UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the fiscal year ended December 31, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-143
GENERAL MOTORS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
STATE OF DELAWARE 38-0572515
----------------- ----------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 Renaissance Center, Detroit, Michigan 48265-3000
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
---------------------------- -----------------------------
Common, $1-2/3 par value New York Stock Exchange, Inc.
Note: The $1-2/3 par value common stock of the Registrant is also listed for
trading or traded on the following exchanges:
Chicago Stock Exchange, Inc. Chicago, Illinois
Pacific Exchange, Inc. San Francisco, California
Philadelphia Stock Exchange, Inc. Philadelphia, Pennsylvania
Toronto Stock Exchange Toronto, Ontario, Canada
Frankfurter Wertpapierborse Frankfurt am Main, Germany
Borse Dusseldorf Dusseldorf, Germany
Bourse de Bruxelles Brussels, Belgium
Euronext Paris Paris, France
The London Stock Exchange London, England
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X. No .
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No .
----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No .
----
As of June 30, 2003, the aggregate market value of General Motors Corporation
(GM) $1-2/3 par value common stock held by nonaffiliates of GM was
approximately $20.2 billion. The closing price on June 30, 2003 as reported on
the New York Stock Exchange was $36.00 per share. As of June 30, 2003, the
number of shares outstanding of GM $1-2/3 par value common stock was
560,712,564 shares.
Documents incorporated by reference are as follows:
Part and Item Number of
Form 10-K into Which
Document Incorporated
- -------------- -------------------------
General Motors Notice of Annual Meeting of
Stockholders and Proxy Statement for the
Annual Meeting of Stockholders to be
to be held June 2, 2004 Part III, Items 10 through 13
Website Access to Company's Reports
General Motor's (GM's) internet website address is www.gm.com. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to section
13(a) or 15(d) of the Exchange Act are available free of charge through our
website as soon as reasonably practicable after they are electronically filed
with, or furnished to, the Securities and Exchange Commission.
COVER PAGE
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
THE CORPORATION
General Motors Corporation, incorporated in 1916 under the laws of the State
of Delaware, is hereinafter sometimes referred to as the "Registrant", the
"Corporation", "General Motors", or "GM."
ITEM 1. Business
General
The following information is incorporated herein by reference to the
indicated pages in Part II:
Item Page(s)
---- ------------
Wholesale Sales II-6 through II-8
Employment and Payrolls II-15
Note 26 to the GM Consolidated Financial
Statements (Segment Reporting) II-68 through II-71
GM presents separate supplemental financial information for the following
businesses:
o Automotive and Other Operations
o Financing and Insurance Operations
GM participates in the automotive industry through the activities of its
automotive business operating segment General Motors Automotive (GMA) which
is comprised of four regions:
o GM North America (GMNA),
o GM Europe (GME),
o GM Latin America/Africa/Mid-East (GMLAAM), and
o GM Asia Pacific (GMAP)
GMNA designs, manufactures, and/or markets vehicles primarily in North
America under the following nameplates: Chevrolet, Pontiac, GMC, Oldsmobile,
Buick, Cadillac, Saturn, and HUMMER.
GME, GMLAAM, and GMAP primarily meet the demands of customers outside North
America with vehicles designed, manufactured, and/or marketed under the
following nameplates: Opel, Vauxhall, Holden, Saab, Buick, Chevrolet, GMC, and
Cadillac. GM's automotive regions also have equity ownership in Fiat Auto
Holdings (FAH), Fuji Heavy Industries Ltd., Suzuki Motor Corporation (Suzuki),
Isuzu Motors Ltd., Shanghai General Motors Corporation (SGM), SAIC-GM-Wuling
Automobile Company Ltd., and GM Daewoo Auto & Technology Company (GM Daewoo).
These investees design, manufacturer and market vehicles under the following
nameplates: Fiat, Lancia, Alfa Romeo, Subaru, Suzuki, Isuzu, Buick, Wuling,
Daewoo, and Chevrolet.
GM's other operations include the design, manufacturing and marketing of
locomotives, the elimination of intersegment transactions, certain non-segment
specific revenues and expenditures, and certain corporate activities.
GM's Financing and Insurance Operations primarily relate to General Motors
Acceptance Corporation (GMAC). GMAC provides a broad range of financial
services, including consumer vehicle financing, automotive dealership and other
commercial financing, residential and commercial mortgage services, automobile
service contracts, personal automobile insurance coverage and selected
commercial insurance coverage. See related business discussion in GMAC's Form
10-K, Item 1, which is incorporated herein by reference. GMAC's Form 10-K is
filed separately with the Securities and Exchange Commission (SEC).
Until its split-off on December 22, 2003, GM's business included Hughes
Electronics Corporation. Hughes' activities included digital entertainment,
information and communication services, and satellite-based private business
networks.
Substantially all automotive-related products are marketed through retail
dealers and distributors in the United States, Canada, and Mexico, and through
distributors and dealers overseas. At December 31, 2003, there were
approximately 7,700 GM vehicle dealers in the United States, 800 in Canada, and
260 in Mexico. Additionally, there were a total of approximately 15,500 outlets
overseas which include dealers and authorized sales, service, and parts outlets.
Raw Materials and Services
GM purchases materials, parts, supplies, freight transportation, energy, and
other services from numerous unaffiliated firms. Interruptions in production or
delivery of these goods or services could adversely affect GM.
I-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Backlog of Orders
Shipments of GM automotive products are made as promptly as possible after
receipt of firm sales orders; therefore, no significant backlog of unfilled
orders accumulates.
Competitive Position
GM's principal competitors in passenger cars and trucks in the United States
and Canada include Ford Motor Company, DaimlerChrysler Corporation, Toyota
Corporation (Toyota), Nissan Motor Corporation, Ltd., Honda Motor Company, Ltd.,
Mazda Motor Corporation, Mitsubishi Motors Corporation, Volkswagen A.G.
(Volkswagen), Hyundai Motor Company, Ltd. (Hyundai), and Bayerische Motoren
Werke AG (BMW). All but Volkswagen and Hyundai currently operate vehicle
manufacturing facilities in the United States or Canada. Toyota and GM operate
the New United Motor Manufacturing, Inc. facility in Fremont, California as a
joint venture which currently builds passenger cars and light-duty trucks.
Suzuki and GM operate CAMI Automotive Inc. in Ingersoll, Ontario as a joint
venture which currently builds light-duty trucks. Wholesale unit sales of GM
passenger cars and trucks during the three years ended December 31, 2003 are
summarized in Management's Discussion and Analysis of Financial Condition and
Results of Operations in Part II.
Total industry new motor vehicle (passenger cars, trucks, and buses) unit
sales of domestic and foreign makes and GM's competitive position during the
years ended December 31, 2003, 2002, and 2001 were as follows:
Vehicle Unit Sales (1)
Years Ended December 31,
2003 2002 2001
-----------------------------------------------------------------------------------
GM as GM as GM as
a % of a % of a % of
Industry GM Industry Industry GM Industry Industry GM Industry
-------- -- -------- -------- -- -------- -------- -- --------
United States (units in thousands)
Cars 7,630 1,961 25.7% 8,131 2,069 25.4% 8,455 2,272 26.9%
Trucks 9,336 2,796 29.9% 9,013 2,790 31.0% 9,020 2,633 29.2%
----- ----- ----- ----- ----- -----
Total United 16,966 4,757 28.0% 17,144 4,859 28.3% 17,475 4,905 28.1%
States
Canada, Mexico,
and Other 2,855 683 23.9% 2,974 762 25.6% 2,775 686 24.7%
----- --- ----- ----- ----- -----
Total GMNA 19,821 5,440 27.4% 20,118 5,621 27.9% 20,250 5,591 27.6%
GME 19,468 1,821 9.4% 19,172 1,765 9.1% 19,705 1,800 9.1%
GMLAAM 3,570 570 16.0% 3,673 565 15.7% 4,009 665 16.6%
GMAP 15,720 764 4.9% 14,373 674 4.6% 13,101 524 4.0%
------ ----- ------ ----- ------ -----
Total Worldwide 58,579 8,595 14.7% 57,336 8,625 15.0% 57,065 8,580 15.0%
(1) GM vehicle unit sales primarily represent vehicles manufactured by GM or
manufactured by GM's investees and sold either under a GM nameplate or
through a GM-owned distribution network. Consistent with industry practice,
vehicle unit sales information employs estimates of sales in certain
countries where public reporting is not legally required or otherwise
available on a consistent basis.
Research and Development
In 2003, GM spent $5.7 billion for research, manufacturing engineering,
product engineering, and development activities related primarily to the
development of new products or services or the improvement of existing products
or services, including activities related to vehicle emissions control, improved
fuel economy, and the safety of persons using GM products. Comparably, $5.7
billion and $6.1 billion were spent on company-sponsored research and other
product development activities in 2002 and 2001, respectively.
I-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Environmental Matters
Automotive Emissions Control
Both the U.S. Federal and California governments currently impose stringent
emission control requirements on motor vehicles sold in their respective
jurisdictions. These requirements include pre-production testing of vehicles,
testing of vehicles after assembly, the imposition of emission defect and
performance warranties, and the obligation to recall and repair customer-owned
vehicles determined to be non-compliant with emissions requirements.
Both the U.S. Environmental Protection Agency (EPA) and the California Air
Resources Board (CARB) continue to place great emphasis on compliance testing of
customer-owned vehicles. Failure to comply with the emission standards or
defective emission control systems or components discovered during such testing,
or discovered during government required defect reporting, can lead to
substantial cost for General Motors related to emissions recalls. New CARB and
Federal requirements will increase the time and mileage periods over which
manufacturers are responsible for a vehicle's emission performance.
Both the EPA and the CARB emission requirements will become even more
stringent in the future. A new tier of exhaust emission standards for cars and
light-duty trucks, the "Low-Emission Vehicles (LEV) II" standards, began phasing
in for California vehicles in the 2004 model year. Similar federal "Tier 2"
standards will also start in 2004. In addition, both the CARB and the EPA have
adopted more stringent standards applicable to future heavy-duty trucks.
California requires that a specified percentage of cars and certain
light-duty trucks be zero emission vehicles (ZEVs), such as electric vehicles or
hydrogen fuel cell vehicles. This requirement starts at 10% in model year 2003
and increases in future years. Manufacturers have the option of meeting a
portion of this requirement with partial ZEV credits, which are vehicles that
meet very stringent emission standards and have extended emission system
warranties. An additional portion of the ZEV requirement can be met with
vehicles that meet these partial ZEV requirements and incorporate advanced
technology, such as a hybrid electric propulsion system meeting specified
criteria. Currently California is in the process of further amending its ZEV
regulations, including delaying its start date until 2005. California is likely
to finalize these amendments sometime in the first quarter of 2004.
The Clean Air Act permits states that have areas with air quality problems to
adopt the California car and truck emission standards in lieu of the federal
requirements, and four states (New York, Massachusetts, Maine and Vermont) have
done so. Additional states could adopt the California standards in the future.
To provide states an alternative to the adoption of California standards, GM and
other auto manufacturers began selling LEVs in the remaining 45 states in 2001,
under the provisions of the National Low Emission Vehicle Program.
In addition to the above-mentioned exhaust emission programs, onboard
diagnostic (OBD) devices, used to diagnose problems with emission control
systems, were required both Federally and in California effective with the 1996
model year. This system has the potential of increasing warranty costs and the
chance for recall. OBD requirements become more challenging each year as
vehicles meet lower emission standards, and new diagnostics are required.
California has adopted more stringent OBD requirements beginning in the 2004
model year, including new design requirements and more stringent enforcement
procedures.
New evaporative emission control requirements for cars and trucks began
phasing in with the 1995 model year in California and the 1996 model year
Federally. Systems are being further modified to accommodate Federal onboard
refueling vapor recovery (ORVR) control standards. ORVR was phased-in on
passenger cars in the 1998 through 2000 model years, and is phasing-in on
light-duty trucks in the 2001 through 2006 model years. Beginning with the 2004
model year, even more stringent evaporative emission standards apply in
California, as well as Federally.
Starting in the 2001 model year, the test procedure for exhaust emissions has
become more complex with vehicles required to meet two additional test
requirements: 1) measuring exhaust emissions over a new test cycle with the air
conditioner operating; and 2) measuring exhaust emissions over a new high speed
(80 mph) and high load cycle.
Industrial Environmental Control
GM is subject to various laws relating to the protection of the environment
including laws regulating air emissions, water discharges, waste management, and
environmental cleanup.
I-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Industrial Environmental Control (concluded)
GM is in various stages of investigation or remediation for sites where
contamination has been alleged, and recorded a liability of $226 million at
December 31, 2003 and $219 million at December 31, 2002 for worldwide
environmental investigation and remediation as summarized below:
. GM has been identified as a potentially responsible party at sites
identified by the EPA and state regulatory agencies for
investigation and remediation under the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) and similar state
statutes. GM voluntarily and actively participates in cleanup
activity where such involvement has been verified. The total
liability for sites involving GM was estimated to be $85 million at
December 31, 2003. This compares with $86 million at December 31,
2002.
. For closed plants owned by the Corporation, an estimated liability for
environmental investigation and remediation is typically recognized at
the time of the closure decision. Such liability, which is based on an
environmental assessment of the plant property, was estimated at $22
million at December 31, 2003. This compares with $38 million at
December 31, 2002.
. GM is involved in investigation and remediation activities at
additional locations worldwide with an estimated liability of
approximately $119 million at December 31, 2003. This compares with
$95 million at December 31, 2002.
The cost impact of the Clean Air Act Amendments under Title V is the annual
emission fees of approximately $9 million per year. Additional programs under
the Clean Air Act, including Hazardous Air Pollutant standards, and Compliance
Assurance Monitoring and periodic monitoring requirements are estimated to cost
$300 million to $500 million in aggregate through the year 2007.
The Corporation currently estimates that future expenditures for industrial
environmental control facilities through 2007 will be approximately $125
million. Specific environmental expenses are difficult to isolate since
expenditures may be made for more than one purpose, making precise
classification difficult.
Vehicular Noise Control
Passenger cars and light-duty trucks are subject to state and local motor
vehicle noise regulations. General Motors Corporation is committed to designing
and developing all its products to meet these noise requirements. Addressing
specific vehicle noise regulations for all state and local regulations however,
is not practical or possible. The Corporation therefore compiles the most
stringent requirement for all regulated markets and validates to the composite
requirement. In instances where a state or local noise regulation is more
stringent than the composite requirement, a waiver of the requirement is
requested.
Medium to heavy-duty trucks are regulated at the Federal level. Federal truck
regulations preempt all state/local noise regulations for trucks over 10,000
lbs. gross vehicle weight rating (GVWR).
Automotive Fuel Economy
The Energy Policy and Conservation Act passed in 1975 provided for
production-weighted average fuel economy standards for passenger cars for 1978
and thereafter. Based on EPA combined city-highway test data, the GM 2003 model
year domestic passenger car fleet is projected to attain a Corporate Average
Fuel Economy (CAFE) of 28.7 miles per gallon (mpg) versus the standard of 27.5
mpg. GM's CAFE estimate for 2004 model year domestic passenger cars is projected
at 28.8 mpg versus the standard of 27.5 mpg.
For GM's imported passenger cars, 2003 model year CAFE is projected to attain
28.2 mpg versus a standard of 27.5 mpg. The CAFE estimate for 2004 model year
import passenger cars is 29.3 mpg versus the standard of 27.5 mpg.
Fuel economy standards for light-duty trucks became effective in 1979.
General Motors' light truck CAFE fleet average for the 2003 model year is
projected at 21.1 mpg versus a standard of 20.7 mpg. GM's 2004 model year truck
CAFE is projected at 21.2 mpg versus a standard of 20.7 mpg.
GM's ability to meet increased CAFE standards is contingent on various future
economic, consumer, legislative, and regulatory factors that GM cannot control
and cannot predict with certainty. If GM could not comply with any new CAFE
standards, GM could be subject to sizeable civil penalties and could have to
severely restrict product offerings or close plants to remain in compliance.
I-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
End of Life Vehicles
During September 2000, the European parliament passed a directive requiring
member states to adopt legislation regarding end-of-life vehicles and the
responsibility of manufacturers for dismantling and recycling vehicles they have
sold. European Union member states are required to transform the concepts
detailed in the directive into national law. Under the directive, manufacturers
are financially responsible for at least a portion of the cost of the take-back
of vehicles placed in service after July 2002 and all vehicles placed in service
prior to July 2002 that are still in operation in January 2007. The laws
developed in the individual national legislatures throughout Europe will effect
the amount ultimately paid by the manufacturers for this issue. GM does not
expect this legislation to have a material effect on its financial position,
cash flow or results of operations.
Seasonal Nature of Business
In the automotive business, there are retail sales fluctuations of a seasonal
nature, and production varies from month to month. Certain changeovers occur
throughout the year for reasons such as new market entries and new vehicle
changes; however, the changeover period related to the annual new model
introduction has traditionally occurred in the third quarter of each year.
Production is typically lower during the third quarter due to these annual
product changeovers and the fact that annual plant shutdowns are planned during
this time to facilitate product changes. For this reason, third quarter
operating results are, in general, less favorable than those in the other three
quarters of the year. The degree to which the third quarter results are
affected depends on the magnitude of the changeover needed to commence
production of new models incorporating, for example, design modifications
related to more fuel-efficient vehicle packaging, stricter government standards
for safety and emission controls, and consumer-oriented improvements in
performance, comfort, convenience, and style.
Segment Reporting Data
Operating segment and principal geographic area data for 2003, 2002, and 2001
are summarized in Note 26 to the GM Consolidated Financial Statements in Part
II.
* * * * * *
The Registrant makes no attempt herein to predict the future trend of its
business and earnings or the effect thereon of the results of changes in general
economic, industrial, regulatory, and international conditions.
ITEM 2. Properties
The Corporation, excluding its Financing and Insurance Operations, has
approximately 370 locations operating in approximately 40 states and
approximately 210 cities in the United States. Of these, approximately 20 are
engaged in the final assembly of GM cars and trucks; approximately 60 are
service parts operations responsible for distribution or warehousing; and the
remainder are offices or involved primarily in the testing of vehicles or the
manufacturing of automotive components and power products. In addition, the
Corporation has approximately 20 locations in Canada and assembly,
manufacturing, distribution, or warehousing operations in approximately 50 other
countries, including equity interests in associated companies which conduct
assembly, manufacturing, or distribution operations. The major facilities
outside the United States and Canada, which are principally vehicle
manufacturing and assembly operations, are located in Germany, the United
Kingdom, Brazil, Mexico, Australia, Sweden, Belgium, Spain, China, Thailand,
Argentina, Portugal, Poland and Korea.
Most facilities are owned by the Corporation or its subsidiaries. Leased
properties consist primarily of warehouses and administration, engineering, and
sales offices. The leases for warehouses generally provide for an initial period
of five years and contain renewal options. Leases for sales offices are
generally for shorter periods.
Properties of the Registrant and its subsidiaries include facilities which,
in the opinion of management, are suitable and adequate for the manufacture,
assembly, and distribution of their products.
Additional information regarding worldwide expenditures for plants and
equipment is presented in Note 26 to the GM Consolidated Financial Statements in
Part II.
I-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 3. Legal Proceedings
(a) Material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Corporation became,
or was, a party during the year ended December 31, 2003, or subsequent
thereto, but before the filing of this report are summarized below:
Environmental Matters
In March 2003, the Michigan Department of Environmental Quality (MDEQ)
asserted a claim for penalties in excess of $100,000 relating to various alleged
violations of air discharge regulations at the GM-Powertrain Saginaw Metal
Castings Plant. Officials of GM and the MDEQ continue to discuss resolution of
these matters.
* * *
The US EPA Region V filed an Administrative complaint against three General
Motor's facilities on October 17, 2003. The three GM assembly facilities named
in the complaint are Moraine, Ohio, Pontiac, Michigan, and Orion, Michigan. The
complaint alleges multiple violations of the hazardous waste rules as applied to
GM's painting and purge operations. EPA seeks unspecified penalties. GM believes
that the lawsuit is without merit because the purge material in question is not
a "waste" but instead is being used as intended in enclosed systems to clean,
suspend paint solids, and transport fluids. The purge material is thereafter
captured, reclaimed and reused by GM in its processes. The position being taken
by EPA Regional V is the subject of a lawsuit filed by GM on August 2, 2002 in
the DC Circuit Court of Appeals seeking an order by the Court declaring the
position an unlawful "rulemaking" by US EPA.
* * *
Other Matters
Six putative nationwide and statewide class actions are pending against
General Motors in state and federal courts alleging that the paint or paint
application process used on some GM vehicles was defective due to the omission
of a primer surfacer layer. Generally, plaintiffs allege that GM's failure to
disclose the alleged paint defect is a fraudulent omission and a violation of
various states' consumer protection laws. No determination has been made that
any case may proceed as a class action.
With respect to the suits relating to the primer surfacer issue described
above: Christian Amedee and Louis Fuxan v. General Motors Corporation, et al.,
Civil District Court for the Parish of New Orleans, State of Louisiana filed
March 24, 1995, Cherise Miller, et al., v. General Motors Corporation, United
States District Court for the Northern District of Illinois, filed on April 8,
1998 (the court determined that plaintiffs had not demonstrated that they could
meet the requirements for certification of a nationwide class ), and Rose Ann
Hayes v. General Motors Corporation et al. filed on May 22, 2001 in the Circuit
Court for Madison County Illinois are purported nationwide class actions; Eddie
Glorioso v. General Motors Corporation and Scott Arnold v. General Motors
Corporation, consolidated in Superior Court for the City and County of San
Francisco, California, both filed in July 1998, are purported California
statewide class actions; Scott Haverdink v. General Motors Corporation, Court of
Common Pleas of Philadelphia County, Pennsylvania, filed on May 16, 1999, is a
putative Pennsylvania statewide class action. Darryl Oshanek v. General Motors
Corporation and General Motors of Canada, Limited, filed in the Supreme Court of
British Columbia, Canada, on June 2, 1999, is a putative class action on behalf
of residents of British Columbia, has been dismissed. GM intends to vigorously
oppose class certification and defend these cases.
* * *
I-6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Seventy-nine purported class actions on behalf of all purchasers of new
motors vehicles in the United States since January 1, 2001, have been filed in
various state and federal courts against General Motors Corporation, General
Motors of Canada Ltd. and Ford, Daimler Chrysler, Toyota, Honda, Nissan and BMW
and their Canadian affiliates, the National Automobile Dealers Association and
the Canadian Automobile Dealers Association. The federal court actions have been
consolidated for coordinated pretrial proceedings in federal court in Main and
the more than 30 California cases have been consolidated in state court in San
Francisco.
The nearly identical complaints allege that the manufacture defendants, aided
by the association defendants, conspired among themselves and with their dealers
to prevent the sale to United States citizens of vehicles produced for the
Canadian market and sold by dealers in Canada. The complaints allege that new
vehicle prices in Canada are ten to thirty percent lower than those in the
United States and that preventing the sale of these vehicles to United States
citizens resulted in the payment of supracompetitive prices by United States
consumers. The complaints seek treble damages under the antitrust laws, but do
not specify damages. No determination has been made to certify any of these
cases as a class action. General Motors believes its actions have been lawful
and intends to vigorously defend these cases.
* * *
On April 11 and 14, 2003, two purported class actions (Young v. Pearce, et
al.; Silverstein v. Pearce, et al.) were filed in Delaware Chancery Court on
behalf of owners of GM Class H shares against Hughes Electronics Corporation,
General Motors Corporation, News Corporation and the Hughes directors. On April
11 and 15, 2003, two purported class actions (Matcovsky, et al., v. Hughes
Electronics Corporation, et al.; Brody v. Hughes Electronics Corporation, et
al.) were filed in Superior Court in Los Angeles, California, against Hughes, GM
and the Hughes and GM directors. Two purported stockholder class actions which
name only General Motors and the GM directors have been brought in Delaware
Chancery Court challenging the recently announced agreements with News Corp.,
Wyser-Pratte Management Company v. General Motors Corporation, et al., which was
filed April 18, 2003, and Robert LaMarche v. General Motors Corporation, et al.,
which was filed April 28, 2003. The Delaware cases have been consolidated in the
Delaware Chancery Court and the California cases have been consolidated in state
court in Los Angeles and plaintiffs in both cases have filed consolidated
complaints.
The Delaware cases allege that GM and the GM directors performed ultra vires
acts and that the GM directors breached their fiduciary duties by approving a
transaction that is more favorable to the holders of GM $1-2/3 par value common
stock than the holders of GM Class H Common stock. They claim that the holders
of GM Class H Common Stock will be treated unfairly because (i) GM will receive
mostly cash for its shares while the holders of GM Class H Common Stock will
receive News Corp. American Depositary Shares (ADSs) that may fluctuate in
value, (ii) GM will be receiving a $275 million payment from Hughes, (iii) a
substantial number of shares of GM Class H Common Stock were contributed to
various GM employee benefit plans prior to announcement of the deal to improve
the prospects of shareholder approval, and (iv) the transaction was announced
just prior to the announcement of improved financial results at Hughes and
PanAmSat to make it appear that holders of GM Class H Common Stock would receive
a premium that would exceed the 20 percent recapitalization premium provided
for in the GM Restated Certificate of Incorporation, as amended. The California
cases allege that the proposed transactions involving News Corp.'s acquisition
of a 34% interest in Hughes provides benefits to GM not available to all GM
Class H shareholders, in violation of fiduciary duties. The new consolidated
complaints are similar to the original complaints, except that the Delaware
complaint adds allegations challenging the adequacy of the disclosures in the
Consent Solicitation and only names GM and members of the GM board of directors
as defendants. Plaintiffs in both cases seek unspecified damages. GM has moved
to dismiss the Delaware cases and plaintiffs are seeking to amend their
complaint. In the California cases, the claims against directors without any
connection to California have been dismissed and the consolidated case has been
stayed pending a ruling on the motion to dismiss the Delaware consolidated
complaint. GM, Hughes and the director defendants believe these actions are
without merit and intend to vigorously defend the lawsuits.
(b) Previously reported legal proceedings which have been terminated, either
during the year ended December 31, 2003, or subsequent thereto, but
before the filing of this report are summarized below:
On January 20, 2003, the Georgia Department of Natural Resources (GDNR)
delivered a proposed consent order with respect to alleged violations of
hazardous waste regulations at GM's plant in Doraville, Georgia seeking fines in
excess of $100,000. GM denies the alleged violations, but amicably resolved them
by entering into and administrative consent order No. EPD-HW-1534 with the GDNR.
A $50,000 settlement was paid by GM to the State of Georgia under this consent
order, effective October 23, 2003.
* * * * * * * * *
I-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
ITEM 4A. Executive Officers of the Registrant
The names and ages of all executive officers of the Registrant and their
positions and offices with the Registrant are as follows:
Name and (Age) Positions and Offices
- ------------- ---------------------
G. Richard Wagoner, Jr. (51) Chairman and Chief Executive Officer
John M. Devine (59) Vice Chairman and Chief Financial
Officer
Robert A. Lutz (72) Vice Chairman of Product Development,
Chairman of GM North America,
Interim President of GM Europe
Thomas A. Gottschalk (61) Executive Vice President, Law and
Public Policy
The following information pertains to all other officers of the Registrant
who file reports pursuant to Section 16(b) of the Securities Exchange Act of
1934, as amended:
Name and (Age) Positions and Offices
- ------------- ---------------------
Troy A. Clarke (48) Group Vice President, Manufacturing and
Labor Relations
Gary Cowger (56) Group Vice President and President,
GM North America
Eric A. Feldstein (44) Group Vice President and Chairman,
General Motors Acceptance
Corporation
Frederick A. Henderson (45) Group Vice President and President,
GM Asia Pacific
Maureen Kempston-Darkes (55) Group Vice President and President,
GM Latin America, Africa and
Middle East
Thomas G. Stephens (55) Group Vice President, GM Powertrain
Ralph J. Szygenda (55) Group Vice President,
Information Systems, and
Chief Information Officer
Kathleen S. Barclay (49) Vice President, Global Human Resources
Lawrence D. Burns (52) Vice President, Research & Development
and Planning
Thomas J. Kowaleski (52) Vice President, Communications
Peter R. Bible (45) Chief Accounting Officer
Walter G. Borst (42) Treasurer
Paul W. Schmidt (59) Controller
There are no family relationships, as defined, between any of the officers
named above, and there is no arrangement or understanding between any of the
officers named above and any other person pursuant to which he or she was
selected as an officer. Each of the officers named above was elected by the
Board of Directors to hold office until the next annual election of officers and
until his or her successor is elected and qualified or until his or her earlier
resignation or removal. The Board of Directors elects the officers in
conjunction with each annual meeting of the stockholders.
I-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4A. Executive Officers of the Registrant - continued
Mr. G. Richard Wagoner, Jr. has been associated with General Motors since
1977. Mr. Wagoner was elected Vice President in charge of finance for General
Motors Europe in June 1989. In July 1991, he was elected President and Managing
Director of General Motors do Brasil. In November 1992, he was elected Executive
Vice President and Chief Financial Officer of General Motors. In July 1994, he
was named President of North American Operations. In October 1998, he was
elected a director, President and Chief Operating Officer of General Motors. On
June 1, 2000, Mr. Wagoner was named Chief Executive Officer and became Chairman
of the Board of Directors on May 1, 2003. Mr. Wagoner is Chairman of the
Automotive Strategy Board.
Mr. John M. Devine was named Vice Chairman and Chief Financial Officer of
General Motors Corporation, effective January 1, 2001. He has responsibility for
GM's Worldwide Financial Operations and GM Asset Management. He is a member of
the GM Automotive Strategy Board and serves as its global process leader for
finance. Mr. Devine was Chairman and Chief Executive Officer of Fluid Ventures,
LLC, immediately prior to his GM appointment. He retired from Ford Motor Company
in October 1999, after a 32 year career, as the company's Executive Vice
President and Chief Financial Officer.
Mr. Robert A. Lutz was named Vice Chairman of Product Development of General
Motors Corporation, effective September 1, 2001. He was named Chairman of GM
North America on November 13, 2001, and was appointed interim president of GM
Europe on March 1, 2004 until June 1, 2004. He serves as global process leader
for Product Development and is a member of the Automotive Strategy Board and the
North America Strategy Board. Mr. Lutz was Chairman and Chief Executive Officer
of Exide Technologies, immediately prior to his GM appointment. He continues to
serve as a member of Exide's board of directors. He also has held a number of
executive positions with Ford Motor Company until 1986 and the former Chrysler
Corporation from which he retired in 1998.
Mr. Thomas A. Gottschalk has been associated with General Motors since 1994.
He previously held the position of Senior Vice President and General Counsel. He
was elected to the position of Executive Vice President of General Motors with
primary responsibility for Law and Public Policy on May 25, 2001. He retains the
General Counsel responsibility in his current position and is also responsible
for the Office of the Secretary. He is a member of the Automotive Strategy Board
and is the global process leader for Law and Public Policy. Prior to General
Motors, he was a partner and member of the management committee of the law firm
of Kirkland & Ellis in Washington, D.C.
Mr. Troy A. Clarke was appointed Group Vice President and Executive Vice
President, GM Asia Pacific on February 4, 2004, and President of GM Asia
Pacific, effective June 1, 2004. Mr. Clarke was named GM group vice president of
manufacturing and labor relations in June 2002. Mr. Clarke had been vice
president of labor relations since January 2001 and was appointed president and
managing director of GM de Mexico and a GM corporate vice president in December
1997, after having served as director of manufacturing for GM de Mexico since
June 1997. Mr. Clarke is a member of the Automotive Strategy Board.
Mr. Gary L. Cowger has been associated with General Motors since 1965. Mr.
Cowger was elected a Vice President of General Motors Corporation, effective
October 1, 1994. On September 1, 1994, he was appointed President and Managing
Director of General Motors de Mexico. Mr. Cowger was then named Vice President,
Manufacturing, General Motors Europe, on January 1, 1998 and Chairman and
Managing Director of Adam Opel AG effective June 19, 1998. Mr. Cowger became
Group Vice President - Labor Relations, on November 1, 1998 and Group Vice
President in charge of GM Manufacturing and Labor Relations on January 1, 2001.
He was named GM Group Vice President and President of General Motors North
America on November 13, 2001. He is a member of the Automotive Strategy Board,
global process leader for Manufacturing, and Chairman of the North America
Strategy Board.
Mr. Eric A. Feldstein has been associated with General Motors since 1981. Mr.
Feldstein was named GM Vice President and Treasurer in 1997 and GM Vice
President of Finance and Treasurer in 2001. He was named GM Group Vice President
and Chairman of General Motors Acceptance Corporation (GMAC) in November 2002.
He is a member of the Automotive Strategy Board and Chairman and President of
the GMAC Mortgage Group.
I-9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4A. Executive Officers of the Registrant - concluded
Mr. Frederick A. Henderson has been associated with General Motors since
1984. From 1997 to 2000, Mr. Henderson was GM Vice President and Managing
Director of GM do Brasil, and from June 1, 2000 served as Group Vice President
and President of the GM Latin America, Africa and Middle East (LAAM) region. He
was named GM Group Vice President and President of General Motors Asia Pacific
effective January 1, 2002. Effective June 1, 2004, he was appointed Group Vice
President and President of GM Europe. He is currently a member of the Automotive
Strategy Board and Chairman of the Asia Pacific Strategy Board.
Ms. Maureen Kempston-Darkes has been associated with General Motors since
1975. Ms. Kempston-Darkes was GM Vice President and President and General
Manager of General Motors of Canada Limited from 1994 to 2001. She was named GM
Group Vice President and President of GM LAAM effective January 1, 2002. She is
a member of the Automotive Strategy Board and Chairman of the Latin America,
Africa, and Middle East Strategy Board.
Mr. Thomas G. Stephens is the Group Vice President responsible for GM
Powertrain. He is a member of the Automotive Strategy Board and Chairman of GM's
Energy and Environmental Strategy Board. From May 1996 through December 2000,
Mr. Stephens was GM vice president and group director of engineering operations
for the GM Truck Group. He was appointed vice president of vehicle integration
in January 2001 and held this position prior to being named group vice president
for GM Powertrain in 2001.
Mr. Ralph J. Szygenda was named Group Vice President and Chief Information
Officer on January 7, 2000. He is a member of the Automotive Strategy Board and
is responsible for the Information Systems & Services organization. Mr. Szygenda
is a member of the board of directors of the Handleman Company. He joined GM in
1996 as Vice President and Chief Information Officer.
Ms. Kathleen S. Barclay has been associated with General Motors since 1985.
She was elected Vice President in charge of global human resources and General
Motors University in 1998. Prior to that she was general director of human
resource management at GM North America Operations since 1996. She is a member
of the Automotive Strategy Board.
Mr. Lawrence D. Burns has been associated with General Motors since 1969. He
was named Vice President of Research & Development and Planning in May 1998. He
is a member of the Automotive Strategy Board and serves as global process leader
for R&D and Planning.
Mr. Thomas J. Kowaleski was elected Vice President in charge of global GM
communications, effective January 1, 2004. He is a member of the GM Automotive
Strategy Board and directs GM's corporate, product, brand, and internal
communications around the world. Mr. Kowaleski joined General Motors in March
1999 as executive director product and brand communications. He became GM North
America vice president of communications in June 2001. He is a member of the
Automotive Strategy Board.
Mr. Peter R. Bible joined General Motors as Chief Accounting Officer in
December 1996. He is responsible for worldwide accounting, financial reporting
and forecasting; Securities and Exchange Commission (SEC) reporting; financial
controls; financial systems development; and government contract accounting.
Mr. Walter G. Borst assumed the role of General Motors Treasurer in February
2003. Prior to that assignment, Mr. Borst was executive director of finance and
chief financial officer for GM's German subsidiary, Adam Opel AG. Borst was
named chief financial officer of Adam Opel AG, based in Russelsheim, Germany, in
October 2000. Prior to that, he served as assistant treasurer in the GM
Treasurer's Office from 1997 to 2000.
Mr. Paul W. Schmidt has been associated with General Motors since 1969. He
was named Controller in 2002. Mr. Schmidt had been executive-in-charge of GM's
investor relations since August 2001. Prior to that, he was executive-in-charge
of GM North America Finance since 1994.
I-10
PART II
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
General Motors (GM) lists its common stock on the stock exchanges specified
on the cover page of this Form 10-K under the trading symbol "GM". On December
22, 2003, General Motors completed the split-off of Hughes by distributing
Hughes common stock to the holders of GM Class H (GMH)common stock in exchange
for all the outstanding shares of GM Class H common stock. Simultaneously,
GM sold its 19.8 percent economic interest in Hughes to News Corporation in
exchange for cash and News Corporation Preferred American Depositary Shares
(Preferred ADSs).
All GMH stock ceased to be outstanding and accordingly was delisted from
exchanges specified on the cover page of this report. GM's Dividend Policy is
described in the Management's Discussion and Analysis (MD&A) in Part II. As of
December 31, 2003, there were 418,540 holders of record of GM $1-2/3 par value
common stock and no shares of GMH. As of December 31, 2002, there were
429,767 holders of record of GM $1-2/3 par value common stock and 177,355
holders of record of GM Class H common stock. The following table sets forth the
high and low sale prices of GM's common stocks as reported on the Composite Tape
and the quarterly dividends declared for the last two years.
2003 Quarters
-------------
1st 2nd 3rd 4th
--- --- --- ---
Cash dividends per share of common stocks
$1-2/3 par value $0.50 $0.50 $0.50 $0.50
Class H $- $- $- $-
Price range of common stocks
$1-2/3 par value (1): High $41.12 $39.50 $43.23 $54.39
Low $29.75 $32.84 $35.00 $40.04
Class H (1): High $12.41 $13.56 $15.10 $16.72
Low $9.40 $10.17 $12.74 $14.25
2002 Quarters
-------------
1st 2nd 3rd 4th
--- --- --- ---
Cash dividends per share of common stocks
$1-2/3 par value $0.50 $0.50 $0.50 $0.50
Class H $- $- $- $-
Price range of common stocks
$1-2/3 par value (1): High $62.01 $68.17 $54.08 $41.50
Low $47.92 $50.00 $38.11 $30.80
Class H (1): High $17.55 $17.00 $11.25 $12.00
Low $12.50 $8.49 $8.35 $8.00
--------------------
(1) The principal market is the New York Stock Exchange, and prices are based on
the Composite Tape.
The table below contains information about securities authorized for issuance
under equity compensation plans. The features of these plans are described
further in Note 23 to the Consolidated Financial Statements in Part II.
II-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters (concluded)
Number of Number of
securities to be Weighted average securities
issued upon exercise price remaining
exercise of of outstanding available for
Plan Category outstanding options, future issuance
options, warrants and under equity
warrants and rights compensation
rights plans (1)
- -------------------------------------------------------------------------------
Equity compensation plans
approved by security
holders:
GMSIP 74,485,566 $54.38 17,194,942
Equity compensation plans
not approved by security
holders (2):
GMSSOP 24,390,056 $55.33 3,626,225
- -------------------------------------------------------------------------------
Total 98,875,622 $54.61 20,821,167
- -------------------------------------------------------------------------------
(1) Excludes securities reflected in the first column, "Number of securities to
be issued upon exercise of outstanding options, warrants and rights."
(2) All equity compensation plans except the GMSSOP were approved by the
shareholders. The GMSSOP was adopted by the Board of Directors in 1998 and
expires December 31, 2007. The purpose of the plans is to recognize the
importance and contribution of GM employees in the creation of stockholder
value, to further align compensation with business success and to provide
employees with the opportunity for long-term capital accumulation through
the grant of options to acquire shares of General Motors common stock.
II-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. Selected Financial Data
Years Ended December 31
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(dollars in millions except per share amounts)
Total net sales and revenues $185,524 $177,324 $169,051 $173,943 $168,964
======= ======= ======= ======= =======
Income from continuing
operations $2,862 $1,975 $1,222 $3,639 $5,867
Income (loss) from
discontinued
operations (219) (239) (621) 813 135
Gain from sale of
discontinued operations 1,179 - - - -
----- ----- --- ----- -----
Net income (1) $3,822 $1,736 $601 $4,452 $6,002
===== ===== === ===== =====
$1-2/3 par value common stock
Basic earnings per share
(EPS) from continuing
operations $5.10 $3.53 $2.21 $6.23 $9.08
Basic earnings (losses) per
share from discontinued
operations $2.14 $(0.16) $(0.42) $0.59 $0.29
Diluted EPS from continuing
operations $5.03 $3.51 $2.20 $6.12 $8.91
Diluted earnings (losses)
per share from discontinued
operations $2.11 $(0.16) $(0.43) $0.58 $0.28
Cash dividends declared per
share $2.00 $2.00 $2.00 $2.00 $2.00
Class H common stock (2)
Basic earnings (losses) per
share from discontinued
operations $(0.22) $(0.21) $(0.55) $0.55 $(0.27)
Diluted earnings (losses)
per share from
discontinued operations $(0.22) $(0.21) $(0.55) $0.54 $(0.27)
Cash dividends declared per
share $ - $ - $ - $ - $ -
Total assets $448,507 $369,053 $322,412 $301,129 $273,729
Notes and loans payable $271,756 $200,168 $165,361 $144,783 $129,547
GM-obligated mandatorily
redeemable preferred
securities of
subsidiary trusts $ - $ - $ - $139 $218
Stockholders' equity $25,268 $6,814 $19,707 $30,175 $20,644
-----------------
Reference should be made to the notes to GM's consolidated financial statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations.
(1) On January 1, 2002, the Corporation implemented Statement of Financial
Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets,"
which ceased the amortization method of accounting for goodwill and changed
to an impairment only approach. Accordingly, goodwill is no longer amortized
and is tested for impairment at least annually.
(2) Adjusted to reflect the three-for-one stock split of the GM Class H common
stock, in the form of a 200% stock dividend, paid on June 30, 2000.
* * * * * *
II-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the General
Motors Acceptance Corporation (GMAC) Annual Report on Form 10-K for the period
ended December 31, 2003, filed separately with the Securities and Exchange
Commission (SEC). All earnings per share amounts included in the MD&A are
reported on a fully diluted basis.
GM presents separate supplemental financial information for the following
businesses: Automotive and Other Operations (Auto & Other) and Financing and
Insurance Operations (FIO).
GM's reportable operating segments within its Auto & Other business consist
of:
- GM Automotive (GMA), which is comprised of four regions: GM North America
(GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM
Asia Pacific (GMAP); and
- Other, which includes the design, manufacturing and marketing of
locomotives, the elimination of intersegment transactions, certain
non-segment specific revenues and expenditures, and certain corporate
activities.
GM's reportable operating segments within its FIO business consist of GMAC
and Other Financing, which includes financing entities that are not consolidated
by GMAC.
The disaggregated financial results for GMA have been prepared using a
management approach, which is consistent with the basis and manner in which GM
management internally disaggregates financial information for the purpose of
assisting in making internal operating decisions. In this regard, certain common
expenses were allocated among regions less precisely than would be required for
stand-alone financial information prepared in accordance with accounting
principles generally accepted in the U.S. (GAAP). The financial results
represent the historical information used by management for internal
decision-making purposes; therefore, other data prepared to represent the way in
which the business will operate in the future, or data prepared in accordance
with GAAP, may be materially different.
II-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated Results
GM's total net sales and revenues were $186 billion, $177 billion and $169
billion for 2003, 2002 and 2001, respectively, and GM's net income was $3.8
billion, $1.7 billion and $601 million for 2003, 2002 and 2001, respectively.
Years Ended December 31,
---------------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
Total net sales and revenues $185,524 $177,324 $169,051
Income from continuing operations $2,862 $1,975 $1,222
Net income $3,822 $1,736 $601
Net margin from continuing operations 1.5% 1.1% 0.7%
The increase in 2003 total net sales and revenues, compared with 2002, was
due to increases in GMA revenue of $5.2 billion, despite lower GMNA and global
volumes and worldwide pricing competitiveness, and increases in FIO revenue of
$2.6 billion. The increase in 2002 total net sales and revenues, compared with
2001, was largely due to an increase in wholesale sales at GMA.
Despite increased revenues, cost savings, and strong equity income in 2003
compared to 2002, continued automotive pricing pressures, higher pension and
other postretirement employee benefit (OPEB) expenses in the U.S., and
unfavorable foreign currency exchange resulted in GMA net income decreasing in
2003 compared to 2002. GMAC had record net income of $2.8 billion in 2003,
compared to $1.9 billion in the prior year, due primarily to income growth from
GMAC's mortgage operations. The increase in 2002 net income compared to 2001 was
primarily due to increased volumes at GMA offset partially by pricing pressures
in North America and Europe.
2003 highlights included:
o Market share increased in three of four automotive regions;
o Strong cash flow was generated;
o GM fully funded the combined U.S. hourly and salaried pension plans
with $18.5 billion in total contributions;
o Pension plans earned an approximate 22% return on assets;
o Completed the Hughes transactions (1);
o GMAC and GMAP each generated strong net income; and
o GM completed the sale of its defense business
(1)In the Hughes transactions, GM split off Hughes by distributing Hughes
common stock to the holders of GM Class H common stock in exchange for all
the outstanding shares of GM Class H common stock. Simultaneously, GM sold
its 19.8 percent economic interest in Hughes to News Corporation in exchange
for cash and News Corporation Preferred American Depositary Shares (Preferred
ADSs).
II-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive Financial Review
GMA's total net sales and revenues were $155 billion, $149 billion and $142
billion for 2003, 2002 and 2001, respectively, and GMA's net income was $553
million, $2.0 billion and $445 million for 2003, 2002 and 2001, respectively.
Years Ended December 31,
-------------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
GMA total net sales and revenues $154,513 $149,355 $141,939
GMA net income $553 $1,988 $445
GMA net margin 0.4% 1.3% 0.3%
Net income (loss) by region
GMNA $811 $2,992 $1,348
GME (504) (1,011) (765)
GMLAAM (331) (181) (81)
GMAP 577 188 (57)
---- ------ ----
Net income $553 $1,988 $445
=== ===== ===
GM global market share 14.7% 15.0% 15.0%
The increase in 2003 total net sales and revenues, compared with 2002, was
largely due to favorable product mix and a weaker U.S. dollar, partially offset
by unfavorable pricing pressures in North America and Europe and lower wholesale
volumes. The increase in 2002 total net sales and revenues, compared with 2001,
was largely due to an increase in wholesale sales volumes partially offset by
unfavorable pricing pressures in North America and Europe. GM's global market
share was 14.7% and 15.0% for the years ended 2003, and 2002, respectively.
Market share gains were recognized in three out of four automotive regions (see
discussion below under each region) with GMNA posting a 0.5 percentage point
decline, to 27.4%. As GM introduces several new models for 2004 and overall
economic conditions improve, GM's goal is to achieve market share growth in all
regions during 2004.
The decrease in GMA's 2003 net income compared with 2002 was a result of
lower wholesale sales, continued pricing pressures in North America and Europe,
increased pension and OPEB expense in the U.S., and unfavorable foreign
exchange, partially offset by continued strong product mix, material cost
savings and strong equity results at GMAP. The increase in 2002 net income,
compared with 2001, was primarily due to an increase in wholesale sales volume,
favorable product mix, and reduced structural and material costs. These
favorable conditions more than offset the unfavorable effect of pricing
pressures experienced in North America and Europe.
GM Automotive Regional Results.
GM North America
Years Ended December 31,
----------------------------------
2003 2002 2001
---- ---- ----
GMNA: (dollars in millions)
Net income $811 $2,992 $1,348
Net margin 0.7% 2.6% 1.2%
Wholesale sales (volumes in thousands)
Cars 2,340 2,547 2,441
Trucks 3,267 3,174 2,746
----- ----- -----
Total GMNA 5,607 5,721 5,187
Vehicle unit sales
Industry - North America 19,821 20,118 20,250
GM as a percentage of industry 27.4% 27.9% 27.6%
Industry - U.S. 16,966 17,144 17,475
GM as a percentage of industry 28.0% 28.3% 28.1%
GM cars 25.7% 25.4% 26.9%
GM trucks 29.9% 31.0% 29.2%
II-6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive Financial Review (continued)
GM North America (continued)
North American industry vehicle unit sales decreased to 19.8 million units
during 2003. With this decrease in industry sales, GMNA's market share decreased
by 0.5 percentage points. GMNA ended the year with a market share of 27.4% for
2003, compared to 27.9% for 2002.
During 2003, industry vehicle unit sales in the United States decreased
slightly to 17.0 million units. In conjunction with this slight decrease in
industry volume, GM's U.S. market share decreased by 0.3 percentage points. GM
ended the year with a market share of 28.0% for 2003, versus 28.3% for 2002.
U.S. car market share rose modestly by 0.3 percentage points to 25.7%, while
U.S. truck market share ended the year at 29.9%, down 1.1 percentage points,
contributing to the slight decline in overall U.S. market share. As GM
introduces several new models in North America during 2004, GM anticipates
increasing market share in the United States and North America during 2004.
Net income from GMNA totaled $811 million, $3.0 billion, and $1.3 billion in
2003, 2002, and 2001, respectively. The decrease in GMNA's 2003 net income from
2002 was primarily due to unfavorable pricing, increased pension and OPEB
expense in the U.S., and higher currency-exchange losses. During 2003, GMNA
incurred charges of $448 million, after tax, related to the October 2003
contract with the United Auto Workers, which provided for lump-sum payments and
vehicle discount vouchers for retirees and adjusted a previously established
reserve for idled workers, primarily related to the Janesville, Wisconsin plant,
resulting in $103 million of income, after tax. Also, GMNA incurred various
structural cost adjustments, asset impairment and other charges, favorable
interest income from settlements of prior year tax matters, and income related
to the market valuation of XM Satellite Radio warrants. These items netted to
approximately $90 million of income for the year.
Vehicle revenue per unit was $18,992 for 2003, compared with $18,698 for
2002. Even though trucks as a percent of total sales were flat, mix remained
strong during 2003, as customers continued to buy upgraded vehicles which
resulted in revenue per unit growth of $294.
The increase in 2002 net income from 2001 was primarily due to an increase in
wholesale sales volume, improved product mix, material and structural costs
reductions, and interest income from the resolution of certain prior tax years,
partially offset by an increase in pension expense, OPEB expense and unfavorable
price. In addition, during 2002, GMNA incurred charges of $116 million, after
tax, primarily related to costs associated with the transfer of commercial truck
production from Janesville, Wisconsin, to Flint, Michigan.
GM Europe
Years Ended December 31,
----------------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
GME net loss $(504) $(1,011) $(765)
GME net margin (1.8%) (4.2%) (3.2%)
Wholesale sales (volumes in thousands)
Cars 1,563 1,545 1,666
Trucks 94 100 94
------ ------ ------
Total GME 1,657 1,645 1,760
Vehicle unit sales
Industry 19,468 19,172 19,705
GM as a percentage of industry 9.4% 9.1% 9.1%
GM market share - Germany 10.5% 10.3% 11.4%
GM market share - United Kingdom 13.7% 13.1% 12.7%
While industry vehicle unit sales remained relatively flat in Europe during
2003 (an increase of approximately 300,000 units over 2002), GME increased its
total market share to 9.4%, up 0.3 percentage points from 2002. In two of GM's
largest markets in Europe, GM continued to perform well with increased market
share gain: market share increased to 10.5% in Germany, a 0.2 percentage point
increase over 2002, and 13.7% in the United Kingdom, an increase of 0.6
percentage points over 2002.
II-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive Financial Review (continued)
GM Europe (concluded)
Net loss from GME totaled $504 million, $1.0 billion, and $765 million in
2003, 2002, and 2001, respectively. The decrease in GME's 2003 net loss from
2002 was primarily due to favorable product mix, and reduced material and
structural costs. These favorable conditions were partially offset by
unfavorable pricing and foreign currency translation as the euro and Swedish
krona strengthened relative to the U.S. dollar during 2003. GME's net loss
included a restructuring charge in 2003 of $218 million, after tax, related to
an initiative to improve the competitiveness of GM's automotive operations in
Europe (see Note 25 to the Consolidated Financial Statements).
The increase in GME's 2002 net loss from 2001 was primarily due to a decrease
in wholesale sales volumes driven by a weak European industry, continuing
competitive pricing pressures and a restructuring initiative implemented in the
first quarter of 2002, which resulted in a charge of $407 million, after tax.
These decreases were partially offset by improved material and structural cost
performance.
GM Latin America/Africa/Mid-East
Years Ended December 31,
-----------------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
GMLAAM net loss $(331) $(181) $(81)
GMLAAM net margin (6.1%) (3.5%) (1.4%)
Wholesale sales (volumes in thousands)
Cars 438 443 463
Trucks 123 197 203
---- ---- ----
Total GMLAAM 561 640 666
Vehicle unit sales
Industry 3,570 3,673 4,009
GM as a percentage of industry 16.0% 15.7% 16.6%
GM market share - Brazil 23.3% 23.0% 22.6%
Despite unfavorable economic conditions in Latin America, GM was able to
increase overall GMLAAM vehicle market share to 16.0% in 2003.
Net loss from GMLAAM totaled $331 million, $181 million, and $81 million in
2003, 2002, and 2001, respectively. The increase in GMLAAM's 2003 net loss from
2002 was primarily due to continued economic weakness in the region as industry
vehicle sales decreased 100,000 units to 3.6 million for 2003. In 2003, GMLAAM
incurred asset impairment charges and unfavorable exchange impacts, which were
partially offset by net price increases. The increase in GMLAAM's 2002 net loss
from 2001 was primarily due to political unrest and economic uncertainty in
Argentina, Brazil, and Venezuela, which caused a significant deterioration in
the industry for the region.
GM Asia Pacific
Years Ended December 31,
----------------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
GMAP net income (loss) $577 $188 $(57)
GMAP net margin 10.8% 4.2% (1.4%)
Wholesale sales (volumes in thousands)
Cars 203 185 202
Trucks 70 220 258
---- ---- ----
Total GMAP 273 405 460
Vehicle unit sales
Industry 15,720 14,373 13,101
GM as a percentage of industry 4.9% 4.6% 4.0%
GM market share - Australia 20.4% 23.1% 22.4%
GM market share - China 8.5% 7.8% 4.1%
II-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive Financial Review (concluded)
GM Asia Pacific (concluded)
GMAP increased its total market share to 4.9%, up 0.3 percentage points from
2002 and GM's market share in China increased to 8.5%, an increase of 0.7
percentage points over 2002. China is now the third largest automotive market in
the world and is GM's fourth largest market.
Net income (loss) from GMAP totaled $577 million, $188 million, and $(57)
million in 2003, 2002, and 2001, respectively. The increase in GMAP's net
income, compared with 2002, was primarily due to strong equity earnings from
Shanghai GM and other equity investees, as well as earnings at Holden in
Australia. The increase in GMAP's 2002 net income, compared with 2001, was
primarily due to equity income improvements from several joint ventures, led by
significantly improved results at Shanghai GM. Results from equity investments
in 2001 included a restructuring charge of $133 million, after tax, with respect
to GM's portion of severance payments and asset impairments that were part of
the restructuring of its affiliate Isuzu Motors, Ltd. In 2002, these
improvements were partially offset by a decrease in wholesale sales volumes and
increases in structural and other costs.
Other Operations
Other Operations' total net sales and revenues include a pre-tax gain of
approximately $814 million, or approximately $505 million after-tax ($0.90 per
diluted share), related to the sale of GM's Defense operations (light armored
vehicle business) to General Dynamics Corporation on March 1, 2003. The sale
generated net proceeds of approximately $1.1 billion in cash.
Also, Other Operations' includes charges of approximately $277 million ($0.49
per diluted share) related to the October 2003 contract with the UAW which
provided for lump-sum payments and vehicle vouchers for Delphi retirees, as well
as net interest expense of approximately $200 million related to 2003 debt
issuances.
In 2002, GM completed a review of the carrying value of its investment in
Fiat Auto S.p.A. (Fiat Auto) which resulted in a non-cash impairment charge of
$2.2 billion ($1.4 billion, after-tax), recorded in cost of sales. The
write-down decreased the carrying value of GM's investment in Fiat Auto
Holdings, B.V. (FAH) from $2.4 billion to $220 million with the remaining $220
million being attributable to the investment of FAH in certain joint ventures
with GME.
Discontinued Operations
As of the completion of the Hughes transactions on December 22, 2003, the
results of operations, cash flows, and the assets and liabilities of Hughes
Electronics Corporation were classified as discontinued operations for all
periods presented in GM's consolidated financial statements. The transactions
resulted in an after-tax gain of approximately $1.2 billion which is classified
as gain on sale of discontinued operations in GM's consolidated statement of
income for the year ended December 31, 2003. See Note 2 to the Consolidated
Financial Statements for further discussion.
GMAC Financial Review
GMAC's net income was $2.8 billion, $1.9 billion, and $1.8 billion for 2003,
2002 and 2001 respectively.
Years Ended December 31,
----------------------------------------
2003 2002 2001
---- ---- ----
(dollars in millions)
Financing operations $1,360 $1,239 $1,254
Mortgage operations 1,254 544 331
Insurance operations 179 87 201
----- ------ ------
Net income $2,793 $1,870 $1,786
===== ===== =====
Net income from financing operations totaled $1.4 billion, $1.2 billion, and
$1.3 billion in 2003, 2002, and 2001, respectively. The increase in net income
in 2003, compared with 2002, was primarily due to lower credit loss provisions
and increased revenues from higher asset levels, which more than offset the
unfavorable effect of lower net interest margins. The decrease in 2002 net
income compared with 2001 was due to a combination of higher credit loss
provisions and wider borrowings spreads which was offset by income from higher
asset levels. In addition, 2001 results reflect a favorable impact from the
cumulative effect of adopting SFAS 133.
II-9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC Financial Review (continued)
Net income from mortgage operations totaled $1.3 billion, $544 million, and
$331 million in 2003, 2002, and 2001, respectively. The increase in net income
in 2003, compared with 2002, was primarily due to higher production and
securitization volumes in both the residential and commercial mortgage sectors.
The increase in net income in 2002, compared with 2001, was primarily due to
increased loan production volumes, higher servicing levels, and improved hedging
results, which was partially offset by a decrease in the value of mortgage
servicing rights.
Net income from insurance operations totaled $179 million, $87 million, and
$201 million in 2003, 2002, and 2001, respectively. The increase in net income
in 2003, compared with 2002, primarily relates to increased underwriting volume
and increased investment income resulting from reduced levels of impairments in
2003, as compared to 2002, related to the Insurance Group's investment
portfolio. The decrease in net income in 2002, compared with 2001, reflects a
write-down of certain investment securities primarily due to the prolonged
decline in equity markets, partially offset by improved underwriting results and
a favorable tax settlement.
2004 Priorities/Targets
For 2004, GM has established certain operating priorities and financial
targets including:
o Attaining earnings per share between $6.00 and $6.50 at current dilution
levels;
o Generating $5.0 billion of operating cash flow;
o Increasing automotive market share in all regions;
o Reducing structural and material costs;
o Capital spending of $7.0 billion; and
o Regional/sector income targets, as follows:
Income target
-------------
(dollars in
millions)
GMNA $1,000 - $1,400
GME $0 - $ 100
GMLAAM $ (200) - $ (100)
GMAP $ 700 - $ 800
GMAC Greater than $2,000
Cash flow, cost savings and regional income targets are formulated using a
management approach which is consistent with the basis and manner in which GM
management internally disaggregates financial information for the purposes of
assisting in making internal operating decisions.
LIQUIDITY AND CAPITAL RESOURCES
Financing Structure
In 2003, GM and GMAC experienced adequate access to the capital markets as GM
and GMAC were able to issue various securities to raise capital and extend
borrowing terms consistent with GM's need for financial flexibility. On June 13,
2003, Moody's lowered GM's long-term rating to Baa1 from A3 and GMAC's to A3
from A2 with a rating outlook of negative. Moody's also reduced GMAC's
short-term rating to Prime-2 from Prime-1 and reaffirmed GM's short-term rating
at Prime-2. On October 21, 2003 Standard & Poor's affirmed GM and GMAC's
long-term ratings at BBB and short-term ratings at A2, with a rating outlook of
negative. On November 14, 2003 Fitch affirmed GM and GMAC's long-term ratings at
BBB+ and the commercial paper ratings at F2 with a rating outlook of negative.
On December 10, 2003 Dominion Bond Rating Service (DBRS) confirmed GM and GMAC's
senior debt ratings at A (low) and the commercial paper ratings at R1 (low) with
a stable outlook. These rating actions are not expected to have a significant
adverse effect on GM's and GMAC's ability to obtain bank credit or to sell
asset-backed securities. The table below summarizes GM's and GMAC's credit
ratings as of December 31, 2003.
GM GMAC GM GMAC GM GMAC
------------------------------------------------------
Rating Agency Senior Debt Commercial Paper Outlook
- ------------- ------------------------------------------------------
DBRS A (low) A (low) R1 (low) R1 (low) Stable Stable
Fitch BBB+ BBB+ F2 F2 Negative Negative
Moody's Baa1 A3 Prime-2 Prime-2 Negative Negative
S&P BBB BBB A2 A2 Negative Negative
II-10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Financing Structure (concluded)
GM's and GMAC's access to the capital markets remained sufficient to meet the
Corporation's capital needs. In the second quarter of 2003, GM issued
approximately $1.5 billion of senior notes. In the beginning of the third
quarter of 2003, in a combined single event financing, GM issued approximately
$13.5 billion of GM senior notes and convertible debentures and GMAC issued
approximately $4.4 billion of short-term senior notes and debt. In addition, GM
and GMAC expect that they will continue to have adequate access to the capital
markets sufficient to meet the corporation's needs for financial flexibility.
In 2003, GM contributed to its Voluntary Employees' Beneficiary Association
(VEBA) trust a total $3.3 billion (including $0.3 billion in GM Class H common
stock) and $18.5 billion (including $0.9 billion in GM Class H common stock) to
its U.S. pension plans. At December 22, 2003, under terms of the Hughes
transactions, the shares of GM H common stock contributed to the VEBA trust in
2003 were converted into or were exchanged for approximately 34 million shares
of Hughes Electronics Corporation common stock and approximately 4 million News
Corporation Preferred ADSs. Similarly, the shares of GM Class H common stock
contributed to the pension plans in 2003 were converted into or were exchanged
for approximately 89 million shares of Hughes Electronics Corporation common
stock and approximately 10 million News Corporation Preferred ADSs.
Pension plan assets for GM's U.S. hourly and salaried pension plans earned
returns of approximately 22% in 2003. In addition, as a result of the $18.5
billion 2003 pension contributions, the combined U.S. hourly and salaried
pension plans were $0.3 billion overfunded at year-end 2003 using a 6.00%
discount rate.
As an additional source of funds, GM currently has unrestricted access to a
$5.6 billion line of credit with a syndicate of banks which is committed through
June 2008. GM also has an additional $0.8 billion in undrawn committed
facilities with various maturities and undrawn uncommitted lines of credit of
$1.7 billion. Similarly, GMAC currently has a $4.2 billion syndicated line of
credit committed through June 2004, $4.3 billion committed through June 2008,
$4.7 billion of bilateral committed lines with various maturities, and
uncommitted lines of credit of $18.0 billion. In addition, New Center Asset
Trust (NCAT) has $19.2 billion of liquidity facilities committed through June
2004. Mortgage Interest Networking Trust (MINT) has $3.4 billion of liquidity
facilities committed through April 2004. NCAT and MINT are non-consolidated
qualified special purpose entities administered by GMAC for the purpose of
purchasing assets as part of GMAC's securitization and mortgage warehouse
funding programs. These entities fund the purchases of assets through the
issuance of asset-backed commercial paper and represent an important source of
liquidity to the Corporation.
Stockholders' equity increased to $25.3 billion at December 31, 2003 from
$6.8 billion at December 31, 2002. This increase was primarily due to the
decrease in the minimum pension liability adjustment that was favorably effected
by the much improved funded status of the pension plans recorded as of December
31, 2003 and partly offset by the split-off of Hughes. (See Note 19 to the
Consolidated Financial Statements).
Automotive and Other Operations
At December 31, 2003, cash, marketable securities, and $3.4 billion of assets
of the Voluntary Employees' Beneficiary Association (VEBA) trust invested in
fixed-income securities totaled $26.9 billion, compared with cash, marketable
securities, and $3.0 billion of assets of the VEBA trust invested in
fixed-income securities totaling $17.3 billion at December 31, 2002. The
increase of approximately 55% from December 31, 2002 was primarily due to strong
cash flow from operations, proceeds from the Hughes transactions and sale of the
GM Defense business in the aggregate amount of $5.3 billion, and net proceeds
from debt issuances totaling $14.5 billion offset by U.S. hourly and salaried
pension and VEBA cash contributions of $20.6 billion in 2003 by GM. Total assets
in the VEBA trust used to pre-fund part of GM's other postretirement benefits
liability approximated $10.0 billion at December 31, 2003, compared with $5.8
billion at December 31, 2002, an increase of approximately 72%. Strong cash
flows from operations during 2003 enabled GM to make a cash contribution of $3.0
billion to its VEBA trust in August 2003, which was in addition to the $0.3
billion of Class H stock contributed to the VEBA in March 2003. These
contributions to the VEBA trust were converted into or exchanged for
approximately 34 million shares of Hughes Electronics Corporation common stock
and approximately 4 million News Corporation Preferred ADSs.
Long-term debt was $29.6 billion at December 31, 2003, compared with $14.3
billion at December 31, 2002. As mentioned above, the proceeds from the issuance
of debt securities were used to fund GM's U.S. hourly and salaried pension
plans. The ratio of long-term debt to the total of long-term debt and GM's net
assets of Automotive and Other Operations was 85.2% at December 31, 2003,
compared with 433.2% at December 31, 2002. The ratio of long-term debt and
short-term loans payable to the total of this debt and GM's net assets of
Automotive and Other Operations was 86.4% at December 31, 2003,
II-11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive and Other Operations (concluded)
compared with 307.5% at December 31, 2002. The decrease in these ratios was due
to the improvement in GM's net asset position resulting from the improved funded
status of GM's U.S. hourly and salaried pension plans.
Net liquidity, calculated as cash, marketable securities, and $3.4 billion of
assets of the VEBA trust invested in fixed-income securities less the total of
loans payable and long-term debt, was a negative $5.5 billion at December 31,
2003, compared with $1.1 billion, including $3.0 billion of assets of the VEBA,
at December 31, 2002.
In order to provide financial flexibility to GM and its suppliers, GM
maintains a trade payables program through GECC under which GECC pays
participating GM suppliers the amount due to them from GM in advance of their
contractual original due dates. In exchange for the early payment, these
suppliers accept a discounted payment. On the original due date of the payables,
GM pays GECC the full amount. At December 31, 2003 and 2002, GM owed
approximately $1.2 billion, to GECC under this program, which is classified as
short-term debt in GM's consolidated financial statements. In addition, GM has
the right under the agreement to defer payment to GECC with respect to all or a
portion of receivables which it has paid on behalf of GM. The permissible
deferral periods range from 10 days to 40 days and would also be classified as
short-term debt in GM's financial statements. Deferred payments are subject to
interest during the deferral period. As of December 31, 2003, GM had elected
not to defer payment on any such payables. The maximum amount permitted under
both parts of the program is $2.0 billion. If any of GM's long-term unsecured
debt obligations become subject to a rating by S&P of BBB-, with a negative
outlook (GM's current rating is BBB, with a negative outlook) or below BBB-, or
a rating by Moody's of Baa3, with a negative outlook (GM's current rating is
Baa1, with a negative outlook) or below Baa3, GECC would be permitted to
immediately terminate continued access to the program by GM and its suppliers.
GM does not anticipate that discontinuance of the future availability of the
GECC program would result in a material disruption to the supply of parts and
materials to GM, nor would it have a material adverse effect on GM's financial
position, results of operations or cash flows.
Financing and Insurance Operations
GMAC's consolidated assets totaled $288.2 billion at December 31, 2003,
representing a 26.6% increase from the $227.7 billion outstanding at December
31, 2002. The increase in total assets was primarily due to an increase in
finance receivables and loans, from $134.1 billion at December 31, 2002 to
$172.7 billion at December 31, 2003. The increased use of securitizations
structured as financing transactions (primarily in mortgage operations) combined
with the continued use of GM sponsored special rate financing programs,
resulted in an increase in consumer finance receivables and loans. Additional
asset growth was the result of an increase in wholesale receivables outstanding
due to higher dealer inventories.
Consistent with the growth in assets, GMAC's total debt increased to $238.9
billion at December 31, 2003, as compared to $183.2 billion at December 31,
2002. GMAC's 2003 year-end ratio of total debt to total stockholder's equity was
11.8:1 compared to 10.3:1 at December 31, 2002. GMAC's liquidity, as well as its
ability to profit from ongoing activity, is in large part dependent upon its
timely access to capital and the costs associated with raising funds in
different segments of the capital markets. Liquidity is managed to preserve
stable, reliable and cost effective sources of cash to meet all current and
future obligations. GMAC's strategy in managing liquidity risk has been to
develop diversified funding sources across a global investor base. In 2003, GMAC
continued to experience a difficult funding environment caused by high funding
requirements (due to continued growth in assets levels), negative credit rating
agency activity, and general instability in the corporate bond markets. The
challenges presented by this environment resulted in GMAC's funding effort
continuing to reach beyond traditional unsecured debt sources and increase the
emphasis on securitization (including transactions accounted for as secured
financings) and retail debt programs. Management expects that based on the
Corporation's current financial position, its funding strategy and diversified
financing sources will provide sufficient access to the capital markets to meet
the Corporations' funding needs.
Investment in Fiat Auto Holdings
At the April 23, 2003, Annual General Shareholders Meeting of FAH, FAH
adopted a euro 5 billion recapitalization plan that provides shareholders the
option to make pro-rata capital contributions over the eighteen months following
adoption of the plan. When the plan was adopted, Fiat held 80% of FAH and GM
20%. Fiat participated in the recapitalization by making a euro 3 billion
contribution, which FAH used to repay inter-company debts owed to Fiat or its
affiliates. Currently, GM does not plan to participate. Due to Fiat's
participation in the recapitalization, and GM's non-participation, Fiat has
reported that GM's interest in FAH has been reduced from 20% to 10%.
II-12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Investment in Fiat Auto Holdings (concluded)
As discussed in GM's Annual Report on Form 10-K for the period ended
December 31, 2002, the Master Agreement provides that, from January 24, 2004 to
July 24, 2009, Fiat may seek to exercise a put option (the "Put") to require GM
to purchase Fiat's FAH shares at their fair market value. Whether and when Fiat
may seek to exercise the Put is unknown, although Fiat stated in its 2002 Annual
Report on Form 20F, filed with the U.S. Securities and Exchange Commission, that
it views the exercise of the Put only as a secondary possibility. Fiat also
stated in its Form 20F that it believes that the put is enforceable in
accordance with the terms of the Master Agreement. GM has, however, asserted to
Fiat that the sale of certain assets of the financing business of Fiat Auto and
the recapitalization of FAH represent material breaches of the Master Agreement,
with the result that the Master Agreement, including the Put, is terminable by
GM. Notwithstanding these different views, GM is continuing to build on the
cooperation the parties have worked on for the past several years in the joint
ventures and other cooperative contractual arrangements they have entered into
which are independent of the Master Agreement, and is pursuing a resolution of
these different views. Towards that end, Fiat and GM entered into a standstill
agreement on October 26, 2003, the provisions of which enable GM to defer until
December 15, 2004, the necessity of electing the remedy of termination of the
Master Agreement, and with it the Put, without such deferral prejudicing the
right of GM to elect that remedy after December 15, 2004. On October 26, 2003,
Fiat and GM also entered into an amendment to the Master Agreement that shifts
the Put period by one year, so that it begins on January 24, 2005 and runs to
July 24, 2010.
If the Put were implemented, the fair market value of FAH shares would be
determined by the averaging of the three closest of four valuations that would
be prepared by four investment banks after conducting due diligence under
procedures set forth in the Master Agreement and based upon terms and conditions
to be incorporated in a purchase agreement which, at this time, the parties have
not prepared. Unless such a process and valuation is completed, the amount, if
any, that GM might have to pay for Fiat's FAH shares if there were to be a valid
exercise of the Put, is not quantifiable.
If there were a valid exercise of the Put, GM would have the option to pay
for Fiat's FAH shares entirely in shares of GM $1-2/3 par value common stock,
entirely in cash, or in whatever combination thereof GM may choose. Under such
circumstances, if and to the extent GM chose to pay in cash, that portion of the
purchase price could be paid to Fiat in four installments over a three-year
period and GM would expect to fund any such payments from normal operating cash
flows or financing activities.
If and when GM were to acquire Fiat's FAH shares, and thus become the sole
owner of FAH, GM would decide what, if any, additional capitalization would
then be appropriate for FAH and Fiat Auto. Specifically, if Fiat Auto were to
need additional funding, GM would have to decide whether or not to provide such
funding and under what conditions it might do so.
Unless FAH or Fiat Auto were subject to liquidation or insolvency, FAH's
consolidated financial statements would be required for financial reporting
purposes to be consolidated with those of GM. Any indebtedness, losses and
capital needs of FAH and Fiat Auto after their acquisition by GM are not
presently determinable, but they could have a material adverse effect on GM if
GM chooses to fund such needs or allows the consolidation of GM's financial
statements with those of FAH and Fiat Auto.
GM has discussed with Fiat potential alternatives to the Master Agreement and
expects to have further discussions regarding the relationship between the
parties.
Off-Balance Sheet Arrangements
GM and GMAC use off-balance sheet arrangements where the economics and sound
business principles warrant their use. GM's principal use of off-balance sheet
arrangements occurs in connection with the securitization and sale of financial
assets generated or acquired in the ordinary course of business by GMAC and its
subsidiaries and, to a lesser extent, by GM. The assets securitized and sold by
GMAC and its subsidiaries consist principally of mortgages, and wholesale and
retail loans secured by vehicles sold through GM's dealer network. The assets
sold by GM consist principally of trade receivables.
In addition, GM leases real estate and equipment from various off-balance
sheet entities that have been established to facilitate the financing of those
assets for GM by nationally prominent lessors that GM believes are creditworthy.
These assets consist principally of office buildings, warehouses, and machinery
and equipment. The use of such entities allows the parties providing the
financing to isolate particular assets in a single entity and thereby syndicate
the financing to multiple third parties. This is a conventional financing
technique used to lower the cost of borrowing and, thus, the lease cost to a
lessee such as GM.
There is a well-established market in which institutions participate in the
financing of such property through their purchase of ownership interests in
these entities and each is owned by institutions that are independent of, and
not affiliated with, GM. GM believes that no officers, directors or employees of
GM, GMAC, or their affiliates hold any direct or indirect equity interests in
such entities.
II-13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Off-Balance Sheet Arrangements (concluded)
The amounts outstanding in off-balance sheet facilities used by the Financing
and Insurance Operations have decreased since December 31, 2002 as GMAC
continues to use securitization transactions that, while similar in legal
structure to off-balance sheet securitizations, are accounted for as secured
financings and are recorded as receivables and debt on the balance sheet.
Assets in off-balance sheet entities were as follows (dollars in millions):
December 31
-----------
Automotive and Other Operations 2003 2002
- ------------------------------- ---- ----
Assets leased under operating leases $2,287 $2,126
Trade receivables sold (1) 759 725
------- ------
Total $3,046 $2,851
===== =====
Financing and Insurance Operations
- ----------------------------------
Receivables sold or securitized:
- Mortgage loans $80,798 $106,520
- Retail finance receivables 9,548 16,164
- Wholesale finance receivables 21,142 17,415
------- -------
Total $111,488 $140,099
======= =======
(1) In addition, trade receivables were sold to GMAC for $553 million in 2003
and $434 million in 2002.
Contractual Obligations and Other Long-Term Liabilities
GM has the following minimum commitments under contractual obligations,
including purchase obligations, as defined by the U.S. Securities and Exchange
Commission. A "purchase obligation" is defined as an agreement to purchase goods
or services that is enforceable and legally binding on GM and that specifies all
significant terms, including: fixed or minimum quantities to be purchased;
fixed, minimum or variable price provisions; and the approximate timing of the
transaction. Other long-term liabilities are defined as long-term liabilities
that are reflected on GM's balance sheet under GAAP. Based on this definition,
the tables below include only those contracts, which include fixed or minimum
obligations. It does not include normal purchases, which are made in the
ordinary course of business.
The following table provides aggregated information about Auto & Other
outstanding contractual obligations and other long-term liabilities as of
December 31, 2003.
Payments due by period
---------------------------------------------------
2009 and
(in millions) 2004 2005-2006 2007-2008 after Total
- -------------------------------------------------------------------------------
Debt $1,090 $1,116 $1,798 $26,800 $30,804
Capital lease obligations 105 205 459 649 1,418
Operating lease obligations 668 1,191 1,638 1,763 5,260
Contractual commitments for
capital expenditures 1,223 137 - - 1,360
Other contractual
commitments:
Postretirement benefits(1) 3,005 6,459 3,416 - 12,880
Less: VEBA assets (2) (3,005) (6,459) (534) - (9,998)
----- ----- ----- -------
Net - - 2,882 - 2,882
Material 901 1,613 1,447 605 4,566
Information technology 161 147 11 - 319
Marketing 171 181 8 3 363
Facilities 201 270 99 396 966
Rental car repurchases 8,204 - - - 8,204
Policy, product warranty
and recall campaigns
liability 3,593 3,837 825 419 8,674
------ ----- ----- ------ ------
Total contractual
commitments $16,317 $8,697 $9,167 $30,635 $64,816
====== ===== ===== ====== ======
Remaining balance
postretirement benefits $734 $1,527 $5,170 $43,154 $50,585
=== ===== ===== ====== ======
(1)Amounts include postretirement benefits under the current contractual labor
agreements in North America. The remainder of the estimated liability, for
benefits beyond the current labor agreement and for essentially all salaried
employees, is classified under remaining balance of postretirement benefits.
(2)Total VEBA assets were allocated based on projected spending requirements.
II-14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Contractual Obligations and Other Long-Term Liabilities (concluded)
The combined U.S. hourly and salaried pension plans were $0.3 billion
overfunded at year-end 2003. GM does not expect any contribution to its U.S.
hourly and salaried pension plans until the next decade to meet ERISA (legal)
Minimum funding requirements or to avoid Variable Rate Premiums to the Pension
Benefit Guaranty Corporation.
The following table provides aggregated information about FIO outstanding
contractual obligations and other long-term liabilities as of December 31, 2003.
Payments due by period
---------------------------------------------------
2009 and
(in millions) 2004 2005-2006 2007-2008 after Total
- -------------------------------------------------------------------------------
Debt $77,424 $64,555 $19,996 $75,455 $237,430
Operating lease
obligations 142 220 136 184 682
Mortgage purchase and sale
commitments 16,021 3,057 - - 19,078
Lending commitments 13,496 1,222 954 5,206 20,878
Commitments to provide
capital to equity
method investees 109 2 16 28 155
Purchase obligations 49 46 19 1 115
------- ------ ------ ------ -------
Total contractural
commitments $107,241 $69,102 $21,121 $80,874 $278,338
======= ====== ====== ====== =======
BOOK VALUE PER SHARE
Book value per share was determined based on the liquidation rights of the
common stockholders. Book value per share of GM $1-2/3 par value common stock
increased to $44.96 at December 31, 2003, from $9.06 at December 31, 2002.
DIVIDENDS
Dividends may be paid on common stock only when, as, and if declared by GM's
Board of Directors in its sole discretion. At December 31, 2003, the amount
available for the payment of dividends on GM $1-2/3 par value was $27.9 billion.
GM's policy is to distribute dividends on its $1-2/3 par value common stock
based on the outlook and indicated capital needs of the business. Cash dividends
per share of GM $1-2/3 par value common stock were $2.00 in 2003, 2002, and
2001.
EMPLOYMENT AND PAYROLLS
Worldwide employment at December 31,
(in thousands) 2003 2002 2001
---- ---- ----
GMNA 190 198 207
GME 62 66 73
GMLAAM 23 24 24
GMAP 14 11 11
GMAC 32 32 29
Other 5 7 8
--- --- ---
Total employees 326 338 352
=== === ===
Worldwide payrolls (in billions) $20.9 $20.4 $19.1
U.S. hourly payrolls (in billions) (1) $8.9 $9.1 $8.5
Average labor cost per active hour
worked U.S. hourly (2) $78.39 $62.78 $57.76
- ----------------------
(1)Includes employees "at work" (excludes laid-off employees receiving
benefits).
(2)Includes U.S. hourly wages and benefits divided by the number of
hours worked.
II-15
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CRITICAL ACCOUNTING ESTIMATES
Accounting policies are integral to understanding this MD&A. The consolidated
financial statements of GM are prepared in conformity with GAAP, which requires
the use of estimates, judgments, and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented. GM's
accounting policies are described in Note 1 to the Consolidated Financial
Statements. Critical accounting estimates are described in this section. An
accounting estimate is considered critical if: the estimate requires management
to make assumptions about matters that were highly uncertain at the time the
estimate was made; different estimates reasonably could have been used; or if
changes in the estimate that would have a material impact on the Corporation's
financial condition or results of operations are reasonably likely to occur from
period to period. Management believes that the accounting estimates employed are
appropriate and resulting balances are reasonable; however, actual results could
differ from the original estimates, requiring adjustments to these balances in
future periods. The Corporation has discussed the development, selection and
disclosures of these critical accounting estimates with the Audit Committee of
GM's Board of Directors, and the Audit Committee has reviewed the Corporation's
disclosures relating to these estimates.
Sales Allowances
At the later of the time of sale or the time an incentive is announced to
dealers (applies to vehicles sold by GM and in dealer inventory), GM records as
a reduction of revenue the estimated impact of sales allowances in the form of
dealer and customer incentives. There may be numerous types of incentives
available at any particular time. Some factors used in estimating the cost of
incentives include the volume of vehicles that will be affected by the incentive
programs offered by product and the rate of customer acceptance of any incentive
program. If the actual number of vehicles differs from this estimate, or if a
different mix of incentives occurs, the sales allowances could be affected.
Policy and Warranty
Provisions for estimated expenses related to product warranties are made at
the time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims.
Management actively studies trends of warranty claims and takes action to
improve vehicle quality and minimize warranty claims.
Impairment of Long-Lived Assets
GM periodically reviews the carrying value of its long-lived assets held and
used, other than goodwill and intangible assets with indefinite lives, and
assets to be disposed of when events and circumstances warrant such a review.
This review is performed using estimates of future cash flows. If the carrying
value of a long-lived asset is considered impaired, an impairment charge is
recorded for the amount by which the carrying value of the long-lived asset
exceeds its fair value.
Pension and Other Postretirement Employee Benefits (OPEB)
Pension and OPEB costs and obligations are dependent on assumptions used in
calculating such amounts. These assumptions include discount rates, health care
cost trend rates, benefits earned, interest cost, expected return on plan
assets, mortality rates, and other factors. In accordance with GAAP, actual
results that differ from the assumptions are accumulated and amortized over
future periods and, therefore, generally affect recognized expense and the
recorded obligation in future periods. While management believes that the
assumptions used are appropriate, differences in actual experience or changes in
assumptions may affect GM's pension and other postretirement obligations and
future expense.
GM has established for its U.S. pension plans a discount rate of 6.00% for
year-end 2003, which represents a 75 basis point reduction from the 6.75%
discount rate used at year-end 2002. GM's U.S. pre-tax pension expense is
forecasted to decrease from approximately $2.6 billion in 2003, excluding
curtailments and settlements, to approximately $1.4 billion in 2004 due to the
$18.5 billion 2003 pension contribution and the approximately 22% 2003 actual
return on assets, partially offset by a lower 2003 year-end discount rate.
The following information illustrates the sensitivity to a change in certain
assumptions for U.S. pension plans (as of December 31, 2003 the Projected
Benefit Obligation (PBO) for U.S. pension plans was $87 billion and the minimum
pension liability charged to equity with respect to U.S. pension plans was $125
million net of tax):
II-16
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CRITICAL ACCOUNTING ESTIMATES (continued)
Effect on
Effect on 2004 December 31, 2003
Change in Assumption Pre-Tax Pension Expense PBO
- --------------------------------------------------------------------------
25 basis point decrease
in discount rate +$150 million +$2.1 billion
25 basis point increase
in discount rate -$150 million -$2.1 billion
25 basis point decrease
in expected return on
assets +$220 million -
25 basis point increase
in expected return on
assets -$220 million -
The above sensitivities reflect the impact of changing one assumption at a
time. It should be noted that economic factors and conditions often affect
multiple assumptions simultaneously and the effects of changes in key
assumptions are not necessarily linear.
These changes in assumptions would have no effect on GM's funding
requirements