow effects related to wholesale loans are reflected in the operating activities section of the Consolidated Statement of Cash Flows for the six months ended June 30, 2004. This reclassification better reflects the financing of the sale of inventory as a non-cash transaction to GM on a consolidated basis and eliminates the effects of intercompany transactions. See Note 1 to the Consolidated Financial Statements for the effect of this reclassification. Status of Debt Ratings In the second quarter of 2005, GM and GMAC experienced adequate access to secured funding sources and limited access to the unsecured capital markets. Nonetheless, GM and GMAC were able to meet their respective capital requirements due to their diversified funding strategies and liquidity positions. On April 5, 2005, Moody's downgraded GM's long-term credit rating from Baa2 with a negative outlook to Baa3 with a negative outlook and, at the same time, downgraded GMAC's long-term credit rating from Baa1 with a negative outlook to Baa2 with a negative outlook. Moody's lowered GM's commercial paper rating to Prime-3 with a negative outlook from Prime-2 with a negative outlook and, at the same time, affirmed GMAC's commercial paper rating of Prime-2 with a negative outlook. On July 7, 2005, Moody's placed the ratings of GM and GMAC on review for possible downgrade. On May 5, 2005, Standard & Poor's downgraded GM's and GMAC's long-term credit rating from BBB- with a negative outlook to BB with a negative outlook and, at the same time, downgraded GM's and GMAC's commercial paper rating from A-3 with a negative outlook to B-1 with a negative outlook. On May 24, 2005, Fitch downgraded GM's and GMAC's long-term credit rating from BBB- with a negative outlook to BB+ with a negative outlook and, at the same time, downgraded GM's and GMAC's commercial paper rating from F3 with a negative outlook to B with a negative outlook. On May 26, 2005, DBRS downgraded GM's long-term rating from BBB with a negative outlook to BBB (low) with a negative 31 GENERAL MOTORS CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES (continued) Status of Debt Ratings (continued) outlook and, at the same time, downgraded GMAC's long-term credit rating of BBB (high) negative to BBB with a negative outlook. DBRS downgraded GM's commercial paper rating from R-2 (high) with a negative outlook to R-2 (low) with a negative outlook and, at the same time, lowered the outlook on GMAC's commercial paper rating of R-1 (low) with a negative outlook to R-2 (mid) with a negative outlook. On August 2, 2005, DBRS downgraded GM's long-term rating from BBB (low) with a negative outlook to BB (high) with a negative outlook and, at the same time, downgraded GMAC's long-term credit rating of BBB with a negative outlook to BBB (low) with a negative outlook. DBRS downgraded GM's commercial paper rating from R-2 (low) with a negative outlook to R-3 (high) with a negative outlook and, at the same time, lowered the rating on GMAC's commercial paper from R-2 (mid) with a negative outlook to R-2 (low) with a negative outlook. Refer to the table below for a summary of GM's and GMAC's credit ratings subsequent to these rating actions. Standard & Poor's, Fitch, and DBRS rate GM's credit at non-investment grade, with both Standard & Poor's and Fitch also rating GMAC's credit non-investment grade. While this has resulted in increased borrowing costs and limited access to unsecured debt markets, including capital markets for retail debt, these outcomes have been mitigated by actions taken by GM and GMAC over the past few years to focus on an increased use of liquidity sources other than institutional unsecured markets that are not directly affected by ratings on unsecured debt, including secured funding sources beyond traditional asset classes and geographical markets, automotive whole loan sales, and use of bank and conduit facilities. Further reductions of GM's and/or GMAC's credit ratings could increase the possibility of additional terms and conditions contained in any new or replacement financing arrangements. The reduction of GM's and GMAC's credit ratings to non-investment grade is not expected to have a material effect on GM's and GMAC's access to adequate capital to meet the Corporation's funding needs in the short and medium term. Notwithstanding the foregoing, management believes that the current ratings situation and outlook increase the level of risk for achieving the Corporation's funding strategy and GMAC's ability to sustain current level of asset originations over the long term. In addition, the ratings situation and outlook increase the importance of successfully executing the Corporation's plans for improvement of operating results. Management continuously assesses these matters and is seeking to mitigate the increased risk by exploring whether actions could be taken that would provide a basis for rating agencies to evaluate GMAC's financial performance in order to provide GMAC with ratings independent of those assigned to GM. Currently, only Moody's and DBRS assign a different credit rating to GMAC than they do to GM. There can be no assurance that any such actions would be taken or that such actions, if taken, would be successful in achieving a "split" rating from other rating agencies. Status of Debt Ratings (concluded) --------------------------------------------------------------- GM GMAC GM GMAC GM GMAC --------------------------------------------------------------- Rating Agency Senior Debt Commercial Paper Outlook - ------------- --------------------------------------------------------------- R-3 DBRS BB (high) BBB (low) (high) R-2(low) Negative Negative Fitch BB+ BB+ B B Negative Negative Moody's Baa3 Baa2 Prime-3 Prime-2 Negative Negative S&P BB BB B-1 B-1 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 that is committed through June 2008. GM also has an additional $0.9 billion in undrawn committed facilities with various maturities and undrawn uncommitted lines of credit of $1.2 billion. Similarly, GMAC currently has a $3.0 billion syndicated line of credit committed through June 2006, $4.4 billion committed through June 2008, and committed and uncommitted bilateral lines of credit of $3.5 and $13.4 billion, respectively. In addition, New Center Asset Trust (NCAT) has an $18.5 billion committed liquidity facility. NCAT is a special purpose entity administered by GMAC for the purpose of funding assets as part of GMAC's securitization programs. This entity funds the purchase of assets through the issuance of asset-backed commercial paper and represents an important source of liquidity to GMAC. At June 30, 2005, NCAT had commercial paper outstanding of $8.0 billion, which is not consolidated in the Corporation's Consolidated Balance Sheet. In addition, MAC enters into secured funding facilities whereby, in certain facilities, third parties (including third-party asset-backed commercial paper conduits) have committed to purchase a minimum amount of receivables through a designated period of time. The unused portion of the committed and uncommitted facilities totaled $24.7 billion at June 30, 2005. As part of its cash management strategy, from time to time GMAC repurchases previously issued debt, but does so in a manner that does not compromise overall liquidity. 32 GENERAL MOTORS CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES (continued) Status of Debt Ratings (concluded) In addition, Residential Capital Corporation (ResCap), which was formed as the holding company of GMAC's residential mortgage business, and in the second quarter of 2005 successfully achieved an investment grade rating (independent from GMAC), has a $1.75 billion syndicated term loan and $0.9 billion syndicated line of credit committed through July 2008 and a $0.9 billion syndicated line of credit committed through July 2006. In addition, Mortgage Interest Networking Trust (MINT) has a $3.0 billion committed liquidity facility. MINT is a special purpose entity administered by ResCap for the purpose of funding assets as part of ResCap's mortgage warehouse funding program. This entity funds the purchase of assets through the issuance of asset-backed commercial paper and represents an important source of liquidity to ResCap. At June 30, 2005, MINT had commercial paper outstanding of $2.6 billion, which is reflected as secured debt in the Corporation's Consolidated Balance Sheet. Line of Credit Between GM and GMAC GM and GMAC have historically entered into various financing arrangements. Currently such arrangements include a $4 billion revolving line of credit from GMAC to GM entered into in September 2003 that expires in September 2006. Separately, GM extended a $6 billion revolving line of credit to GMAC in October 2002 that expires in December 2005. These credit lines are used for general operating and seasonal working capital purposes and reduce external liquidity requirements, given the differences in the timing of GM and GMAC's peak funding requirements. The maximum amount drawn under these facilities during the quarter ended June 30, 2005 was $1.4 billion by GM and $1.0 billion by GMAC. Similar amounts drawn by GM and GMAC during the second quarter of 2004 were $1.5 billion and $1.0 billion, respectively. Interest is payable on amounts advanced under the arrangements based on market interest rates, adjusted to reflect the credit rating of GM or GMAC in its capacity as borrower. On August 2, 2005 GM borrowed $1.4 billion from GMAC under its revolving credit line in order to meet cash flow needs arising during the annual two-week shut-down of its vehicle assembly operations. GM plans to repay the $1.4 billion during the third quarter of 2005, using cash flow from operations. On September 22, 2004 GM repaid $3.5 billion to GMAC that it borrowed under the same credit line during the third quarter of 2004. Automotive and Other Operations At June 30, 2005, cash, marketable securities, and $4.2 billion ($3.5 billion at December 31, 2004 and June 30, 2004) of readily-available assets of the VEBA trust totaled $20.2 billion, compared with $23.3 billion at December 31, 2004 and $25.0 billion at June 30, 2004. The decrease of approximately 13% from December 31, 2004 was primarily the result of the net loss of Auto & Other for the first six months of 2005, and payments totaling approximately $2.5 billion related to the GME restructuring initiative and to the agreement reached in February 2005 between GM and Fiat to terminate the Master Agreement (including the Put Option) between them, settle various disputes related thereto, and other matters. The amount of GM's consolidated cash and marketable securities is subject to intra-month and seasonal fluctuations and includes balances held by various GM business units and subsidiaries worldwide that are needed to fund their operations. In the first six months of 2005, GMAC paid GM $1.0 billion in dividends. Additionally, on August 1, 2005, GMAC paid a $500 million cash dividend to GM, bringing total year to date dividends to $1.5 billion. As of June 30, 2005, $1.6 billion of cash and marketable securities was included in GM's balances as a result of the consolidation of GM Daewoo. The increase to $4.2 billion in readily-available assets in the VEBA results from higher withdrawal capacity from the hourly VEBA trust due to increased other postretirement employee benefit payments, and the addition of withdrawal capacity from the salaried VEBA that was funded in 2004. Total assets in the VEBA and 401(h) trusts used to pre-fund part of GM's other postretirement benefits liability approximated $20.4 billion at June 30, 2005, $20.0 billion at December 31, 2004, and $15.9 billion at June 30, 2004. As noted above, during the second quarter of 2005, GM withdrew $1 billion from its VEBA trust as reimbursement for its retiree health care payments. On July 1, 2005, GM withdrew an additional $1 billion from the VEBA, and on a quarter-by-quarter basis is evaluating the need for additional withdrawals as the cost of health care continues to adversely affect GM's liquidity. 33 GENERAL MOTORS CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES (continued) Automotive and Other Operations (concluded) Long-term debt was $31.0 billion at June 30, 2005, compared with $30.5 billion at December 31, 2004 and $29.8 billion at June 30, 2004. As of June 30, 2005, $1.3 billion of long-term debt was included in GM's balance as a result of the consolidation of GM Daewoo. The ratio of long-term debt to the total of long-term debt and GM's net assets of Automotive and Other Operations was 90.7% at June 30, 2005, 84.7% at December 31, 2004, and 84.9% at June 30, 2004. 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 91.1% at June 30, 2005, 85.5% at December 31, 2004, and 84.9% at June 30, 2004. Net liquidity, calculated as cash, marketable securities, and $4.2 billion ($3.5 billion at December 31, 2004 and June 30, 2004) of readily-available assets of the VEBA trust less the total of loans payable and long-term debt, was a negative $12.4 billion at June 30, 2005, compared with a negative $9.2 billion at December 31, 2004, and a negative $7.4 billion at June 30, 2004. During the past several years General Electric Capital Corporation (GECC) provided a trade payables program for suppliers to original equipment manufacturers (OEMs) in a broad range of industries, including the automotive industry. The program was available to suppliers of GM. In late 2004, GECC decided that for strategic reasons it would discontinue offering that financing program to suppliers of any OEMs, including suppliers in the automotive industry. Under the program, OEMs became directly responsible to make payments to GECC after GECC had paid the receivables that were originally due to the suppliers from the OEMs. The former GECC program no longer services GM suppliers. In the second quarter of 2005, GM and GMAC began offering a new supplier finance program to a limited number of its suppliers. At June 30, 2005, GM owed approximately $0.4 billion to GMAC under the new program, which amount is included in the balances of net payable to FIO and net receivable from Auto & Other in GM's Supplemental Information to the Consolidated Balance Sheets, and is eliminated in GM's Consolidated Balance Sheets. Financing and Insurance Operations At June 30, 2005, GMAC's consolidated assets totaled $310.0 billion, compared with $324.1 billion at December 31, 2004 and $297.0 billion at June 30, 2004. The decrease from December 31, 2004 was attributable to a decrease in net finance receivables and loans, from $200.2 billion at December 31, 2004 to $178.3 billion at June 30, 2005, driven by decreases in retail and wholesale automotive receivables, partly offset by an increase in loans held for sale. The increase in GMAC's consolidated assets at June 30, 2005 compared with June 30, 2004 was due to higher balances of cash, investment securities, loans held for sale, and investment in operating leases, partly offset by decreases in retail and wholesale automotive receivables. Consistent with the changes in asset levels, GMAC's total debt decreased to $250.9 billion at June 30, 2005, compared with $267.7 billion at December 31, 2004. Debt was lower by $6.4 billion at June 30, 2004, at $244.5 billion. GMAC's ratio of total debt to total stockholder's equity at June 30, 2005 was 11.1:1, compared with 12.0:1 at December 31, 2004, and 11.1:1 at June 30, 2004. GMAC's liquidity, as well as its ability to profit from ongoing activity, is in large part dependent upon its timely access to capital and the costs associated with raising funds in different segments of the unsecured and secured capital markets. Part of GMAC's strategy in managing liquidity risk has been to develop diversified funding sources across a global investor base and to extend debt maturities over a longer period of time, thereby maintaining sufficient cash balances. 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 $45.8 billion at June 30, 2005, provide "back-up" liquidity and represent additional funding sources, if required. In addition, GMAC enters into secured funding facilities whereby, in certain facililties, third parties (including third-party asset-backed commercial paper conduits) have committed to purchase a minimum amount of receivables through a designated period of time. The unused portion of the committed and uncommitted facilities totaled $24.7 billion at June 30, 2005. GMAC has also been able to diversify its unsecured funding through the formation of Residential Capital Corporation (ResCap). ResCap was formed as the holding company of GMAC's residential mortgage business and in the second quarter of 2005 successfully achieved an investment grade rating (independent from GMAC) and issued $4.0 billion of unsecured debt through a private placement offering. Following the bond offering, in July 2005, ResCap closed a $3.5 billion syndication of its bank facilities, which are intended to be used primarily for general corporate and working capital purposes, as well as to repay GMAC affiliate borrowings, thus providing additional liquidity to GMAC. Additionally, GMAC has increased the use of secured funding sources beyond traditional asset classes and geographic markets and has also increased the use of automotive whole loan sales. the increase use of whole loan sales is part of the migration to an "originate and sell" model for the U.S. automotive finance business. Through July 2005, GMAC has executed $9 billion in whole loan sales. 34 GENERAL MOTORS CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES (concluded) Financing and Insurance Operations (concluded) In August 2005 GMAC announced that it had entered into a definitive agreement to sell a 60% equity interest in GMAC Commercial Mortgage, while maintaining the remaining 40% equity interest. Under the terms of the transaction, GMAC Commercial Mortgage will repay all intercompany loans to GMAC upon the closing, which is expected to occur in the fourth quarter of 2005, thereby providing GMAC significant incremental liquidity. Off-Balance Sheet Arrangements GM and GMAC use off-balance sheet arrangements where economics and sound business principles warrant their use. GM's principal use of off-balance sheet arrangements occurs in connection with the securitization and sale of financial assets generated or acquired in the ordinary course of business by GMAC and its subsidiaries and, to a lesser extent, by GM. The assets securitized and sold by GMAC and its subsidiaries consist principally of mortgages, and wholesale and retail loans secured by vehicles sold through GM's dealer network. The assets sold by GM consist principally of trade receivables. In addition, GM leases real estate and equipment from various off-balance sheet entities that have been established to facilitate the financing of those assets for GM by nationally prominent lessors that GM believes are creditworthy. These assets consist principally of office buildings, warehouses, and machinery and equipment. The use of such entities allows the parties providing the financing to isolate particular assets in a single entity and thereby syndicate the financing to multiple third parties. This is a conventional financing technique used to lower the cost of borrowing and, thus, the lease cost to a lessee such as GM. There is a well-established market in which institutions participate in the financing of such property through their purchase of ownership interests in these entities and each is owned by institutions that are independent of, and not affiliated with, GM. GM believes that no officers, directors or employees of GM, GMAC, or their affiliates hold any direct or indirect equity interests in such entities. Assets in off-balance sheet entities were as follows (dollars in millions): June 30, Dec. 31, June 30, Automotive and Other Operations 2005 2004 2004 - ------------------------------- ---- ---- ---- Assets leased under operating leases $2,455 $2,553 $2,293 Trade receivables sold (1) 1,090 1,210 910 ----- ----- ----- Total $3,545 $3,763 $3,203 ===== ===== ===== Financing and Insurance Operations - ---------------------------------- Receivables sold or securitized: - Mortgage loans $90,309 $79,389 $82,852 - Retail finance receivables 7,675 5,615 7,112 - Wholesale finance receivables 21,396 21,291 17,231 ------- ------- ------- Total $119,380 $106,295 $107,195 ======= ======= ======= (1) In addition, trade receivables sold to GMAC were $590 million, $549 million and $456 million for the periods ended June 30, 2005, December 31, 2004, and June 30, 2004, 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 $44.30 at June 30, 2005, $49.06 at December 31, 2004, and $49.11 at June 30, 2004. 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 9, 2005, 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, 2005, to holders of record on May 19, 2005. 35 GENERAL MOTORS CORPORATION AND SUBSIDIARIES EMPLOYMENT AND PAYROLLS Worldwide employment for GM and its wholly-owned subsidiaries at June 30, (in thousands) 2005 2004 ---- ---- GMNA 177 186 GME 58 62 GMLAAM 32 27 GMAP 14 14 GMAC 34 33 Other 4 5 --- --- Total employees 319 327 === === Three Months Ended Six Months Ended June 30, June 30, ---------------------------------------- 2005 2004 2005 2004 ---- ---- ---- ---- Worldwide payrolls - (in billions) $5.2 $5.5 $10.5 $11.0 === === ==== ==== CRITICAL ACCOUNTING ESTIMATES The consolidated financial statements of GM are prepared in conformity with GAAP, which requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. GM's accounting policies and critical accounting estimates are consistent with those described in Note 1 to the 2004 Consolidated Financial Statements. Management believes that the accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The Corporation has discussed the development, selection and disclosures of its critical accounting estimates with the Audit Committee of GM's Board of Directors, and the Audit Committee has reviewed the Corporation's disclosures relating to these estimates. Pension and Other Postretirement Employee Benefits (OPEB) Pension and OPEB costs and liabilities are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, health-care cost trend rates, benefits earned, interest cost, expected return on plan assets, mortality rates, and other factors. In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect GM's pension and other postretirement obligations and future expense. GM has established for its U.S. pension plans a discount rate of 5.75% for year-end 2004, which represents a 25 basis point reduction from the 6.00% discount rate used at year-end 2003. GM's U.S. pre-tax pension expense is forecasted to decrease from approximately $1.5 billion in 2004, excluding curtailments and settlements, to approximately $1.2 billion in 2005 due to the approximately 14% 2004 actual return on assets, partially offset by a lower 2004 year-end discount rate. The following information illustrates the sensitivity to a change in certain assumptions for U.S. pension plans (as of December 31, 2004 the projected benefit obligation (PBO) for U.S. pension plans was $89 billion and the minimum pension liability charged to equity with respect to U.S. pension plans was $108 million net of tax): Effect on Effect on 2005 December 31, 2004 Change in Assumption Pre-Tax Pension Expense PBO - -------------------------------------------------------------------------- 25 basis point decrease in discount rate +$160 million +$2.3 billion 25 basis point increase in discount rate -$160 million -$2.2 billion 25 basis point decrease in expected return on assets +$220 million - 25 basis point increase in expected return on assets -$220 million - 36 GENERAL MOTORS CORPORATION AND SUBSIDIARIES CRITICAL ACCOUNTING ESTIMATES (concluded) GM's U.S. pension plans generally provide covered U.S. hourly employees with pension benefits of negotiated, flat dollar amounts for each year of credited service earned by an individual employee. Formulas providing for such stated amounts are contained in the prevailing labor contract. Consistent with GAAP, the 2005 pre-tax pension expense and December 31, 2004 PBO do not comprehend any future benefit increases beyond the amounts stated in the currently prevailing contract that expires in September 2007. The current cycle for negotiating new labor contracts is every four years. There is no past practice of maintaining a consistent level of benefit increases or decreases from one contract to the next. However, the following data illustrates the sensitivity of pension expense and PBO to hypothetical assumed changes in future basic benefits. An annual 1% increase in the basic benefit for U.S. hourly employees would result in a $112 million increase in 2005 pre-tax pension expense and a $523 million increase in the December 31, 2004 PBO. An annual 1% decrease in the same benefit would result in a $104 million decrease in 2005 pre-tax pension expense and a $487 million decrease in the December 31, 2004 PBO. These changes in assumptions would have no effect on GM's funding requirements. In addition, at December 31, 2004, a 25 basis point decrease in the discount rate would decrease stockholders' equity by $19.0 million, net of tax; a 25 basis point increase in the discount rate would increase stockholders' equity by $19.0 million, net of tax. The impact of greater than a 25 basis point decrease/increase in discount rate would not be proportional to the first 25 basis point decrease/increase in the discount rate. GM has established for its U.S. OPEB plans a discount rate of 5.75% for year-end 2004, which represents a 50 basis point reduction from the 6.25% discount rate used at year-end 2003. The following table illustrates the sensitivity to a change in the discount rate assumption related to GM's U.S. OPEB plans (the U.S. accumulated postretirement benefit obligation [APBO] was a significant portion of GM's worldwide APBO of $77.5 billion as of December 31, 2004): Effect on 2005 Effect on Pre-Tax OPEB December 31, 2004 Change in Assumption Expense APBO - ------------------------------------------------------------------------------- 25 basis point decrease in discount rate +$200 million +$2.1 billion 25 basis point increase in discount rate -$200 million -$2.1 billion GM assumes a 10.5% initial health-care cost trend rate and a 5.0% ultimate health-care cost trend rate as of December 31, 2004. A one percentage point increase in the initial through ultimate assumed health-care trend rates would have increased the APBO by $8.4 billion at December 31, 2004, and the aggregate service and interest cost components of non-pension postretirement benefit expense for 2004 by $543 million. A one-percentage point decrease would have decreased the APBO by $7.0 billion and the aggregate service and interest cost components of non-pension postretirement benefit expense for 2004 by $384 million. The above sensitivities reflect the effect of changing one assumption at a time. It should be noted that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear. 37 GENERAL MOTORS CORPORATION AND SUBSIDIARIES NEW ACCOUNTING STANDARDS In December 2004, the Financial Accounting Standards Board (FASB) revised Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS No. 123R), requiring companies to record share-based payment transactions as compensation expense at fair market value. SFAS No. 123R further defines the concept of fair market value as it relates to such arrangements. Based on SEC guidance issued in Staff Accounting Bulletin (SAB) 107 in April 2005, the provisions of this statement will be effective for General Motors as of January 1, 2006. The Corporation began expensing the fair market value of newly granted stock options and other stock based compensation awards to employees pursuant to SFAS No. 123 in 2003; therefore this statement is not expected to have a material effect on GM's consolidated financial position or results of operations. In March 2005, the FASB released FASB Staff Position (FSP) FIN 46(R)-5, which addresses whether a corporation should consider whether it holds an implicit interest in a variable interest entity (VIE) or potential VIE when specific conditions exist to determine if the guidance in FASB Interpretation No. 46 (Revised 2003), "Consolidation of Variable Interest Entities" (FIN 46(R)), should be applied. GM had adopted FIN 46(R) as of January 1, 2004. GM adopted FSP FIN 46(R)-5 upon issuance. The Interpretation did not have an effect on GM's consolidated financial position or results of operations. In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143, Accounting for Asset Retirement Obligations." FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. This interpretation is effective for fiscal years ending after December 15, 2005. Management does not expect this interpretation to have a material impact on GM's consolidated financial position or results of operations. In April 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," requiring retrospective application as the required method for reporting a change in accounting principle, unless impracticable or a pronouncement includes specific transition provisions. This statement also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. This statement carries forward the guidance in APB Opinion No. 20, "Accounting Changes," for the reporting of the correction of an error and a change in accounting estimate. This statement is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. This statement is not expected to have a material effect on GM's consolidated financial position or results of operations. 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: o Changes in economic conditions, currency exchange rates or political stability; o Shortages of and price increase for fuel, labor strikes or work stoppages, health-care costs, market acceptance of the Corporation's new products, pace of product introductions; o Significant changes in the competitive environment; o Changes in the laws, regulations, and tax rates; and o 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, 2004. See Item 7A in GM's Annual Report on Form 10-K for the year ended December 31, 2004. * * * * * * * 38 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. GM's CEO and CFO, after evaluating the effectiveness of GM's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this report, have concluded that based on the evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, that GM's disclosure controls and procedures were effective. There were no changes in the Corporation's internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting. * * * * * * * PART II ITEM 1. Legal Proceedings (a) Material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Corporation, or its principal subsidiaries, became a party during the quarter ended June 30, 2005 or subsequent thereto, but before the filing of this report are summarized below: Environmental Matters - --------------------- With respect to the previously reported matter in which the EPA had issued an Administrative complaint on October 17, 2003 against General Motors in connection with the Corporation's assembly facilities in Moraine, Ohio, Pontiac, Michigan, and Orion, Michigan, the EPA has issued an additional complaint against the Corporation's assembly facility in Linden, New Jersey. The complaints allege multiple violations of the hazardous waste rules as applied to GM's painting and purge operations. The EPA is seeking aggregate penalties in excess of $700,000. GM believes that the complaints are without merit because the purge material in question is not a "waste" but instead is being used as intended in enclosed systems to clean, suspend paint solids, and transport fluids. The purge material is thereafter captured, reclaimed, and reused by GM in its processes. GM intends to vigorously assert its defenses and the merits of its own position. * * * * * * * * * ITEM 2(c). Purchases of Equity Securities GM made no purchases of GM $1-2/3 par value common stock during the three months ended June 30, 2005: * * * * * * * * * 39 GENERAL MOTORS CORPORATION AND SUBSIDIARIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of stockholders of the Registrant was held on June 7, 2005. At that meeting, the following matters were submitted to a vote of the stockholders of General Motors Corporation: Final Voting Results ------------------------ Votes Percent ----- ------- Item No. 1 Nomination and election of directors The following nominees for directors received the number of votes set opposite their respective names and were elected to serve on the Board of Directors: Percy N. Barnevik For 435,573,871 96.4% Withheld 16,229,499 3.6 Erskine B. Bowles For 435,338,372 96.4 Withheld 16,464,998 3.6 John H. Bryan For 434,637,167 96.2 Withheld 17,166,203 3.8 Armando M. Codina For 435,610,153 96.4 Withheld 16,193,217 3.6 George M.C. Fisher For 435,510,227 96.4 Withheld 16,293,143 3.6 Karen Katen For 435,249,591 96.3 Withheld 16,553,779 3.7 Kent Kresa For 431,532,881 95.5 Withheld 20,270,489 4.5 Ellen J. Kullman For 435,650,233 96.4 Withheld 16,153,137 3.6 Philip A. Laskawy For 430,808,969 95.4 Withheld 20,994,401 4.6 E. Stanley O'Neal For 429,518,905 95.1 Withheld 22,284,465 4.9 Eckhard Pfeiffer For 431,562,688 95.5 Withheld 20,240,682 4.5 G. Richard Wagoner, Jr. For 434,782,441 96.2 Withheld 17,020,929 3.8 In addition, 40 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 Ratification of the For 436,239,301 96.5 selection of Deloitte & Not in favor Touche LLP as independent Against 5,746,953 1.3 public accountants for Abstain 9,817,116 2.2 the year 2005 ---------- --- Total 15,564,069 3.5 Broker Non-Vote -- -- Item No. 3 Stockholder proposal to For 29,016,448 8.7 eliminate awarding, Not in favor repricing, or renewing Against 292,351,492 87.8 stock options Abstain 11,677,305 3.5 ----------- ---- Total 304,028,797 91.3 Broker Non- Vote 118,758,125 -- 40 GENERAL MOTORS CORPORATION AND SUBSIDIARIES Final Voting Results ------------------------ Votes Percent ----- ------- Item No. 4 Stockholder proposal to For 160,046,670 48.1 adopt cumulative vo Not in favor Against 160,629,512 48.2 Abstain 12,369,063 3.7 ----------- ---- Total 172,998,575 51.9 Broker Non- Vote 118,758,125 -- Item No. 5 Stockholder proposal to For 17,800,637 5.3 request report on Not in favor greenhouse gas emissions Against 298,968,298 89.8 Abstain 16,276,310 4.9 ----------- ---- Total 315,244,608 94.7 Broker Non- Vote 118,758,125 -- Item No. 6 Stockholder proposal to For 52,185,878 15.7 request stockholder Not in favor approval for future Against 269,709,468 81.0 golden parachutes Abstain 11,149,899 3.3 ----------- ---- Total 280,859,367 84.3 Broker Non- Vote 118,758,125 -- Item No. 7 Stockholder proposal to For 33,241,368 10.0 apply simple majority Not in favor vote on items subject Against 287,943,588 86.4 to stockholder vote Abstain 11,860,289 3.6 ----------- ---- Total 299,803,877 90.0 Broker Non- Vote 118,758,125 -- * * * * * * ITEM 6. Exhibits Exhibit Page Number Exhibit Name Number - ------ ------------ ------ 31.1 Section 302 Certification of the Chief Executive Officer 43 31.2 Section 302 Certification of the Chief Financial Officer 44 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 45 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 46 * * * * * * 41 GENERAL MOTORS CORPORATION AND SUBSIDIARIES 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 8, 2005 By: /s/PETER R. BIBLE --- ----------------- (Peter R. Bible, Chief Accounting Officer) 42 EX-31 2 exhibit311grw.txt EXHIBIT 31.1 G. RICHARD WAGONER'S CEO CERTIFICATION 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) 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 8, 2005 /s/ G. RICHARD WAGONER, JR. --------------------------- G. Richard Wagoner, Jr. Chairman and Chief Executive Officer 43 EX-31 3 exhibit312jmd.txt EXHIBIT 31.2 JOHN M. DEVINE'S CFO CERTIFICATION EXHIBIT 31.2 CERTIFICATION I, John M. Devine, Vice Chairman and Chief Financial Officer, certify that: 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) 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 8, 2005 /s/ JOHN M. DEVINE ------------------ John M. Devine Vice Chairman and Chief Financial Officer 44 EX-32 4 exhibit321rgw.txt EXHIBIT 32.1 G. RICHARD WAGONER'S CEO CERTIFICATION EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of General Motors Corporation (the "Corporation") on Form 10-Q for the period ended June 30, 2005 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 8, 2005 45 EX-32 5 exhibit322jmd.txt EXHIBIT 32.2 JOHN M. DEVINE'S CFO CERTIFICATION EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of General Motors Corporation (the "Corporation") on Form 10-Q for the period ended June 30, 2005 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 8, 2005 46 -----END PRIVACY-ENHANCED MESSAGE-----