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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
- -- 1934
For the quarterly period ended June 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
- --- 1934
For the transition period from to
--------------- -------------
Commission file number 1-143
GENERAL MOTORS CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 38-0572515
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Renaissance Center, Detroit, Michigan 48265-3000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
--- ---
As of July 31, 2002, there were outstanding 560,335,286 shares of the
issuer's $1-2/3 par value common stock and 958,064,677 shares of GM Class H
$0.10 par value common stock.
- 1 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
-------
Part I - Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Statements of Income for the Three
and Six Months Ended June 30, 2002 and 2001 3
Consolidated Balance Sheets as of June 30, 2002,
December 31, 2001, and June 30, 2001 5
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Part II - Other Information (Unaudited)
Item 1. Legal Proceedings 27
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 30
Exhibit 99 Hughes Electronics Corporation Financial Statements and
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited) 31
- 2 -
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----
(dollars in millions except per share amounts)
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Total net sales and revenues $48,265 $46,220 $94,529 $88,835
------ ------ ------ ------
Cost of sales and other
expenses (Notes 10 and 11) 38,567 37,181 76,893 71,691
Selling, general, and
administrative expenses
(Note 11) 6,150 5,855 11,771 11,245
Interest expense 1,767 2,259 3,730 4,470
------ ------ ------ ------
Total costs and expenses 46,484 45,295 92,394 87,406
------ ------ ------ ------
Income before income taxes and
minority interests 1,781 925 2,135 1,429
Income tax expense (Note 11) 563 304 688 512
Equity income/(loss) and
minority interests 74 (144) 73 (203)
----- --- ----- ---
Net income 1,292 477 1,520 714
Dividends on preference stocks (23) (23) (47) (51)
----- --- ----- ---
Earnings attributable to
common stocks $1,269 $454 $1,473 $663
===== === ===== ===
Basic earnings (losses) per
share attributable to
common stocks (Note 9)
Earnings per share attributable
to $1-2/3 par value $2.48 $1.05 $3.06 $1.59
==== ==== ==== ====
Earnings per share attributable
to Class H $(0.14) $(0.14) $(0.27) $(0.24)
==== ==== ==== ====
Earnings (losses) per share
attributable to common
stocks assuming dilution (Note 9)
Earnings per share attributable
to $1-2/3 par value $2.43 $1.03 $3.02 $1.56
==== ==== ==== ====
Earnings per share attributable
to Class H $(0.14) $(0.14) $(0.27) $(0.24)
==== ==== ==== ====
Reference should be made to the notes to consolidated financial statements.
- 3 -
CONSOLIDATED STATEMENTS OF INCOME - concluded
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----
(dollars in millions)
AUTOMOTIVE, COMMUNICATIONS SERVICES, AND OTHER OPERATIONS
Total net sales and revenues $41,718 $39,731 $81,491 $75,895
------ ------ ------ ------
Cost of sales and other
expenses (Notes 10 and 11) 36,461 35,182 72,672 67,676
Selling, general, and
administrative expenses
(Note 11) 3,818 4,091 7,508 7,730
Total costs and expenses 40,279 39,273 80,180 75,406
------ ------ ------ ------
Interest expense 302 151 464 313
Net expense from transactions with
Financing and Insurance Operations 46 87 136 218
----- --- --- ---
Income/(loss) before income
taxes and minority interests 1,091 220 711 (42)
Income tax expense/(benefit)
(Note 11) 311 68 151 (13)
Equity income/(loss) and
minority interests 80 (113) 91 (149)
--- --- --- ---
Net income/(loss) - Automotive,
Communications Services, and
Other Operations $860 $39 $651 $(178)
=== == === ===
FINANCING AND INSURANCE OPERATIONS
Total revenues $6,547 $6,489 $13,038 $12,940
----- ----- ------ ------
Interest expense 1,465 2,108 3,266 4,157
Depreciation and amortization
expense 1,353 1,443 2,714 2,952
Operating and other expenses 2,244 1,729 4,114 3,446
Provision for financing and
insurance losses 841 591 1,656 1,132
----- ----- ------ ------
Total costs and expenses 5,903 5,871 11,750 11,687
----- ----- ------ ------
Net income from transactions
with Automotive, Communications
Services, and Other Operations (46) (87) (136) (218)
--- --- --- -----
Income before income taxes and
minority interests 690 705 1,424 1,471
Income tax expense 252 236 537 525
Equity income/(loss) and
minority interests (6) (31) (18) (54)
--- --- --- ---
Net income - Financing and
Insurance Operations $432 $438 $869 $892
=== === === ===
The above supplemental consolidating information is explained in Note 1,
"Financial Statement Presentation."
Reference should be made to the notes to consolidated financial statements.
- 4 -
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
2002 Dec. 31, 2001
GENERAL MOTORS CORPORATION AND SUBSIDIARIES (Unaudited) 2001 (Unaudited)
--------- ---- ---------
ASSETS (dollars in millions)
Automotive, Communications Services,
and Other Operations
Cash and cash equivalents $14,421 $8,432 $8,370
Marketable securities 1,014 790 795
------- ------ ------
Total cash and marketable securities 15,435 9,222 9,165
Accounts and notes receivable
(less allowances) 5,686 5,406 6,533
Inventories (less allowances) (Note 2) 9,757 10,034 11,072
Equipment on operating leases - net 4,390 4,524 5,084
Deferred income taxes and other current assets 8,730 7,877 8,499
------- ------- -------
Total current assets 43,998 37,063 40,353
Equity in net assets of nonconsolidated
associates 5,115 4,950 4,934
Property - net 35,248 34,908 33,922
Intangible assets - net 13,763 13,721 7,743
Deferred income taxes 22,138 22,294 15,560
Other assets 16,797 17,274 31,226
------- ------- -------
Total Automotive, Communications Services,
and Other Operations assets 137,059 130,210 133,738
Financing and Insurance Operations
Cash and cash equivalents 3,942 10,123 1,139
Investments in securities 12,575 10,669 10,614
Finance receivables - net 106,838 99,813 89,608
Investment in leases and other receivables 35,477 34,618 35,701
Other assets 40,438 36,979 31,281
Net receivable from Automotive,
Communications Services, and
Other Operations 638 1,557 1,582
------- ------- -------
Total Financing and Insurance
Operations assets 199,908 193,759 169,925
------- ------- -------
Total assets $336,967 $323,969 $303,663
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive, Communications Services,
and Other Operations
Accounts payable (principally trade) $19,459 $18,297 $19,177
Loans payable 1,545 2,402 2,430
Accrued expenses 36,513 34,090 34,512
Net payable to Financing and
Insurance Operations 638 1,557 1,582
------ ------ ------
Total current liabilities 58,155 56,346 57,701
Long-term debt 16,831 10,726 8,662
Postretirement benefits other than pensions 33,990 34,515 34,109
Pensions 9,410 10,790 3,111
Other liabilities and deferred income taxes 14,506 13,794 14,791
-------- -------- --------
Total Automotive, Communications Services,
and Other Operations liabilities 132,892 126,171 118,374
Financing and Insurance Operations
Accounts payable 8,236 7,900 6,348
Debt 158,659 153,186 133,088
Other liabilities and deferred income taxes 15,701 16,259 15,494
------- ------- -------
Total Financing and Insurance
Operations liabilities 182,596 177,345 154,930
------- ------- -------
Total liabilities 315,488 303,516 273,304
Minority interests 788 746 699
Stockholders' equity
$1-2/3 par value common stock (issued,
561,337,257; 559,044,427;
and 549,606,968 shares) (Note 9) 936 932 916
Class H common stock (issued,
958,024,533; 877,505,382 and
876,465,865 shares) (Notes 6 and 9) 96 88 88
Capital surplus (principally additional
paid-in capital) 21,557 21,519 21,114
Retained earnings 10,376 9,463 10,233
------ ------- ------
Subtotal 32,965 32,002 32,351
Accumulated foreign currency
translation adjustments (2,770) (2,919) (2,814)
Net unrealized loss on derivatives (Note 8) (188) (307) (187)
Net unrealized gains on securities 268 512 355
Minimum pension liability adjustment (9,584) (9,581) (45)
-------- -------- --------
Accumulated other comprehensive loss (12,274) (12,295) (2,691)
-------- -------- --------
Total stockholders' equity 20,691 19,707 29,660
-------- -------- --------
Total liabilities and stockholders' equity $336,967 $323,969 $303,663
======== ======== ========
Reference should be made to the notes to consolidated financial statements.
- 5 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
-------------------------------------------------------
2002 2001
Automotive, Financing Automotive, Financing
Comm.Serv. and Comm.Serv. and
and Other Insurance and Other Insurance
--------- --------- --------- ---------
(dollars in millions)
Net cash provided by operating activities $5,196 $3,030 $3,455 $1,278
Cash flows from investing activities
Expenditures for property (3,494) (46) (4,220) (42)
Investments in marketable securities
- acquisitions (802) (20,311) (773) (15,691)
Investments in marketable securities
- liquidations 578 18,455 1,139 14,734
Mortgage servicing rights - acquisitions - (634) - (813)
Mortgage servicing rights - liquidations - 1 - 18
Finance receivables - acquisitions - (122,714) - (107,883)
Finance receivables - liquidations - 58,793 - 68,560
Proceeds from sales of finance receivables - 57,034 - 41,156
Operating leases - acquisitions (2,748) (9,205) (3,182) (6,448)
Operating leases - liquidations 2,898 7,168 3,576 5,138
Investments in companies, net of
cash acquired (124) (150) (612) (119)
Other 744 (567) (351) 129
----- ------ ----- -----
Net cash used in investing activities (2,948) (12,176) (4,423) (1,261)
----- ------ ----- -----
Cash flows from financing activities
Net increase/(decrease) in loans payable (857) 970 222 (21,634)
Long-term debt - borrowings 9,821 12,306 3,451 28,904
Long-term debt - repayments (3,818) (11,243) (2,225) (7,703)
Repurchases of common and preference stocks (97) - (264) -
Proceeds from issuing common stocks 69 - 71 -
Proceeds from sales of treasury stocks 19 - - -
Cash dividends paid to stockholders (607) - (600) -
----- ----- --- ---
Net cash provided by (used in)
financing activities 4,530 2,033 655 (433)
----- ----- --- ---
Effect of exchange rate changes on cash
and cash equivalents 130 13 (47) 1
Net transactions with Automotive/
Financing Operations (919) 919 (389) 389
--- ----- --- ---
Net increase/(decrease) in cash
and cash equivalents 5,989 (6,181) (749) (26)
Cash and cash equivalents at
beginning of the period 8,432 10,123 9,119 1,165
------ ------ ----- -----
Cash and cash equivalents at end
of the period $14,421 $3,942 $8,370 $1,139
====== ===== ===== =====
Reference should be made to the notes to consolidated financial statements.
- 6 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the U.S.
for interim financial information. In the opinion of management, all adjustments
(consisting of only normal recurring items), which are necessary for a fair
presentation have been included. The results for interim periods are not
necessarily indicative of results which may be expected for any other interim
period or for the full year. For further information, refer to the December 31,
2001 consolidated financial statements and notes thereto included in General
Motors Corporation's (the "Corporation", "General Motors", or "GM") 2001 Annual
Report on Form 10-K, and all other GM, Hughes Electronics Corporation (Hughes),
and General Motors Acceptance Corporation (GMAC) filings with the Securities and
Exchange Commission.
On August 14, 2002, the Chief Executive Officer and Chief Financial Officer
of GM delivered to the U.S. Securities and Exchange Commission (the
"Commission") their unqualified attestations, signed under oath concerning all
covered reports filed by the Corporation under the Securities Exchange Act of
1934, as amended, as called for by the order of the Commission dated June 27,
2002. In addition, on August 14, 2002, the Chief Executive Officer and Chief
Financial Officer of GM complied with the certification requirement of 18 U.S.C.
section (ss.) 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, by submitting such certifications by correspondence to the Commission.
These certifications and attestations are available to the public in separate
Forms 8-K filed with the Commission on August 14, 2002.
GM presents separate supplemental consolidating statements of income and
other financial information for the following businesses: (1) Automotive,
Communications Services, and Other Operations which consists of the design,
manufacturing, and marketing of cars, trucks, locomotives, and heavy-duty
transmissions and related parts and accessories, as well as the operations of
Hughes; and (2) Financing and Insurance Operations which consists primarily of
GMAC, which provides a broad range of financial services, including consumer
vehicle financing, full-service leasing and fleet leasing, dealer financing, car
and truck extended service contracts, residential and commercial mortgage
services, vehicle and homeowners' insurance, and asset-based lending.
Transactions between businesses have been eliminated in the Corporation's
consolidated statements of income.
Certain amounts for 2001 were reclassified to conform with the 2002
classifications.
New Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other Intangible Assets," changes the accounting for goodwill and indefinite
lived intangible assets from an amortization method to an impairment-only
approach. Goodwill, including goodwill recorded in past business combinations,
is no longer amortized, but is tested for impairment at least annually at the
reporting unit level. The Corporation implemented SFAS No. 142 on January 1,
2002. GM then completed step one of the transitional impairment test in the
second quarter of 2002. In step one of the two-part transitional impairment
test, GM compared the fair value of each reporting unit (which are different
from the reporting units of GM's wholly owned subsidiaries GMAC and Hughes) with
its respective carrying amount, including goodwill as of January 1, 2002. Since
the fair value of each reporting unit exceeded the respective carrying amount,
goodwill was not considered impaired. Accordingly, completion of step two of the
transitional impairment test is not necessary.
GM's reported net income exclusive of amortization expense recognized related
to goodwill and amortization of intangibles with indefinite lives required under
previous accounting standards on an after-tax basis is as follows (dollars in
millions except per share amounts):
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
2002 2001 2002 2001
---- ---- ---- ----
Reported net income $1,292 $477 $1,520 $714
Add:
Goodwill amortization - 85 - 158
Amortization of intangibles
with indefinite lives - 2 - 4
----- --- ----- ---
Adjusted net income $1,292 $564 $1,520 $876
===== === ===== ===
- 7 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 1. Financial Statement Presentation - (concluded)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2002 2001 2002 2001
---- ---- ---- ----
Basic earnings (losses) per share
attributable to common stocks
EPS attributable
to $1-2/3 par value:
Reported $2.48 $1.05 $3.06 $1.59
==== ==== ==== ====
Adjusted $2.48 $1.12 $3.06 $1.74
==== ==== ==== ====
EPS attributable to Class H:
Reported $(0.14) $(0.14) $(0.27) $(0.24)
==== ==== ==== ====
Adjusted $(0.14) $(0.09) $(0.27) $(0.15)
==== ==== ==== ====
Earnings (losses) per share
attributable to common
stocks assuming dilution
EPS attributable to $1-2/3 par value:
Reported $2.43 $1.03 $3.02 $1.56
==== ==== ==== ====
Adjusted $2.43 $1.10 $3.02 $1.71
==== ==== ==== ====
EPS attributable to Class H:
Reported $(0.14) $(0.14) $(0.27) $(0.24)
==== ==== ==== ====
Adjusted $(0.14) $(0.09) $(0.27) $(0.15)
==== ==== ==== ====
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The Corporation is required to implement SFAS
No. 143 on January 1, 2003. Management does not expect this statement to have a
material impact on GM's consolidated financial position or results of
operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The statement retains the previously existing accounting
requirements related to the recognition and measurement of the impairment of
long-lived assets to be held and used while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. It also expands the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has been disposed of or is classified as held for sale. The
Corporation implemented SFAS No. 144 on January 1, 2002. This statement did not
have a material impact on GM's consolidated financial position or results of
operations.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This statement eliminates the required classification of gain or
loss on extinguishment of debt as an extraordinary item of income and states
that such gain or loss be evaluated for extraordinary classification under the
criteria of Accounting Principles Board No. 30 "Reporting Results of
Operations." This statement also requires sale-leaseback accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions, and makes various other technical corrections to
existing pronouncements. The Corporation is required to implement SFAS No. 145
on January 1, 2003. Management does not expect this statement to have a material
impact on GM's consolidated financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities." This statement nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." This statement requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred rather than the date of an entity's commitment to an exit
plan. The Corporation is required to implement SFAS No. 146 on January 1, 2003.
Management has not determined the impact, if any, that this statement will have
on its consolidated financial position or results of operations.
- 8 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 2. Inventories
Inventories included the following for Automotive, Communications Services,
and Other Operations (dollars in millions):
June 30, Dec. 31, June 30,
2002 2001 2001
-------- -------- -------
Productive material, work in process,
and supplies $5,211 $5,069 $5,542
Finished product, service parts, etc. 6,383 6,779 7,377
------- ------- -------
Total inventories at FIFO 11,594 11,848 12,919
Less LIFO allowance 1,837 1,814 1,847
------- ------- -------
Total inventories (less allowances) $9,757 $10,034 $11,072
===== ====== ======
Note 3. Goodwill and Acquired Intangible Assets
The components of the Corporation's acquired intangible assets as of June 30,
2002 were as follows (dollars in millions):
Gross Carrying Accumulated Net Carrying
Amount Amortization Amount
-------------- ------------ ------------
Amortized intangible assets:
Customer lists and contracts $75 $22 $53
Trademarks and other 46 10 36
Covenants not to compete 18 11 7
---- -- ---
Total $139 $43 $96
=== == ==
Unamortized intangible assets:
License fees - orbital slots $432
===
Aggregate amortization expense on acquired intangible assets was $3 million
and $9 million for the second quarter and six months ended June 30, 2002,
respectively. Estimated amortization expense in each of the next five years is
as follows: 2002 - $15 million; 2003 - $16 million; 2004 - $11 million; 2005 -
$10 million; and 2006 - $10 million.
The changes in the carrying amounts of goodwill for the six months ended June
30, 2002 were as follows (dollars in millions):
Total
GMNA GME Other (b) Hughes (b) ACO GMAC Total GM
---- --- --------- ---------- --- ---- --------
For Six Months Ended June 30, 2002
Balance as of December 31, 2001 $29 $283 $57 $6,440 $6,809 $3,144 $9,953
Goodwill acquired during the period - - - - - 54 54
Goodwill written off related to sale
of business unit (4) - - - (4) - (4)
Effect of foreign currency
translation - 38 - - 38 17 55
Reclassifications and other (a) - - - 219 219 - 219
-- --- -- ----- ----- ----- ------
Balance as of June 30, 2002 $25 $321 $57 $6,659 $7,062 $3,215 $10,277
== === == ===== ===== ===== ======
(a) In accordance with SFAS No. 142, Hughes completed a review of its intangible
assets and determined that previously recorded intangible assets related to
customer lists and dealer networks did not meet the contractual legal criteria
or separability criteria as described in SFAS No. 141. As a result, in the first
quarter of 2002, Hughes reclassified $210 million, net of $146 million
accumulated amortization, of previously reported intangible assets to goodwill.
(b) The amount recorded for Hughes excludes GM's purchase accounting adjustments
related to GM's acquisition of Hughes Aircraft Company. The carrying value of
$57 million in goodwill associated with the purchase is reported in the Other
segment.
Note 4. Contingent Matters
Litigation is subject to uncertainties and the outcome of individual
litigated matters is not predictable with assurance. Various legal actions,
governmental investigations, claims, and proceedings are pending against the
Corporation, including those arising out of alleged product defects;
employment-related matters; governmental regulations relating to safety,
emissions, and fuel economy; product warranties; financial services; dealer,
supplier, and other contractual relationships and environmental matters. In
connection with the disposition by Hughes of its satellite systems manufacturing
businesses to The Boeing Company in 2000, there are disputes regarding
- 9 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 4. Contingent Matters (concluded)
the purchase price and other matters that may result in payments by Hughes to
The Boeing Company that would be material to Hughes. GM has established reserves
for matters in which losses are probable and can be reasonably estimated. Some
of the matters may involve compensatory, punitive, or other treble damage
claims, or demands for recall campaigns, environmental remediation programs, or
sanctions, that if granted, could require the Corporation to pay damages or make
other expenditures in amounts that could not be estimated at June 30, 2002.
After discussion with counsel, it is the opinion of management that such
liability is not expected to have a material adverse effect on the Corporation's
consolidated financial condition or results of operations.
In July 2000, GM acquired 20% of the common stock of Fiat Auto Holdings, B.V.
(FAH), the entity which is the sole shareholder of Fiat Auto, S.p.A. (Fiat Auto)
for $2.4 billion. Subsequent to that acquisition, the European market for new
vehicles has experienced a continued decrease in volumes, and manufacturers have
experienced increased pricing and general competitive pressures. Those market
conditions and other factors have led to deterioration in the performance of
Fiat Auto. Accordingly, GM has commenced a review of the appropriate carrying
value of GM's investment in FAH. Management of GM believes it is probable that a
significant write-down of GM's investment in FAH will be required in the third
quarter of 2002 upon completion of GM's review.
Beginning January 2004, Fiat S.p.A. (Fiat) has the right to exercise a put
option to require GM to purchase 80% of Fiat Auto at fair market value. The put
expires on July 24, 2009. The process for establishing the value that would be
paid by GM to Fiat involves the determination of "Fair Market Value" by
investment banks that would be retained by the parties pursuant to provisions
set out in the Master Agreement between GM and Fiat, which has been made public
in filings with the SEC. If the put were exercised, GM would have the option to
pay for the 80% interest in Fiat Auto entirely in shares of GM $1-2/3 par value
common stock, entirely in cash, or in whatever combination thereof GM may
choose. To the extent GM chooses to pay in cash, that portion of the purchase
price may be paid to Fiat in four installments over a three-year period. GM
would expect to fund any such payments from normal operating cash flows or
financing activities. At this time it cannot be determined what the effects of
the exercise of the put would be, if it ever occurs during the next eight years;
however, if it is exercised, it could have a material effect on GM at or after
the time of exercise.
Note 5. Preferred Securities of Subsidiary Trusts
On April 2, 2001, GM redeemed the Series G Trust's sole assets causing the
Series G Trust to redeem the approximately 5 million outstanding Series G 9.87%
Trust Originated Preferred Securitiessm (TOPrSsm). The Series G TOPrS were
redeemed at a price of $25 per share plus accrued and unpaid dividends of $0.42
per share. Also on April 2, 2001, GM redeemed the approximately 5 million
outstanding Series G depositary shares, each of which represents a one-fourth
interest in a GM Series G 9.12% Preference Share, at a price of $25 per share
plus accrued and unpaid dividends of $0.59 per share. The securities together
had a total face value of approximately $252 million.
Note 6. America Online's Investment in GM Preference Stock
On June 24, 2002, approximately 2.7 million shares of GM Series H 6.25%
Automatically Convertible Preference Stock held by AOL Time Warner (AOL)
mandatorily converted into approximately 80 million shares of GM Class H common
stock as provided for pursuant to the terms of the preference stock. GM
originally issued the shares of preference stock to AOL in 1999 in connection
with AOL's $1.5 billion investment in, and its strategic alliance with, Hughes.
The preference stock accrued quarterly dividends at a rate of 6.25% per year. GM
immediately invested the $1.5 billion received from AOL into shares of Hughes
Series A Preferred Stock designed to correspond to the financial terms of the
preference stock. Dividends on the Hughes Series A Preferred Stock were payable
to GM quarterly at an annual rate of 6.25%. The underwriting discount on the
Hughes Series A Preferred Stock was amortized over three years.
The original terms of Hughes Series A Preferred Stock required Hughes to
redeem the Series A preferred stock through a cash payment to GM immediately
upon the conversion of the preference stock held by AOL into shares of GM Class
H common stock. Simultaneous with GM's receipt of the cash redemption proceeds,
GM was committed to make a capital contribution to Hughes of the same amount. In
connection with this capital contribution, the denominator of the fraction used
in the computation of the Available Separate Consolidated Net Income (ASCNI) of
Hughes was to be increased by the corresponding number of shares of GM Class H
common stock issued. Accordingly, upon conversion of the GM Series H 6.25%
Automatically Convertible Preference Stock into GM Class H common stock, both
the numerator and denominator used in the computation of ASCNI increased by the
amount of the GM Class H common stock issued.
- 10 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 6. America Online's Investment in GM Preference Stock (concluded)
On June 24, 2002, prior to the conversion of the preference stock on such
date, and prior to the time that the Hughes Series A Preferred Stock would have
been redeemed on such date, GM, as approved by the GM and Hughes boards of
directors, contributed the Hughes Series A Preferred Stock to Hughes. In
connection with the contribution of the Hughes Series A Preferred Stock to
Hughes, Hughes issued to GM shares of Hughes Series B Preferred Stock. The
Hughes Series B Preferred Stock does not accrue dividends and is not redeemable.
The Hughes Series B Preferred Stock does not affect the net income of Hughes or
the allocation of the earnings per share and amounts available for the payment
of dividends on the GM Class H common stock.
This contribution by GM had the same effect with respect to the numerator and
the denominator of the fraction used in the computation of ASCNI that a cash
redemption by Hughes of its Series A preferred stock and a cash contribution by
GM of the redemption amount would have had.
Note 7. Comprehensive Income
GM's total comprehensive income (loss) was as follows (dollars in millions):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $1,292 $477 $1,520 $714
Other comprehensive income (loss) 148 167 21 (725)
----- --- ----- ---
Total $1,440 $644 $1,541 $(11)
===== === ===== ==
Note 8. Derivative Financial Instruments
Effective January 1, 2001, GM adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended, which requires that
all derivatives be recorded at fair value on the balance sheet and establishes
criteria for designation and effectiveness of derivative transactions for which
hedge accounting is applied. GM assesses the initial and ongoing effectiveness
of its hedging relationships in accordance with its documented policies. As a
result of the adoption of this standard as of January 1, 2001, GM recorded a
transition adjustment representing a one-time after-tax charge to income
totaling $23 million, as well as an after-tax unrealized gain of $4 million to
other comprehensive income.
GM is exposed to market risk from changes in foreign currency exchange rates,
interest rates, and certain commodity and equity security prices. In the normal
course of business, GM enters into a variety of foreign exchange, interest rate,
and commodity forward contracts, swaps, and options, with the objective of
minimizing exposure arising from these risks. A risk management control system
is utilized to monitor foreign exchange, interest rate, commodity and equity
price risks, and related hedge positions.
Note 9. Earnings Per Share Attributable to Common Stocks
Earnings per share (EPS) attributable to each class of GM common stock was
determined based on the attribution of earnings to each such class of common
stock for the period divided by the weighted-average number of common shares for
each such class outstanding during the period. Diluted EPS attributable to each
class of GM common stock considers the effect of potential common shares, unless
the inclusion of the potential common shares would have an antidilutive effect.
The attribution of earnings to each class of GM common stock was as follows
(dollars in millions):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2002 2001 2002 2001
---- ---- ---- ----
Earnings (losses) attributable
to common stocks
Earnings attributable to
$1-2/3 par value $1,389 $574 $1,715 $870
(Losses) attributable to Class H $(120) $(120) $(242) $(207)
Earnings attributable to GM $1-2/3 par value common stock for the period
represent the earnings attributable to all GM common stocks for the period,
reduced by the ASCNI of Hughes for the respective period.
- 11 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 9. Earnings Per Share Attributable to Common Stocks (continued)
In 2001 and prior years, losses attributable to GM Class H common stock
represent the ASCNI of Hughes, excluding the effects of GM purchase accounting
adjustments arising from GM's acquisition of Hughes Aircraft Company, reduced by
the amount of dividends accrued on the Series A Preferred Stock of Hughes (as an
equivalent measure of the effect that GM's payment of dividends on the GM Series
H 6.25% Automatically Convertible Preference Stock would have if paid by
Hughes). Beginning in 2002, losses attributable to GM Class H common stock were
not adjusted for the effects of GM purchase accounting, mentioned above, because
the related goodwill is no longer being amortized in accordance with SFAS No.
142, "Goodwill and Other Intangible Assets." The calculated losses used for
computation of the ASCNI of Hughes are then multiplied by a fraction, the
numerator of which is equal to the weighted-average number of shares of GM Class
H common stock outstanding (884 million and 876 million during the three months
ended June 30, 2002 and 2001, respectively, and 881 million and 876 million
during the six months ended June 30, 2002 and 2001, respectively), and the
denominator of which is a number equal to the weighted-average number of shares
of GM Class H common stock which if issued and outstanding would represent a
100% interest in the earnings of Hughes (the "Average Class H dividend base").
The Average Class H dividend base was 1.3 billion for the second quarters of
2002 and 2001, and for the six month periods ended June 30, 2002 and 2001.
The reconciliation of the amounts used in the basic and diluted earnings per
share computations was as follows (dollars in millions except per share
amounts):
$1-2/3 Par Value Common Stock Class H Common Stock
----------------------------- --------------------
Per Share Per Share
Income Shares Amount ASCNI Shares Amount
------ ------ ------ ----- ------ ------
Three Months Ended June 30, 2002
Net income (loss) $1,397 $(105)
Less:Dividends on preference
stocks 8 15
----- ----
Basic EPS
Income (loss) attributable
to common stocks 1,389 560 $2.48 $(120) 884 $(0.14)
==== ====
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options - 12 - -
----- --- --- ---
Diluted EPS
Adjusted income (loss)
attributable to
common stocks $1,389 572 $2.43 $(120) 884 $(0.14)
===== === ==== === === ====
Three Months Ended June 30, 2001
Net income (loss) $582 $(105)
Less:Dividends on preference
stocks 8 15
--- ---
Basic EPS
Income (loss) attributable
to common stocks 574 549 $1.05 (120) 876 (0.14)
==== ====
Effect of Dilutive Securities
Assumed exercise of dilutive
stock options - 10 - -
--- --- --- ---
Diluted EPS
Adjusted income (loss)
attributable to
common stocks $574 559 $1.03 $(120) 876 $(0.14)
=== === ==== === === ====
Six Months Ended June 30, 2002
Net income (loss) $1,730 $(210)
Less:Dividends on preference
stocks 15 32
----- ---
Basic EPS
Income (loss) attributable
to common stocks 1,715 560 $3.06 (242) 881 $(0.27)
==== ====
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options - 8 - -
----- --- --- ---
Diluted EPS
Adjusted income (loss)
attributable to
common stocks $1,715 568 $3.02 $(242) 881 $(0.27)
===== === ==== === === ====
Six Months Ended June 30, 2001
Net income (loss) $889 $(175)
Less:Dividends on preference
stocks 19 32
--- ---
Basic EPS
Income (loss) attributable
to common stocks 870 549 $1.59 (207) 876 $(0.24)
==== ====
Effect of Dilutive Securities
Assumed exercise of dilutive
stock options - 10 - -
--- --- --- ---
Diluted EPS
Adjusted income (loss)
attributable to
common stocks $870 559 $1.56 $(207) 876 $(0.24)
=== === ==== === === ====
- 12 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 9. Earnings Per Share Attributable to Common Stocks (concluded)
Certain stock options were not included in the computation of diluted
earnings per share for the periods presented since the options' underlying
exercise prices were greater than the average market prices of the GM $1-2/3 par
value common stock and GM Class H common stock, and therefore the effect would
have been antidilutive. In addition, options to purchase shares of GM Class H
common stock with underlying exercise prices less than the average market
prices were outstanding, but were excluded from the calculations of diluted
loss per share, as inclusion of these securities would have been antidilutive to
the net loss per share.
Note 10. Depreciation and Amortization
Depreciation and amortization included primarily in cost of sales and other
expenses for Automotive, Communications Services, and Other Operations was as
follows (dollars in millions):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2002 2001 2002 2001
---- ---- ---- ----
Depreciation $1,143 $1,146 $2,275 $2,183
Amortization of special tools 622 573 1,251 1,138
Amortization of intangible assets - 76 3 143
----- ----- ----- -----
Total $1,765 $1,795 $3,529 $3,464
===== ===== ===== =====
Note 11. European Matters
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 in 2002. 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 have a significant impact on the amount ultimately paid by the
manufacturers for this issue. GM recorded, in cost of sales and other expenses,
an after-tax charge of $55 million ($0.10 per share of GM $1-2/3 par value
common stock) in the second quarter of 2002 for those member states that have
passed national laws during the second quarter ended June 30, 2002. Management
is currently assessing the impact of this potential legislation on GM's
financial position and results of operations, and may include charges to
earnings throughout the remaining quarters of 2002 and in future periods as
additional national laws are passed.
During 2001, GM Europe (GME) announced its intention to turn around its
business with the implementation of Project Olympia. The initial stages of
Project Olympia sought to identify initiatives that could deliver:
. Solid and profitable business performance as of 2003
. A strengthened and optimized sales structure
. A revitalized Opel/Vauxhall brand
. Further market growth opportunities
. Continuous improvement by refocusing the organizational structure
The project identified several initiatives which aim to address the goals
mentioned above. These initiatives include, among other things, reducing GME's
manufacturing capacity, restructuring the dealer network in Germany, and
redefining the way vehicles are marketed. These initiatives resulted in a
decrease to GM's pre-tax earnings in the first quarter of 2002 as follows: (1)
$298 million related to employee separation costs for approximately 4,000
employees; (2) $235 million related to asset writedowns; and (3) $108 million
related to the dealer network restructuring in Germany. The net income impact of
these charges in the first quarter of 2002 was $407 million, or $0.72 diluted
earnings per share of GM $1-2/3 par value common stock ($553 million included in
cost of sales and other expenses; $88 million included in selling, general, and
administrative expenses; and $(234) million included in income tax expense).
- 13 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 12. Segment Reporting
GM's reportable operating segments within its Automotive, Communications
Services, and Other Operations (ACO) business consist of General Motors
Automotive (GMA) (which is comprised of four regions: GM North America (GMNA),
GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM Asia Pacific
(GMAP)), Hughes, and Other. GM's reportable operating segments within its
Financing and Insurance Operations (FIO) business consist of GMAC and Other.
Selected information regarding GM's reportable operating segments were as
follows (dollars in millions):
Other
GMNA GME GMLAAM GMAP GMA Hughes Other Total ACO GMAC Financing Total FIO
---- --- ------ ---- --- ------ ----- --------- ---- --------- ---------
For the Three Months
Ended June 30, 2002
Net sales and revenues:
External customers $30,661 $5,741 $1,233 $1,009 $38,644 $2,237 $837 $41,718 $6,525 $22 $6,547
Intersegment (453) 260 73 120 - 4 (4) - - - -
------ ----- ----- ----- ------ ----- --- ------ ------ -- -----
Total net sales and
revenues $30,208 $6,001 $1,306 $1,129 $38,644 $2,241 $833 $41,718 $6,525 $22 $6,547
====== ===== ===== ===== ====== ===== === ====== ===== == =====
Interest income (a) $166 $67 $5 $3 $241 $8 $(101) $148 $735 $(40) $695
Interest expense $267 $42 $30 $2 $341 $123 $(162) $302 $1,405 $60 $1,465
Net income (loss) $1,248 $(170) $(73) $39 $1,044 $(156) $(28) $860 $431 $1 $432
Segment assets $96,971 $19,299 $3,655 $1,340 $121,265 $19,193 $(3,399) $137,059 $199,842 $66 $199,908
For the Three Months
Ended June 30, 2001
Net sales and revenues:
External customers $28,609 $5,987 $1,692 $927 $37,215 $1,997 $519 $39,731 $6,422 $67 $6,489
Intersegment (492) 244 47 201 - 6 (6) - - - -
------ ----- ------ ----- ------ ----- --- ------ ----- -- -----
Total net sales and
revenues $28,117 $6,231 $1,739 $1,128 $37,215 $2,003 $513 $39,731 $6,422 $67 $6,489
====== ===== ===== ===== ====== ===== === ====== ===== == =====
Interest income (a) $293 $101 $(1) $4 $397 $19 $(250) $166 $666 $(113) $553
Interest expense $350 $79 $15 $2 $446 $42 $(337) $151 $2,050 $58 $2,108
Net income (loss) $521 $(154) $31 $(121) $277 $(156)(b) $(82) $39 $449 $(11) $438
Segment assets $90,185 $19,186 $4,472 $903 $114,746 $19,081 $(89) $133,738 $168,850 $1,075 $169,925
(a) Interest income is included in net sales and revenues from external
customers.
(b) The amount reported for Hughes excludes amortization of GM purchase
accounting adjustments related to GM's acquisition of Hughes Aircraft
Company of $1 million for 2001. There is no comparable adjustment in 2002
because the related goodwill is no longer being amortized effective
January 1, 2002 in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets."
- 14 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded
(Unaudited)
Note 12. Segment Reporting (concluded)
Other
GMNA GME GMLAAM GMAP GMA Hughes Other Total ACO GMAC Financing Total FIO
---- --- ------ ---- --- ------ ----- --------- ---- --------- ---------
For the Six Months
Ended June 30, 2002
Net sales and revenues:
External customers $60,082 $11,125 $2,483 $1,913 $75,603 $4,244 $1,644 $81,491 $12,928 $110 $13,038
Intersegment (857) 460 124 273 - 9 (9) - - - -
------ ------ ----- ----- ------ ---- ----- ------ ------ --- ------
Total net sales and
revenues $59,225 $11,585 $2,607 $2,186 $75,603 $4,253 $1,635 $81,491 $12,928 $110 $13,038
====== ====== ===== ===== ====== ===== ===== ====== ====== === ======
Interest income (a) $250 $131 $12 $5 $398 $12 $(189) $221 $1,439 $(129) $1,310
Interest expense $381 $121 $58 $4 $564 $199 $(299) $464 $3,161 $105 $3,266
Net income (loss) $1,873 $(702) $(113) $46 $1,104 $(312) $(141) $651 $870 $(1) $869
For the Six Months
Ended June 30, 2001
Net sales and revenues:
External customers $54,189 $11,987 $3,053 $1,765 $70,994 $3,908 $993 $75,895 $12,791 $149 $12,940
Intersegment (966) 512 81 373 - 12 (12) - - - -
------ ------ ----- ----- ------ ----- --- ------ ------ --- ------
Total net sales and
revenues $53,223 $12,499 $3,134 $2,138 $70,994 $3,920 $981 $75,895 $12,791 $149 $12,940
====== ====== ===== ===== ====== ===== === ====== ====== === ======
Interest income (a) $562 $184 - $8 $754 $43 $(475) $322 $1,304 $(231) $1,073
Interest expense $705 $139 $39 $3 $886 $93 $(666) $313 $4,039 $118 $4,157
Net income (loss) $627 $(238) $36 $(142) $283 $(260)(b) $(201) $(178) $914 $(22) $892
(a) Interest income is included in net sales and revenues from external
customers.
(b) The amount reported for Hughes excludes amortization of GM purchase
accounting adjustments related to GM's acquisition of Hughes Aircraft
Company of $2 million for 2001. There is no comparable adjustment in 2002
because of the related goodwill is no longer being amortized effective
January 1, 2002 in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets."
* * * * * *
- 15 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the December 31,
2001 consolidated financial statements and notes thereto along with the MD&A
included in General Motors Corporation's (the "Corporation", "General Motors",
or "GM") 2001 Annual Report on Form 10-K, and all other GM, Hughes Electronics
Corporation (Hughes), and General Motors Acceptance Corporation (GMAC) filings
with the Securities and Exchange Commission. All earnings per share amounts
included in the MD&A are reported as diluted.
GM presents separate financial information for the following businesses:
Automotive, Communications Services, and Other Operations (ACO) and Financing
and Insurance Operations.
GM's reportable operating segments within its ACO 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);
. Hughes, which includes activities relating to digital entertainment,
information and communications services, and satellite-based private
business networks; and
. Other, which includes the design, manufacturing, and marketing of
locomotives and heavy-duty transmissions, the elimination of intersegment
transactions, certain non-segment specific revenues and expenditures, and
certain corporate activities.
GM's reportable operating segments within its Financing and Insurance
Operations business consist of GMAC and Other Financing, which includes
financing entities operating in the U.S., Canada, Brazil, and Mexico that are
not associated with 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) and certain expenses (primarily
certain U.S. taxes related to non-U.S. operations) were included in the ACO
business. 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 on a GAAP basis, may be materially different.
- 16 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
For the second quarter of 2002, consolidated net income for the Corporation
was $1.3 billion, or $2.43 per share of GM $1-2/3 par value common stock,
compared with $477 million, or $1.03 per share of GM $1-2/3 par value common
stock for the second quarter of 2001. GM's consolidated net income for the six
months ended June 30, 2002 was $1.5 billion, or $3.02 per share of GM $1-2/3 par
value common stock, compared with $714 million, or $1.56 per share of GM $1-2/3
par value common stock for the six months ended June 30, 2001. The consolidated
net income included special items on an after-tax basis as follows:
List of Special Items - After Tax
(dollars in millions)
Total Other
GMNA GME GMLAAM GMAP GMA Hughes Other Total ACO GMAC Financing Total GM
---- --- ------ ---- --- ------ ----- --------- ---- --------- --------
For the Three Months
Ended June 30, 2002
Reported Net Income
(Loss) $1,248 $(170) $(73) $39 $1,044 $(156) $(28) $860 $431 $1 $1,292
GME End of Life
Vehicle Charge (A) - 55 - - 55 - - 55 - - 55
----- --- -- -- ----- --- --- --- --- -- -----
Adjusted Income (Loss) $1,248 $(115) $(73) $39 $1,099 $(156) $(28) $915 $431 $1 $1,347
===== === == == ===== === === === === == =====
For the Three Months
Ended June 30, 2001
Reported Net Income (Loss) $521 $(154) $31 $(121) $277 $(156) $(82) $39 $449 $(11) $477
Isuzu Restructuring (G) - - - 133 133 - - 133 - - 133
--- --- --- --- --- --- --- --- --- --- ---
Adjusted Income (Loss) $521 $(154) $31 $12 $410 $(156) $(82) $172 $449 $(11) $610
=== === === === === === === === === === ===
For the Six Months
Ended June 30, 2002
Reported Net Income
(Loss) $1,873 $(702) $(113) $46 $1,104 $(312) $ (141) $651 $870 $(1) $1,520
GME End of Life
Vehicle Charge (A) - 55 - - 55 - - 55 - - 55
GME Restructuring
Charge (B) - 407 - - 407 - - 407 - - 407
Hughes Space Shuttle
Settlement (C) - - - - - (59) - (59) - - (59)
Hughes GECC Contractual
Dispute (D) - - - - - 51 - 51 - - 51
Hughes Loan Guarantee
Charge (E) - - - - - 18 - 18 - - 18
----- --- --- -- ----- --- --- ----- --- -- -----
Adjusted Income (Loss) $1,873 $(240) $(113) $46 $1,566 $(302) $(141) $1,123 $870 $(1) $1,992
===== === === == ===== === === ===== === == =====
For the Six Months
Ended June 30, 2001
Reported Net Income (Loss) $627 $(238) $36 $(142) $283 $(260) $(201) $(178) $914 $(22) $714
SFAS 133 Adjustment (F) 14 (2) 1 1 14 8 - 22 (34) - (12)
Isuzu Restructuring (G) - - - 133 133 - - 133 - - 133
--- --- -- --- --- --- --- --- --- --- ---
Adjusted Income (Loss) $641 $(240) $37 $(8) $430 $(252) $(201) $(23) $880 $(22) $835
=== === == === === === === === === == ===
See next page for Footnotes.
- 17 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
List of Special Items - After Tax
Footnotes:
(A) During September 2000, the European Union 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. The laws to be developed in the individual country legislatures
throughout Europe will have a significant impact on the amount ultimately
paid by the manufacturers. The after-tax charge of $55 million, recorded in
cost of sales and other expenses, relates to those member states that have
passed national laws during the second quarter ended June 30, 2002. See
Note 11 in the Notes to Consolidated Financial Statements.
(B) The GME Restructuring Charge relates to the initiative implemented in the
first quarter of 2002 to improve the competitiveness of GM's automotive
operations in Europe. See Note 11 in the Notes to Consolidated Financial
Statements.
(C) The Space Shuttle Settlement relates to the favorable resolution of a
lawsuit that was filed against the U.S. government on March 22, 1991, based
upon the National Aeronautics and Space Administration's (NASA) breach of
contract to launch ten satellites on the Space Shuttle.
(D) The GECC Contractual Dispute relates to the expected loss associated with a
contractual dispute with General Electric Capital Corporation.
(E) The Loan Guarantee Charge relates to a loan guarantee for a Hughes Network
Systems' affiliate in India.
(F The SFAS No. 133 adjustment represents the net income impact from initially
adopting SFAS No. 133, "Accounting for Derivatives and Hedging Activities."
(G) The Isuzu restructuring charge includes General Motors' portion of
severance payments and asset impairments that were part of the second
quarter restructuring of its affiliate Isuzu Motors Ltd.
- 18 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Vehicle Unit Deliveries of Cars and Trucks
Three Months Ended June 30,
---------------------------
2002 2001
------------------------ ------------------------
GM as GM as
a % of a % of
Industry GM Industry Industry GM Industry
-------- --- -------- -------- --- --------
(units in thousands)
GMNA
United States
Cars 2,245 590 26.3% 2,324 610 26.2%
Trucks 2,332 694 29.7% 2,341 666 28.5%
----- ------ ----- -----
Total United States 4,577 1,284 28.1% 4,665 1,276 27.3%
Canada, Mexico, and Other 822 209 25.4% 740 186 25.1%
----- ------ ----- -----
Total GMNA 5,399 1,493 27.7% 5,405 1,462 27.0%
GME 5,076 443 8.7% 5,352 504 9.4%
GMLAAM 899 156 17.3% 1,003 175 17.4%
GMAP 3,445 138 4.0% 3,234 130 4.0%
----- ----- ------ -----
Total Worldwide 14,819 2,230 15.1% 14,994 2,271 15.1%
====== ===== ====== =====
Six Months Ended June 30,
-------------------------
2002 2001
------------------------ ------------------------
GM as GM as
a % of a % of
Industry GM Industry Industry GM Industry
-------- --- -------- -------- --- --------
(units in thousands)
GMNA
United States
Cars 4,144 1,061 25.6% 4,413 1,213 27.5%
Trucks 4,433 1,354 30.5% 4,458 1,258 28.2%
----- ----- ----- -----
Total United States 8,577 2,415 28.2% 8,871 2,471 27.9%
Canada, Mexico, and
Other 1,498 389 26.0% 1,363 348 25.5%
----- ----- ----- ------
Total GMNA 10,075 2,804 27.8% 10,234 2,819 27.5%
GME 10,107 878 8.7% 10,631 1,002 9.4%
GMLAAM 1,809 309 17.1% 1,983 339 17.1%
GMAP 7,004 279 4.0% 6,701 250 3.7%
------ ----- ------ -----
Total Worldwide 28,995 4,270 14.7% 29,549 4,410 14.9%
====== ===== ====== =====
Wholesale Sales
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
(units in thousands)
GMNA
Cars 704 654 1,316 1,249
Trucks 853 729 1,603 1,364
----- ----- ----- -----
Total GMNA 1,557 1,383 2,919 2,613
----- ----- ----- -----
GME
Cars 418 473 813 914
Trucks 19 22 48 49
--- --- --- ---
Total GME 437 495 861 963
--- --- --- ---
GMLAAM
Cars 112 127 223 238
Trucks 47 60 91 108
--- --- --- ---
Total GMLAAM 159 187 314 346
--- --- --- ---
GMAP
Cars 47 57 94 104
Trucks 39 43 100 135
-- --- --- ---
Total GMAP 86 100 194 239
----- ----- ----- -----
Total Worldwide 2,239 2,165 4,288 4,161
===== ===== ===== =====
- 19 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMA Financial Review
GMA's income and net margin, adjusted to exclude special items (adjusted
income and margin), was $1.1 billion and 2.8% on net sales and revenues of $38.6
billion for the second quarter of 2002. This compares with income of $410
million and a net margin of 1.1% on net sales and revenues of $37.2 billion for
the prior year quarter. For the six months ended June 30, 2002 adjusted income
and margin, increased to $1.6 billion and 2.1% on net sales and revenues of
$75.6 billion compared with income of $430 million and a net margin of 0.6% on
net sales and revenues of $71.0 billion for the prior year six-month period. The
increase in adjusted second quarter and year-to-date 2002 income and net sales
and revenues was primarily due to an increase in wholesale sales volumes,
favorable mix, material cost savings, and structural cost reductions. These
favorable conditions were partially offset by pricing pressures in North America
and increased OPEB and salaried separation/retirement costs in North America.
GMNA's income was $1.2 billion for the second quarter of 2002, compared with
$521 million for the prior year quarter. Income for the six months ended June
30, 2002, was $1.9 billion compared with adjusted income of $641 million for the
prior six month period. The increase in GMNA's second quarter and year-to-date
2002 income was primarily the result of higher wholesale sales volumes,
favorable mix, material costs savings, and structural cost reductions. These
favorable conditions were partially offset by pricing pressures and increased
OPEB and salaried separation/retirement costs. Net price, which comprehends the
percent increase/(decrease) a customer pays in the current period for the same
comparably equipped vehicle over the price paid in the previous year's period,
was unfavorable for the quarter at (1.9)% year-over-year.
GME's adjusted loss was $115 million for the second quarter of 2002, compared
with a loss of $154 million for the prior year quarter. Adjusted losses for the
six months ended June 30, 2002, totaled $240 million, which was unchanged
compared to an adjusted loss of $240 million for the prior year six-month
period. The decrease in second quarter 2002 adjusted loss was primarily due to
material and structural cost improvements. This was partially offset by a
decrease in wholesale sales volumes driven by a weak European industry and
continuing competitive pricing pressures, as well as reduced sales of the Vectra
due to the changeover to the new model.
GMLAAM's loss was $73 million for the second quarter of 2002, compared with
income of $31 million for the prior year quarter. Losses for the six months
ended June 30, 2002 totaled $113 million, compared to adjusted income of $37
million for the prior year six-month period. The decrease in second quarter and
year-to-date 2002 earnings was primarily due to political unrest and economic
uncertainty in Argentina, Brazil, and Venezuela, which have caused a significant
deterioration to the 2002 industry outlook for the region.
GMAP's income for the second quarter of 2002 was $39 million compared to
adjusted income of $12 million for the prior year quarter. Income for the six
months ended June 30, 2002, was $46 million compared to an adjusted loss of $8
million for the prior year six-month period. The increase in second quarter and
year-to-date 2002 earnings was primarily due to equity income improvements from
several joint ventures in the region as well as slightly favorable pricing,
partially offset by decreased wholesale sales volumes and increases in material
and structural costs.
Hughes Financial Review
Total net sales and revenues increased to $2.2 billion and $4.3 billion for
the second quarter and first six months of 2002, respectively, compared with
$2.0 billion and $3.9 billion in the comparable periods in 2001. The increase in
second quarter and year-to-date net sales and revenues resulted primarily from
increased revenues at the Direct-To-Home Broadcast segment due to continued
subscriber growth at DIRECTV U.S. and $55 million of revenues in the second
quarter associated with the 2002 World Cup at DIRECTV Latin America.
Hughes' adjusted loss was $156 million for the second quarter of 2002 and
2001. Losses for the six months ended June 30, 2002 totaled $302 million
compared to losses of $252 million for the first six months of 2001. The
increase in year-to-date losses was primarily due to an increase in interest
expense which includes a $47 million charge in the second quarter 2002 for
losses associated with the final settlement of a contractual dispute with GECC.
The increase in year-to-date losses was also due to a decrease in interest
income due to lower average cash and cash equivalent balances in the current
year and a decrease in realized gains on investments. These unfavorable factors
were partially offset by the increase in revenues discussed above, a $37 million
gain resulting from the resolution of remaining claims associated with the exit
from the DIRECTV Japan business, and an increased income tax benefit resulting
from higher pre-tax losses and favorable resolution of certain tax contingencies
recorded in the first six months of 2002.
- 20 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC Financial Review
GMAC's income was $431 million on net sales and revenues of $6.5 billion for
the second quarter of 2002, compared with $449 million on net sales and revenues
of $6.4 billion for the prior year quarter. Income for the first six months of
2002, was $870 million on net sales and revenues of $12.9 billion, compared with
adjusted income of $880 million on net sales and revenues of $12.8 billion for
the prior year period. Income from automotive and other financing operations
totaled $347 million for the second quarter of 2002, compared with $360 million
for the prior year quarter. For the six months ended June 30, 2002, income from
automotive and other financing operations totaled $602 million compared to $651
million for the prior year period. The decrease in income reflects higher credit
losses and unfavorable borrowing spreads, which more than offset the positive
effect of higher retail asset levels in North America. Income from insurance
operations totaled $26 million for the second quarter of 2002, compared with $41
million for the prior year quarter. For the six months ended June 30, 2002,
income from insurance operations totaled $62 million compared to $83 million for
the prior year period. The decrease is largely accounted for by the absence of
capital gains reflecting weak equity markets, which more than offset a continued
improvement in underwriting results. Income from mortgage operations totaled $58
million for the second quarter of 2002, compared with $48 million for the prior
year quarter. For the six months ended June 30, 2002, income from mortgage
operations totaled $206 million compared to $146 million for the prior year
period. The increase reflects increased production volumes in both the
residential and commercial mortgage sectors, which were partially offset by a
reduction in the value of mortgage servicing rights, due to actual and expected
levels of mortgage prepayments.
Investment in Fiat Auto Holdings
In July 2000, GM acquired 20% of the common stock of Fiat Auto Holdings, B.V.
(FAH), the entity which is the sole shareholder of Fiat Auto, S.p.A. (Fiat Auto)
for $2.4 billion. Subsequent to that acquisition, the European market for new
vehicles has experienced a continued decrease in volumes, and manufacturers have
experienced increased pricing and general competitive pressures. Those market
conditions and other factors have led to deterioration in the performance of
Fiat Auto. Accordingly, GM has commenced a review of the appropriate carrying
value of GM's investment in FAH. Management of GM believes it is probable that a
significant write-down of GM's investment in FAH will be required in the third
quarter of 2002 upon completion of GM's review.
LIQUIDITY AND CAPITAL RESOURCES
Financing Structure
In the first six months of 2002, GM and GMAC experienced excellent 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. Although downgrades to GM's and GMAC's credit ratings in 2001 have
reduced GM's and GMAC's access to the commercial paper market, the amount of
commercial paper available to GM and GMAC remains sufficient to meet the
Corporation's capital needs. Moreover, the downgrades have not had a significant
adverse effect on GM's and GMAC's ability to issue long-term public debt, to
obtain bank debt, or to sell asset-backed securities. Accordingly, GM and GMAC
expect that they will continue to have excellent access to the capital markets
sufficient to meet the Corporation's needs for financial flexibility. 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
2006. Similarly, GMAC has a $7.4 billion line of credit, committed through June
2003, and an additional $7.4 billion committed through June 2006.
On February 15, 2002, GM issued $875 million of 7.250% Senior Notes due
February 15, 2052. The bonds mature in 50 years and are redeemable by GM, in
whole or part, prior to 2052 if certain circumstances are satisfied. On March 6,
2002, GM also issued $3.8 billion of convertible debt securities as part of a
comprehensive effort to improve the Corporation's financial flexibility. The
offering includes $1.2 billion principal amount of 4.5% Series A Convertible
Senior Debentures due 2032 and $2.6 billion principal amount of 5.25% Series B
Convertible Senior Debentures due 2032. The securities mature in 30 years and
are convertible into GM $1-2/3 par value common stock once specific conditions
are satisfied. The proceeds of the offerings, combined with other cash
generation initiatives, will be used to rebuild GM's liquidity position, reduce
its underfunded pension liability, and fund its postretirement health care
obligations.
Automotive, Communications Services, and Other Operations
At June 30, 2002, cash, marketable securities, and $3.0 billion of assets of
the Voluntary Employees' Beneficiary Association (VEBA) trust invested in
fixed-income securities totaled $18.4 billion, compared with $12.2 billion at
December 31, 2001 and $12.2 billion at June 30, 2001. The increase from December
31, 2001 was primarily due to proceeds from the bond and convertible debt
offerings, and strong cash flow from automotive operations. Total assets
- 21 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive, Communications Services, and Other Operations (concluded)
in the VEBA trust used to pre-fund part of GM's other postretirement benefits
liability approximated $6.0 billion at June 30, 2002, compared with $4.9 billion
at December 31, 2001 and $5.2 billion at June 30, 2001. GM previously indicated
that it had a goal of maintaining $13.0 billion of cash and marketable
securities in order to continue funding product development programs throughout
the next downturn in the business cycle. This $13.0 billion target includes cash
to pay certain costs that were pre-funded in part by VEBA contributions.
Long-term debt was $16.8 billion at June 30, 2002, compared with $10.7
billion at December 31, 2001 and $8.7 billion at June 30, 2001. The ratio of
long-term debt to long-term debt and GM's net assets of Automotive,
Communications Services, and Other Operations was 80.2% at June 30, 2002,
compared with 72.6% at December 31, 2001 and 36.1% at June 30, 2001. The ratio
of long-term debt and short-term loans payable to the total of this debt and
GM's net assets of Automotive, Communications Services, and Other Operations was
81.5% at June 30, 2002, compared with 76.5% at December 31, 2001 and 41.9% at
June 30, 2001.
Net liquidity excluding Hughes, calculated as cash, marketable securities,
and $3.0 billion of assets of the VEBA trust invested in fixed-income securities
less the total of loans payable and long-term debt, was $2.6 billion at June 30,
2002, compared with $1.0 billion at December 31, 2001 and $1.9 billion at June
30, 2001.
In order to provide financial flexibility to GM and its suppliers, GM
maintains a two-part financing program through GECC pursuant to a Trade Payables
Agreement with GM wherein GECC (1) purchases GM receivables at a discount from
GM suppliers prior to the due date of those receivables, and pays on behalf of
GM the amount due on other receivables which have reached their due date (the
first part) and (2) from time to time allows GM to defer payment to GECC with
respect to all or a portion of receivables which it has purchased or paid on
behalf of GM, which deferral lasts generally up to 40 days.
To the extent GECC can realize favorable economics from transactions arising
in the first part of the program, they are shared with GM. Whenever GECC and GM
agree that GM will defer payment beyond the normal due date for receivables
under the second part of the program, GM becomes obligated to pay interest for
the period of such deferral. Outstanding balances of GM receivables held by GECC
are classified as accounts payable in GM's financial statements. If any of GM's
long-term unsecured debt obligations become subject to a rating by S&P of BBB-
(GM's current rating is BBB+) with a negative outlook or below BBB-, or a rating
by Moody's of Baa3 (GM's current rating is A3) with a negative outlook or below
Baa3, the first part of the program would be unavailable to GM and its
suppliers. If any of GM's long-term unsecured debt obligations become subject to
a rating by S&P of BBB or lower, or a rating by Moody's of Baa2 or lower, the
second part of the program would be unavailable to GM. The maximum amount
permitted under the program is $2 billion. At June 30, 2002, the outstanding
balance under the first part of the program amounted to approximately $755
million, and there was no outstanding balance under the second part of the
program.
Beginning January 2004, Fiat has the right to exercise a put option to
require GM to purchase 80% of Fiat Auto at fair market value. The put expires on
July 24, 2009. The process for establishing the value that would be paid by GM
to Fiat involves the determination of "Fair Market Value" by investment banks
that would be retained by the parties pursuant to provisions set out in the
Master Agreement between GM and Fiat, which has been made public in filings with
the SEC. As a result of GM's purchase of the initial 20% investment in Fiat Auto
for $2.4 billion in the July 2000 transaction, some have suggested a valuation
of $9.6 billion for the other 80% of Fiat Auto. However, Exhibit 8.03(a)(iii) to
the Master Agreement states that "in determining the Fair Market Value of the
Put Shares, the price [$2.4 billion] paid by General Motors for its initial 20%
interest in Fiat Auto shall not be considered."
Until a valuation is actually performed in accordance with provisions of the
Master Agreement, the amount that GM may pay for 80% of Fiat Auto is not
quantifiable. This is due in large part to the fact that there are many
variables that could cause such a determination to rise or fall, including, but
not limited to, the operating results and prospects of Fiat Auto, such factors
as the timing of any possible exercise of the put, regional and global economic
developments and those in the automotive industry, developments specific to the
business of Fiat Auto, the resolution of any antitrust issues arising in the
context of such a transaction, and other legislative developments in the
countries in which Fiat Auto and GM conduct their business operations.
If the put were exercised, GM would have the option to pay for the 80%
interest in Fiat Auto entirely in shares of GM $1-2/3 par value common stock,
entirely in cash, or in whatever combination thereof GM may choose. To the
extent GM chooses to pay in cash, that portion of the purchase price may be paid
to Fiat in four installments over a three-year period. GM would expect to fund
any such payments from normal operating cash flows or financing activities. At
this time it cannot be determined what the effects of the exercise of the put
would be, if it ever occurs during the next eight years; however, if it is
exercised, it could have a material effect on GM at or after the time of
exercise. See Note 4 in the Notes to Consolidated Financial Statements and
"Investment in Fiat Auto Holdings in this MD&A."
- 22 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Financing and Insurance Operations
At June 30, 2002, GMAC owned assets and serviced automotive receivables
totaling $228.0 billion, compared with $220.1 billion at December 31, 2001 and
$193.0 billion at June 30, 2001. The increase from December 31, 2001 was
primarily the result of an increase in serviced retail receivables, serviced
wholesale receivables, mortgage loans held for investment, other assets, and
investments in securities. These increases were partially offset by a decrease
in cash and cash equivalents, real estate mortgages held for sale, commercial
and other loan receivables, mortgage lending receivables, notes receivable from
GM, and mortgage servicing rights.
Total automotive and commercial finance receivables serviced by GMAC,
including sold receivables, totaled $139.0 billion at June 30, 2002, compared
with $130.6 billion at December 31, 2001 and $116.8 billion at June 30, 2001.
The increase from December 31, 2001 was primarily the result of a $4.7 billion
increase in serviced retail receivables, a $4.7 billion increase in serviced
wholesale receivables, partially offset by a $1.0 billion decline in commercial
and other loan receivables. Continued GM-sponsored retail financing incentives
contributed to the rise in serviced retail receivables. The increase in serviced
wholesale loan receivables was due to increased dealer inventories at June 30,
2002 compared to December 31, 2001.
At June 30, 2002, GMAC's total borrowings were $158.0 billion, compared with
$152.0 billion at December 31, 2001 and $131.4 billion at June 30, 2001. GMAC's
ratio of total debt to total stockholder's equity at June 30, 2002 was 9.3:1,
compared with 9.4:1 at December 31, 2001 and 8.9:1 at June 30, 2001.
Off Balance Sheet Arrangements
GM and GMAC use off-balance sheet special purpose entities ("SPEs") where the
economics and sound business principles warrant their use. GM's principal use of
SPEs occurs in connection with the securitization and sale of financial assets
generated or acquired in the ordinary course of business by GM's wholly-owned
subsidiary 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 of trade receivables. GM and GMAC
use SPEs in a manner consistent with conventional practices in the
securitization industry, the purpose of which is to isolate the receivables for
the benefit of securitization investors. The use of SPEs enables GM and GMAC to
access the highly liquid and efficient markets for the sale of these types of
financial assets when they are packaged in securitized forms.
GM leases real estate and equipment from various SPEs which have been
established to facilitate the financing of those assets for GM by nationally
prominent, creditworthy lessors. These assets consist principally of office
buildings, warehouses, and machinery and equipment. The use of SPEs allows the
parties providing the financing to isolate particular assets in a single entity
and thereby syndicate the financing to multiple third parties. This is a
conventional financing technique used to lower the cost of borrowing and, thus,
the lease cost to a lessee such as GM. There is a well-established market in
which institutions participate in the financing of such property through their
purchase of interests in these SPEs. All of the SPEs established to facilitate
property leases to GM are owned by institutions which are independent of, and
not affiliated with, GM. These institutions maintain substantial equity
investments in their SPEs. No officers, directors or employees of GM, GMAC, or
their affiliates hold any direct or indirect equity interests in such SPEs.
Assets in SPEs were as follows (dollars in millions):
June 30, Dec. 31,
2002 2001
-------- --------
Automotive, Communications Services,
and Other Operations
- ------------------------------------
Assets leased under operating leases $2,530 $2,412
Trade receivables sold 889 868
----- -----
Total $3,419 $3,280
===== =====
Financing and Insurance Operations
Receivables sold or securitized:
- Mortgage loans $110,228 $104,678
- Retail finance receivables 13,291 11,978
- Wholesale finance receivables 16,179 16,227
------- -------
Total $139,698 $132,883
======= =======
- 23 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Book Value Per Share
Book value per share is determined based on the liquidation rights of the
various classes of common stock. Book value per share of GM $1-2/3 par value
common stock was $27.48 at June 30, 2002, compared with $24.79 at December 31,
2001 and $38.85 at June 30, 2001. Book value per share of GM Class H common
stock, adjusted to reflect the GM Class H common stock split, was $5.50 at June
30, 2002, compared with $4.96 at December 31, 2001 and $7.77 at June 30, 2001.
Dividends
Dividends may be paid on common stocks only when, as, and if declared by the
GM Board in its sole discretion. The amount available for the payment of
dividends on each class of common stock will be reduced on occasion by dividends
paid on that class and will be adjusted on occasion for changes to the amount of
surplus attributed to the class resulting from the repurchase or issuance of
shares of that class.
GM's policy is to distribute dividends on its $1-2/3 par value common stock
based on the outlook and indicated capital needs of the business. On May 7,
2002, the GM Board declared a quarterly cash dividend of $0.50 per share on GM
$1-2/3 par value common stock, paid June 10, 2002, to holders of record on May
17, 2002. With respect to GM Class H common stock, the GM Board determined that
it will not pay any cash dividends at this time in order to allow the earnings
of Hughes to be retained for investment in its business.
A quarterly dividend of $8.7793 per share for the GM Series H 6.25%
Automatically Convertible Preference Stock was paid on June 24, 2002, to AOL
Time Warner, the sole holder of record.
European Matters
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 in 2002. 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 have a significant impact on the amount ultimately paid by the
manufacturers for this issue. GM recorded an after-tax charge of $55 million
($0.10 per share of GM $1-2/3 par value common stock) in the second quarter of
2002 for those member states that have passed national laws during the second
quarter ended June 30, 2002. Management is currently assessing the impact of
this potential legislation on GM's financial position and results of operations,
and may include charges to earnings throughout the remaining quarters of 2002 as
additional national laws are passed.
The European Commission has approved a new block exemption regulation that
provides for a reform of the rules governing automotive distribution and service
in Europe. The European Commission's proposal would eliminate the current block
exemption in place since 1985 that permits manufacturers to control where their
dealerships are located and the brands that they sell. The current block
exemption expires in October 2002, however there is a transition period until
the end of September 2003 for existing agreements with dealers. GM is presently
evaluating the effect this regulation would have on its present new vehicle and
aftermarket distribution strategies.
Hughes/EchoStar Transactions
On October 28, 2001, GM and its wholly owned subsidiary Hughes, together with
EchoStar Communications Corporation ("EchoStar"), announced the signing of
definitive agreements that, subject to stockholder approval, regulatory
clearance, and certain other conditions, provide for the split-off of Hughes
from GM and the subsequent merger of the Hughes business with EchoStar. These
transactions are designed to address strategic challenges currently facing the
Hughes business and to provide liquidity and value to GM, which would help to
support the credit position of GM after the transactions.
The split-off of Hughes from GM would occur by means of a distribution to the
holders of GM Class H common stock of one share of Class C common stock of a
Hughes holding company (that will own all of the stock of Hughes at the time of
the split-off) in exchange for each share of GM Class H common stock held
immediately prior to the split-off. Immediately following the split-off, the
businesses of Hughes and EchoStar would be combined in the Hughes/EchoStar
merger to form New EchoStar. Each share of the Hughes holding company Class C
common stock would remain outstanding and become a share of Class C common stock
of New EchoStar. Holders of Class A and Class B common stock of EchoStar would
receive 1/0.73, or about 1.3699, shares of stock of the merged entity in
exchange for each share of Class A or Class B common stock of EchoStar held
prior to the Hughes/EchoStar merger.
- 24 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Hughes/EchoStar Transactions (concluded)
The transactions are structured in a manner that will not result in the
recapitalization of GM Class H common stock into GM $1-2/3 par value common
stock at a 120% exchange ratio, as currently provided for under certain
circumstances in the General Motors Restated Certificate of Incorporation, as
amended. The GM $1-2/3 par value common stock would remain outstanding and would
be GM's only class of common stock after the transactions.
As part of the transactions, GM would receive a dividend from Hughes of up to
$4.2 billion in cash and its approximately 30% retained economic interest in
Hughes would be reduced by a commensurate amount. In addition, GM may achieve
additional liquidity with respect to a portion of its retained economic interest
in Hughes represented by up to 100 million shares of GM Class H common stock
(or, after the transactions, New EchoStar Class C common stock), including by
exchanging such shares for GM outstanding liabilities prior to the transactions
or exchanging such shares for either cash or GM outstanding liabilities after
the transactions. Following these transactions, and based on a number of
assumptions, GM may retain an interest in the merged entity.
GM, Hughes, and EchoStar have agreed that, in the event that the transactions
do not occur because of a failure to obtain certain specified regulatory
clearances or financing to complete the merger, EchoStar will be required to
purchase Hughes' interest in PanAmSat Corporation for an aggregate purchase
price of approximately $2.7 billion, which is payable, depending on the
circumstances, solely in cash or in a combination of cash and either debt or
equity securities of EchoStar. GM, Hughes, and EchoStar have also agreed that,
if the Hughes/EchoStar merger is not completed for certain limited reasons
involving a competing transaction or a withdrawal by GM's Board of Directors of
their recommendation of the EchoStar transaction, then Hughes will pay a
termination fee of $600 million to EchoStar. In addition, in the event that the
transactions do not occur because certain of the specified regulatory clearances
or approvals relating to United States federal, state or local antitrust and or
federal communication commission matters have not been satisfied, EchoStar will
be required to pay a $600 million termination fee to Hughes.
On July 2, 2002, GM received a favorable private letter ruling from the U.S.
Internal Revenue Service to the effect that, among other things, the split-off
of the Hughes holding company from GM would be tax-free to GM and its
stockholders for U.S. federal income-tax purposes. General Motors, Hughes,
and EchoStar continue to seek required regulatory clearances and approvals from
the U.S. Department of Justice and the Federal Communications Commission with a
goal toward completing the transactions in the second half of 2002. The
companies also are in the process of preparing materials to be distributed to GM
$1-2/3 par value common stockholders and GM Class H common stockholders seeking
their affirmative vote on certain aspects of the transactions, and to EchoStar
stockholders for their information.
Employment and Payrolls
Worldwide employment at June 30, (in thousands) 2002 2001
---- ----
GMNA 198 207
GME 69 76
GMLAAM 24 25
GMAP 11 11
GMAC 31 29
Hughes 12 11
Other 12 13
---- ----
Total employees 357 372
=== ===
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2002 2001 2002 2001
---- ---- ---- ----
Worldwide payrolls - (in billions) $5.4 $5.2 $10.4 $10.2
=== === ==== ====
Significant Accounting Policies
GM has identified significant accounting policies that, as a result of the
judgments, uncertainties, uniqueness and complexities of the underlying
accounting standards and operations involved, could result in material changes
to its financial condition or results of operations under different conditions
or using different assumptions. The Corporation's most significant accounting
policies are related to the following areas: sales allowances, policy and
warranty, impairment of long-lived assets, employee costs, postemployment
benefits, allowance for credit losses, investments in operating leases, and
accounting for derivatives and other contracts at fair value. Details regarding
the Corporation's use of these policies and the related estimates are described
fully in the Corporation's 2001 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. There have been no material changes to the
Corporation's significant accounting policies that affected the Corporation's
financial condition or results of operations in the second quarter of 2002.
- 25 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Significant Accounting Policies (concluded)
On August 6, 2002, GM announced that the Corporation will expense the fair
market value of stock options granted to employees beginning in January 2003,
pursuant to SFAS No. 123. In 2003, GM expects the expense associated with stock
options will be about $85 million, or $0.15 per share of GM $1-2/3 par value
common stock for the year assuming continuing option grants and values similar
to recent years. SFAS No. 123 requires amortizing the expense of options over
their vesting period. The full cost of GM's annual option grants could grow to
about $130 million, or $0.24 per share, in 2005.
Additional Matters
Asbsetos Matters
Like most domestic and foreign automobile manufacturers, over the years GM
has used some brake products incorporating small amounts of encapsulated
asbestos. These products, generally brake linings, are known as asbestos
containing friction products. There is a significant body of scientific data
demonstrating that these asbestos containing friction products are safe and do
not create an increased risk of asbestos related disease. GM believes that the
use of asbestos in these products was appropriate.
As with other companies that have used products containing asbestos, there
has been an increase in the number of claims against GM related to allegations
concerning the use of friction products in recent years. A growing number of
auto mechanics are filing suit seeking recovery as a result of exposure to the
small amount of asbestos used in brake components. These claims almost always
identify numerous other potential sources for the claimant's exposure to
asbestos which do not involve GM or even asbestos containing friction products
and many of which place users at much greater risk. Many of these claimants do
not have an asbestos related illness and may never develop one. This is
consistent with the experience reported by other automotive manufacturers and
other end users of asbestos.
GM and the other domestic automobile manufacturers sought to have the
asbestos brake claims against them transferred and consolidated with asbestos
brake litigation in the Delaware bankruptcy court where the Federal Mogul
bankruptcy is pending. The bankruptcy court in Delaware declined to consolidate
the automobile manufacturers' cases, and the Court of Appeals affirmed that
decision. The manufacturers are attempting to have that decision reviewed by the
U.S. Supreme Court. That attempt to consolidate and the bankruptcy court's
decision to decline to do so are procedural and do not affect any defenses
available in these cases.
Two other types of claims related to alleged asbestos exposure are being
asserted against GM, representing a significantly lower alleged exposure than
the automotive friction claims. Like other locomotive manufacturers, GM used a
limited amount of asbestos in locomotive brakes and in the insulation used in
some locomotives resulting in lawsuits being filed against it by railroad
workers seeking relief based on their exposure to asbestos. These claims usually
identify numerous other potential sources for the claimant's exposure to
asbestos which do not involve GM or even locomotives. Many of these claimants do
not have an asbestos related illness and may never develop one. In addition,
like many other manufacturers, a relatively small number of claims are brought
by contractors who are seeking recovery based on exposure to asbestos containing
products while working on premises owned by GM. These claims almost always
identify numerous other potential sources for the claimant's exposure to
asbestos which do not involve GM. Many of these claimants do not have an
asbestos related illness and may never develop one.
While General Motors has resolved many of these cases over the years and
continues to do so for conventional strategic litigation reasons (avoiding
defense costs and possible exposure to runaway verdicts), GM, as stated above,
believes that the vast majority of such claims against GM are without merit. In
this regard GM believes that it has very strong defenses based upon a number of
published epidemiological studies prepared by highly respected scientists. GM
believes there is compelling evidence warranting the dismissal of virtually all
of these claims against GM. GM will vigorously press this evidence before judges
and juries whenever possible. Additionally, GM believes there is strong
statutory and judicial precedent supporting federal preemption of the asbestos
tort claims asserted on behalf of railroad workers. Such preemption would mean
that federal law entirely eliminates the possibility that such individuals could
bring tort claims against GM.
GM's aggregate expense associated with resolution of these claims in 2001 was
approximately $10 million. This figure may grow in future years because of the
number of claims, the many years it can take to resolve any given claim, and the
increasing rate at which claims are being filed. Nevertheless, it is
management's belief, based upon consultation with legal counsel, that these
claims will not result in a material adverse effect upon the financial condition
of GM.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Additional Matters (concluded)
Isuzu Restructuring Matters
On August 14, 2002, GM confirmed it is in discussions with Isuzu Motors
Ltd. and Isuzu's banks, including Mizuho Corporate Bank, Ltd., regarding a
comprehensive operational and financial restructuring of Isuzu. Under the
restructuring proposal, GM would spend a total of Y60 billion (U.S. $500
million). The investment would be used to acquire a majority interest in certain
of Isuzu's diesel engine businesses and complete ownership of certain diesel
engine technologies. GM also would acquire a majority interest in a new diesel
engine engineering joint venture with Isuzu as well as rights to use various
related technologies. In addition, GM would have its existing equity in the
company retired as part of Isuzu's financial restructuring plan, and GM would
then purchase new equity in the company, leaving GM with a 12-percent ownership
stake in Isuzu Motors.
* * * * * * *
PART II
ITEM 1. LEGAL PROCEEDINGS
Previously reported legal proceedings which have been terminated, either
during the quarter ended June 30, 2002, or subsequent thereto, but before the
filing of this report are summarized below:
As previously reported, following the discontinuation of DIRECTV Japan's
operations in September 2000, Global Japan, Inc. ("Global") commenced an action
in the New York Supreme Court on October 5, 2000 against Hughes, DIRECTV Japan
Management Company, Inc., DIRECTV International, Inc., DIRECTV, Inc. and the
Hughes-appointed directors of DIRECTV Japan for alleged breach of contract and
fiduciary duty, fraudulent conveyance and tortious interference in connection
with the termination of two direct broadcast satellite distribution agreements
between Global and DIRECTV Japan. In July 2002, the parties reached a settlement
and stipulated to dismissal of the lawsuit with prejudice. Pursuant to that
settlement, DIRECTV paid approximately $20 million to Global.
* * *
With respect to the previously reported dispute between General Electric
Capital Corporation ("GECC") and DIRECTV arising out of a contract entered into
between the parties on July 31, 1995, the parties executed an agreement on June
4, 2002 to settle the matter for $180 million. The settlement resulted in Hughes
recording a second quarter 2002 pre-tax charge of $47 million, primarily
related to interest expense.
* * * *
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The annual meeting of stockholders of the Registrant was held on June 4,
2002.
At that meeting, the following matters were submitted to a vote of the
stockholders of General Motors Corporation:
2002 General Motors Annual Meeting
Final Voting Results
(All classes of common stock)
Proposal Voting Results
Votes* Percent**
------- ---------
Item No. 1
Nomination and Election of Directors
The Judges subscribed and delivered a certificate reporting that the
following nominees for directors had received the number of votes* set opposite
their respective names.
Percy N. Barnevik For 596,375,959 98.7%
Withheld 8,114,082 1.3
John H. Bryan For 594,420,874 98.3
Withheld 10,069,167 1.7
Armando M. Codina For 596,247,270 98.6
Withheld 8,242,771 1.4
George M. C. Fisher For 596,410,019 98.7
Withheld 8,080,022 1.3
Nobuyuki Idei For 594,573,264 98.4
Withheld 9,916,777 1.6
Karen Katen For 594,566,366 98.4
Withheld 9,923,675 1.6
Alan G. Lafley For 596,418,509 98.7
Withheld 8,071,532 1.3
E. Stanley O'Neal For 594,421,185 98.3
Withheld 10,068,856 1.7
Eckhard Pfeiffer For 594,021,526 98.3
Withheld 10,468,515 1.7
John F. Smith, Jr. For 596,415,514 98.7
Withheld 8,074,527 1.3
G. Richard Wagoner, Jr. For 596,503,519 98.7
Withheld 7,986,522 1.3
Lloyd D. Ward For 593,163,452 98.1
Withheld 11,326,589 1.9
In addition, 62 votes were cast 0.0
for each of the following:
John Chevedden, James Dollinger,
W. Dean Fitzpatrick, John Lauve,
Louis Lauve III, Steve J. Mahac,
Larry Parks, Robert G. Rinaldi,
Danny R. Taylor, William L. Walde,
William E. Woodward, M.D.
Item No. 2
A proposal of the Board of Directors For 576,776,036 95.4%
that the stockholders ratify the Against 22,293,255 3.7
selection of Deloitte & Touche LLP Abstain 5,420,750 0.9
as independent public accountants
for the year 2002.
Item No. 3
A proposal of the Board of Directors For 520,480,349 86.1%
that the stockholders approve the Against 76,377,285 12.6
Corporation's executive incentive Abstain 7,632,407 1.3
program, effective June 4, 2002.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Proposal Voting Results
Votes* Percent**
------- ---------
Item No. 4
A stockholder proposal that For 14,846,791 2.9%
GM provide each year a detailed Against 478,015,004 93.2
report of accidents caused by Abstain 20,147,082 3.9
driver distraction due to driver
use of the internet or cell phones
in General Motors cars.
Item No. 5
A stockholder proposal that a For 122,529,377 23.9%
bylaw be adopted that the Board Against 374,637,147 73.0
(and/or management) nominate Abstain 15,842,360 3.1
independent directors to key Board
committees to the fullest extent
possible.
Item No. 6
A stockholder proposal that the For 20,325,029 4.0%
Directors increase the stock dividend. Against 481,953,798 93.9
Abstain 10,730,048 2.1
Item No. 7
A stockholder proposal that For 214,318,962 41.8%
shareholder approval be required Against 285,990,093 55.7
to adopt, terminate or maintain Abstain 12,699,827 2.5
a poison pill.
Item No. 8
A stockholder proposal that GM For 24,302,082 4.7%
adopt a bylaw for directors to be Against 471,402,250 91.9
paid their retainer in GM current Abstain 17,304,547 3.4
voting stock.
* Numbers represent the aggregate voting power of all votes cast as of June 4,
2002 with holders of GM $1-2/3 par value common stock casting one vote per
share and holders of GM Class H common stock casting 0.2 vote per share,
which represents the applicable voting power after 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 to GM Class H common stockholders of record on June 13,
2000.
** Percentages represent the aggregate voting power of both classes of GM common
stock cast for each item.
* * * * * *
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Exhibit Name Page No.
- ------ ----------------------------------------------- --------
99 Hughes Electronics Corporation Financial Statements and
Management's Discussion and Analysis of Financial
Condition and Results of Operations 31
(b) Reports on Form 8-K
Seven reports on Form 8-K, were filed April 2, 2002, April 16, 2002, May 1,
2002 (2), June 3, 2002, June 4, 2002 and June 24, 2002 during the quarter ended
June 30, 2002 reporting matters under Item 5, Other Events, reporting certain
agreements under Item 7, Financial Statements, Pro Forma Financial Information,
and Exhibits.
- --------------------------
* Reports submitted to the Securities and Exchange Commission under Item 9,
Regulation FD Disclosure. Pursuant to General Instruction B of Form 8-K the
reports submitted under Item 9 are not deemed to be "filed" for the purpose of
Section 18 of the Securities Exchange Act of 1934 and we are not subject to the
liabilities of that section. We are not incorporating, and will not incorporate
by reference these reports into a filing under the Securities Act or the
Exchange Act.
* * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
--------------------------
(Registrant)
Date: August 14, 2002 /s/Peter R. Bible
- --------------------- ----------------------------------------
(Peter R. Bible, Chief Accounting Officer)
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