UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the fiscal year ended December 31, 2002
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-143
GENERAL MOTORS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
STATE OF DELAWARE 38-0572515
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 Renaissance Center, Detroit, Michigan 48265-3000
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------------------------- -------------------------
Common, $1-2/3 par value (560,560,818
shares outstanding as of February 28, 2003) New York Stock Exchange, Inc.
Class H Common, $0.10 par value (958,299,595
shares outstanding as of February 28, 2003) New York Stock Exchange, Inc.
Note: The $1-2/3 par value common stock of the Registrant is also listed for
trading on:
Chicago Stock Exchange, Inc. Chicago, Illinois
Pacific Exchange, Inc. San Francisco, California
Philadelphia Stock Exchange, Inc. Philadelphia, Pennsylvania
Toronto Stock Exchange Toronto, Ontario, Canada
Borse Frankfurt am Main Frankfurt on the Main, Germany
Borse Dusseldorf Dusseldorf, Germany
Bourse de Bruxelles Brussels, Belgium
Courtiers en Valeurs Mobilieres Paris, France
The London Stock Exchange London, England
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes . No X.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No .
The aggregate market value (based upon the average of the highest and lowest
sales prices on the Composite Tape on February 28, 2003) of General Motors
Corporation $1-2/3 par value and GM Class H common stocks held by nonaffiliates
on February 28, 2003 was approximately $19.0 billion and $9.8 billion,
respectively.
GM's Class H common stock is a "tracking stock" designed to provide holders with
financial returns based on the financial performance of Hughes Electronics
Corporation and Subsidiaries (Hughes). However, in the event of a GM
liquidation, insolvency or similar event, GM Class H stockholders would have no
direct claim against the assets of Hughes. Rather, GM Class H stockholders would
only have rights in the assets of GM as common stockholders of GM.
We determine the earnings per share and the amounts available for the payment of
dividends on the GM Class H common stock by a fraction which reflects the
portion of Hughes' earnings that is allocated to the GM Class H common stock. We
sometimes refer to this fraction as the "Class H fraction." The numerator and
denominator of the Class H fraction are determined as follows:
- The numerator of the Class H fraction is the weighted average number of
shares of GM Class H common stock outstanding during the applicable
period.
- The denominator of the Class H fraction is the notional number of shares
of GM Class H common stock which, if outstanding, would represent 100% of
the tracking stock interest in the earnings of Hughes.
We sometimes also refer to the denominator of the Class H fraction as the
"Average Class H dividend base." It can be adjusted by the GM board of directors
in specified circumstances, including to reflect contributions by GM to Hughes.
Documents incorporated by reference are as follows:
Part and Item Number of
Form 10-K into Which
Document Incorporated
- -------- -----------------------
General Motors Notice of Annual Meeting
of Stockholders and Proxy Statement
for the Annual Meeting of Stockholders
to be held June 3, 2003 Part III, Items 10 through 13
COVER PAGE
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
THE CORPORATION
General Motors Corporation, incorporated in 1916 under the laws of the State
of Delaware, is hereinafter sometimes referred to as the "Registrant", the
"Corporation", "General Motors", or "GM."
ITEM 1. Business
General
The following information is incorporated herein by reference to the
indicated pages in Part II:
Item Page(s)
---- -------
Wholesale Sales II-6
Employment and Payrolls II-13
Note 25 of Notes to the GM Consolidated
Financial Statements (Segment Reporting) II-63 through II-66
GM presents separate supplemental financial information for the following
businesses: (1) Automotive, Communications Services, and Other Operations and
(2) Financing and Insurance Operations. GM participates in the automotive
industry through the activities of its automotive business operating segment
General Motors Automotive (GMA) which is comprised of four regions: GM North
America (GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and
GM Asia Pacific (GMAP). GMNA designs, manufactures, and/or markets vehicles
primarily in North America under the following nameplates: Chevrolet, Pontiac,
GMC, Oldsmobile, Buick, Cadillac, Saturn, and HUMMER. GME, GMLAAM, and GMAP meet
the demands of customers outside North America with vehicles designed,
manufactured, and/or marketed under the following nameplates: Opel, Vauxhall,
Holden, Saab, Buick, Chevrolet, GMC, and Cadillac. GM's automotive regions also
have equity ownership in Fiat Auto Holdings (FAH), Fuji Heavy Industries Ltd.,
Suzuki Motor Corporation (Suzuki), Isuzu Motors Limited, Shanghai General Motors
Corporation (SGM), SAIC-GM-Wuling Automobile Company Ltd., and GM Daewoo Auto &
Technology Company (GM Daewoo). These investees design, manufacturer and market
vehicles under the following name plates: Fiat, Alfa Romeo, Subaru, Suzuki,
Isuzu, Buick, Wuling, Daewoo, and commencing in 2003, Chevrolet. GM's
communications services relate to Hughes, which includes digital entertainment,
information and communications services, and satellite-based private business
networks. GM's other operations include 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 Financing and Insurance Operations primarily
relate to General Motors Acceptance Corporation (GMAC). GMAC provides a broad
range of financial services, including consumer vehicle financing, automotive
dealership and other commercial financing, residential and commercial mortgage
services, automobile service contracts, personal automobile insurance coverage
and selected commercial insurance coverage.
Substantially all automotive-related products are marketed through retail
dealers and distributors in the United States, Canada, and Mexico, and through
distributors and dealers overseas. At December 31, 2002, there were
approximately 7,790 GM vehicle dealers in the United States, 800 in Canada, and
210 in Mexico. Additionally, there were a total of approximately 11,800 outlets
overseas which include dealers and authorized sales, service, and parts outlets.
Raw Materials and Services
GM purchases materials, parts, supplies, freight transportation, energy, and
other services from numerous unaffiliated firms. Interruptions in production or
delivery of these goods or services could adversely affect GM.
Backlog of Orders
Shipments of GM automotive products are made as promptly as possible after
receipt of firm sales orders; therefore, no significant backlog of unfilled
orders accumulates. Hughes had a $5.0 billion and $5.3 billion backlog of
commercial contracts relating to its telecommunications business at the end of
2002 and 2001, respectively.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Competitive Position
GM's principal competitors in passenger cars and trucks in the United States
and Canada include Ford Motor Company, DaimlerChrysler Corporation, Toyota
Corporation (Toyota), Nissan Motor Corporation, Ltd., Honda Motor Company, Ltd.,
Mazda Motor Corporation, Mitsubishi Motors Corporation, Volkswagen A.G.
(Volkswagen), Hyundai Motor Company, Ltd. (Hyundai), and Bayerische Motoren
Werke AG (BMW). All but Volkswagen and Hyundai currently operate vehicle
manufacturing facilities in the United States or Canada. Toyota and GM operate
the New United Motor Manufacturing, Inc. facility in Fremont, California as a
joint venture which currently builds passenger cars and light-duty trucks.
Suzuki and GM operate CAMI Automotive Inc. in Ingersoll, Ontario as a joint
venture which currently builds light-duty trucks. Wholesale unit sales of GM
passenger cars and trucks during the three years ended December 31, 2002 are
summarized in Management's Discussion and Analysis of Financial Condition and
Results of Operations in Part II.
Total industry new motor vehicle (passenger cars, trucks, and buses) unit
sales of domestic and foreign makes and GM's competitive position during the
years ended December 31, 2002, 2001, and 2000 were as follows:
Vehicle Unit Sales (1)
Years Ended December 31,
-----------------------
2002 2001 2000
-----------------------------------------------------------------------------
GM as GM as GM as
a % of a % of a % of
Industry GM Industry Industry GM Industry Industry GM Industry
-------- -- -------- ------- -- -------- -------- -- --------
United States (units in thousands)
Cars 8,131 2,069 25.4% 8,455 2,272 26.9% 8,857 2,532 28.6%
Trucks 9,013 2,790 31.0% 9,020 2,633 29.2% 8,957 2,421 27.0%
------ ----- ------ ----- ------- -----
Total United
States 17,144 4,859 28.3% 17,475 4,905 28.1% 17,814 4,953 27.8%
Canada, Mexico,
and Other 2,974 764 25.7% 2,775 686 24.7% 2,781 707 25.4%
------ ----- ----- ----- ------ -----
Total GMNA 20,118 5,623 28.0% 20,250 5,591 27.6% 20,595 5,660 27.5%
GME 19,172 1,662 8.7% 19,705 1,800 9.1% 20,158 1,856 9.2%
GMLAAM 3,673 635 17.3% 4,009 665 16.6% 3,664 605 16.5%
GMAP 14,373 605 4.2% 13,101 524 4.0% 12,880 476 3.7%
------ ----- ------ ------ ------ -----
Total Worldwide 57,336 8,525 14.9% 57,065 8,580 15.0% 57,297 8,597 15.0%
(1) GM vehicle unit sales primarily represents vehicles manufactured by GM or
manufactured by GM's investees and sold either under a GM nameplate or
through a GM-owned distribution network. Consistent with industry practice,
vehicle unit sales information employs estimates of sales in certain
countries where public reporting is not legally required or otherwise
available on a consistent basis.
Research and Development
In 2002, GM spent $5.8 billion for research, manufacturing engineering,
product engineering, and development activities related primarily to the
development of new products or services or the improvement of existing products
or services, including activities related to vehicle emissions control, improved
fuel economy, and the safety of persons using GM products. In addition, $72
million was spent for customer-sponsored activities. Comparably, $6.2 billion
and $6.6 billion were spent on company-sponsored research and other product
development activities in 2001 and 2000, respectively, and $82 million and $278
million were spent on customer-sponsored activities in 2001 and 2000,
respectively.
Environmental Matters
Automotive Emissions Control
Both the U.S. Federal and California governments currently impose stringent
emission control requirements on motor vehicles sold in their respective
jurisdictions. These requirements include pre-production testing of vehicles,
testing of vehicles after assembly, the imposition of emission defect and
performance warranties, and the obligation to recall and repair customer-owned
vehicles determined to be non-compliant with emissions requirements.
Both the U.S. Environmental Protection Agency (EPA) and the California Air
Resources Board (CARB) continue to place great emphasis on compliance testing of
customer-owned vehicles. Failure to comply with the emission standards or
defective emission control systems or components discovered during such testing
can lead to substantial cost for General Motors related to emissions recalls.
New CARB and Federal requirements will increase the time and mileage periods
over which manufacturers are responsible for a vehicle's emission performance.
I-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive Emissions Control - (concluded)
Both the EPA and the CARB emission requirements will become even more
stringent in the future. A new tier of exhaust emission standards for cars and
light-duty trucks, the "Low-Emission Vehicles (LEV) II" standards, will begin
phasing in for California vehicles in the 2004 model year. Similar federal "Tier
2" standards will also start in 2004. In addition, both the CARB and the EPA
have adopted more stringent standards applicable to future heavy-duty trucks.
California requires that a specified percentage of cars and certain
light-duty trucks be zero emission vehicles (ZEVs), such as electric vehicles or
hydrogen fuel cell vehicles. This requirement starts at 10% in model year 2003
and increases in future years. Manufacturers have the option of meeting a
portion of this requirement with partial ZEV credits, which are vehicles that
meet very stringent emission standards and have extended emission system
warranties. An additional portion of the ZEV requirement can be met with
vehicles that meet these partial ZEV requirements and incorporate advanced
technology, such as a hybrid electric propulsion system meeting specified
criteria. Currently California is in the process of further amending its ZEV
regulations, including delaying its start date until 2005. California is likely
to finalize any such amendments sometime in the second quarter of 2003.
The Clean Air Act permits states that have areas with air quality problems to
adopt the California car and truck emission standards in lieu of the federal
requirements and four states, New York, Massachusetts, Maine and Vermont, have
done so. To provide states an alternative to the adoption of California
standards, GM and other auto manufacturers began selling LEVs in the remaining
45 states in 2001, under the provisions of the National Low Emission Vehicle
Program.
In addition to the above-mentioned exhaust emission programs, onboard
diagnostic (OBD) devices, used to diagnose problems with emission control
systems, were required both Federally and in California effective with the 1996
model year. This system has the potential of increasing warranty costs and the
chance for recall. OBD requirements become more challenging each year as
vehicles meet lower emission standards, and new diagnostics are required.
New evaporative emission control requirements for cars and trucks began
phasing in with the 1995 model year in California and the 1996 model year
Federally. Systems are being further modified to accommodate Federal onboard
refueling vapor recovery (ORVR) control standards. ORVR was phased-in on
passenger cars in the 1998 through 2000 model years, and is phasing-in on
light-duty trucks in the 2001 through 2006 model years. Beginning with the 2004
model year, even more stringent evaporative emission standards apply in
California, as well as Federally.
Starting in the 2001 model year, the test procedure for exhaust emissions
have become more complex with vehicles required to meet two additional test
requirements: 1) measuring exhaust emissions over a new test cycle with the air
conditioner operating; and 2) measuring exhaust emissions over a new high speed
(80 mph) and high load cycle.
Industrial Environmental Control
GM is subject to various laws relating to the protection of the environment
including laws regulating air emissions, water discharges, waste management, and
environmental cleanup.
GM is in various stages of investigation or remediation for sites where
contamination has been alleged, and recorded a liability of $219 million at
December 31, 2002 and $253 million at December 31, 2001 for worldwide
environmental investigation and remediation as summarized below:
. GM has been identified as a potentially responsible party at sites
identified by the EPA and state regulatory agencies for
investigation and remediation under the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) and similar state
statutes. GM voluntarily and actively participates in cleanup
activity where such involvement has been verified. The total
liability for sites involving GM was estimated to be $86 million at
December 31, 2002. This compares with $85 million at December 31,
2001.
. For closed plants owned by the Corporation, an estimated liability for
environmental investigation and remediation is typically recognized at
the time of the closure decision. Such liability, which is based on an
environmental assessment of the plant property, was estimated at $38
million at December 31, 2002. This compares with $56 million at
December 31, 2001.
. GM is involved in investigation and remediation activities at
additional locations worldwide with an estimated liability of
approximately $95 million at December 31, 2002. This compares with
$112 million at December 31, 2001.
I-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Industrial Environmental Control (concluded)
The cost impact of the Clean Air Act Amendments under Title V is the annual
emission fees of approximately $9 million per year. Additional programs under
the Clean Air Act, including Hazardous Air Pollutant standards, and Compliance
Assurance Monitoring and periodic monitoring requirements are estimated to cost
$500 million to $700 million in aggregate through the year 2005.
The Corporation currently estimates that future expenditures for industrial
environmental control facilities through 2005 will be approximately $160
million. Specific environmental expenses are difficult to isolate since
expenditures may be made for more than one purpose, making precise
classification difficult.
Vehicular Noise Control
Passenger cars and light-duty trucks are subject to state and local motor
vehicle noise regulations. General Motors Corporation is committed to designing
and developing all its products to meet these noise requirements. Addressing
specific vehicle noise regulations for all state and local regulations however,
is not practical or possible. The Corporation therefore compiles the most
stringent requirement for all regulated markets and validates to the composite
requirement. Public awareness of vehicle/traffic noise concerns is leading to an
ever-increasing number of disparate state and local noise requirements. A
comprehensive assessment is required to address the potential cost impact of
meeting increasingly restrictive noise requirements.
Medium to heavy-duty trucks are regulated at the Federal level. Federal truck
regulations preempt all state/local noise regulations for trucks over 10,000
lbs. gross vehicle weight rating (GVWR).
Automotive Fuel Economy
The Energy Policy and Conservation Act passed in 1975 provided for
production-weighted average fuel economy standards for passenger cars for 1978
and thereafter. Based on EPA combined city-highway test data, the GM 2002 model
year domestic passenger car fleet attained a Corporate Average Fuel Economy
(CAFE) of 28.8 miles per gallon (mpg) versus the standard of 27.5 mpg. The CAFE
estimate for 2003 model year domestic passenger cars is projected at 28.6 mpg
versus the standard of 27.5 mpg.
For GM's imported passenger cars, 2002 model year CAFE attained 27.8 mpg
versus a standard of 27.5 mpg. The CAFE estimate for 2003 model year import
passenger cars is 28.6 mpg versus the standard of 27.5 mpg.
Fuel economy standards for light-duty trucks became effective in 1979.
General Motors' light truck CAFE fleet average for the 2002 model year is 21.1
mpg versus a standard of 20.7 mpg. GM's 2003 model year truck CAFE is projected
at 21.2 mpg versus a standard of 20.7 mpg.
GM's ability to meet increased CAFE standards is contingent on various future
economic, consumer, legislative, and regulatory factors that GM cannot control
and cannot predict with certainty. If GM could not comply with any new CAFE
standards, GM could be subject to sizeable civil penalties and could have to
close plants or severely restrict product offerings to remain in compliance.
End of Life Vehicles
During September 2000, the European parliament passed a directive requiring
member states to adopt legislation regarding end-of-life vehicles and the
responsibility of manufacturers for dismantling and recycling vehicles they have
sold. European Union member states are required to transform the concepts
detailed in the directive into national law. Under the directive, manufacturers
are financially responsible for at least a portion of the cost of the take-back
of vehicles placed in service after July 2002 and all vehicles placed in service
prior to July 2002 that are still in operation in January 2007. The laws
developed in the individual national legislatures throughout Europe will have a
significant impact on the amount ultimately paid by the manufacturers for this
issue. GM recorded, in cost of sales and other expenses in the GME segment, an
after-tax charge of $55 million ($0.10 per share of GM $1-2/3 par value common
stock) in 2002 for those member states that have passed national laws through
December 31, 2002. Management is assessing the impact of this potential
legislation on GM's financial position and results of operations and may include
charges to earnings in future periods.
I-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Seasonal Nature of Business
In the automotive business, there are retail sales fluctuations of a seasonal
nature, so that production varies from month to month. Certain changeovers occur
throughout the year for reasons such as new market entries and new vehicle
changes; however, the changeover period related to the annual new model
introduction has traditionally occurred in the third quarter of each year. For
this reason, third quarter operating results are, in general, less favorable
than those in the other three quarters of the year, depending on the magnitude
of the changeover needed to commence production of new models incorporating, for
example, design modifications related to more fuel-efficient vehicle packaging,
stricter government standards for safety and emission controls, and
consumer-oriented improvements in performance, comfort, convenience, and style.
Segment Reporting Data
Operating segment and principal geographic area data for 2002, 2001, and 2000
are summarized in Note 25 to the GM Consolidated Financial Statements in Part
II.
* * * * * *
The Registrant makes no attempt herein to predict the future trend of its
business and earnings or the effect thereon of the results of changes in general
economic, industrial, regulatory, and international conditions.
ITEM 2. Properties
The Corporation, excluding its Financing and Insurance Operations, has
approximately 400 locations operating in approximately 40 states and
approximately 230 cities in the United States. Of these, approximately 20 are
engaged in the final assembly of GM cars and trucks; approximately 60 are
service parts operations responsible for distribution or warehousing;
approximately 10 major plants, offices, and research facilities relate to the
operations of Hughes Electronics Corporation; and the remainder are offices or
involved primarily in the testing of vehicles or the manufacturing of automotive
components and power products. In addition, the Corporation has approximately 20
locations in Canada and assembly, manufacturing, distribution, or warehousing
operations in approximately 50 other countries, including equity interests in
associated companies which conduct assembly, manufacturing, or distribution
operations. The major facilities outside the United States and Canada, which are
principally vehicle manufacturing and assembly operations, are located in
Germany, the United Kingdom, Brazil, Mexico, Australia, Sweden, Belgium, Spain,
China, Thailand, Argentina, Portugal, and Poland.
Most facilities are owned by the Corporation or its subsidiaries. Leased
properties consist primarily of warehouses and administration, engineering, and
sales offices. The leases for warehouses generally provide for an initial period
of five years and contain renewal options. Leases for sales offices are
generally for shorter periods.
Properties of the Registrant and its subsidiaries include facilities which,
in the opinion of management, are suitable and adequate for the manufacture,
assembly, and distribution of their products.
Additional information regarding worldwide expenditures for plants and
equipment is presented in Note 25 to the GM Consolidated Financial Statements in
Part II.
ITEM 3. Legal Proceedings
(a) Material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Corporation became,
or was, a party during the year ended December 31, 2002, or subsequent
thereto, but before the filing of this report are summarized below:
Other Matters
Seven putative nationwide and statewide class actions are pending against
General Motors in state and federal courts alleging that the paint or paint
application process used on some GM vehicles was defective due to the omission
of a primer surfacer layer. Generally, plaintiffs allege that GM's failure to
disclose the alleged paint defect is a fraudulent omission and a violation of
various states' consumer protection laws. No determination has been made that
any case may proceed as a class action.
I-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Matters (continued)
With respect to the suits relating to the primer surfacer issue described
above: Christian Amedee and Louis Fuxan v. General Motors Corporation, et al.,
Civil District Court for the Parish of New Orleans, State of Louisiana filed
March 24, 1995, Cherise Miller, et al., v. General Motors Corporation, United
States District Court for the Northern District of Illinois, filed on April 8,
1998 (the court determined that plaintiffs had not demonstrated that they could
meet the requirements for certification of a nationwide class ), and Rose Ann
Hayes v. General Motors Corporation et al. filed on May 22, 2001 in the Circuit
Court for Madison County Illinois are purported nationwide class actions; Eddie
Glorioso v. General Motors Corporation and Scott Arnold v. General Motors
Corporation, consolidated in Superior Court for the City and County of San
Francisco, California, both filed in July 1998, are purported California
statewide class actions; Scott Haverdink v. General Motors Corporation, Court of
Common Pleas of Philadelphia County, Pennsylvania, filed on May 16, 1999, is a
putative Pennsylvania statewide class action; and Darryl Oshanek v. General
Motors Corporation and General Motors of Canada, Limited, filed in the Supreme
Court of British Columbia, Canada, on June 2, 1999, is putative class action on
behalf of residents of British Columbia in which GM is appealing a decision that
it is a proper party. GM intends to vigorously oppose class certification and
defend these cases.
* * *
In February 2003, General Motors Corporation, General Motors of Canada, Ltd.
and Ford, DaimlerChrysler, Toyota, Honda, Nissan and BMW and their Canadian
subsidiaries, the National Automobile Dealers Association and the Canadian
Automobile Dealers Association, were named as defendants in purported nationwide
class actions on behalf of all purchasers of new motor vehicles in the United
States since January 1, 2001. Those actions were filed in federal courts in
California, Illinois, New York, Massachusetts and Florida and a parallel
purported statewide class action on behalf of all purchasers of new motor
vehicles in California since January 1, 2001, was filed against the same
defendants in a state court in California.
The nearly identical complaints allege that the manufacturer defendants,
aided by the association defendants, conspired among themselves and with their
dealers to prevent the sale to United States citizens of vehicles produced for
the Canadian market and sold by dealers in Canada. The complaints allege that
new vehicle prices in Canada are ten to thirty percent lower than those in the
United States and that preventing the sale of these vehicles to United States
citizens resulted in the payment of supracompetitive prices by United States
consumers. The complaints seek treble damages under the antitrust laws, but do
not specify damages. No determination has been made to certify any of these
cases as a class action. General Motors believes its actions have been lawful
and intends to vigorously defend these cases.
* * *
In connection with the 2000 sale by Hughes of its satellite systems
manufacturing businesses to The Boeing Company ("Boeing"), the stock purchase
agreement provides for potential adjustment to the purchase price based upon the
final closing date financial statements of the satellite systems manufacturing
businesses. The stock purchase agreement also provides for a dispute resolution
process to resolve any disputes that arise in determining the purchase price
adjustment. Based upon the final closing date financial statements of the
satellite systems manufacturing businesses that were prepared by Hughes, Boeing
is owed a purchase price adjustment of $164 million plus interest at a rate of
9.5% from the date of sale, the total amount of which has been provided for in
Hughes' consolidated financial statements. However, Boeing has submitted
additional proposed adjustments, which are being resolved through the dispute
resolution process. As of December 31, 2002, approximately $670 million of
proposed adjustments remain unresolved. Hughes is contessting the matter in the
arbitration process, which will result in a binding decision unless the matter
is otherwise settled. Although Hughes believes it has adequately provided for
the disposition of this matter, the impact of its disposition cannot be
determined at this time. It is possible that the final resolution of this matter
could result in Hughes making a cash payment to Boeing that would be material to
Hughes' consolidated results of operations and financial position.
* * *
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Matters (continued)
On June 3, 1999, the National Rural Telecommunications Cooperative ("NRTC")
filed a lawsuit against DIRECTV, Inc. and Hughes Communications Galaxy, Inc.,
which Hughes refers to together in this description as "DIRECTV," in the United
States District Court for the Central District of California, alleging that
DIRECTV, Inc. breached its DBS Distribution Agreement with the NRTC. Hughes
Communications Galaxy, Inc. was the original party to the DBS Distribution
Agreement with the NRTC and assigned its rights and obligations to and under the
DBS Distribution Agreement to DIRECTV, Inc. The DBS Distribution Agreement
provides the NRTC with certain distribution rights, in certain specified
portions of the United States, for a specified period of time, with respect to
DIRECTV(R) programming delivered over 27 of the 32 frequencies at the 101
degrees west longitude orbital location. The NRTC claims that DIRECTV has
wrongfully deprived it of the exclusive right to distribute programming formerly
provided by United States Satellite Broadcasting Company, Inc. ("USSB"), over
the other five frequencies at 101 degrees west longitude, and seeks recovery of
related revenues from the date USSB was acquired by Hughes. DIRECTV denies that
the NRTC is entitled to exclusive distribution rights to the former USSB
programming because, among other things, the NRTC's exclusive distribution
rights are limited to programming distributed over 27 of the 32 frequencies at
101 degrees west longitude. The NRTC also pled, in the alternative, the right to
distribute former USSB programming on a non-exclusive basis, but stipulated to
dismiss this claim without prejudice on August 25, 2000. DIRECTV maintains that
the NRTC's right under the DBS Distribution Agreement is to market and sell the
former USSB programming as its non-exclusive sales agent and that NRTC is not
entitled to the additional claimed revenues. DIRECTV intends to vigorously
defend against the NRTC claims. DIRECTV also filed a counterclaim against the
NRTC seeking a declaration of the parties' rights under the DBS Distribution
Agreement.
On August 26, 1999, the NRTC filed a second lawsuit in the United States
District Court for the Central District of California against DIRECTV alleging
breach of the DBS Distribution Agreement. In this lawsuit, the NRTC is asking
the court to require DIRECTV to pay the NRTC a proportionate share of
unspecified financial benefits that DIRECTV derives from programming providers
and other third parties. DIRECTV denies that it owes any sums to the NRTC on
account of the allegations in these matters and plans to vigorously defend
itself against these claims. On June 21, 2001, the court permitted the NRTC to
amend the action to also seek an exclusive right to distribute in its
territories, and to retain revenues from, "Advanced Services," which the NRTC
defines to include services such as Wink, TiVo, Ultimate TV and AOL-TV. DIRECTV
denies that the NRTC is entitled to exclusive distribution rights to the
so-called Advanced Services because, among other things, the services are not
services transmitted by DIRECTV over the 27 frequencies as to which the NRTC has
contractual rights.
Pegasus Satellite Television, Inc. ("Pegasus") and Golden Sky Systems, Inc.
("Golden Sky"), the two largest NRTC affiliates, filed an action on January 11,
2000 against DIRECTV in the United States District Court for the Central
District of California. The plaintiffs alleged, among other things, that DIRECTV
has interfered with their contractual relationship with the NRTC. The plaintiffs
alleged that their rights and damages are derivative of the rights and damages
asserted by the NRTC in its two cases against DIRECTV. The plaintiffs also
alleged that DIRECTV misused their subscriber information, thereby violating
plaintiffs' trade secret rights, and interfered with their contractual
relationships with manufacturers and distributors by preventing those parties
from selling receiving equipment to the plaintiffs' retailers. On October 19,
2000, Golden Sky agreed to dismiss its equipment-related claims with prejudice.
On November 1, 2002, the plaintiffs and DIRECTV stipulated to the dismissal of
the plaintiffs' trade secret claims without prejudice, and on October 11, 2002,
Pegasus and DIRECTV stipulated to the dismissal of Pegasus' equipment-related
claims without prejudice. Neither dismissal required payment of funds by DIRECTV
or the plaintiffs. DIRECTV denies that it has wrongfully interfered with any of
the plaintiffs' business relationships and will vigorously defend the remaining
claims in the lawsuit. DIRECTV filed a counterclaim on March 9, 2001, seeking
judicial declarations that the contracts between Pegasus and the NRTC, and
Golden Sky and the NRTC, do not include rights of first refusal and will
terminate when the DIRECTV 1 satellite is removed from orbit. On June 21, 2001,
the court permitted Pegasus and Golden Sky to amend their complaint to seek an
exclusive right, also derivative from the NRTC's claimed right, to distribute in
their territories, and to retain revenues from, the "Advanced Services." DIRECTV
denies that Pegasus and Golden Sky are entitled to exclusive distribution rights
to the so-called Advanced Services because, among other things, the services are
not services transmitted by DIRECTV over the 27 frequencies as to which the NRTC
and derivatively, Pegasus and Golden Sky, have contractual rights.
I-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Matters (continued)
A class action suit was filed in the United States District Court for the
Central District of California against DIRECTV on behalf of the NRTC's
participating members on February 29, 2000. The court certified a class on
December 27, 2000. The class asserted claims identical to the claims that were
asserted by Pegasus and Golden Sky in their lawsuit against DIRECTV, described
in the preceding paragraph. Similar to Golden Sky, however, the class has
dismissed its equipment-related claims without prejudice. On November 1, 2002,
the class and DIRECTV also stipulated to the dismissal without prejudice of the
class' trade secret claims, without payment of funds by either DIRECTV or the
class. DIRECTV filed counterclaims against the class identical to those filed
against Pegasus and Golden Sky as described above. On June 21, 2001, the class
was also permitted to amend its complaint to seek an exclusive right, derivative
from the NRTC's claimed right, to distribute in their territories, and to retain
revenues from, the "Advanced Services." DIRECTV denies that the class is
entitled to exclusive distribution rights to the so-called Advanced Services
because, among other things, the services are not services transmitted by
DIRECTV over the 27 frequencies as to which the NRTC and derivatively, the
class, have contractual rights.
The United States District Court for the Central District of California
consolidated for purposes of discovery and other pretrial proceedings each of
the NRTC, Pegasus and Golden Sky and class action lawsuits described above. The
court has ordered the parties to participate in a pre-trial mediation and has
set each of the cases for trial on June 3, 2003. The process by which the cases
will be tried has not been finally determined. An amount of loss, if any, cannot
be estimated at this time in the NRTC, Pegasus and class action litigation.
DIRECTV, Inc. (herein referred to as "DIRECTV") filed suit in California
State Court, Los Angeles County, on June 22, 2001 against Pegasus and Golden Sky
(herein referred to together as "Defendants") to recover monies calculated at
approximately $52 million that Defendants owe DIRECTV under the parties'
Seamless Marketing Agreement, which provides for reimbursement to DIRECTV of
certain subscriber acquisition costs incurred by DIRECTV on account of new
subscriber activations in Defendants' territory. Defendants had ceased making
payments altogether, and indicated that they did not intend to make any further
payments due under the agreement. On July 13, 2001, Defendants sent notice of
termination of the agreement and on July 16, 2001, Defendants answered DIRECTV's
complaint and filed a cross complaint alleging counts of fraud in the
inducement, breach of contract, breach of the covenant of good faith and fair
dealing, intentional interference with contractual relations, intentional
interference with prospective economic advantage and violation of California
Bus. and Prof. Code 17200. Defendants also thereafter removed the action to
federal district court, Central District of California, where it was transferred
to the judge hearing the other cases among NRTC, Pegasus and a class of NRTC
members, on the one hand, and DIRECTV on the other. The court consolidated the
cases for purposes of discovery and other pretrial proceedings. On September 16,
2002, the court permitted Pegasus to amend its counterclaim to eliminate the
interference and Section 17200 claims, and to add claims for both rescission of
the agreement and specific performance of an audit right provided in the
agreement, in the event it is determined that Pegasus breached the agreement and
owes money thereunder to DIRECTV. On September 30, 2002, DIRECTV moved to
dismiss Pegasus' claims for breach of the covenant of good faith and fair
dealing and specific performance. The court granted DIRECTV's motion as to the
specific performance claim, and further granted DIRECTV's motion on the good
faith and fair dealing claim to the extent Pegasus sought punitive damages.
DIRECTV denies any liability to Defendants, and intends to vigorously pursue its
damages claim against Defendants and defend against Defendants' counterclaims.
The case is also currently scheduled for trial beginning June 3, 2003. Based on
Hughes' assessment of the merits of the case, Hughes does not believe that the
litigation will have a material adverse impact on its consolidated results of
operations or financial position.
On February 1, 2001, the NRTC filed a third lawsuit in the United States
District Court for the Central District of California against DIRECTV seeking a
declaration from the court that it is not required to defend and indemnify
DIRECTV for the Pegasus, Golden Sky and class action lawsuits. The NRTC has been
paying and continues to pay DIRECTV's legal fees in those matters under protest.
DIRECTV filed a counterclaim on February 21, 2001 seeking a declaratory judgment
that the NRTC is indeed responsible for the defense and indemnity of DIRECTV.
On September 19, 2001, the NRTC filed a fourth lawsuit against DIRECTV in the
United States District Court of the Central District of California, seeking a
declaration from the court that the NRTC is not required to defend and indemnify
DIRECTV for the Pegasus Development Corporation and Personalized Media
Communications, LLC lawsuit pending in the United States District Court for the
District of Delaware. The NRTC has been paying and continues to pay DIRECTV's
legal fees in that matter under protest. DIRECTV filed a counterclaim on October
26, 2001 seeking a declaratory judgment that the
I-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Matters (continued)
NRTC is indeed responsible for the defense and indemnity of DIRECTV. The NRTC
and DIRECTV each filed cross motions for summary judgment in this lawsuit in
January 2002. On July 1, 2002, the court entered an order granting the motion of
DIRECTV for partial summary judgment on the NRTC's duty to defend, and denying
the NRTC's motion for summary judgment on all claims.
The NRTC's two indemnity cases have been consolidated with each other, but
are proceeding separately from DIRECTV's other litigation with the NRTC, Pegasus
and Golden Sky, and the class, described above. The court has stayed further
proceedings in the indemnity cases until determination of the merits of the
other, underlying cases.
* * *
In April 2001, Robert Garcia, doing business as Direct Satellite TV, an
independent retailer of DIRECTV(R) system equipment, instituted arbitration
proceedings against DIRECTV, Inc. with the American Arbitration Association in
Los Angeles, California regarding his commissions and certain chargeback
disputes. The parties have been proceeding with the arbitration, though no
hearing date has been set. On October 4, 2001, Mr. Garcia filed a class action
complaint against DIRECTV, Inc. and Hughes in Los Angeles County Superior Court
asserting the same chargeback/commissions claims and a Consumer Legal Remedies
Act claim. Mr. Garcia alleges $300 million in class-wide damages and seeks
certification of a class of plaintiffs to proceed in arbitration with court
oversight. DIRECTV, Inc. and Hughes moved to dismiss and compel arbitration,
which motion was heard on April 12, 2002. On April 17, 2002, the Los Angeles
County Superior Court entered an order compelling plaintiffs in the purported
class action of retailers to pursue their individual claims in arbitration. The
court's order purported to retain jurisdiction, however, to determine whether
the prerequisites for class treatment of dealer claims within arbitration are
met. The court intends to set a schedule for class discovery and a class
certification hearing. DIRECTV, Inc. and Hughes disagreed that the court could
properly retain jurisdiction to conduct class proceedings, and believed that the
court's order effectively denied DIRECTV, Inc. its contractual right to resolve
individual dealer claims in arbitrations conducted under the Federal Arbitration
Act. On May 2, 2002, DIRECTV, Inc. and Hughes filed a notice of appeal of the
order. On December 11, 2002, the appellate court denied DIRECTV, Inc.'s appeal,
thus permitting the trial court to set a schedule for class discovery and a
class certification hearing. DIRECTV, Inc. and Hughes have petitioned the
California Supreme Court for review of the order, and intend to oppose
certification due to the individual nature of the claims involved, and to
vigorously defend against plaintiffs' allegations.
* * *
On May 18, 2001, in Oklahoma State Court, plaintiffs Cable Connection, Inc.,
TV Options, Inc., Swartzel Electronics, Inc. and Orbital Satellite, Inc. filed a
class action complaint against DIRECTV, Inc. and Hughes. All four plaintiffs
purport to be independent retailers of satellite equipment (three residential
and one commercial), who allege claims ranging from breach of contract to fraud,
promissory estoppel, antitrust and unfair competition claims. The plaintiffs
seek unspecified damages and injunctive relief. They claim to be bringing the
complaint on behalf of all DIRECTV dealers, including former PRIMESTAR and USSB
dealers. On August 17, 2001, DIRECTV, Inc. and Hughes successfully stayed the
case and the court orally ordered the individual plaintiffs to pursue their
claims in arbitration pursuant to the arbitration clause in each of the dealer's
contracts with DIRECTV, Inc. None of the plaintiffs instituted arbitration
proceedings. In March 2002, DIRECTV, Inc. filed a motion for a final order of
arbitration. Plaintiffs then filed a motion requesting the court to order that a
single arbitration be permitted on a class wide basis. DIRECTV, Inc. removed the
action to federal court, plaintiffs moved to remand to state court and the
federal court granted remand to state court on August 8, 2002. On September 5,
2002, the state court entered its final order compelling plaintiffs to pursue
their individual claims in arbitration in Los Angeles, California, but
purporting to retain jurisdiction to determine whether the prerequisites for
class treatment of dealer claims within an arbitration are met. DIRECTV, Inc.
filed a notice of appeal of the order, and the State Supreme Court issued an
order to show cause by October 14, 2002, as to why the appeal should not be
dismissed. DIRECTV, Inc. responded to the notice and on January 7, 2003, the
State Supreme Court issued an order permitting DIRECTV, Inc. to proceed with its
appeal. DIRECTV, Inc. intends to vigorously seek to enforce its arbitration
agreement, to oppose plaintiffs' efforts to obtain class treatment, and to
defend against plaintiffs' allegations.
* * *
I-9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Matters (continued)
On June 27, 2000, SuperGuide Corporation ("SuperGuide") filed suit in the
United States District Court for the Western District of North Carolina against
DIRECTV Enterprises, Inc., DIRECTV, Inc. and DIRECTV Operations, Inc., which
Hughes refers to together in this paragraph as the DIRECTV defendants, Hughes,
Thomson Consumer Electronics, Inc., EchoStar Communications Corporation,
EchoStar Satellite Corporation and EchoStar Technologies Corporation, alleging
infringement of three United States patents and seeking unspecified damages and
injunctive relief. Gemstar Development Corp. was added as a third-party
defendant because it asserts to have exclusive control of the patents by reason
of a license agreement with SuperGuide. Based on beneficial rulings narrowing
the scope of the asserted claims, the defendants filed motions for summary
judgment, and on July 3, 2002, the court granted summary judgment of
non-infringement to the DIRECTV defendants, Hughes and DIRECTV system
manufacturers under all asserted claims of the three patents in the case.
Judgment for all defendants dismissing all claims of infringement and awarding
costs to defendants was entered on July 25, 2002. Notices of appeal to the Court
of Appeals for the Federal Circuit have been filed, and a hearing will be held
in 2003.
* * *
On December 5, 2000, Personalized Media Communications, LLC ("PMC") and
Pegasus Development Corporation ("Pegasus Development") filed suit in the United
States District Court for the District of Delaware against DIRECTV, Inc.,
Hughes, Thomson Consumer Electronics, Inc. ("Thomson") and Philips Electronics
North American Corp., alleging infringement of seven United States patents and
seeking unspecified damages and injunctive relief. The case has been narrowed to
24 claims for purposes of discovery, and DIRECTV, Inc. may seek further
narrowing prior to trial presently scheduled for the first quarter of 2004.
Thomson has named Gemstar-TV Guide International, Inc. ("Gemstar"), Starsight
Telecast, Inc. and TVG PMC, Inc. as third-party defendants, and has raised
antitrust and patent misuse charges against Gemstar, Pegasus Development and
PMC. The antitrust counts have been transferred to a multi-district proceeding
in Atlanta for pre-trial development and have been bifurcated for separate
trial. DIRECTV, Inc. has raised defenses of invalidity and non-infringement, in
addition to license, laches and estoppel, and patent misuse. DIRECTV, Inc.
intends to vigorously defend the lawsuit and pursue the counterclaims against
Pegasus Development and PMC. DIRECTV, Inc. and Hughes have demanded
indemnification by the NRTC, which the NRTC has been providing under protest.
See the separate item above describing the action pending in the United States
District Court of the Central District of California with respect to the
indemnity issue.
* * *
On November 21, 2001, Broadcast Innovations, LLC filed suit in the United
States District Court for the District of Colorado against DIRECTV, Inc.,
Hughes, Thomson multimedia, Inc., Pegasus Satellite Television, Inc., Dotcast,
Inc., and EchoStar Communications Corporation, alleging infringement of two
United States patents and seeking unspecified damages and injunction. One of the
patents relates to conditional access technology, and DIRECTV, Inc. has turned
over its defense to NDS Limited, the conditional access provider to the DIRECTV
system. The case is in the discovery phase, and defendants will be filing
potentially dispositive summary judgment motions. Depending on the outcome of
these motions, the case may be tried in late 2003. DIRECTV, Inc. has raised
defenses of non-infringement and invalidity, and intends to vigorously defend
the lawsuit.
* * *
In April 1997, the International Electronics Technology Corp. filed suit in
the United States District Court for the Central District of California against
DIRECTV, Inc., Hughes Aircraft Co., and Thomson Consumer Electronics, Inc.,
alleging infringement of one United States patent and seeking unspecified
damages and injunction. Plaintiff has asserted an interpretation of the claims
at issue that relates to conditional access technology, and DIRECTV, Inc. has
turned over the defense to NDS Limited. Trial has not yet been scheduled.
DIRECTV, Inc. has raised defenses of non-infringement and/or invalidity, and
intends to vigorously defend the lawsuit.
* * *
I-10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Other Matters (concluded)
DIRECTV, Inc., DIRECTV Enterprises, LLC, and DIRECTV Operations, LLC,
referred to together below as "DIRECTV Parties," filed a lawsuit against NDS
Limited and related entities ("NDS"), the provider of DIRECTV's conditional
access system. The lawsuit, which was filed under seal in United States District
Court in Los Angeles on September 6, 2002, alleges, among other things, breach
of contract and misappropriation of trade secrets. The DIRECTV Parties are
seeking relief from the court that includes compensatory and other damages,
delivery of software technology required by the contract, and a preliminary and
permanent injunction that would enjoin NDS from engaging in further breaches of
contract and misappropriation of trade secrets. NDS filed a motion to dismiss
many of the DIRECTV Parties' claims and on December 30, 2002, the court granted
in part and denied in part NDS's motion. The DIRECTV Parties are evaluating
their options for amending their complaint. On October 21, 2002, NDS filed
counterclaims against the DIRECTV Parties and a chip manufacturer, alleging that
the DIRECTV Parties and the chip manufacturer misappropriated NDS's intellectual
property and infringed NDS's patents in developing new conditional access cards.
NDS is seeking injunctive relief as well as an unspecified amount in
restitution, disgorgement of profits and punitive damages. The DIRECTV Parties
dispute these allegations on the basis that they have a license to use the
technology and believes that the counterclaims are without merit, will seek to
dismiss certain of the claims and will vigorously defend the remaining claims
made by NDS. On December 23, 2002, NDS filed suit in Germany against the chip
manufacturer seeking in part an injunction against their continued work on
behalf of the DIRECTV Parties. The DIRECTV Parties are cooperating with the chip
manufacturer, who believes the claim is without merit.
* * *
In connection with the proposed merger between Hughes and EchoStar, the
agreements entered into by the parties provided that, subject to certain
conditions, Hughes could terminate the merger and EchoStar would pay a $600
million termination fee and purchase all the shares of PanAmSat if the merger
did not receive regulatory approval. After failure of the merger to receive such
approval, Hughes and EchoStar agreed to a settlement whereby the merger
agreement was terminated, EchoStar paid Hughes a $600 million termination fee
and did not purchase the PanAmSat shares, and EchoStar and Hughes mutually
released all claims against each other arising from the transaction agreements.
On December 18, 2002, a purported class action (P. Shoenfeld Asset Management
LLC, et al. v. Shaw, et al.) was filed in Delaware Chancery Court against Hughes
and the PanAmSat Board of Directors, alleging that this settlement favored
Hughes in violation of alleged fiduciary duties. The case has not been certified
as a class action. On January 31, 2003, Hughes and the PanAmSat Board of
Directors filed a motion to dismiss the case for the plaintiff's failure to
state a claim upon which relief can be granted. Hughes and the PanAmSat Board of
Directors believe this action is without merit and intend to vigorously defend
against the allegations raised.
* * *
(b) Previously reported legal proceedings which have been terminated, either
during the year ended December 31, 2002, or subsequent thereto, but
before the filing of this report are summarized below:
As previously reported, Hughes has had periodic discussions with the United
States Department of State ("State Department") directed at potential settlement
of administrative concerns related to past export activities with China. On
December 26, 2002, the State Department issued a formal charging letter to
Hughes and Boeing Satellite Systems, Inc. ("BSS"). As part of the sale of the
satellite systems manufacturing businesses to Boeing, Hughes retained liability
for certain possible fines and penalties and certain financial consequences of
debarment or suspension that could be imposed by the State Department in
connection with this matter. Hughes and BSS have now settled this matter through
execution of a Consent Agreement with the State Department and a separate
agreement among Hughes, BSS and Boeing. The Consent Agreement requires the
payment of a fine in the aggregate amount of $20 million ($5 million of which is
to be reimbursed to Hughes by BSS) to be paid in 8 equal installments over 7
years, which has been provided for in Hughes' consolidated financial statements
as of December 31, 2002, a commitment by Hughes to spend $2 million over 5 years
on internal export compliance, and various improvements in Hughes' export
program. The State Department has agreed that there will be no suspension or
debarment for either company as part of the settlement. This Consent Agreement
resolves all outstanding government action related to the China matters, and all
claims among Boeing, BSS and Hughes related to these matters.
* * *
I-11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
As previously reported, Hughes Communications Galaxy, Inc. ("HCGI") filed a
lawsuit on March 22, 1991 against the United States Government based upon the
National Aeronautics and Space Administration's breach of contract to launch ten
satellites on the Space Shuttle. On June 30, 2000, a final judgment was entered
in favor of HCGI in the amount of $103 million and in April 2002, the United
States government paid to Hughes the full amount of the judgment. As a result,
Hughes recorded a $95 million gain, net of legal costs, as an offset to
"Selling, general and administrative expenses" in the first quarter of 2002.
* * *
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
DIRECTV recording a second quarter 2002 pre-tax charge of $47 million to
"Interest expense." In the first quarter of 2002, DIRECTV increased its
provision for loss related to this matter by $83 million, of which $56 million
was recorded as a charge to "Selling, general and administrative expenses" and
$27 million was recorded as a charge to "Interest expense." Previously, DIRECTV
had accrued $50 million in 1999 associated with the expected settlement of this
claim. The $180 million settlement was paid to GECC in June 2002.
* * *
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. Global sought, among other things, damages of
approximately $100 million. On July 8, 2002, Hughes and Global executed an
agreement to settle the matter for approximately $20 million. The settlement
amount was charged against an existing accrual related to this matter. Payment
for the approximate $20 million settlement was made to Global in July 2002.
* * *
On October 10, 2002, the Federal Communications Commission (FCC) announced
that it declined to approve the transfer of the licenses necessary to allow the
completion of the Hughes/EchoStar merger and designated the transfer for hearing
by an administrative law judge. On October 31, 2002, the United States
Department of Justice ("DOJ"), twenty-three states, the District of Columbia and
Puerto Rico filed a complaint for permanent injunctive relief in the United
States District Court for the District of Columbia against EchoStar, GM, Hughes
and DIRECTV Enterprises LLC. As previously disclosed, Hughes and EchoStar
terminated the merger agreement on December 9, 2002. In December 2002 and
January 2003, the DOJ and the state actions were dismissed and the FCC released
its order terminating the administrative hearing proceeding and any other
proceedings related to the applications for FCC approval of the transfer of
licenses.
* * * * * * * * *
I-12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
ITEM 4A. Executive Officers of the Registrant
The names and ages of all executive officers of the Registrant at February
28, 2003 and their positions and offices with the Registrant on that date are as
follows:
Name and (Age) Positions and Offices
- -------------- -----------------------
John F. Smith, Jr. (64) Chairman of the Board
G. Richard Wagoner, Jr. (50) President and Chief Executive Officer
John M. Devine (58) Vice Chairman and Chief Financial
Officer
Robert A. Lutz (71) Vice Chairman of Product Development
and Chairman of GM North America
Thomas A. Gottschalk (60) Executive Vice President, Law and
Public Policy
There are no family relationships, as defined, between any of the above
executive officers, and there is no arrangement or understanding between any of
the above executive officers and any other person pursuant to which he was
selected as an officer. Each of the above executive officers was elected by the
Board of Directors to hold office until the next annual election of officers and
until his successor is elected and qualified or until his earlier resignation or
removal. The Board of Directors elects the officers in conjunction with each
annual meeting of the stockholders.
I-13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4A. Executive Officers of the Registrant - concluded
Mr. John F. Smith, Jr. has been associated with General Motors since 1961. He
was elected Executive Vice President in charge of International Operations in
1988. Effective August 1990, he was elected Vice Chairman of the Board of
Directors. On April 6, 1992, Mr. Smith was elected President and Chief Operating
Officer. Effective November 1992, he was elected Chief Executive Officer and
President. He served as President until October 1998 and Chief Executive Officer
until June 2000. On January 1, 1996, Mr. Smith became Chairman of the Board of
Directors. Effective May 1, 2003, Mr. Smith will retire from the Chairman's
position and leave the Board of Directors.
Mr. G. Richard Wagoner, Jr. has been associated with General Motors since
1977. He was elected Vice President in charge of finance for General Motors
Europe in June 1989. In July 1991, he was elected President and Managing
Director of General Motors do Brasil. Effective November 1992, he was elected
Executive Vice President and Chief Financial Officer of General Motors. In July
1994, he was named President of North American Operations. In October 1998, he
was elected a director, President and Chief Operating Officer of General Motors.
Effective June 1, 2000, he was elected Chief Executive Officer. Effective May 1,
2003, Mr. Wagoner will become Chairman of the Board of Directors.
Mr. John M. Devine was named Vice Chairman and Chief Financial Officer of
General Motors Corporation, effective January 1, 2001. He has responsibility for
GM's Worldwide Financial Operations and GM Asset Management. He is a member of
the GM Automotive Strategy Board and serves as its global process leader for
finance. Mr. Devine was Chairman and Chief Executive Officer of Fluid Ventures,
LLC, immediately prior to his GM appointment. He retired from Ford Motor Company
in October 1999, after a 32 year career, as the company's Executive Vice
President and Chief Financial Officer.
Mr. Robert A. Lutz was named Vice Chairman of Product Development of General
Motors Corporation, effective September 1, 2001. He was named Chairman of GM
North America on November 13, 2001. He is a member of the Automotive Strategy
Board and the North American Strategy Board. Mr. Lutz was Chairman and Chief
Executive Officer of Exide Technologies, immediately prior to his GM
appointment. He retains the Chairman position. He also has held a number of
executive positions with Ford Motor Company until 1986 and the former Chrysler
Corporation from which he retired in 1998.
Mr. Thomas A. Gottschalk has been associated with General Motors since 1994.
He previously held the position of Senior Vice President and General Counsel. He
was elected to the position of Executive Vice President of General Motors with
primary responsibility for Law and Public Policy on May 25, 2001. He retains the
General Counsel responsibility in his current position and is also responsible
for the Office of the Secretary. He is a member of the Automotive Strategy Board
and is the global process leader for Law and Public Policy. Prior to General
Motors, he was a partner and member of the management committee of the law firm
of Kirkland & Ellis in Washington, D.C.
I-14
PART II
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
General Motors' (GM's) common stocks are listed on the stock exchanges
specified on the cover page of this Form 10-K under the trading symbols "GM" and
"GMH." GM's Dividend Policy is described in the Management's Discussion and
Analysis (MD&A) in Part II. As of December 31, 2002, there were 429,767 holders
of record of GM $1-2/3 par value common stock and 177,355 holders of record of
GM Class H common stock. As of December 31, 2001, there were 444,739 holders of
record of GM $1-2/3 par value common stock and 185,553 holders of record of GM
Class H common stock. The following table sets forth the high and low sale
prices of GM's common stocks as reported on the Composite Tape and the quarterly
dividends declared for the last two years.
2002 Quarters
-------------
1st 2nd 3rd 4th
--- --- --- ---
Cash dividends per share of common stocks
$1-2/3 par value $0.50 $0.50 $0.50 $0.50
Class H $- $- $- $-
Price range of common stocks
$1-2/3 par value (1): High $62.01 $68.17 $54.08 $41.50
Low $47.92 $50.00 $38.11 $30.80
Class H (1): High $17.55 $17.00 $11.25 $12.00
Low $12.50 $8.49 $8.35 $8.00
2001 Quarters
-------------
1st 2nd 3rd 4th
--- --- --- ---
Cash dividends per share of common stocks
$1-2/3 par value $0.50 $0.50 $0.50 $0.50
Class H $- $- $- $-
Price range of common stocks
$1-2/3 par value (1): High $59.48 $64.89 $67.80 $53.22
Low $50.25 $50.20 $39.17 $40.52
Class H (1): High $28.00 $25.09 $21.65 $15.80
Low $17.90 $17.50 $11.50 $12.12
(1) The principal market is the New York Stock Exchange, and prices are based on
the Composite Tape. GM $1-2/3 par value common stock is also listed on the
Chicago and Philadelphia stock exchanges and on the Pacific Exchange.
II-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. Selected Financial Data
Years Ended December 31
-----------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(dollars in millions except per share amounts)
Total net sales and revenues $186,763 $177,260 $184,632 $176,558 $155,445
======= ======= ======= ======= =======
Income from continuing $1,736 $601 $4,452 $5,576 $3,049
operations
Income (loss) from
discontinued - - - 426 (93)
----- --- ----- ----- -----
Operations
Net income (1) $1,736 $601 $4,452 $6,002 $2,956
===== === ===== ===== =====
$1-2/3 par value common stock
Basic earnings per share
(EPS) from continuing
operations $3.37 $1.78 $6.80 $8.70 $4.40
Basic earnings (losses) per
share from discontinued
operations $ - $ - $ - $0.66 $(0.14)
Diluted EPS from continuing
operations $3.35 $1.77 $6.68 $8.53 $4.32
Diluted earnings (losses)
per share from
discontinued operations $ - $ - $ - $0.65 $(0.14)
Cash dividends declared per
share $2.00 $2.00 $2.00 $2.00 $2.00
Class H common stock (2)
Basic earnings (losses) per
share from continuing
operations $(0.21) $(0.55) $0.56 $(0.26) $0.23
Diluted earnings (losses)
per share from continuing
operations $(0.21) $(0.55) $0.55 $(0.26) $0.23
Cash dividends declared per
share $ - $ - $ - $ - $ -
Total assets $370,782 $322,412 $301,129 $273,729 $245,872
Notes and loans payable $201,940 $166,314 $144,655 $131,688 $116,075
GM-obligated mandatorily
redeemable preferred
securities of
subsidiary trusts $ - $ - $139 $218 $220
Stockholders' equity $6,814 $19,707 $30,175 $20,644 $15,052
Reference should be made to the notes to GM's consolidated financial statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations.
(1) On January 1, 2002, the Corporation implemented Statement of Financial
Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible
Assets," which ceased the amortization method of accounting for goodwill
and changed to an impairment-only approach. Accordingly, goodwill is no
longer amortized and is tested for impairment at least annually.
(2) Adjusted to reflect the three-for-one stock split of the GM Class H
common stock, in the form of a 200% stock dividend, paid on June 30, 2000.
* * * * * *
II-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the Hughes
Electronics Corporation (Hughes) consolidated financial statements and MD&A for
the period ended December 31, 2002, included as Exhibit 99 to this GM Annual
Report on Form 10-K for the period ended December 31, 2002, and related Hughes
Annual Report on Form 10-K filed separately with the Securities and Exchange
Commission (SEC); and the General Motors Acceptance Corporation (GMAC) Annual
Report on Form 10-K for the period ended December 31, 2002, filed separately
with the SEC. All earnings per share amounts included in the MD&A are reported
as diluted.
GM presents separate supplemental financial information for the following
businesses: Automotive, Communications Services, and Other Operations (ACO) and
Financing and Insurance Operations (FIO).
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 FIO 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). The financial results
represent the historical information used by management for internal
decision-making purposes; therefore, other data prepared to represent the way in
which the business will operate in the future, or data prepared in accordance
with GAAP, may be materially different.
II-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
For the year ended December 31, 2002, net income for the Corporation was $1.7
billion, or $3.35 per share of GM $1-2/3 par value common stock, compared with
$601 million and $4.5 billion, or $1.77 and $6.68 per share of GM $1-2/3 par
value common stock, for 2001 and 2000, respectively. Net income includes the
special items on an after-tax basis outlined below:
List of Special Items - After Tax
(dollars in millions)
Total Total Other
GMNA GME GMLAAM GMAP GMA Hughes Other ACO GMAC Financing Total GM
---- --- ------ ---- --- ------ ----- ----- ---- --------- --------
For Year Ended
December 31, 2002
Reported Net Income (Loss) $2,900 $(1,011) $(181) $188 $1,896 $(239) $(1,803) $(146) $1,870 $12 $1,736
EchoStar Termination
Payment (A) - - - - - (372) - (372) - - (372)
Write-down of Crown Media
Investment (B) - - - - - 27 - 27 - - 27
Write-down of XM
Satellite Radio
Investment (C) - - - - - 63 - 63 - - 63
Costs Related to
Shut-down of
DIRECTV Broad-band
Business (D) - - - - - 97 - 97 - - 97
Loss on HTIL Transaction (E) - - - - - 15 - 15 - - 15
Write-down of Fiat Auto
Investment (F) - - - - - - 1,371 1,371 - - 1,371
Production Footprint
Charge (G) 116 - - - 116 - - 116 - - 116
Sale of Equity Interests (H) - - - - - (68) - (68) - - (68)
End of Life Vehicle
Charge (I) - 55 - - 55 - - 55 - - 55
Restructuring Charge (J) - 407 - - 407 - - 407 - - 407
Space Shuttle Settlement (K) - - - - - (59) - (59) - - (59)
GECC Contractual Dispute (L) - - - - - 51 - 51 - - 51
Loan Guarantee Charge (M) - - - - - 18 - 18 - - 18
----- --- --- --- ----- --- --- ----- ----- -- -----
Adjusted Income (Loss) $3,016 $(549) $(181) $188 $2,474 $(467) $(432) $1,575 $1,870 $12 $3,457
===== === === === ===== === === ===== ===== == =====
For Year Ended
December 31, 2001
Reported Net Income (Loss) $1,270 $(765) $(81) $(57) $367 $(618) $(916)$(1,167) $1,786 $(18) $601
Ste. Therese Charge (N) 194 - - - 194 - - 194 - - 194
Raytheon Settlement (O) - - - - - - 474 474 - - 474
Gain on Sale of Thomson (P) - - - - - (67) - (67) - - (67)
Sky Perfect Write-down (Q) - - - - - 133 - 133 - - 133
Severance Charge (R) - - - - - 40 - 40 - - 40
DIRECTV Japan Adjustment (S) - - - - - (21) - (21) - - (21)
Isuzu Restructuring (T) - - - 133 133 - - 133 - - 133
SFAS 133 Adjustment (U) 14 (2) 1 1 14 8 - 22 (34) - (12)
----- --- --- --- ----- --- --- ----- ----- -- -----
Adjusted Income (Loss) $1,478 $(767) $(80) $77 $708 $(525) $(442) $(259) $1,752 $(18) $1,475
===== === === === ===== === === ===== ===== == =====
For Year Ended
December 31, 2000
Reported Net Income (Loss) $3,174 $(676) $26 $(233) $2,291 $829 $(281) $2,839 $1,602 $11 $4,452
Phase-out of Oldsmobile
Charge (V) 939 - - - 939 - - 939 - - 939
Postemployment Benefits
Charge (W) 294 - - - 294 - - 294 - - 294
Capacity Reduction
Adjustment (X) - 419 - - 419 - - 419 - - 419
Satellite Businesses
Gain (Y) - - - - - (1,132) - (1,132) - - (1,132)
----- --- --- --- ----- --- --- ----- ----- -- -----
Adjusted Income (Loss) $4,407 $(257) $26 $(233) $3,943 $(303) $(281) $3,359 $1,602 $11 $4,972
===== === === === ===== === === ===== ===== == =====
See footnotes on next page for further discussion of these items.
II-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Footnotes:
(A) The EchoStar Termination Payment reflects the $600 million EchoStar paid
to Hughes in connection with the termination of the October 28, 2001
merger agreement between Hughes and EchoStar.
(B) The Write-down of Crown Media Investment relates to the recognition of an
other than temporary decline in the market value of Hughes' investment in
Crown Media.
(C) The Write-down of XM Satellite Radio Investment relates to the recognition
of an other-than-temporary decline in the market value of Hughes'
investment in XM Satellite Radio.
(D) The Costs Related to Shut-down of DIRECTV Broad-band Business relates to
Hughes' costs to close the business including contract termination
payments, write-offs of equipment, and severance payments.
(E) The Loss on HTIL Transaction relates to the exchange of Hughes' ownership
in Hughes Tele.com (India) Limited for an equity interest in and long-term
receivables from Tata Teleservices Limited.
(F) The Write-down of Fiat Auto Investment relates to GM's investment in Fiat
Auto Holdings, B.V. ("FAH") and reflects completion of an impairment study
relating to the carrying value of that investment, which was reduced from
$2.4 billion to $220 million.
(G) The Production Footprint Charge primarily relates to costs associated with
the transfer of commercial truck production from Janesville, Wisconsin, to
Flint, Michigan, which was recorded in the GMNA region.
(H) The Sale of Equity Interests relates primarily to the Hughes investment in
Thomson multimedia S.A.
(I) The End of Life Vehicle Charge relates to the European Union's directive
requiring member states to enact legislation regarding end-of-life
vehicles and the responsibility of manufacturers for dismantling and
recycling vehicles they have sold. See Note 24 to the consolidated
financial statements.
(J) The 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 24 to the consolidated financial
statements.
(K) The Space Shuttle Settlement relates to the favorable resolution of a
lawsuit that was filed against the U.S. government by Hughes on March 22,
1991, based upon the National Aeronautics and Space Administration's
(NASA) breach of contract to launch 10 satellites on the Space Shuttle.
(L) The GECC Contractual Dispute relates to a loss associated with a
contractual dispute settled with General Electric Capital Corporation.
(M) The Loan Guarantee Charge relates to a loan guarantee for a Hughes Network
Systems affiliate in India.
(N) The Ste. Therese Charge relates to asset impairments and postemployment
costs for termination and other postemployment benefits associated with
the announcement of the closing of the Ste. Therese, Quebec, assembly
plant.
(O) The Raytheon Settlement relates to Hughes' settlement with the Raytheon
Company on a purchase price adjustment related to Raytheon's 1997 merger
with Hughes Defense.
(P) The Gain on Sale of Thomson relates to Hughes' sale of 4.1 million shares
of Thomson multimedia S.A. common stock.
(Q) The Sky Perfect write-down relates to Hughes' charge from the revaluation
of its investment.
(R) The Severance Charge relates to Hughes' 10% company-wide work force
reduction in the U.S.
(S) The DIRECTV Japan Adjustment relates to a favorable adjustment to the
expected costs associated with the shutdown of Hughes' DIRECTV Japan
business.
(T) The Isuzu Restructuring charges include GM's portion of severance payments
and asset impairments that were part of the restructuring of its affiliate
Isuzu Motors Ltd.
(U) The SFAS 133 Adjustment represents the net impact during the first quarter
of 2001 from the initial adoption of SF,AS No. 133, "Accounting for
Derivatives and Hedging Activities."
(V) The Phase-out of Oldsmobile Charge relates to the costs associated with
GM's decision to phase out the Oldsmobile division as the current model
lineup product life cycles come to an end, or when the models are no
longer economically viable.
(W) The Postemployment Benefits Charge relates to postemployment costs for
termination and other postemployment benefits associated with four North
American manufacturing facilities slated for conversion and capacity
reduction (Oklahoma City, Oklahoma; Delta Engine, Lansing, Michigan;
Spring Hill, Tennessee; and Wilmington, Delaware).
(X) The Capacity Reduction Adjustment relates to costs associated with the
reduction in production capacity, including the restructuring of Vauxhall
Motors Limited's manufacturing operations in the U.K.
(Y) The Satellite Businesses Gain relates to the sale of Hughes' satellite
systems manufacturing businesses to The Boeing Company.
II-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Vehicle Unit Sales (1)
Years Ended December 31,
------------------------
2002 2001 2000
------------------------ ------------------------ -------------------------
GM as GM as GM as
a % of a % of a % of
Industry GM Industry Industry GM Industry Industry GM Industry
-------- -- -------- -------- -- -------- -------- -- --------
United States (units in thousands)
Cars 8,131 2,069 25.4% 8,455 2,272 26.9% 8,857 2,532 28.6%
Trucks 9,013 2,790 31.0% 9,020 2,633 29.2% 8,957 2,421 27.0%
------ ----- ----- ----- ------ -----
Total United
States 17,144 4,859 28.3% 17,475 4,905 28.1% 17,814 4,953 27.8%
Canada, Mexico,
and Other 2,974 764 25.7% 2,775 686 24.7% 2,781 707 25.4%
------ ----- ----- ----- ------ -----
Total GMNA 20,118 5,623 28.0% 20,250 5,591 27.6% 20,595 5,660 27.5%
GME 19,172 1,662 8.7% 19,705 1,800 9.1% 20,158 1,856 9.2%
GMLAAM 3,673 635 17.3% 4,009 665 16.6% 3,664 605 16.5%
GMAP 14,373 605 4.2% 13,101 524 4.0% 12,880 476 3.7%
------ ----- ------ ------ ------ ------
Total Worldwide 57,336 8,525 14.9% 57,065 8,580 15.0% 57,297 8,597 15.0%
Wholesale Sales (2)
Years Ended December 31,
------------------------
2002 2001 2000
---- ---- ----
(units in thousands)
GMNA
Cars 2,547 2,441 2,933
Trucks 3,174 2,746 2,842
----- ----- -----
Total GMNA 5,721 5,187 5,775
----- ----- -----
GME
Cars 1,545 1,666 1,744
Trucks 100 94 135
------ ------- ------
Total GME 1,645 1,760 1,879
----- ----- -----
GMLAAM
Cars 443 463 438
Trucks 197 203 196
--- --- ---
Total GMLAAM 640 666 634
--- --- ---
GMAP
Cars 185 202 175
Trucks 220 258 283
--- --- ---
Total GMAP 405 460 458
--- --- ---
Total Worldwide 8,411 8,073 8,746
===== ===== =====
(1) GM vehicle unit sales primarily represents vehicles manufactured by GM or
manufactured by GM's investees and sold either under a GM nameplate or
through a GM-owned distribution network. Consistent with industry practice,
vehicle unit sales information employs estimates of sales in certain
countries where public reporting is not legally required or otherwise
available on a consistent basis.
(2) Wholesale sales represent vehicles manufactured by GM and certain investees
and distributed through a GM-owned distribution network.
GMA Financial Review
GMA's income and margin adjusted to exclude special items (adjusted income
and margin) was $2.5 billion and 1.7% for 2002, $708 million and 0.5% for 2001,
and $3.9 billion and 2.7% for 2000. The increase in 2002 adjusted income and
margin, compared with 2001, was primarily due to an increase in wholesale sales
volume, favorable product mix, and reduced structural and material costs. These
favorable conditions more than offset the unfavorable impact of pricing
pressures experienced in North America and Europe. The decrease in 2001 adjusted
income and margin, compared with 2000, was primarily due to a decrease in
wholesale sales volume and pricing pressures in North America and Europe. These
unfavorable conditions were partially offset by cost structure improvements,
also primarily in North America and Europe.
GMA's total net sales and revenues adjusted to exclude special items
(adjusted total net sales and revenues) were $148.0 billion, $140.7 billion, and
$148.1 billion for 2002, 2001, and 2000, respectively. The increase in 2002
adjusted total net sales and revenues, compared with 2001, was largely due to an
increase in wholesale volumes offset partially by unfavorable pricing pressures
in North America and Europe. The decrease in 2001 adjusted total net sales and
revenues, compared with 2000, was largely due to lower wholesale volumes and
unfavorable pricing pressures in North America and Europe.
II-6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMA Financial Review (continued)
GMNA's adjusted income was $3.0 billion, $1.5 billion, and $4.4 billion
for 2002, 2001, and 2000, respectively. The increase in 2002 adjusted income
from 2001 was primarily due to an increase in wholesale sales volume, improved
product mix, material and structural costs reductions, and interest income from
the resolution of certain prior tax years, partially offset by an increase in
pension costs, other postretirement employee benefit costs (OPEB), and
unfavorable net price of (2.1)% year-over-year. Net price comprehends the
percent increase/(decrease) a retailer/distributor pays in the current period
over the price paid in the previous year's period for a similar vehicle. The
decrease in 2001 adjusted income from 2000 was primarily due to unfavorable net
price of (1.3)% year-over-year and lower wholesale sales volumes. The decrease
was partially offset by favorable product mix and improvements in manufacturing
costs due to performance efficiencies, material cost savings, and engineering
productivity.
GME's adjusted loss was $549 million, $767 million, and $257 million for
2002, 2001, and 2000, respectively. The decrease in GME's 2002 adjusted loss
from 2001 was primarily due to material, structural, and other cost
improvements. This was partially offset by a decrease in wholesale sales volumes
driven by a weak European industry and continuing competitive pricing pressures.
The increase in GME's 2001 adjusted loss from 2000 was due to a continued shift
in sales mix from larger, more profitable vehicles to smaller, less profitable
entries, as well as a decrease in wholesale sales volume and continued
competitive pricing pressures. These decreases were partially offset by improved
material and structural cost performance.
GMLAAM's adjusted loss was $181 million for 2002, compared with an adjusted
loss of $80 million and an adjusted income of $26 million for 2001 and 2000,
respectively. The increase in GMLAAM's 2002 adjusted loss from 2001 was
primarily due to political unrest and economic uncertainty in Argentina, Brazil,
and Venezuela, which have caused a significant deterioration in the industry for
the region. The decrease in 2001 adjusted earnings, compared with 2000, was
primarily due to material cost increases reflecting supplier cost pressures,
manufacturing cost increases, and the devaluation of the currency in Argentina.
These decreases were partially offset by nominal price increases and an increase
in wholesale sales volumes.
GMAP's adjusted income was $188 million for 2002, compared with adjusted
income of $77 million and an adjusted loss of $233 million for 2001 and 2000,
respectively. The increase in 2002 adjusted income, compared with 2001, was
primarily due to equity income improvements from several joint ventures in the
region, led by significantly improved results at the Shanghai GM joint venture.
These improvements were partially offset by a decrease in wholesale sales
volumes and increases in structural and other costs. The increase in 2001
adjusted earnings, compared with 2000, was primarily due to GMAP's suspension of
recording its share of Isuzu's losses. GM reduced its investment balance in
Isuzu to zero in the second quarter of 2001. In addition, there were equity
income improvements from several joint ventures in the region, as well as
slightly favorable price increases and increased wholesale sales volumes.
Hughes Financial Review
Total adjusted net sales and revenues were $9.0 billion, $8.3 billion and
$8.7 billion for 2002, 2001 and 2000, respectively. The increase in adjusted net
sales and revenues in 2002, compared with 2001, was due to increased revenues at
DIRECTV U.S. due to continued subscriber growth. The increase in adjusted net
sales and revenues at DIRECTV U.S. was partially offset by a decrease in
adjusted net sales and revenues at Hughes Network Systems (HNS), which was
principally due to lower sales resulting from the substantial completion of two
contracts in late 2001. PanAmSat Corporation (PanAmSat) also reported a decrease
in adjusted net sales and revenues due to a sales-type lease transaction
executed during 2001 for which there was no comparable transaction in 2002. The
decrease in adjusted net sales and revenues in 2001, compared with 2000, was due
to decreased revenues at PanAmSat, decreased revenues at HNS, and the sale of
the satellite systems manufacturing businesses to The Boeing Company on October
6, 2000. The decrease in adjusted net sales and revenues at PanAmSat was
primarily due to a decline of new outright sales and sales-type lease
transactions executed during 2001 compared to 2000. The decrease in adjusted net
sales and revenues at HNS was primarily due to decreased shipments of DIRECTV
receiving equipment due primarily to DIRECTV completing the conversion of
PRIMESTAR By DIRECTV customers to the high-power DIRECTV service in 2000. These
decreases were partially offset by an increase in adjusted net sales and
revenues at the Direct-To-Home businesses that resulted from the addition of
approximately 1.5 million net new subscribers in the United States and Latin
America since December 31, 2000.
Hughes' adjusted losses were $467 million, $525 million, and $303 million
for 2002, 2001 and 2000, respectively. The decrease in 2002 adjusted loss,
compared with 2001, was primarily due to additional gross profits gained from
the DIRECTV U.S. revenue growth mentioned above, lower expenses resulting from
cost saving initiatives and a decrease in amortization expense related to
goodwill as a result of the implementation of Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" (See Note 1 to
the consolidated financial statements). These favorable factors were partially
offset by a decrease in interest income due to lower average cash and cash
equivalent balances in 2002, an increase in interest expense which included a
$74 million charge in 2002 for losses associated with the final settlement of a
contractual dispute with General Electric Capital Corporation, increased
depreciation expense due to capital expenditures for property and satellites
placed into service
II-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Hughes Financial Review (concluded)
since December 31, 2001 and a decrease in income tax benefit resulting from
lower pre-tax losses in 2002. The increase in 2001 adjusted loss, compared with
2000, was primarily due to lower profits in 2001 from sales and sales-type lease
transactions and higher operating costs at PanAmSat, increased costs associated
with the rollout of new DIRECWAY services, lower profits resulting from
decreased shipments of DIRECTV receiving equipment at HNS, the added cost of
DIRECTV Broadband, and increased depreciation and amortization expense due to
various acquisitions in 2001 and capital expenditures for satellites and
property.
GMAC Financial Review
GMAC's adjusted income was $1.9 billion, $1.8 billion, and $1.6 billion for
2002, 2001, and 2000, respectively.
Years Ended December 31,
-----------------------------
2002 2001 2000
---- ---- ----
(dollars in millions)
Financing operations $1,239 $1,211 $1,055
Mortgage operations 544 332 327
Insurance operations 87 209 220
------ ------ ------
Adjusted income $1,870 $1,752 $1,602
===== ===== =====
Income from financing operations totaled $1.2 billion, $1.2 billion, and $1.1
billion in 2002, 2001, and 2000, respectively. The increase in income in 2002,
compared with 2001, was primarily due to higher asset levels which were
partially offset by higher credit loss provisions and wider borrowing spreads
that have occurred primarily as a result of rating agency downgrades in late
2001 and 2002. The increase in adjusted income in 2001, compared with 2000, was
primarily due to lower market interest rates and increased asset levels. These
increases were partially offset by weakness in off-lease residual values, higher
credit losses, and wider borrowing spreads that occurred in the wake of negative
rating agency actions.
Income from mortgage operations totaled $544 million, $332 million, and $327
million in 2002, 2001, and 2000, respectively. The increase in income in 2002,
compared with 2001, was primarily due to increased production volumes, higher
servicing levels, and improved hedging results, which was partially offset by a
decrease in the value of mortgage servicing rights. The increase in income in
2001, compared with 2000, was primarily due to strong origination volumes and
securitizations which kept pace with the large run-off of home mortgages that
occurred during periods of high refinancing activity.
Income from insurance operations totaled $87 million, $209 million, and $220
million in 2002, 2001, and 2000, respectively. The decrease in income in 2002,
compared with 2001, reflects a write-down of certain investment securities
primarily due to the prolonged decline in equity markets, partially offset by
improved underwriting results and a favorable tax settlement. The decrease in
income in 2001, compared with 2000, was primarily due to a reduction in capital
gains reflecting the general weakness in the equity markets. This decrease was
partially offset by improved underwriting results.
LIQUIDITY AND CAPITAL RESOURCES
Financing Structure
In 2002, GM and GMAC experienced adequate access to the capital markets as GM
and GMAC were able to issue various securities to raise capital and extend
borrowing terms consistent with GM's need for financial flexibility. Downgrades
to GM's and GMAC's credit ratings in October 2002 have reduced GM's long-term
credit rating by Standard & Poor's to BBB and A3 by Moody's (GMAC is rated A2 by
Moody's). Despite these downgrades GM's and GMAC's access to the commercial
paper and unsecured debt markets 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 obtain bank credit or to sell asset-backed
securities. Accordingly, GM and GMAC expect that they will continue to have
adequate access to the capital markets sufficient to meet the Corporation's
needs for financial flexibility. 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, an additional $3.2 billion in
committed facilities with various maturities and uncommitted lines of credit of
$2.7 billion. Similarly, GMAC has a $1.5 billion syndicated line of credit
committed through June 2003, $7.4 billion committed through June 2006, $4.1
billion of bilateral committed lines with various maturities, and uncommitted
lines of credit of $17.8 billion. In addition, New Center Asset Trust (NCAT) has
$18.1 billion of liquidity facilities committed through June 2003. In October
2002, GMAC transferred $5.8 billion of credit lines from its syndicated facility
(committed through June 2003) to NCAT. Mortgage Interest Networking Trust (MINT)
has $4.1 billion of liquidity facilities committed through April 2003. NCAT and
MINT are non-consolidated limited purpose statutory trusts established to issue
asset-backed commercial paper. See Off-Balance Sheet Arrangements for more
discussion.
II-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Financing Structure (concluded)
On February 7, 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, were used to rebuild GM's liquidity position, reduce its
underfunded pension liability, and fund its postretirement health care
obligations.
In 2002, GM contributed a total of $4.9 billion to its U.S. pension plans and
$1.0 billion to the long-term Voluntary Employees' Beneficiary Association
(VEBA) Trust.
Stockholders' equity decreased to $6.8 billion at December 31, 2002 from
$19.7 billion at December 31, 2001. This decrease was primarily due to the
increase in the minimum pension liability adjustment recorded at December 31,
2002. (See Note 14 to the consolidated financial statements.)
Automotive, Communications Services, and Other Operations
At December 31, 2002, cash, marketable securities, and $3.0 billion of
short-term assets of the VEBA trust invested in fixed-income securities totaled
$18.5 billion, compared with $12.2 billion at December 31, 2001. The increase
from December 31, 2001 was primarily due to proceeds from the bond and
convertible debt offerings, and strong operating cash flow from automotive
operations. Total assets in the VEBA trust used to pre-fund part of GM's other
postretirement benefits liability approximated $5.8 billion and $4.9 billion at
December 31, 2002 and 2001, respectively. 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 $16.7 billion and $10.7 billion at December 31, 2002 and
2001, respectively. The ratio of long-term debt to long-term debt and GM's net
assets of ACO was 267.0% and 72.6% at December 31, 2002 and 2001, respectively.
The ratio of long-term debt and short-term loans payable to the total of this
debt and GM's net assets of ACO was 234.3% and 76.5% at December 31, 2002 and
2001, respectively. The increase in both ratios is primarily due to the net
assets of ACO changing to a net liability position as a result of the increase
in the unfunded status of GM's pension plans at December 31, 2002.
Net liquidity excluding Hughes, calculated as cash, marketable securities,
and $3.0 billion of short-term assets of the VEBA trust invested in fixed-income
securities less the total of loans payable and long-term debt, was $2.3 billion
and $1.0 billion at December 31, 2002 and 2001, respectively.
In order to provide financial flexibility to GM and its suppliers, GM
maintains a two-part financing program through GECC which was renewed October 2,
2002 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 could last from 10 days
and 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 program would be unavailable to GM and its
suppliers. The maximum amount permitted under the program is $2 billion. At
December 31, 2002, the outstanding balance under the first part of the program
amounted to approximately $1.2 billion, and there was no outstanding balance
under the second part of the program, compared with an outstanding balance under
the first part of the program of $495 million and $1.2 billion outstanding
balance under the second part of the program at December 31, 2001.
II-9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Financing and Insurance Operations
GMAC's consolidated assets totaled $227.7 billion at December 31, 2002,
representing an 18% increase from the $192.7 billion outstanding at December 31,
2001. The increase in total assets was primarily due to an increase in finance
receivables and loans, from $109.7 billion at December 31, 2001 to $134.8
billion at December 31, 2002. The continued use of GM sponsored special rate
financing programs in the United States fueled asset growth in the consumer
retail contract portfolio. Additionally in 2002, GMAC structured more
securitizations as financing transactions (for accounting purposes) instead of
qualifying as sales, resulting in an increase in finance receivables and loans,
primarily in the mortgage operations.
Consistent with the growth in assets, GMAC's total debt increased to $183.1
billion at December 31, 2002, as compared to $152.0 billion at December 31,
2001. GMAC's 2002 year-end ratio of total debt to total stockholder's equity was
10.3:1 compared to 9.4:1 at December 31, 2001. GMAC's liquidity, as well as its
ability to profit from ongoing activity, is in large part dependent upon its
timely access to capital and the costs associated with raising funds in
different segments of the capital markets. Liquidity is managed to preserve
stable, reliable and cost effective sources of cash to meet all current and
future obligations. GMAC's strategy in managing liquidity risk has been to
develop diversified funding sources across a global investor base. A weak
corporate bond market, combined with downgrades in certain of GMAC's credit
ratings, increased GMAC's unsecured borrowing spreads to unprecedented levels in
2002. As a result, GMAC placed a greater emphasis on securitization and retail
debt in its funding mix. Management expects to continue to use diverse funding
sources to maintain its financial flexibility and expects that access to the
capital markets will continue at levels sufficient to meet GMAC's funding needs.
Investment in Fiat Auto Holdings
On March 13, 2000, GM entered into a contract (the "Master Agreement") with
Fiat S.p.A. ("Fiat") under which GM acquired 20% of FAH. A copy of the Master
Agreement has been made public in filings with the SEC. Fiat continues to hold
the other 80% of FAH through various subsidiaries. FAH is the sole stockholder
of Fiat Auto S.p.A. ("Fiat Auto"), which owns and operates the global automotive
group of Fiat (other than the Ferrari, Maserati and Iveco businesses, which are
held separately by Fiat). Additionally, GM and Fiat Auto have formed joint
ventures relating to powertrain and purchasing and initiated other collaborative
activities.
The Master Agreement provides that, from January 24, 2004 to July 24, 2009,
Fiat has the right to exercise a put option (the "Put") to require GM to
purchase Fiat's FAH shares at fair market value. Whether and when Fiat may seek
to exercise the Put is unknown. It is uncertain as to whether the Put would ever
be exercised due to the possibilities that it could be affected by subsequent
agreements of the companies, it could become non-exercisable under other
provisions of the Master Agreement, it could be rendered unenforceable by reason
of actions Fiat may have taken, or Fiat may choose to not exercise the Put.
If and when the Put is implemented, the fair market value of FAH shares
would be determined by investment banks under procedures set forth in the Master
Agreement. Until any such valuation is completed, the amount, if any, that GM
might have to pay for Fiat's FAH shares is not quantifiable.
If GM were to acquire Fiat's FAH shares and thus become the sole owner of
Fiat Auto, GM would decide what, if any, additional capitalization would then be
appropriate for Fiat Auto. Specifically, if Fiat Auto were to need additional
funding, GM would have to decide whether or not to provide such funding and
under what conditions to provide any funding.
Unless FAH or Fiat Auto were subject to liquidation or insolvency, FAH's
consolidated financial statements would be required for financial reporting
purposes to be consolidated with those of GM. Any indebtedness, losses and
capital needs of FAH and Fiat Auto after their acquisition by GM are not
presently determinable, but they could have a material adverse effect on GM.
While GM and Fiat have discussed potential alternatives to the Master
Agreement, no changes to it have been agreed upon. GM expects to continue
working with Fiat on future product sharing and the powertrain and purchasing
joint ventures they initiated in March 2000, which are providing significant
cost savings in line with initial estimates to the operations of both companies.
Additional opportunities for industrial cooperation among GM and Fiat Auto are
being explored for the purpose of further reducing operating costs for both
parties.
II-10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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. The principal use of
these 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. Usually, the SPEs used
in these transactions meet the criteria of a qualifying special purpose entity
(QSPE). The use of QSPEs 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 that 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 such entities
allows the parties providing the financing to isolate particular assets in a
single entity and thereby syndicate the financing to multiple third parties.
This is a conventional financing technique used to lower the cost of borrowing
and, thus, the lease cost to a lessee such as GM. There is a well-established
market in which institutions participate in the financing of such property
through their purchase of interests in SPEs. All of the SPEs established to
facilitate property leases to GM are owned by institutions that are independent
of, and not affiliated with, GM. No officers, directors or employees of GM,
GMAC, or their affiliates hold any direct or indirect equity interests in such
entities.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). This interpretation addresses
consolidation of certain variable interest entities (VIEs), which include
entities previously referred to as SPEs.
(See New Accounting Standards for further discussion.)
Assets in SPEs were as follows (dollars in millions):
December 31,
------------
2002 2001
---- ----
Automotive, Communications Services, and Other
Operations
Assets leased under operating leases $2,904 $2,785
Trade receivables sold 439 868
------ ------
Total $3,343 $3,653
===== =====
Financing and Insurance Operations
Receivables sold or securitized:
Mortgage loans $112,128 $113,100
Retail finance receivables 16,164 11,978
Wholesale finance receivables 17,415 16,227
------- -------
Total $145,707 $141,305
======= =======
BOOK VALUE PER SHARE
Book value per share was 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 decreased to $9.06 at December 31, 2002, from $24.81 at December
31, 2001. Book value per share of GM Class H common stock decreased to $1.81 at
December 31, 2002, from $4.96 at December 31, 2001.
DIVIDENDS
Dividends may be paid on common stocks only when, as, and if declared by GM's
Board of Directors 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.
At December 31, 2002, the amount available for the payment of dividends on GM
$1-2/3 par value and GM Class H common stocks was $10.3 billion and $21.3
billion, respectively. GM's policy is to distribute dividends on its $1-2/3 par
value common stock based on the outlook and indicated capital needs of the
business. Cash dividends per share of GM $1-2/3 par value common stock were
$2.00 in 2002, 2001, and 2000. With respect to GM Class H common stock, the GM
Board has not approved the payment of any cash dividends to date in order to
allow cash to be retained for investment in the business of Hughes.
II-11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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 were required to transform the concepts
detailed in the directive into national law. Under the directive, manufacturers
are financially responsible for at least a portion of the cost of the take-back
of vehicles placed in service after July 2002 and all vehicles placed in service
prior to July 2002 that are still in operation in January 2007. The laws
developed in the individual national legislatures throughout Europe will have a
significant impact on the amount ultimately paid by the manufacturers for this
issue. GM recorded, in cost of sales and other expenses in the GME segment, an
after-tax charge of $55 million ($0.10 per diluted share of GM $1-2/3 par value
common stock) in 2002 for those member states that have passed national laws
through December 31, 2002. Management is assessing the impact of this potential
legislation on GM's financial position and results of operations, and may
include charges to earnings in future periods.
During 2001, GM Europe announced its plan 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 and were recorded in the GME region 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 write-downs; 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 per diluted 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).
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 expired in October 2002; however, there is a transition period until
the end of September 2003 for existing agreements with dealers. In order to
implement both the new regulatory changes as well as desired commercial
strategies, GME issued a termination letter to all European Union dealers
(excluding those already under termination notice) while simultaneously also
offering an unconditional Letter of Intent to remain part of GME's network.
Dealers and authorized repairers are expected to sign new agreements by
September 30, 2003, when the new regulation becomes fully effective. Management
does not believe that the future impact of the changes to the block exemption
regulation will have a material adverse effect on GM's consolidated financial
position or results of operations.
HUGHES TRANSACTIONS
On December 9, 2002, Hughes, GM, and EchoStar Communications Corporation
(EchoStar) entered into a Termination, Settlement, and Release Agreement
(Termination Agreement), in which these parties agreed to terminate the
Agreement and Plan of Merger, dated as of October 28, 2001, as amended, between
Hughes and EchoStar (Merger Agreement) and certain related agreements. Under the
terms of the Termination Agreement, EchoStar paid Hughes $600 million in cash
and Hughes retained its 81% ownership position in PanAmSat. This resulted in a
gain of $600 million ($372 million after-tax), or $0.21 per diluted share of GM
$1-2/3 par value common stock, recorded in total net sales and revenues. The
companies entered into the Termination Agreement because the Merger could not be
completed within the time allowed by the Merger Agreement due to regulatory
opposition.
GM has announced that it is currently evaluating a variety of strategic
options for Hughes, including a reduction or elimination of its retained
economic interest in Hughes, transactions that would involve strategic investors
and public offerings of GM Class H common stock or related securities for cash
or in exchange for outstanding GM debt obligations. (See Note 26 to the
consolidated financial statements.) Any such transaction might involve the
separation of Hughes from GM. GM and Hughes have engaged in preliminary
discussions with some parties. No decisions have been made regarding which
options or combinations of options, if any, GM will pursue. Due to the numerous
uncertainties involved in these matters, there can be no assurance that any
transaction or offering will be announced or completed or as to the time at
which such a transaction or offering might be completed.
II-12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ISUZU RESTRUCTURING
On December 25, 2002 GM, Isuzu and its creditor banks finalized all
transactions related to the contemplated restructuring of Isuzu. Under the
restructuring package, GM invested a total of Y60 billion (approximately U.S.
$500 million) to acquire a majority interest in certain of Isuzu's diesel engine
businesses and complete ownership of certain diesel engine technologies. GM also
acquired rights to use various related technologies. The allocation of the
purchase price to the assets and liabilities acquired will be completed in 2003.
In addition, GM had its existing equity in Isuzu retired as part of Isuzu's
financial restructuring plan, and GM purchased new equity in Isuzu, leaving GM
with a 12% ownership stake in Isuzu.
INVESTMENT IN GM DAEWOO
On October 17, 2002, GM announced that the transfer of certain assets of
Daewoo Motor Company had been completed, leading to the creation of GM Daewoo
Auto & Technology Company (GM Daewoo). GM, Suzuki Motor Corporation, Shanghai
Automotive Industry Corporation (SAIC), and creditors of Daewoo Motor Company
are the stockholders in GM Daewoo.
GM Daewoo owns three manufacturing plants and 10 subsidiaries in South Korea,
Europe, Puerto Rico, and Vietnam. Included in GM Daewoo are design, engineering,
research and development, sales, marketing, and administration assets located in
Bupyung, South Korea.
Daewoo Motor Company's manufacturing facility in Bupyung, South Korea, was
formed into a new company, Daewoo Incheon Motor Company (DIMC), and will supply
GM Daewoo with vehicles, engines, transmissions and components for at least six
years. The agreements give GM Daewoo an option to acquire DIMC any time within
the next six years.
As of December 31, 2002, GM invested $251 million in GM Daewoo common stock
for its purchase of 42.1% of GM Daewoo, and Daewoo's creditors will own 33%.
Suzuki and SAIC will have a 14.9% and 10% equity interest, respectively, in GM
Daewoo. GM accounts for this investment under the equity method.
EMPLOYMENT AND PAYROLLS
Worldwide employment at December 31, (in thousands) 2002 2001 2000
---- ---- ----
GMNA 193 202 213
GME 66 73 89
GMLAAM 24 24 25
GMAP 11 11 11
GMAC 32 29 29
Hughes 12 14 12 (1)
Other 12 13 11
---- ---- ----
Total employees 350 366 390
=== === ===
Worldwide payrolls (in billions) $21.0 $19.8 $21.0 (1)
U.S. hourly payrolls (in billions) (2) (4) $9.1 $8.5 $9.4
Average labor cost per active hour worked U.S. $62.78 $57.76 $52.16
hourly (3) (4)
(1) Amounts have been adjusted to exclude Hughes' employees transferred to The
Boeing Company.
(2) Includes employees "at work" (excludes laid-off employees receiving
benefits). (3) Includes U.S. hourly wages and benefits divided by the number
of hours worked. (4) Amounts have been adjusted to exclude Hughes employees.
II-13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CRITICAL ACCOUNTING ESTIMATES
Accounting policies are integral to understanding this MD&A. The consolidated
financial statements of GM are prepared in conformity with accounting principles
generally accepted in the United States, which requires the use of estimates,
judgments, and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. GM's accounting policies are
described in Note 1 to the consolidated financial statements. Critical
accounting estimates are described in this section. An accounting estimate is
considered critical if: the estimate requires management to make assumptions
about matters that were highly uncertain at the time the estimate was made;
different estimates reasonably could have been used; or if changes in the
estimate that would have a material impact on the Corporation's financial
condition or results of operations are reasonably likely to occur from period to
period. Management believes that the accounting estimates employed are
appropriate and resulting balances are reasonable; however, actual results could
differ from the original estimates, requiring adjustments to these balances in
future periods. The Corporation has discussed the development, selection and
disclosures of these critical accounting estimates with the Audit Committee of
GM's Board of Directors, and the Audit Committee has reviewed the Corporation's
disclosures relating to these estimates.
Sales Allowances
At the later of the time of sale or the time an incentive is announced to
dealers (applies to vehicles sold by GM and in dealer inventory), GM records as
a reduction of revenue the estimated impact of sales allowances in the form of
dealer and customer incentives. There may be numerous types of incentives
available at any particular time. Some factors used in estimating the cost of
incentives include the volume of vehicles that will be affected by the incentive
programs offered by product and the rate of customer acceptance of any incentive
program. If the actual number of vehicles differs from this estimate, or if a
different mix of incentives occurs, the sales allowances could be affected.
Policy and Warranty
Provisions for estimated expenses related to product warranties are made at
the time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims.
Management actively studies trends of warranty claims and takes action to
improve vehicle quality and minimize warranty claims.
Impairment of Long-Lived Assets
GM periodically reviews the carrying value of its long-lived assets held and
used, other than goodwill and intangible assets with indefinite lives, and
assets to be disposed of when events and circumstances warrant such a review.
This review is performed using estimates of future cash flows. If the carrying
value of a long-lived asset is considered impaired, an impairment charge is
recorded for the amount by which the carrying value of the long-lived asset
exceeds its fair value.
Pension and Other Postretirement Employee Benefits (OPEB)
Pension and OPEB costs and obligations are dependent on assumptions used in
calculating such amounts. These assumptions include discount rates, health care
cost trend rates, benefits earned, interest cost, expected return on plan
assets, mortality rates, and other factors. In accordance with accounting
principles generally accepted in the United States, actual results that differ
from the assumptions are accumulated and amortized over future periods and,
therefore, generally affect recognized expense and the recorded obligation in
future periods. While management believes that the assumptions used are
appropriate, differences in actual experience or changes in assumptions may
affect GM's pension and other postretirement obligations and future expense.
GM has established for its U.S. pension and OPEB plans a discount rate of
6.75% for year-end 2002. The 6.75% discount rate represents a 50 basis point
reduction from the 7.25% discount rate used at year-end 2001. GM's U.S. pre-tax
pension expense is forecasted to increase from approximately $1.0 billion in
2002, excluding curtailments and settlements, to approximately $2.9 billion in
2003 due to negative 2002 actual asset returns, a lower 2002 year-end discount
rate, and lowering of the expected return on plan assets assumption from 10% to
9%.
II-14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
The following table illustrates the sensitivity to a change in certain
assumptions for U.S. pension plans (as of December 31, 2002 the Projected
Benefit Obligation (PBO) for U.S. pension plans was $80.1 billion and the
minimum pension liability charged to equity with respect to U.S. pension plans
was $21.2 billion net of tax; see Note 14 to the consolidated financial
statements):
Impact on
Impact on 2003 Impact on December 31,
Pre-Tax Pension December 31, 2002 Equity
Change in Assumption Expense 2002 PBO (Net of Tax)
- -----------------------------------------------------------------------------
25 basis point
decrease in discount +$120 million +$1.9 billion -$1.1 billion
rate
25 basis point
increase in discount -$120 million -$1.8 billion +$1.1 billion
rate
25 basis point
decrease in expected +$170 million - -
return on assets
25 basis point
increase in expected -$170 million - -
return on assets
These changes in assumptions would have no impact on GM's funding requirements.
The following table illustrates the sensitivity to a change in the discount rate
assumption related to GM's U.S. OPEB plans (the U.S. Accumulated Postretirement
Benefit Obligation (APBO) was a significant portion of GM's worldwide APBO of
$57.2 billion as of December 31, 2002; see Note 14 to the consolidated financial
statements):
Impact on 2003 Impact on
Pre-Tax OPEB December 31, 2002
Change in Assumption Expense APBO
- ------------------------ ----------------------------------------
25 basis point
decrease in discount +$150 million +$1.6 billion
rate
25 basis point
increase in discount -$140 million -$1.5 billion
rate
Postemployment Benefits
GM establishes reserves for termination and other postemployment benefit
liabilities to be paid pursuant to union or other contractual agreements in
connection with closed plants. The reserve is based on a comprehensive study
that considers the impact of the annual production and labor forecast
assumptions as well as redeployment scenarios.
Allowance for Credit Losses
The allowance for credit losses generally is established by GMAC during the
period in which receivables are acquired and is maintained at a level considered
appropriate by management based on historical and other factors that affect
collectibility. These factors include the historical trends of repossessions,
charge-offs, recoveries, and credit losses; the careful monitoring of portfolio
credit quality, including the impact of acquisitions; and current and projected
economic and market conditions. Different assumptions or changes in economic
circumstances could result in changes to the allowance for credit losses.
II-15
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Investments in Operating Leases
GMAC's investments in residual values of its leasing portfolio represent an
estimate of the values of the assets at the end of the lease contract and are
initially recorded based on appraisals and estimates. Management reviews
residual values periodically to determine that recorded amounts are appropriate
and the operating lease assets have not been impaired. GMAC actively manages the
remarketing of off-lease vehicles to maximize the realization of their value.
Changes in the value of the residuals or other external factors impacting GMAC's
future ability to market the vehicles under prevailing market conditions may
impact the realization of residual values.
Mortgage Servicing Rights
The Corporation capitalizes mortgage servicing rights associated with loans
sold with servicing retained and servicing rights acquired through bulk and flow
purchase transactions. The Corporation capitalizes the cost of originated
mortgage servicing rights based upon the relative fair market value of the
underlying mortgage loans and mortgage servicing rights at the time of sale of
the underlying mortgage loan. The Corporation capitalizes purchased mortgage
servicing rights at cost, an amount not exceeding the estimated fair market
value of those purchased mortgage servicing rights.
Accounting for Derivatives and Other Contracts at Fair Value
The Corporation uses derivatives in the normal course of business to manage
its exposure to fluctuations in commodity prices and interest and foreign
currency rates. Effective January 1, 2001, the Corporation accounts for its
derivatives on the Consolidated Balance Sheet as assets or liabilities at fair
value in accordance with SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Such accounting is complex, evidenced by significant
interpretations of the primary accounting standard, which continues to evolve,
as well as the significant judgments and estimates involved in the estimating of
fair value in the absence of quoted market values.
NEW ACCOUNTING STANDARDS
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 Opinion 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 implemented 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, and establishes that fair value is the objective for initial measurement
of the liability. The Corporation implemented SFAS No. 146 on January 1, 2003
for transactions that occur after December 31, 2002. Management does not expect
this statement to have a material impact on GM's consolidated financial position
or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. On August 6, 2002, pursuant to SFAS No.
123, GM announced that the Corporation would expense the fair market value of
stock options newly granted to employees beginning in January 2003. Assuming
prospective application of SFAS No. 123, the expense associated with stock
options will be approximately $51 million, or $0.09 per share of GM $1 2/3 par
value common stock for 2003. However, management is currently evaluating the
various methods of application of SFAS No. 123 outlined in SFAS No. 148 and the
associated impact on GM's consolidated financial position or results of
operations.
In December 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that at the time
a company issues a guarantee, the company must recognize an initial liability
for the fair value, or market value, of the obligations it assumes under that
guarantee. This interpretation is applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. Management is currently
evaluating the impact of recognizing such liabilities on GM's consolidated
II-16
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NEW ACCOUNTING STANDARDS (concluded)
financial position and results of operations. FIN 45 also contains disclosure
provisions surrounding existing guarantees, which are effective for financial
statements of interim or annual periods ending after December 15, 2002. (See
Note 15 to the consolidated financial statements for these disclosures.)
In January 2003, the FASB issued FIN 46, which requires the consolidation of
certain entities considered to be variable interest entities (VIEs). An entity
is considered to be a VIE when it has equity investors which lack the
characteristics of a controlling financial interest, or its capital is
insufficient to permit it to finance its activities without additional
subordinated financial support. Consolidation of a VIE by an investor is
required when it is determined that the investor will absorb a majority of the
VIE's expected losses or residual returns if they occur. FIN 46 provides certain
exceptions to these rules, including qualifying SPEs subject to the requirements
of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." VIEs created after January 31, 2003 must be
consolidated immediately, while VIEs that existed prior to February 1, 2003 must
be consolidated as of July 1, 2003.
GM may be required to consolidate certain VIEs (previously collectively
referred to as SPEs) with which it does business. Management is currently
reviewing existing VIEs that may require consolidation. However, it is
reasonably possible that certain VIEs with assets totaling approximately $1.1
billion, established exclusively to facilitate GM's leasing activities related
to the ACO business, may require consolidation. Should GM default on all
of its obligations with respect to its involvement in these entities, GM's
maximum exposure to loss would be approximately $1.1 billion.
With respect to the FIO business, VIE structures are used to facilitate
various activities of GMAC, including securitization of loans, mortgage funding,
and other investing activities. Based on management's preliminary assessment, it
is reasonably possible that VIEs with assets totaling approximately $17.5
billion may require consolidation. Management is considering restructuring
alternatives to ensure the continued non-consolidation of such assets. In the
absence of successful alternatives, the consolidation of such VIEs would have
the effect of increasing both assets and liabilities in an amount equal to the
assets of the VIEs. GM's exposure to loss related to these entities is
approximately $3.2 billion.
ADDITIONAL 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 asbestos, there has been an increase
in the number of claims against GM related to allegations concerning the use of
asbestos-containing friction products in recent years. A growing number of auto
mechanics are filing suit seeking recovery based on their alleged exposure to
the small amount of asbestos used in brake components. These claims almost
always identify numerous other potential sources for the claimant's alleged
exposure to asbestos which do not involve GM or even asbestos-containing
friction products and many of which place users at much greater risk. The vast
majority 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.
The efforts of GM and the other domestic auto manufacturers to consolidate
their asbestos brake product litigation with similar and related claims
currently pending against Federal Mogul in the Delaware bankruptcy court
(where the Federal Mogul bankruptcy is pending) were unsuccessful. Although such
consolidation made sense for the effective and efficient resolution of the
similar and related claims against GM, the failure of this effort will not
affect GM's defenses which remain strong and will be presented in individual
cases.
Two other types of claims related to alleged asbestos exposure are being
asserted against GM, representing a significantly lower exposure than the
automotive friction product 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 alleged exposure to asbestos. These claims
almost always identify numerous other potential sources for the claimant's
alleged 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 alleged
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 alleged exposure to asbestos which do not involve GM. The vast
majority of these claimants do not have an asbesto-related illness and may
never develop one.
I-17
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ADDITIONAL MATTERS (concluded)
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 the vast majority of such claims against GM are without merit. Only a
small percentage of the claims pending against GM allege the contraction of a
malignant disease associated with asbestos exposure. The vast majority of
claimants do not have an asbestos-related illness and may never develop one. In
addition, GM believes that it has very strong defenses based upon a number of
published epidemiological studies prepared by highly respected scientists.
Indeed, 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. Furthermore, 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 maintain a claim against GM. Many courts examining this issue
have agreed with GM's position.
GM's annual expenditures associated with the resolution of these claims have
increased in nonmaterial amounts in recent years, but the amount expanded in
any year is highly dependent on the number of claims filed, the amount of
pretrial proceedings conducted, and the number of trials and settlements which
occur during the period. While over the foreseeable future GM anticipates annual
expenditures relating to these claims will increase somewhat as a function of
the number of claims increasing, it is management's belief, based upon
consultation with legal counsel, that the claims will not result in a material
adverse effect upon the financial condition or results of operations of GM.
FORWARD-LOOKING STATEMENTS
In this report, in reports subsequently filed by GM with the SEC on Forms
10-Q and 8-K, and in related comments by management of GM and Hughes, our use of
the words "expect," "anticipate," "estimate," "forecast," "objective," "plan,"
"goal," and similar expressions is intended to identify forward-looking
statements. While these statements represent our current judgments on what the
future may hold, and we believe these judgments are reasonable, actual results
may differ materially due to numerous important factors that are described below
and other factors that may be described in subsequent reports which GM may file
with the SEC on Forms 10-Q and 8-K:
. Changes in economic conditions, currency exchange rates, significant
terrorist acts, or political instability in the major markets where the
Corporation procures material, components, and supplies for the production
of its principal products or where its products are produced, distributed,
or sold (i.e., North America, Europe, Latin America, and Asia Pacific).
. Shortages of fuel or interruptions in transportation systems, labor
strikes, work stoppages, or other interruptions to or difficulties in the
employment of labor in the major markets where the Corporation purchases
material, components, and supplies for the production of its products or
where its products are produced, distributed, or sold.
. Significant changes in the competitive environment in the major markets
where the Corporation purchases material, components, and supplies for the
production of its products or where its products are produced, distributed,
or sold.
. Changes in the laws, regulations, policies, or other activities of
governments, agencies, and similar organizations where such actions may
affect the production, licensing, distribution, or sale of the
Corporation's products, the cost thereof, or applicable tax rates.
. The ability of the Corporation to achieve reductions in cost and employment
levels, to realize production efficiencies, and to implement capital
expenditures, all at the levels and times planned by management.
. With respect to Hughes, additional risk factors include: economic
conditions, product demand and market acceptance, government action, local
political or economic developments in or affecting countries where Hughes
has operations, including political, economic, and social uncertainties in
many Latin American countries in which DIRECTV Latin America, LLC operates,
foreign currency exchange rates, ability to obtain export licenses,
competition, the outcome of legal proceedings, ability to achieve cost
reductions, ability to timely perform material contracts, ability to renew
programming contracts under favorable terms, technological risk,
limitations on access to distribution channels, the success and timeliness
of satellite launches, in orbit performance of satellites, loss of
uninsured satellites, ability of customers to obtain financing, and Hughes'
ability to access capital to maintain its financial flexibility.
* * * * * *
II-18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
GM is exposed to market risk from changes in foreign currency exchange rates,
interest rates, and certain commodity and equity security prices. GM enters into
a variety of foreign exchange, interest rate, and commodity forward contracts
and options, primarily to maintain the desired level of 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.
A discussion of GM's accounting policies for derivative financial instruments
is included in Note 1 to the GM consolidated financial statements. Further
information on GM's exposure to market risk is included in Notes 19 and 20 to
the GM consolidated financial statements.
The following analyses provide quantitative information regarding GM's
exposure to foreign currency exchange rate risk, interest rate risk, and
commodity and equity price risk. GM uses a model to evaluate the sensitivity of
the fair value of financial instruments with exposure to market risk that
assumes instantaneous, parallel shifts in exchange rates, interest rate yield
curves, and commodity and equity prices. For options and instruments with
nonlinear returns, models appropriate to the instrument are utilized to
determine the impact of market shifts. There are certain shortcomings inherent
in the sensitivity analyses presented, primarily due to the assumption that
exchange rates change in a parallel fashion and that interest rates change
instantaneously. In addition, the analyses are unable to reflect the complex
market reactions that normally would arise from the market shifts modeled.
Foreign Exchange Rate Risk
GM has foreign currency exposures related to buying, selling, and financing
in currencies other than the local currencies in which it operates. More
specifically, GM is exposed to foreign currency risk related to the uncertainty
to which future earnings or asset and liability values are exposed as the result
of operating cash flows and various financial instruments that are denominated
in foreign currencies. At December 31, 2002, the net fair value asset of
financial instruments with exposure to foreign currency risk was approximately
$3.7 billion compared to a net fair value liability of $5.3 billion at December
31, 2001. The potential loss in fair value for such financial instruments from a
10% adverse change in quoted foreign currency exchange rates would be
approximately $370 million and $531 million for 2002 and 2001, respectively.
Interest Rate Risk
GM is subject to market risk from exposure to changes in interest rates due
to its financing, investing, and cash management activities. More specifically,
the Corporation is exposed to interest rate risk associated with long-term debt
and contracts to provide commercial and retail financing, retained mortgage
servicing rights, and retained assets related to mortgage securitization. In
addition, GM is exposed to prepayment risk associated with its capitalized
mortgage servicing rights and its retained assets. This risk is managed with
U.S. Treasury options and futures, exposing GM to basis risk since the
derivative instruments do not have identical characteristics to the underlying
mortgage servicing rights. At December 31, 2002 and 2001, the net fair value
liability of financial instruments held for purposes other than trading with
exposure to interest rate risk was approximately $27.7 billion and $23.3
billion, respectively. The potential loss in fair value resulting from a 10%
adverse shift in quoted interest rates would be approximately $1.6 billion and
$1.6 billion for 2002 and 2001, respectively. At December 31, 2002 and 2001, the
net fair value asset of financial instruments held for trading purposes with
exposure to interest rate risk was approximately $4.4 billion and $3.6 billion,
respectively. The potential loss in fair value resulting from a 10% adverse
shift in quoted interest rates would be approximately $26 million and $182
million for 2002 and 2001, respectively. This analysis excludes GM's operating
lease portfolio. A fair value change in the debt that funds this portfolio would
potentially have a different impact on the fair value of the portfolio itself.
As such, the overall impact to the fair value of financial instruments from a
hypothetical change in interest rates may be overstated.
Commodity Price Risk
GM is exposed to changes in prices of commodities used in its Automotive
business, primarily associated with various non-ferrous metals used in the
manufacturing of automotive components. GM enters into commodity forward and
option contracts to offset such exposure. At December 31, 2002 and 2001, the net
fair value liability of such contracts was approximately $43 million and $78
million, respectively. The potential loss in fair value resulting from a 10%
adverse change in the underlying commodity prices would be approximately $159
million and $150 million for 2002 and 2001, respectively. This amount excludes
the offsetting impact of the price risk inherent in the physical purchase of the
underlying commodities.
Equity Price Risk
GM is exposed to changes in prices of various available-for-sale equity
securities in which it invests. At December 31, 2002 and 2001, the fair value of
such investments was approximately $1.8 billion and $2.3 billion, respectively.
The potential loss in fair value resulting from a 10% adverse change in equity
prices would be approximately $182 million and $231 million for 2002 and 2001,
respectively.
* * * * * *
II-19
Independent Auditors' Report
General Motors Corporation, its Directors, and Stockholders:
We have audited the Consolidated Balance Sheets of General Motors Corporation
and subsidiaries as of December 31, 2002 and 2001, and the related Consolidated
Statements of Income, Cash Flows, and Stockholders' Equity for each of the three
years in the period ended December 31, 2002. Our audits also included the
Supplemental Information to the Consolidated Balance Sheets and Consolidated
Statements of Income and Cash Flows and financial statement schedule listed
at Item 15 (collectively, the financial statement schedules). These financial
statements and the financial statement schedules are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of General Motors Corporation and
subsidiaries at December 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2002, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in Note 1 to the financial statements, effective January 1, 2002,
General Motors Corporation changed its method of accounting for goodwill and
other intangible assets to conform to Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 16, 2003
(March 12, 2003, as to Note 26)
II-20
ITEM 8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
2002 2001 2000
---- ---- ----
(dollars in millions except
per share amounts)
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Total net sales and revenues (Notes 1, 2 and
23) $186,763 $177,260 $184,632
------- ------- -------
Cost of sales and other expenses (Notes 2 and 3) 153,344 144,093 145,664
Selling, general, and administrative expenses 23,624 23,302 22,252
Interest expense (Note 13) 7,715 8,347 9,552
-------- ------- -------
Total costs and expenses 184,683 175,742 177,468
------- ------- -------
Income before income taxes and minority
interests 2,080 1,518 7,164
Income tax expense (Note 8) 533 768 2,393
Equity income (loss) and minority interests 189 (149) (319)
----- ------ ------
Net income 1,736 601 4,452
Dividends on preference stocks (47) (99) (110)
----- ---- ------
Earnings attributable to common stocks $1,689 $502 $4,342
===== === =====
Basic earnings (losses) per share attributable
to common stocks
Earnings per share attributable to $1-2/3 par
value $3.37 $1.78 $6.80
==== ==== ====
Earnings per share attributable to Class H $(0.21) $(0.55) $0.56
==== ==== ====
Earnings (losses) per share attributable to
common stocks assuming dilution
Earnings per share attributable to $1-2/3 par
value $3.35 $1.77 $6.68
==== ==== ====
Earnings per share attributable to Class H $(0.21) $(0.55) $0.55
==== ==== ====
Reference should be made to the notes to consolidated financial statements.
II-21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
------------------------
2002 2001 2000
---- ---- ----
(dollars in millions)
AUTOMOTIVE, COMMUNICATIONS SERVICES, AND OTHER
OPERATIONS
Total net sales and revenues (Notes 1, 2, and
23) $159,737 $151,491 $160,627
------- ------- -------
Cost of sales and other expenses (Notes 2 and 3) 144,550 135,620 138,303
Selling, general, and administrative expenses 14,993 16,043 16,246
------- ------- -------
Total costs and expenses 159,543 151,663 154,549
------- ------- -------
Interest expense (Note 13) 789 751 815
Net expense from transactions with
Financing and Insurance Operations (Note 1) 296 435 682
------ ------ ------
(Loss) income before income taxes and minority
interests (891) (1,358) 4,581
Income tax (benefit) expense (Note 8) (489) (270) 1,443
Equity income (loss) and minority interests 256 (79) (299)
--- ----- -----
Net income (loss) - Automotive,
Communications Services, and
Other Operations $(146) $(1,167) $2,839
=== ===== =====
FINANCING AND INSURANCE OPERATIONS
Total revenues $27,026 $25,769 $24,005
------ ------ ------
Interest expense (Note 13) 6,926 7,596 8,737
Depreciation and amortization expense (Note 9) 5,541 5,857 5,982
Operating and other expenses 8,356 7,348 5,805
Provisions for financing and insurance losses
(Note 1) 3,528 2,527 1,580
------- ------- -------
Total costs and expenses 24,351 23,328 22,104
------ ------ ------
Net income from transactions with Automotive,
Communications Services, and Other Operations
(Note 1) (296) (435) (682)
------ ------ ------
Income before income taxes and minority
interests 2,971 2,876 2,583
Income tax expense (Note 8) 1,022 1,038 950
Equity income (loss) and minority interests (67) (70) (20)
----- ------ -----
Net income - Financing and Insurance
Operations $1,882 $1,768 $1,613
===== ===== =====
The above Supplemental Information is intended to facilitate analysis of General
Motors Corporation's businesses: (1) Automotive, Communications Services, and
Other Operations; and (2) Financing and Insurance Operations.
Reference should be made to the notes to consolidated financial statements.
II-22
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
------------
2002 2001
---- ----
ASSETS (dollars in millions)
Cash and cash equivalents (Note 1) $21,449 $18,555
Other marketable securities (Note 4) 16,825 12,069
------ ------
Total cash and marketable securities 38,274 30,624
Finance receivables - net (Note 5) 134,647 109,211
Accounts and notes receivable (less allowances) 15,715 10,798
Inventories (less allowances) (Note 6) 9,967 10,034
Deferred income taxes (Note 8) 41,649 28,239
Equipment on operating leases
(less accumulated depreciation) (Note 7) 34,811 36,087
Equity in net assets of nonconsolidated associates 5,044 4,950
Property - net (Note 9) 37,973 36,440
Intangible assets - net (Notes 1 and 10) 17,954 16,927
Other assets (Note 11) 34,748 39,102
------- -------
Total assets $370,782 $322,412
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable (principally trade) $27,452 $26,197
Notes and loans payable (Note 13) 201,940 166,314
Postretirement benefits other than pensions (Note 14) 38,187 38,393
Pensions (Note 14) 22,762 10,839
Deferred income taxes (Notes 8 and 12) 8,964 6,690
Accrued expenses and other liabilities (Note 12) 63,829 53,526
-------- --------
Total liabilities 363,134 301,959
Minority interests 834 746
Stockholders' equity (Note 17)
$1-2/3 par value common stock (outstanding, 560,447,797 and
558,439,976 shares) 936 932
Class H common stock (outstanding, 958,284,272 and
877,386,595 shares) 96 88
Capital surplus (principally additional paid-in capital) 21,583 21,519
Retained earnings 10,031 9,463
------ -------
Subtotal 32,646 32,002
Accumulated foreign currency translation adjustments (2,784) (2,919)
Net unrealized losses on derivatives (205) (307)
Net unrealized gains on securities 372 512
Minimum pension liability adjustment (23,215) (9,581)
Accumulated other comprehensive loss (25,832) (12,295)
------- -------
Total stockholders' equity 6,814 19,707
------ -------
Total liabilities and stockholders' equity $370,782 $322,412
======= =======
Reference should be made to the notes to consolidated financial statements.
II-23
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED BALANCE SHEETS
December 31,
GENERAL MOTORS CORPORATION AND SUBSIDIARIES 2002 2001
---- ----
ASSETS (dollars in millions)
Automotive, Communications Services, and Other Operations
Cash and cash equivalents (Note 1) $13,291 $8,432
Marketable securities (Note 4) 2,174 790
------- ------
Total cash and marketable securities 15,465 9,222
Accounts and notes receivable (less allowances) 5,861 5,406
Inventories (less allowances) (Note 6) 9,967 10,034
Equipment on operating leases (less accumulated depreciation)
(Note 7) 5,305 4,524
Deferred income taxes and other current assets (Note 8) 11,273 7,877
------ ------
Total current assets 47,871 37,063
Equity in net assets of nonconsolidated associates 5,044 4,950
Property - net (Note 9) 36,152 34,908
Intangible assets - net (Notes 1 and 10) 14,611 13,721
Deferred income taxes (Note 8) 32,759 22,294
Other assets (Note 11) 7,323 17,274
------- -------
Total Automotive, Communications Services, and
Other Operations assets 143,760 130,210
Financing and Insurance Operations
Cash and cash equivalents (Note 1) 8,158 10,123
Investments in securities (Note 4) 14,651 11,279
Finance receivables - net (Note 5) 134,647 109,211
Investment in leases and other receivables (Note 7) 35,517 33,382
Other assets (Note 11) 34,049 28,207
Net receivable from Automotive, Communications Services, and
Other Operations (Note 1) 1,089 1,557
------- -------
Total Financing and Insurance Operations assets 228,111 193,759
------- -------
Total assets $371,871 $323,969
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive, Communications Services, and Other Operations
Accounts payable (principally trade) $20,169 $18,297
Loans payable (Note 13) 1,516 2,402
Accrued expenses (Note 12) 40,976 34,090
Net payable to Financing and Insurance Operations (Note 1) 1,089 1,557
------- -------
Total current liabilities 63,750 56,346
Long-term debt (Note 13) 16,651 10,726
Postretirement benefits other than pensions (Note 14) 34,275 34,515
Pensions (Note 14) 22,709 10,790
Other liabilities and deferred income taxes (Notes 8 and 12) 16,789 13,794
------- -------
Total Automotive, Communications Services, and Other
Operations liabilities 154,174 126,171
Financing and Insurance Operations
Accounts payable 7,283 7,900
Debt (Note 13) 183,773 153,186
Other liabilities and deferred income taxes (Notes 8 and 12) 18,993 16,259
------- -------
Total Financing and Insurance Operations liabilities 210,049 177,345
------- -------
Total liabilities 364,223 303,516
Minority interests 834 746
Stockholders' equity (Note 17)
$1-2/3 par value common stock (outstanding, 560,447,797 and 936 932
558,439,976 shares)
Class H common stock (outstanding, 958,284,272 and 96 88
877,386,595 shares)
Capital surplus (principally additional paid-in capital) 21,583 21,519
Retained earnings 10,031 9,463
------ ------
Subtotal 32,646 32,002
Accumulated foreign currency translation adjustments (2,784) (2,919)
Net unrealized losses on derivatives (205) (307)
Net unrealized gains on securities 372 512
Minimum pension liability adjustment (23,215) (9,581)
------ -----
Accumulated other comprehensive loss (25,832) (12,295)
------ ------
Total stockholders' equity 6,814 19,707
------- -------
Total liabilities and stockholders' equity $371,871 $323,969
======= =======
The above Supplemental Information is intended to facilitate analysis of General
Motors Corporation's businesses: (1) Automotive, Communications Services, and
Other Operations; and (2) Financing and Insurance Operations.
Reference should be made to the notes to consolidated financial statements.
II-24
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended
December 31,
------------
2002 2001 2000
---- ---- ----
Cash flows from operating activities (dollars in millions)
Net income $1,736 $601 $4,452
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization expenses 12,938 12,908 13,411
Postretirement benefits other than
pensions, net of payments (208) 1,881 799
and VEBA contributions
Pension expense, net of contributions (3,380) 148 128
Net change in mortgage loans (4,376) (4,241) 242
Net change in mortgage securities (656) (777) (577)
Rental fleet vehicle - acquisitions (5,595) (4,997) (6,000)
Rental fleet vehicle - dispositions 4,774 6,116 6,008
Change in other investments and miscellaneous
assets 6,195 (1,235) (538)
Change in other operating assets and liabilities
(Note 1) 4,600 (101) 3,229
Other 1,081 2,682 291
------ ------ ------
Net cash provided by operating activities $17,109 $12,985 $21,445
------ ------ ------
Cash flows from investing activities
Expenditures for property (7,443) (8,631) (9,722)
Investments in marketable securities - acquisitions (39,386) (35,130) (27,119)
Investments in marketable securities - liquidations 35,688 34,352 27,171
Net change in mortgage servicing rights (1,711) (2,075) (1,084)
Increase in finance receivables (143,166) (107,440) (73,754)
Proceeds from sales of finance receivables 117,276 95,949 59,221
Operating leases - acquisitions (16,624) (12,938) (15,415)
Operating leases - liquidations 13,994 11,892 10,085
Investments in companies, net of cash acquired (872) (1,285) (6,379)
(Note 1)
Other 867 (1,184) 2,597
------ ------ ------
Net cash used in investing activities (41,377) (26,490) (34,399)
------ ------ ------
Cash flows from financing activities
Net (decrease) increase in loans payable (404) (20,044) 7,865
Long-term debt - borrowings 53,144 64,371 27,760
Long-term debt - repayments (24,889) (21,508) (22,459)
Repurchases of common and preference stocks (97) (264) (1,613)
Proceeds from issuing common stocks 62 100 2,792
Proceeds from sales of treasury stocks 19 418 -
Cash dividends paid to stockholders (1,168) (1,201) (1,294)
------ ------ ------
Net cash provided by financing activities 26,667 21,872 13,051
------ ------ ------
Effect of exchange rate changes on cash and
cash equivalents 495 (96) (255)
------ ------- ------
Net increase (decrease) in cash and cash equivalents 2,894 8,271 (158)
Cash and cash equivalents at beginning of the year 18,555 10,284 10,442
------ ------ ------
Cash and cash equivalents at end of the year $21,449 $18,555 $10,284
====== ====== ======
Reference should be made to the notes to consolidated financial statements.
II-25
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31,
--------------------------------
2002 2001 2000
-------------------------------------------------------------------------
Automotive, Financing Automotive, Financing Automotive Financing
Comm.Serv., and Comm.Serv., and Comm.Serv., and
and Other Insurance and Other Insurance and Other Insurance
--------- --------- --------- --------- --------- ---------
Cash flows from operating (dollars in millions)
activities
Net income (loss) $(146) $1,882 $(1,167) $1,768 $2,839 $1,613
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities
Depreciation and amortization
expenses 7,397 5,541 7,051 5,857 7,429 5,982
Postretirement benefits other
than pensions, net of
payments and VEBA contributions (223) 15 1,861 20 772 27
Pension expense, net of
contributions (3,380) - 148 - 128 -
Net change in mortgage loans - (4,376) - (4,241) - 242
Net change in mortgage
securities - (656) - (777) - (577)
Rental fleet vehicle -
acquisitions (5,595) - (4,997) - (6,000) -
Rental fleet vehicle -
dispositions 4,774 - 6,116 - 6,008 -
Change in other investments
and miscellaneous assets 2,689 3,506 959 (2,194) 1,154 (1,692)
Change in other operating
assets and liabilities (Note 1) 4,649 (49) (2,056) 1,955 724 2,505
Other (1,694) 2,775 (357) 3,039 (1,966) 2,257
----- ----- ----- ----- ------ ------
Net cash provided by operating
activities $8,471 $8,638 $7,558 $5,427 $11,088 $10,357
----- ----- ----- ----- ------ ------
Cash flows from investing
activities
Expenditures for property (6,986) (457) (8,611) (20) (9,200) (522)
Investments in marketable
securities - acquisitions (2,228) (37,158) (857) (34,273) (2,520) (24,599)
Investments in marketable
securities - liquidations 873 34,815 1,228 33,124 3,057 24,114
Net change in mortgage servicing
rights - (1,711) - (2,075) - (1,084)
Increase in finance receivables - (143,166) - (107,440) - (73,754)
Proceeds from sales of finance
receivables - 117,276 - 95,949 - 59,221
Operating leases - acquisitions - (16,624) - (12,938) - (15,415)
Operating leases - liquidations - 13,994 - 11,892 - 10,085
Investments in companies, net of
cash acquired (Note 1) (690) (182) (743) (542) (4,302) (2,077)
Net investing activity with
Financing and
Insurance Operations 400 - (500) - (1,069) -
Other 1,700 (833) (768) (416) 2,504 93
----- ------ ------ ------ ------ ------
Net cash used in investing
activities (6,931) (34,046) (10,251) (16,739) (11,530) (23,938)
----- ------ ------ ------ ------ ------
Cash flows from financing
activities
Net (decrease) increase in loans
payable (1,482) 1,078 194 (20,238) 142 7,723
Long-term debt - borrowings 6,295 46,849 5,849 58,522 5,279 22,481
Long-term debt - repayments (328) (24,561) (2,602) (18,906) (6,196) (16,263)
Net financing activity with
Automotive, Communications
Services, and Other Operations - (400) - 500 - 1,069
Repurchases of common and
preference stocks (97) - (264) - (1,613) -
Proceeds from issuing common
stocks 62 - 100 - 2,792 -
Proceeds from sales of treasury
stocks 19 - 418 - - -
Cash dividends paid to
stockholders (1,168) - (1,201) - (1,294) -
----- ------ ----- ------ ----- ------
Net cash provided by (used in)
financing activities 3,301 22,966 2,494 19,878 (890) 15,010
----- ------ ----- ------ --- ------
Effect of exchange rate changes
on cash and cash equivalents 485 10 (74) (22) (249) (6)
Net transactions with
Automotive/Financing
Operations (467) 467 (414) 414 970 (970)
----- ----- ----- ------ ----- -----
Net increase (decrease) in cash
and cash equivalents 4,859 (1,965) (687) 8,958 (611) 453
Cash and cash equivalents at
beginning of the year 8,432 10,123 9,119 1,165 9,730 712
------ ------ ----- ------ ----- -----
Cash and cash equivalents at end
of the year $13,291 $8,158 $8,432 $10,123 $9,119 $1,165
====== ===== ===== ====== ===== =====
The above Supplemental Information is intended to facilitate analysis of General
Motors Corporation's businesses: (1) Automotive, Communications Services, and
Other Operations; and (2) Financing and Insurance Operations.
Reference should be made to the notes to consolidated financial statements.
II-26
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, and 2000
Accumulated
Total Other Total
Capital Capital Comprehensive Retained Comprehensive Stockholders'
Stock Surplus Income(Loss) Earnings Loss Equity
----- ------- ------------ -------- ---- ------
(dollars in millions)
Balance at January 1, 2000 $1,047 $13,794 $6,961 $(1,158) $20,644
Shares reacquired (184) (9,626) - - (9,810)
Shares issued 139 16,852 - - 16,991
Comprehensive income:
Net income - - $4,452 4,452 - 4,452
-----
Other comprehensive income (loss):
Foreign currency translation - - (469) - - -
adjustments
Unrealized losses on securities - - (415) - - -
Minimum pension liability - - 76 - - -
adjustment
Other comprehensive loss (808) (808) (808)
---
Comprehensive income - - $3,644 - - -
=====
Cash dividends - - (1,294) - (1,294)
----- ------ ------ ------ ------
Balance at December 31, 2000 1,002 21,020 10,119 (1,966) 30,175
Shares reacquired - (125) - - (125)
Shares issued 18 624 - - 642
Comprehensive income:
Net income - - $601 601 - 601
---
Other comprehensive income (loss):
Foreign currency translation
adjustments - - (417) - - -
Unrealized losses on derivatives - - (307) - - -
Unrealized losses on securities - - (69) - - -
Minimum pension liability
adjustment - - (9,536) - - -
------
Other comprehensive loss - - (10,329) (10,329) (10,329)
------
Comprehensive loss - - $(9,728) - - -
======
Delphi spin-off adjustment (a) - - (56) - (56)
Cash dividends - - (1,201) - (1,201)
------ ------ ------ ------- ------
Balance at December 31, 2001 1,020 21,519 9,463 (12,295) 19,707
Shares reacquired - (2,086) - - (2,086)
Shares issued 12 2,150 - - 2,162
Comprehensive income:
Net income - - $1,736 1,736 - 1,736
-----
Other comprehensive income (loss):
Foreign currency translation
adjustments - - 135 - - -
Unrealized gains on derivatives - - 102 - - -
Unrealized losses on securities - - (140) - - -
Minimum pension liability
adjsutment - - (13,634) - - -
------
Other comprehensive loss - - (13,537) - (13,537) (13,537)
------
Comprehensive loss - - $(11,801) - - -
======
Cash dividends - - (1,168) - (1,168)
----- ------ ----- ------ -----
-
Balance at December 31, 2002 $1,032 $21,583 $10,031 $(25,832) $6,814
===== ====== ====== ====== =====
(a) Resolution of workers' compensation, pension, and other postemployment
liabilities owed to GM by Delphi Automotive Systems, which GM spun off in 1999.
Reference should be made to the notes to consolidated financial statements.
II-27
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of General Motors
Corporation and domestic and foreign subsidiaries that are more than 50% owned,
principally General Motors Acceptance Corporation and Subsidiaries (GMAC) and
Hughes Electronics Corporation and Subsidiaries (Hughes), (collectively referred
to as the "Corporation," "General Motors" or "GM"). General Motors' share of
earnings or losses of associates, in which at least 20% of the voting securities
is owned, is included in the consolidated operating results using the equity
method of accounting, except for investments where GM is not able to exercise
significant influence over the operating and financial decisions of the
investee, in which case, the cost method of accounting is used. GM encourages
reference to the GMAC and Hughes Annual Reports on Form 10-K for the period
ended December 31, 2002, filed separately with the U. S. Securities and Exchange
Commission, and the Hughes consolidated financial statements included as Exhibit
99 to this GM Annual Report on Form 10-K for the period ended December 31, 2002.
Certain amounts for 2001 and 2000 have been reclassified to conform with the
2002 classifications.
Nature of Operations, Financial Statement Presentation, and Supplemental
Information
GM presents its primary financial statements on a fully consolidated basis.
Transactions between businesses have been eliminated in the Corporation's
consolidated financial statements. These transactions consist principally of
borrowings and other financial services provided by Financing and Insurance
Operations (FIO) to Automotive, Communications Services, and Other Operations
(ACO).
To facilitate analysis, GM presents supplemental information to the
statements of income, balance sheets, and statements of cash flows for the
following businesses: (1) ACO, 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) FIO, which
consists primarily of GMAC. GMAC provides a broad range of financial services,
including consumer vehicle financing, full-service leasing and fleet leasing,
dealer financing, car and truck extended service contracts, residential and
commercial mortgage services, vehicle and homeowners' insurance, and asset-based
lending.
Use of Estimates in the Preparation of the Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect amounts reported therein. Due to the
inherent uncertainties involved in making estimates, actual results reported in
future periods may differ from those estimates.
Revenue Recognition
Sales generally are recorded when products are shipped (when title and risks
and rewards of ownership have passed), or when services are rendered to
independent dealers or other third parties. Provisions for dealer and customer
sales incentives, allowances, and rebates are made at the time of vehicle sales.
Incentives, allowances, and rebates related to vehicles previously sold are
recognized as reductions of sales when announced.
Financing revenue is recorded over the terms of the receivables using the
interest method. Income from operating lease assets is recognized on a
straight-line basis over the scheduled lease terms.
Insurance premiums are earned on a basis related to coverage provided over
the terms of the policies. Commissions, premium taxes, and other costs incurred
in acquiring new business are deferred and amortized over the terms of the
related policies on the same basis as premiums are earned.
Advertising and Research and Development
Advertising, research and development, and other product-related costs are
charged to expense as incurred. Advertising expense was $4.6 billion in 2002,
$4.3 billion in 2001, and $4.6 billion in 2000. Research and development expense
was $5.8 billion in 2002, $6.2 billion in 2001, and $6.6 billion in 2000.
II-28
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (continued)
Depreciation and Amortization
Expenditures for special tools placed in service after January 1, 2002 are
amortized using the straight-line method over their estimated useful lives.
Expenditures for special tools placed in service prior to January 1, 2002, are
amortized over their estimated useful lives, primarily using the units of
production method. Replacements of special tools for reasons other than changes
in products are charged directly to cost of sales. As of January 1, 2001, the
Corporation adopted the straight-line method of depreciation for real estate,
plants, and equipment placed in service after that date. Assets placed in
service before January 1, 2001, continue generally to be depreciated using
accelerated methods. The accelerated methods accumulate depreciation of
approximately two-thirds of the depreciable cost during the first half of the
estimated useful lives of property groups as compared to the straight-line
method, which allocates depreciable costs equally over the estimated useful
lives of property groups. Management believes the adoption of the straight-line
amortization/depreciation method for special tools placed into service after
January 1, 2002, and real estate, plants, and equipment placed into service
after January 1, 2001, better reflects the consistent use of these assets over
their useful lives. The effect of these changes on the results of operations for
the years ended December 31, 2002 and 2001 is estimated at $7 million and $26
million after-tax , respectively.
Equipment on operating leases is depreciated using the straight-line method
over the term of the lease agreement. The difference between the net book value
and the proceeds of sale or salvage on items disposed of is accounted for as a
charge against or credit to the provision for depreciation.
Valuation of Long-Lived Assets
GM periodically evaluates the carrying value of long-lived assets to be held
and used in the business, other than goodwill and intangible assets with
indefinite lives, and assets held for sale when events and circumstances
warrant, generally in conjunction with the annual business planning cycle. If
the carrying value of a long-lived asset is considered impaired, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value for assets to be held and used. For assets held for sale, such loss
is further increased by costs to sell. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved. Long-lived assets to be disposed of other than by sale are considered
held and used until disposed of.
Goodwill and Other Intangible Assets
Prior to January 1, 2002, goodwill was amortized using the straight-line
method over 20 to 40 year periods. On January 1, 2002, the Corporation
implemented Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets," which ceased the amortization method of
accounting for goodwill and changed to an impairment-only approach. Accordingly,
goodwill is no longer amortized and is tested for impairment at least annually.
GM's reported net income and earnings per share information, 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):
Year-Ended December 31,
------------------------------
2002 2001 2000
---- ---- ----
Reported net income $1,736 $601 $4,452
Add:
Goodwill amortization - 327 318
Amortization of intangibles with
indefinite lives - 7 7
----- --- -----
Adjusted net income $1,736 $935 $4,777
Basic earnings (losses) per share
attributable to common stocks
EPS attributable to GM $1-2/3 par value:
Reported $3.37 $1.78 $6.80
Adjusted $3.37 $2.11 $7.16
EPS attributable to GM Class H:
Reported $(0.21) $(0.55) $0.56
Adjusted $(0.21) $(0.38) $0.74
Earnings (losses) per share attributable
to common stocks assuming dilution
EPS attributable to GM $1-2/3 par value:
Reported $3.35 $1.77 $6.68
Adjusted $3.35 $2.10 $7.03
EPS attributable to GM Class H:
Reported $(0.21) $(0.55) $0.55
Adjusted $(0.21) $(0.38) $0.72
II-29
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (continued)
Foreign Currency Transactions and Translation
Foreign currency exchange transaction and translation losses, net of taxes,
included in consolidated net income in 2002, 2001, and 2000, pursuant to SFAS
No. 52, "Foreign Currency Translation," amounted to $98 million, $147 million,
and $57 million, respectively.
Stock-Based Compensation
Through December 31, 2002, as permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation," GM applied the intrinsic value method of recognition
and measurement under Accounting Principles Board Opinion No. 25 (APB No. 25) to
its stock options and other stock-based employee compensation awards. No
compensation expense related to employee stock options is reflected in net
income, as all options granted had an exercise price equal to the market value
of the underlying common stock on the date of the grant.
In August of 2002, GM announced that, beginning January 1, 2003, the
Corporation will expense the fair market value of stock options newly granted to
employees pursuant to SFAS No. 123. The following table illustrates the effect
on net income and earnings per share if compensation cost for all outstanding
and unvested stock option and other stock-based employee compensation awards had
been determined based on their fair values at the grant date, consistent with
the method prescribed by SFAS No. 123 (dollars in millions except per share
amounts):
Year-Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Net income, as reported $1,736 $601 $4,452
Less: stock-based compensation expense
determined using fair value based
method in SFAS No. 123 (318) (374) (327)
----- --- -----
Pro forma net income $1,418 $227 $4,125
===== === =====
Earnings (losses) attributable to
common stocks
$1-2/3 par value - as reported $1,885 $984 $3,957
- pro forma $1,687 $769 $3,709
Class H - as reported $(196) $(482) $385
- pro forma $(316) $(642) $306
Basic earnings (losses) per share
attributable to common stocks
$1-2/3 par value - as reported $3.37 $1.78 $6.80
- pro forma $3.01 $1.39 $6.38
Class H - as reported $(0.21) $(0.55) $0.56
- pro forma $(0.34) $(0.73) $0.45
Diluted earnings (losses) per share
attributable to common stocks
$1-2/3 par value - as reported $3.35 $1.77 $6.68
- pro forma $3.00 $1.38 $6.26
Class H - as reported $(0.21) $(0.55) $0.55
- pro forma $(0.34) $(0.73) $0.44
Policy and Warranty
Provisions for estimated expenses related to product warranties are made at
the time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims.
Management actively studies trends of warranty claims and takes action to
improve vehicle quality and minimize warranty claims. (See Note 12).
Cash and Cash Equivalents
Cash equivalents are defined as short-term, highly liquid investments with
original maturities of 90 days or less.
II-30
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (continued)
Statement of Cash Flows Supplementary Information
Years Ended December 31,
---------------------------
Automotive, Communications Services, and Other 2002 2001 2000
Operations ---- ---- ----
- ---------------------------------------------- (dollars in millions)
Increase (decrease) in cash due to changes in
other operating assets and liabilities was as
follows:
Accounts receivable $(116) $111 $(625)
Prepaid expenses and other deferred charges 289 (254) 66
Inventories 350 522 (297)
Accounts payable 861 558 1,254
Deferred taxes and income taxes payable (1,921) (1,444) (629)
Accrued expenses and other liabilities 5,186 (1,549) 955
----- ----- ---
Total $4,649 $(2,056) $724
===== ===== ===
Cash paid for interest and income taxes
was as follows:
Interest $1,341 $892 $968
Income taxes $1,726 $1,149 $2,310
During 2002, ACO made investments in companies, net of cash acquired, of
approximately $700 million. This amount consists primarily of GM's purchase of a
42.1% equity interest in GM Daewoo Auto & Technology Company (GM Daewoo) for
approximately $251 million and GM's investments in Isuzu-related entities for
$180 million.
During 2001, the majority of the $740 million of investments made by ACO
consisted of GM's purchase of an additional 10% ownership in Suzuki Motor
Corporation (Suzuki) for approximately $520 million.
During 2000, ACO made investments in companies, net of cash acquired, of
approximately $4.3 billion. This amount consists primarily of GM's purchase of a
20% equity interest in Fuji Heavy Industries Ltd. (Fuji) for approximately $1.3
billion and GM's acquisition of a 20% interest in Fiat Auto Holdings, B.V. (FAH)
for $2.4 billion. In addition during 2000, Fiat S.p.A. purchased approximately
32 million shares of GM $1-2/3 par value common stock for $2.4 billion which is
included in proceeds from issuing common stocks.
Years Ended December 31,
----------------------------
Financing and Insurance Operations 2002 2001 2000
- ---------------------------------- ---- ---- ----
(dollars in millions)
Increase (decrease) in cash due to changes in
other operating assets and liabilities was as
follows:
Other receivables $(3,673) $(1,386) $(726)
Other assets 23 (82) (29)
Accounts payable (617) 483 3,155
Deferred taxes and other liabilities 4,218 2,940 105
----- ----- ------
Total $(49) $1,955 $2,505
== ===== =====
Cash paid for interest and income taxes
was as follows:
Interest $6,639 $7,239 $8,511
Income taxes $471 $694 $475
FIO made investments in companies, net of cash acquired, of approximately
$180 million, $540 million, and $2.1 billion in 2002, 2001, and 2000,
respectively. The 2001 investments were primarily for a mortgage warehouse
lending business. The 2000 investments were primarily for a commercial factoring
business and a Japanese real estate holding company.
Derivative Instruments
GM is party to a variety of foreign exchange rate, interest rate and
commodity forward contracts, and options entered into in connection with the
management of its exposure to fluctuations in foreign exchange rates, interest
rates, and certain commodity prices. These financial exposures are managed in
accordance with corporate policies and procedures.
II-31
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Significant Accounting Policies (continued)
Derivative Instruments (concluded)
All derivatives are recorded at fair value on the consolidated balance sheet.
Effective changes in fair value of derivatives designated as cash flow hedges
and hedges of a net investment in a foreign operation are recorded in net
unrealized gain / (loss) on derivatives, a separate component of accumulated
other comprehensive loss. Amounts are reclassified from accumulated other
comprehensive loss when the underlying hedged item impacts earnings and all
ineffective changes in fair value are recorded currently in earnings. Changes in
fair value of derivatives designated as fair value hedges are recorded currently
in earnings offset to the extent the derivative was effective by changes in fair
value of the hedged item. Changes in fair value of derivatives not designated as
hedging instruments are recorded currently in earnings.
New Accounting Standards
In April 2002, the Financial Accounting Standards Board (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
Opinion 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 implemented
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, and establishes that fair value is the objective for initial measurement
of the liability,. The Corporation implemented SFAS No. 146 on January 1, 2003,
for transactions that occur after December 31, 2002. Management does not expect
this statement to have a material impact on GM's consolidated financial position
or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation" to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. On August 6, 2002, pursuant to SFAS No.
123, GM announced that the Corporation would expense the fair market value of
stock options newly granted to employees beginning January 1, 2003.
In December 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that at the time
a company issues a guarantee, the company must recognize an initial liability
for the fair value, or market value, of the obligations it assumes under that
guarantee. This interpretation is applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. Management is currently
evaluating the impact of recognizing such liabilities on GM's consolidated
financial position and results of operations. FIN 45 also contains disclosure
provisions surrounding existing guarantees, which are effective for financial
statements of interim or annual periods ending after December 15, 2002 (see Note
15).
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46), which requires the consolidation of
certain entities considered to be variable interest entities (VIEs). An entity
is considered to be a VIE when it has equity investors who lack the
characteristics of a controlling financial interest, or its capital is
insufficient to permit it to finance its activities without additional
subordinated financial support. Consolidation of a VIE by an investor is
required when it is determined that the investor will absorb a majority of the
VIE's expected losses or residual returns if they occur. FIN 46 provides certain
exceptions to these rules, including qualifying SPEs subject to the requirements
of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." VIEs created after January 31, 2003 must be
consolidated immediately, while VIEs that existed prior to February 1, 2003 must
be consolidated as of July 1, 2003.
GM may be required to consolidate certain VIEs (previously collectively
referred to as SPEs) with which it does business. Management is currently
reviewing existing VIEs that may require consolidation. However, it is
reasonably possible that certain VIEs with assets totaling approximately $1.1
billion, established exclusively to facilitate GM's leasing activities related
to the ACO business, may require consolidation. Should GM default on all
of its obligations with respect to its involvement in these entities, GM's
maximum exposure to loss would be approximately $1.1 billion.
With respect to the FIO business, VIE structures are used to facilitate
various activities of GMAC, including securitization of loans, mortgage funding,
and other investing activities. Based on management's preliminary assessment, it
is reasonably possible that VIEs with assets totaling approximately $17.5
billion may require consolidation. Management is considering restructuring
alternatives to ensure the continued non-consolidation of such assets. In the
absence of successful alternatives, the consolidation of such VIEs would have
the effect of increasing both assets and liabilities in an amount equal to the
assets of the VIEs. GM's exposure to loss related to these entities is
approximately $3.2 billion.
II-32
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 1. Significant Accounting Policies (concluded)
New Accounting Standards (concluded)
Labor Force
GM, on a worldwide basis, has a concentration of its labor supply in
employees working under union collective bargaining agreements, a significant
number of which will expire in 2003.
NOTE 2. Asset Impairments
GM recorded pre-tax charges against income for asset impairments of $254
million ($158 million after-tax, or $0.28 per share of GM $1-2/3 par value
common stock) in 2002, $140 million ($90 million after-tax, or $0.16 per share
of GM $1-2/3 par value common stock) in 2001 and $917 million ($587 million
after-tax, or $0.99 per share of GM $1-2/3 par value common stock) in 2000.
These charges are components of the following line items in the income
statement:
Years Ended December 31,
---------------------------
2002 2001 2000
---- ---- ----
(dollars in millions)
Total net sales and revenues $- $ - $315
Cost of sales and other expenses 254 140 602
--- --- ---
Total $254 $140 $917
=== === ===
In 2002, the pre-tax charges were comprised of $113 million ($70 million
after-tax) for GM Europe (GME), and $141 million ($88 million after-tax) for GM
North America (GMNA). The charges related to the write-down of equipment
associated with GME's restructuring initiative implemented during the first
quarter of 2002, (see Note 24). The GMNA charges relate to equipment write-downs
associated with changes to the region's production facilities and the write-down
of special tools.
The 2001 charges related to the write-down of equipment as a result of the
announcement of the closing of the Ste. Therese, Quebec, assembly plant in 2002
and the write-down of certain equipment on operating leases that was determined
to be impaired in GMNA.
In 2000, the pre-tax charges were comprised of $572 million ($356 million
after-tax) for GMNA, and $345 million ($231 million after-tax) for GME. The
charges related to the write-down of special tools and equipment on operating
leases as a result of the phase-out of the Oldsmobile division as the current
model lineup product life cycles come to an end, or until the models are no
longer economically viable, and the reduction in production capacity at GME,
including the restructuring of Vauxhall Motors Limited's manufacturing
operations in the U.K.
NOTE 3. Postemployment Benefit Costs
GM records liabilities for termination and other postemployment benefits to
be paid pursuant to union or other contractual agreements in connection with
closed plants in North America. GM reviews the adequacy and continuing need for
these liabilities on an annual basis in conjunction with its year-end production
and labor forecasts. Furthermore, GM reviews the reasonableness of these
liabilities on a quarterly basis.
In 2002, GM recognized postemployment benefit liabilities of $281 million
($174 million after-tax, or $0.31 per share of GM $1-2/3 par value common stock)
primarily related to the transfer of commercial truck production from
Janesville, Wisconsin, to Flint, Michigan. The Janesville charge relates to 772
employees and was included in cost of sales.
II-33
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 3. Postemployment Benefit Costs (concluded)
The adjustments of $159 million ($99 million after-tax, or $0.18 per share of
GM $1-2/3 par value common stock), recorded in cost of sales, are primarily the
result of a reversal of postemployment benefit liabilities for employees at the
Spring Hill, Tennessee plant. This reversal was recorded due to approximately
400 employees, who had been included in the planned production capacity
reduction, were instead absorbed into the continuing workforce due to a change
in the plan.
In 2001, GM recognized postemployment benefit liabilities related to the
announced closing of the Ste. Therese, Quebec assembly plant in 2002. The 2001
charge relates to 1,350 employees and increased cost of sales by $137 million
($89 million after-tax, or $0.16 per share of GM $1-2/3 par value common stock).
The liability for postemployment benefits as of December 31, 2002 totals
approximately $613 million relating to 11 plants and approximately 3,400
employees, with anticipated spending of approximately 70% over the next three
years. The liability for postemployment benefits was $626 million relating to 12
plants and approximately 5,600 employees as of December 31, 2001. The liability
for postemployment benefits was $665 million relating to 12 plants and
approximately 5,800 employees as of December 31, 2000. The following tables
summarize the activity from December 31, 2000 through December 31, 2002 for this
liability (dollars in millions):
Balance at December 31, 2000 $665
Spending (214)
Interest accretion 38
Additions 137
Adjustments -
-----
Balance at December 31, 2001 $626
===
Spending (182)
Interest accretion 47
Additions 281
Adjustments (159)
---
Balance at December 31, 2002 $613
===
NOTE 4. Marketable Securities
Marketable securities held by GM are classified as available-for-sale, except
for certain mortgage-related securities, which are classified as
held-to-maturity or trading securities. Unrealized gains and losses, net of
related income taxes, for available-for-sale and held-to-maturity securities are
included as a separate component of stockholders' equity. Unrealized gains and
losses for trading securities are included in income on a current basis. GM
determines cost on the specific identification basis.
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Investments in marketable securities were as follows (dollars in millions):
Book/
Fair Unrealized Unrealized
Cost Value Gains Losses
December 31, 2002
--------------------------------------------
Type of security
Bonds, notes, and other securities
Corporate debt securities and
other $1,915 $1,932 $22 $5
U.S. Government and Agencies 240 242 2 -
------ ------ -- --
Total marketable securities $2,155 $2,174 $24 $5
===== ===== == =
December 31, 2001
--------------------------------------------
Type of security
Bonds, notes, and other securities
Corporate debt securities and
other $777 $790 $13 $ -
--- --- -- ---
Total marketable securities $777 $790 $13 $ -
=== === == ===
II-34
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 4. Marketable Securities (concluded)
Debt securities totaling $342 million mature within one year and $1.7 billion
mature after one through five years, $27 million mature after five through ten
years and $90 million mature after ten years. Proceeds from sales of marketable
securities totaled $261 million in 2002, $373 million in 2001, and $1.3 billion
in 2000. The gross gains related to sales of marketable securities were $3
million, $3 million, and $1 million in 2002, 2001, and 2000, respectively. The
gross losses related to sales of marketable securities were zero, $7 million,
and $12 million in 2002, 2001, and 2000, respectively.
Financing and Insurance Operations
- ----------------------------------
Investments in securities were as follows (dollars in millions):
Book/
Fair UnrealizedUnrealized
Cost Value Gains Losses
---- ----- ----- ------
December 31, 2002
----------------------------------------
Type of security
Bonds, notes, and other securities
United States government and
agencies $2,836 $2,875 $39 $-
States and municipalities 599 650 52 1
Foreign government securities 479 497 19 1
Mortgage-backed securities 2,479 2,708 292 63
Corporate debt securities and other 1,886 1,986 110 10
----- ----- --- --
Total debt securities
available-for-sale 8,279 8,716 512 75
Mortgage-backed securities
held-to-maturity 305 305
Mortgage-backed securities held for
trading purposes 5,029 4,378 - 651
------- ------- ----- ---
Total debt securities 13,613 13,399 512 726
Equity securities 1,224 1,252 163 135
------- ------- --- ---
Total investment in securities $14,837 $14,651 $675 $861
====== ====== === ===
Total consolidated other marketable
securities $16,992 $16,825 $699 $866
====== ====== === ===
December 31, 2001
----------------------------------------
Type of security
Bonds, notes, and other securities
United States government and
agencies $615 $626 $14 $3
States and municipalities 931 970 43 4
Foreign government securities 35 37 2 -
Mortgage-backed securities 2,334 2,509 203 28
Corporate debt securities and other 1,704 1,721 43 26
----- ----- ---- --
Total debt securities
available-for-sale 5,619 5,863 305 61
Mortgage-backed securities held to
maturity 375 375 - -
Mortgage-backed securities held for
trading purposes 4,306 3,722 - 584
------ ----- ----- ---
Total debt securities 10,300 9,960 305 645
Equity securities 1,215 1,319 246 142
------- ------- --- ---
Total investment in securities $11,515 $11,279 $551 $787
====== ====== === ===
Total consolidated other marketable
securities $12,292 $12,069 $564 $787
====== ====== === ===
Debt securities available-for-sale totaling $514 million mature within one
year, $1.7 billion mature after one through five years, $1.3 billion mature
after five years through 10 years, and $5.2 billion mature after 10 years.
Proceeds from sales of marketable securities totaled $12.8 billion in 2002, $5.1
billion in 2001, and $3.5 billion in 2000. The gross gains related to sales of
marketable securities were $402 million, $228 million, and $316 million in 2002,
2001, and 2000, respectively. The gross losses related to sales of marketable
securities were $121 million, $145 million and $148 million in 2002, 2001, and
2000, respectively.
II-35
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 5. Finance Receivables and Securitizations
Finance Receivables - Net
Finance receivables - net included the following (dollars in millions):
December 31,
-----------------------
Consumer: 2002 2001
---- ----
Retail automotive $77,392 $66,560
Residential mortgages 15,238 2,879
------ -------
Total consumer 92,630 69,439
Commercial:
Automotive:
Wholesale 21,462 15,580
Leasing and lease financing 5,985 8,572
Term loans to dealers and others 5,584 5,545
Commercial and industrial 9,461 10,350
Commercial real estate:
Commercial mortgage 621 473
Construction 1,963 1,419
-------- --------
Total commercial 45,076 41,939
-------- --------
Total finance receivables and loans 137,706 111,378
------- -------
Allowance for financing losses (3,059) (2,167)
------- -------
Total consolidated finance receivables - net(1) $134,647 $109,211
======= =======
(1) Net of unearned income of $6.5 billion and $5.8 billion at December 31, 2002
and 2001, respectively.
Finance receivables that originated outside the United States were $23.4
billion and $20.2 billion at December 31, 2002 and 2001, respectively. The
aggregate amounts of total finance receivables maturing in each of the five
years following December 31, 2002, is as follows: 2003-$60.4 billion; 2004-$25.6
billion; 2005-$19.4 billion; 2006-$13.0 billion; 2007-$7.1 billion; and 2008 and
thereafter-$18.7 billion. Actual maturities may differ from those scheduled due
to prepayments.
Securitizations of Finance Receivables and Mortgage Loans
The Corporation securitizes automotive and mortgage financial assets as a
funding source. The Corporation sells retail finance receivables, wholesale
loans, residential mortgage loans, commercial mortgage loans, and commercial
investment securities.
The Corporation retains servicing responsibilities and subordinated interests
for all of its securitizations of retail finance receivables and wholesale
loans. Servicing responsibilities are retained for the majority of its
residential and commercial mortgage loan securitizations; subordinate interests
are retained for some of these securitizations. As of December 31, 2002, the
weighted average servicing fees for GM's primary servicing activities were 190
basis points, 100 basis points, 33 basis points and 9 basis points of the
outstanding principal balance for sold retail finance receivables, wholesale
loans, residential mortgage loans and commercial mortgage loans, respectively.
Additionally, the Corporation receives the rights to cash flows remaining after
the investors in the securitization trusts have received their contractual
payments.
The Corporation maintains cash reserve accounts at predetermined amounts for
certain securitization activities in the unlikely event that deficiencies occur
in cash flows owed to the investors. The amounts available in such cash reserve
accounts are recorded in other assets and totaled $280 million, $937 million,
$365 million, and $24 million as of December 31, 2002, for retail finance
receivable, wholesale loan, residential mortgage loan, and commercial mortgage
loan securitizations, respectively and $255 million, $893 million, $378 million,
and $7 million as of December 31, 2001, respectively.
II-36
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 5. Finance Receivables and Securitizations (continued)
Securitizations of Finance Receivables and Mortgage Loans - (continued)
The following table summarizes pre-tax gains on securitizations and certain
cash flows received from and paid to securitization trusts for sales of finance
receivables and loans that were completed during 2002, 2001 and 2000:
2002
--------------------------------------------------
Retail Mortgage loans
Year ended December 31, finance Wholesale ------------------------
(in millions) receivables loans Residential Commercial
- ------------- ----------- ----- ----------- ----------
Pre-tax gains on
securitizations $239 $ - $619 $30
Cash flow information:
Proceeds from new
securitizations 9,982 2,327 38,025 1,848
Servicing fees received 251 146 268 17
Other cash flows received
on retained interests 1,120 235 1,044 86
Purchases of delinquent
or foreclosed assets (299) - (131) -
Pool buyback cash flows (289) (55) (714) -
Servicing advances (117) - (2,470) (122)
Repayments of servicing
advances 117 - 2,352 116
Proceeds from collections
reinvested in revolving
securitizations 482 104,485 - -
2001
--------------------------------------------------
Retail Mortgage loans
Year ended December 31, finance Wholesale ------------------------
(in millions) receivables loans Residential Commercial
- ------------- ----------- ----- ----------- ----------
Pre-tax gains on
securitizations 210 $ - 966 24
Cash flow information:
Proceeds from new
securitizations 7,331 7,055 35,137 2,934
Servicing fees received 168 124 256 16
Other cash flows received
on retained interests 1,160 400 844 60
Purchases of delinquent
or forecloed assets (240) - (34) -
Pool buyback cash flows (270) - (390) -
Servicing advances (88) - (1,861) (95)
Repayments of servicing
advances 66 - 1,817 71
Proceeds from collections
reinvested in revolving
securitizations - 81,563 364 -
2000
--------------------------------------------------
Retail Mortgage loans
Year ended December 31, finance Wholesale ------------------------
(in millions) receivables loans Residential Commercial
- ------------- ----------- ----- ----------- ----------
Pre-tax gains on
securitizations 14 $ - 682 33
Cash flow information:
Proceeds from ne
securitizations 4,559 4,199 24,959 2,310
Servicing fees received 105 85 212 13
Other cash flows received
on retained interest 1,550 631 483 44
Purchases of delinquent
or foreclosed assets (182) - (282) -
Pool buyback cash flows (348) - - -
Servicing advances (75) - (617) (82)
Repayments of servicing
advances 66 - 586 74
Proceeds from collections
reinvested in revolving
securitizations - 50,463 - -
Pre-tax gains recognized on commercial investment securities were $18
million, $17 million, and $7 million for the years ended December 31, 2002,
2001, and 2000, respectively. Cash proceeds from new securitizations of
commercial investment securities were $439 million, $643 million, and $382
million for the years ended December 31, 2002, 2001, and 2000, respectively. In
addition, cash flows received on retained interests of commercial investment
securities aggregated $37 million, $16 million, and $2 million for the years
ended December 31, 2002, 2001, and 2000, respectively.
Key economic assumptions used in measuring the estimated fair value of
retained interests of sales completed during 2002 and 2001, as of the dates of
such sales, were as follows:
2002
-----------------------------------------------------
Retail Mortgage loans Commercial
Year ended December 31, finance ----------------------- investment
(in millions) receivables(a) Residential(b) Commercial securities
- ------------- ----------- ----------- ----------- ----------
Key assumptions
(rates per annum):
Annual prepayment rate (c) 0.8-1.3% 6.9-54.7% 0.0-50.0% 0.0-90.0%
Weighted average life
(in years) 1.5-2.6 1.3-4.5 1.0-7.8 2.7-16.4
Expected credit losses (d) 0.0-24.8% 0.0-1.5% 0.0-0.9%
Discount rate 9.5-12.0% 6.5-13.5% 2.8-37.4% 3.4-23.9%
Variable returns to 1 month LIBOR + Interest rate yield curve +
transferees contractual spread contractual spread
2001
-----------------------------------------------------
Retail Mortgage loans Commercial
Year ended December 31, finance ------------------------ investment
(in millions) receivables(a) Residential(b) Commercial securities
- ------------- ----------- ----------- ---------- ----------
Key assumptions
(rates per annum):
Annual prepayment rate (c) 0.8-1.3% 9.8-38.0% 0.0-50.0% 0.0-25.0%
Weighted average life
(in years) 1.5-1.8 1.7-6.4 1.2-9.3 3.5-14.9
Expected credit losses (d) 0.0-22.9% 0.0-1.9% 0.0-0.8%
Discount rate 9.5-12.0% 6.5-13.5% 6.9-54.7% 9.8-19.5%
Variable returns to 1 month LIBOR + Interest rate yield curve +
transferees contractual spread contractual spread
(a) The fair value of retained interests in wholesale securitizations
approximates cost due to the short-term and floating rate nature of
wholesale loans.
(b) Included within residential mortgage loans are home equity loans and lines,
high loan-to-value loans and residential first and second mortgage loans.
(c) Based on the weighted average maturity (WAM) for finance receivables and
constant prepayment rate (CPR) for mortgage loans and commercial investment
securities.
(d) A reserve totaling $127 million and $92 million at December 31, 2002 and
2001, respectively, has been established for expected credit losses on sold
retail finance receivables.
II-37
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 5. Finance Receivables and Securitizations (continued)
Securitizations of Finance Receivables and Mortgage Loans - (continued)
The table below outlines the key economic assumptions and the sensitivity of
the estimated fair value of retained interests at December 31, 2002 to immediate
10% and 20% adverse changes in those assumptions:
Retail
finance Mortgage loans Commercial
receivables ---------------------- Investment
($ in millions) (a) Residential Commercial Securities
- ----------------------------------------------------------------------------
Carrying value/fair value
of retained interests $1,850 (b) $1,661 $624 $336
- ----------------------------------------------------------------------------
Weighted average life (in
years) 0.1-2.6 1.3-4.6 0.1-19.4 1.2-20.9
- ----------------------------------------------------------------------------
Annual prepayment rate 0.2-1.5% 6.6-80.7% 0.0-50.0% 0.0-90.0%
WAM CPR CPR CPR
Impact of 10% adverse
change $ -- $(144) $ -- $(1)
Impact of 20% adverse
change -- (267) -- (2)
- ----------------------------------------------------------------------------
Loss assumption (b) 0.0-24.8% 0.0-4.1% 0.0-36.8%
Impact of 10% adverse
chnnge $(13) $(205) $(4) $(5)
Impact of 20% adverse
change (26) (399) (8) (9)
- ----------------------------------------------------------------------------
Discount rate 9.5-14.0% 6.5-13.5% 2.8-45.0% 3.6-28.5%
Impact of 10% adverse
change $(11) $(39) $(14) $(21)
Impact of 20% adverse
change (21) (78) (27) (41)
- ----------------------------------------------------------------------------
Market rate (d) 1.3-3.6% (c) (c) (c)
Impact of 10% adverse
change $(13) $(33) $ -- $ --
Impact of 20% adverse
change (26) (62) -- --
- ----------------------------------------------------------------------------
(a) The fair value of retained interests in wholesale securitizations
approximates cost due to the short-term and floating rate nature of
wholesale receivables.
(b) The fair value of retained interests in retail securitizations is net of a
reserve for expected credit losses totaling $127 million at December 31,
2002.
(c) Forward benchmark interest rate yield curve plus contractual spread. (d)
Represents the rate of return paid to the investors.
These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a 10% variation in assumptions
generally cannot be extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear. Also, in this table,
the effect of a variation in a particular assumption on the fair value of the
retained interest is calculated without changing any other assumption. In
reality, changes in one factor may result in changes in another, which may
magnify or counteract the sensitivities. Additionally, the Corporation hedges
interest rate and prepayment risks associated with certain of the retained
interests; the effects of such hedge strategies have not been considered herein.
Expected static pool net credit losses include actual incurred losses plus
projected net credit losses divided by the original balance of the outstandings
comprising the securitization pool. The table below displays the expected static
pool net credit losses based on securitizations occurring in each year.
Loans securitized in: (a)
-------------------------------------
Years Ended December 31, 2002 2001 2000
- -------------------------------------------------------------------------
Retail automotive 0.4% 0.4% 1.0%
Residential mortgage 0.0-24.8% 0.0-22.9% 0.0-21.7%
Commercial mortgage 0.0-4.1% 0.0-2.3% 0.0-3.0%
Commercial investment
securities 0.0-36.8% 0.0-17.0% 0.0-0.8%
(a) Static pool losses not applicable to wholesale finance receivable
securitizations due to their short-term nature.
II-38
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 5. Finance Receivables and Securitizations (concluded)
Securitizations of Finance Receivables and Mortgage Loans - (concluded)
The following table presents components of securitized financial assets and
other assets managed, along with quantitative information about delinquencies
and net credit losses:
Total finance Amount 60 days
receivables and or Net credit
loans more past due losses
----------------- ----------------- --------------
December 31, (in millions) 2002 2001 2002 2001 2002 2001
- --------------------------------------------------------------------------------
Retail automotive $92,890 $78,071 $637 $358 $844 $575
Residential mortgage 102,525 95,076 4,012 3,388 864 305
- --------------------------------------------------------------------------------
Total consumer 195,415 173,147 4,649 3,746 1,708 880
Wholesale 38,877 31,807 88 64 (15) 6
Commercial mortgage 18,356 16,503 350 250 8 1
Other automotive and
commercial 22,994 25,885 317 376 176 281
- --------------------------------------------------------------------------------
Total commercial 80,227 74,195 755 690 169 288
Total managed portfolio (a) 275,642 247,342 $5,404 $4,436 $1,877 $1,168
--------------------------------
Securitized finance (123,337)(125,735)
receivable and loans
Loans held for sale (14,599) (10,229)
- -----------------------------------------------
Total finance receivables
and loans $137,706 $111,378
- -----------------------------------------------
(a) Managed portfolio represents finance receivables and loans on the balance
sheet or that have been securitized, excluding securitized finance
receivables and loans that the Corporation continues to service but with
which it has no other continuing involvement.
NOTE 6. Inventories
Inventories included the following for ACO (dollars in millions):
December 31,
---------------------
2002 2001
---- ----
Productive material, work in process, and supplies $4,915 $5,069
Finished product, service parts, etc. 6,859 6,779
----- ------
Total inventories at FIFO 11,774 11,848
Less LIFO allowance 1,807 1,814
----- ------
Total inventories (less allowances) $9,967 $10,034
===== ======
Inventories are stated generally at cost, which is not in excess of market.
The cost of approximately 84% of U.S. inventories is determined by the last-in,
first-out (LIFO) method. Generally, the cost of all other inventories is
determined by either the first-in, first-out (FIFO) or average cost methods.
NOTE 7. Equipment on Operating Leases
The Corporation has significant investments in the residual values of its
leasing portfolios. The residual values represent the estimate of the values of
the assets at the end of the lease contracts and are initially recorded based on
appraisals and estimates. Realization of the residual values is dependent on the
Corporation's future ability to market the vehicles under then prevailing market
conditions. Management reviews residual values periodically to determine that
recorded amounts are appropriate.
II-39
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 7. Equipment on Operating Leases (concluded)
Automotive, Communications Services, and Other Operations
Equipment on operating leases included in equipment on operating leases and
other assets was as follows (dollars in millions):
December 31,
---------------------
2002 2001
---- ----
Equipment on operating leases $11,070 $9,864
Less accumulated depreciation (1,922) (1,767)
------ -----
Net book value 9,148 8,097
===== =====
Current $5,305 $4,524
Noncurrent (Note 11) 3,843 3,573
----- -----
Net book value $9,148 $8,097
===== =====
Financing and Insurance Operations
Equipment on operating leases included in investment in leases and other
receivables was as follows (dollars in millions):
December 31,
---------------------
2002 2001
---- ----
Equipment on operating leases $33,427 $36,534
Less accumulated depreciation (7,764) (8,544)
------- -------
Net book value $25,663 $27,990
====== ======
Total consolidated net book value $34,811 $36,087
====== ======
The lease payments to be received related to equipment on operating leases
maturing in each of the five years following December 31, 2002, are as follows:
ACO - 2003-$568 million; 2004-$526 million; 2005 - $502 million; 2006 - $503
million; 2007-$409 million, and 2008 and beyond - $1.9 billion; FIO - 2003-$5.6
billion; 2004-$4.0 billion; 2005 - $2.1 billion; 2006 - $511 million; and
2007-$26 million. There are no leases maturing after 2007.
NOTE 8. Income Taxes
Income before income taxes and minority interests included the following
(dollars in millions):
Years Ended December 31,
-----------------------------
2002 2001 2000
---- ---- ----
U.S. income (loss) $70 $(1,190) $3,019
Foreign income 2,010 2,708 4,145
----- ----- -----
Total $2,080 $1,518 $7,164
===== ===== =====
The provision for income taxes was estimated as follows (dollars in
millions):
Years Ended December 31,
-----------------------------
2002 2001 2000
---- ---- ----
Income taxes estimated to be payable currently
U.S. federal $48 $34 $45
Foreign 1,472 1,347 971
U.S. state and local 310 (9) 72
------ ------- ------
Total payable currently 1,830 1,372 1,088
----- ----- -----
Deferred income tax expense (credit) - net
U.S. federal (98) (246) 742
Foreign (958) (401) 281
U.S. state and local (241) 43 282
----- ---- -----
Total deferred (1,297) (604) 1,305
----- --- -----
Total income taxes $533 $768 $2,393
=== === =====
II-40
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 8. Income Taxes (continued)
Annual tax provisions include amounts considered sufficient to pay
assessments that may result from examination of prior year tax returns; however,
the amount ultimately paid upon resolution of issues raised may differ
materially from the amount accrued.
Provisions are made for estimated U.S. and foreign income taxes, less
available tax credits and deductions, which may be incurred on the remittance of
the Corporation's share of subsidiaries' undistributed earnings not deemed to be
permanently reinvested. Taxes have not been provided on foreign subsidiaries'
earnings, which are deemed permanently reinvested, of $11.9 billion at December
31, 2002, and $13.1 billion at December 31, 2001. Quantification of the deferred
tax liability, if any, associated with permanently reinvested earnings is not
practicable.
A reconciliation of the provision for income taxes compared with the amounts
at the U.S. federal statutory rate was as follows (dollars in millions):
Years Ended December 31,
----------------------------
2002 2001 2000
---- ---- ----
Tax at U.S. federal statutory income tax rate $728 $485 $2,507
Foreign rates other than 35% 27 134 78
Taxes on unremitted earnings of subsidiaries (13) 29 -
Tax credits (40) (50) (45)
Raytheon settlement (1) - 180 -
ESOP dividend deduction (2) (85) - -
Other adjustments (84) (10) (147)
----- ---- ------
Total income tax $533 $768 $2,393
=== === =====
(1) Non-tax deductible settlement with the Raytheon Company on a purchase
price adjustment related to Raytheon's 1997 merger with Hughes Defense.
(2) Deduction for dividends paid on GM $1-2/3 par value held under the
employee stock ownership portion of the GM Savings Plans, pursuant to the
Economic Growth and Tax Relief Reconciliation Act of 2001.
Deferred income tax assets and liabilities for 2002 and 2001 reflect the
impact of temporary differences between amounts of assets, liabilities, and
equity for financial reporting purposes and the bases of such assets,
liabilities, and equity as measured by tax laws, as well as tax loss and tax
credit carryforwards.
Temporary differences and carryforwards that gave rise to deferred tax assets
and liabilities included the following (dollars in millions):
December 31,
---------------------------------------
2002 2001
-------------------- ----------------
Deferred Tax Deferred Tax
------------ ------------
Assets Liabilities Assets Liabilities
------ ----------- ------- -----------
Postretirement benefits other than
pensions $14,945 $ - $15,057 $ -
Pension and other employee benefit
plans 8,009 461 753 78
Warranties, dealer and customer
allowances,claims, and discounts 6,047 - 4,376 -
Depreciation and amortization 380 4,110 412 3,671
Tax carryforwards 4,630 - 3,993 -
Lease transactions - 4,732 - 4,426
Miscellaneous foreign 6,175 2,007 4,465 1,463
Other 9,483 4,365 8,048 4,948
------- ------- ------- -------
Subtotal 49,669 15,675 37,104 14,586
Valuation allowances (1,309) - (969) -
------- ------- ------- ------
Total deferred taxes $48,360 $15,675 $36,135 $14,586
Net deferred tax asset $32,685 $21,549
====== ======
II-41
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 8. Income Taxes (concluded)
Deferred tax detail above is included in the consolidated balance sheet and
supplemental information as follows:
2002 2001
---- ----
Current deferred tax assets $8,890 $5,945
Current deferred tax liabilities (5,806) (4,877)
Non current deferred tax assets 32,759 22,294
Non current deferred tax liabilities (3,158) (1,813)
------ ------
Total $32,685 $21,549
====== ======
Of the tax carryforwards, approximately 16% relates to the alternative
minimum tax credit (which can be carried forward indefinitely) and approximately
11% relates to the U.S. state net operating loss carryforwards, which will
expire in the years 2003-2022 if not used. However, a substantial portion of the
U.S. state net operating loss carryforwards will not expire until after the year
2006. The other tax credit carryforwards, consisting primarily of research and
experimentation credits, will expire in the years 2019-2022 if not used. The
valuation allowance principally relates to U.S. state and certain foreign
operating loss carryforwards.
NOTE 9. Property - Net
Property - net was as follows (dollars in millions):
Estimated
Useful
Lives (Years) December 31,
-------------- 2002 2001
---- ----
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Land - $963 $899
Buildings and land improvements 2-40 14,259 13,294
Machinery and equipment 3-30 44,468 41,091
Construction in progress - 3,134 4,464
-------- -------
Real estate, plants, and equipment 62,824 59,748
Less accumulated depreciation (35,907) (33,404)
------ ------
Real estate, plants, and equipment - net 26,917 26,344
Special tools - net 9,235 8,564
------- -------
Total property - net $36,152 $34,908
------ ------
Financing and Insurance Operations
- ----------------------------------
Equipment and other 2-10 $2,329 $2,150
Less accumulated depreciation (508) (618)
------ ------
Total property - net $1,821 $1,532
----- -----
Total consolidated property - net $37,973 $36,440
====== ======
Depreciation and amortization expense was as follows (dollars in millions):
Years Ended December 31,
----------------------------
Automotive, Communications Services, and Other 2002 2001 2000
Operations ---- ---- ----
- ----------------------------------------------
Depreciation (Note 7) $4,701 $4,383 $4,368
Amortization of special tools 2,647 2,360 2,753
Amortization of intangible assets (Note 10) 49 308 308
----- ----- -----
Total $7,397 $7,051 $7,429
===== ===== =====
Financing and Insurance Operations
- ----------------------------------
Depreciation (Note 7) $5,522 $5,684 $5,842
Amortization of intangible assets (Note 10) 19 173 140
----- ----- -----
Total $5,541 $5,857 $5,982
===== ===== =====
II-42
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 10. Goodwill and Acquired Intangible Assets
The components of the Corporation's acquired intangible assets as of December
31, 2002, were as follows (dollars in millions):
Gross Accumulated Net
Carrying Amortization Carrying
Amount Amount
------------------------------------
Automotive, Communications Services, and
Other Operations
- -----------------------------------------
Amortizing intangible assets:
Patents and intellectual property rights $305 $1 $304
Dealer network and subscriber base 356 165 191
----- ----- ----
Total $661 $166 495
=== ===
Non-amortizing intangible assets:
License fees - orbital slots 432
---
Total acquired intangible assets 927
---
Goodwill 6,992
Prepaid pension asset (Note 14) 6,692
------
Total intangible assets $14,611
======
------------------------------------
Financing and Insurance Operations
- ----------------------------------
Amortizing intangible assets:
Customer lists and contracts $67 $24 $43
Trademarks and other 39 12 27
Covenants not to compete 18 18 -
--- --- ----
Total $124 $54 70
=== ==
Total acquired intangible assets 70
Non-amortizing intangible assets:
Goodwill 3,273
-----
Total intangible assets 3,343
=====
Total consolidated intangible assets $17,954
======
Aggregate amortization expense on existing acquired intangible assets was $54
million for the year ended December 31, 2002. Estimated amortization expense in
each of the next five years is as follows: 2003 - $121 million; 2004 - $78
million; 2005 - $56 million; 2006 - $56 million; and 2007 - $56 million.
The changes in the carrying amounts of goodwill for the year ended December
31, 2002, were as follows (dollars in millions):
Total
GMNA GME Other(1) Hughes(1) ACO GMAC Total GM
---- --- -------- --------- --- ---- --------
Balance as of
December 31, 2001 $29 $283 $57 $6,440 $6,809 $3,144 $9,953
Goodwill acquired during
the period 118 - - - 118 96 214
Goodwill written off
related to sale
of business units (8) - - - (8) (9) (17)
Effect of foreign currency
translation - 55 - - 55 42 97
Other - - - 18 18 - 18
--- --- -- ----- ----- ----- ------
Balance as of
December 31, 2002 $139 $338 $57 $6,458 $6,992 $3,273 $10,265
=== === == ===== ===== ===== ======
(1) 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. In the fourth quarter of 2002, Hughes, in its stand alone financial
statements, wrote off $739 million for goodwill impairments at DIRECTV Latin
America and DIRECTV Broadband; however, in accordance with SFAS No. 142, GM
evaluated the carrying value of goodwill associated with its Hughes'
Direct-to-Home Broadcast reporting unit in the aggregate and determined that the
goodwill was not impaired.
II-43
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 11. Other Assets
Automotive, Communications Services, and Other Operations
Other assets included the following (dollars in millions):
December 31,
--------------------
2002 2001
---- ----
Equipment on operating leases - noncurrent
(Note 7) $3,843 $3,573
Satellites 1,080 1,243
Investments in equity securities 582 3,408
U.S. prepaid pension benefit cost (Note 14) 1 7,006
Other 1,817 2,044
----- -------
Total other assets $7,323 $17,274
====== ======
Investments in equity securities at December 31, 2002 and 2001, include GM's
20% investment in the common stock of FAH, the entity which is the sole
shareholder of Fiat Auto S.p.A. (Fiat Auto), acquired for $2.4 billion in 2000.
Subsequent to that acquisition, the European market for new vehicles experienced
a continued decrease in volumes, and manufacturers have experienced increased
pricing and general competitive pressures. Those market conditions and other
factors led to deterioration in the performance of Fiat Auto. Accordingly, GM
commenced a review of the appropriate carrying value of GM's investment in FAH.
The review was completed during the third quarter of 2002 and resulted in a
non-cash charge of $2.2 billion ($1.4 billion after-tax), recorded in cost of
sales and other expenses in the ACO Other segment. This write-down brings the
carrying value of GM's investment in FAH from $2.4 billion to $220 million. The
carrying value is based on GM's 20% interest in the estimated market value of
FAH equity, which comprises FAH's ownership of Fiat Auto, including 50%
ownership interests in the purchasing and powertrain joint ventures between GM
and Fiat Auto.
In connection with the acquisition of 20% of the common stock of FAH, GM did
not acquire the ability or right to appoint any directors to the board of Fiat
Auto, its controlling stockholder, Fiat S.p.A.(Fiat), or any of the companies in
the Fiat group. In fact, no officer, director, or employee of GM or any
controlled affiliate of GM serves as a director, officer, or employee of Fiat
Auto, Fiat, or any of the companies in the Fiat group. Accordingly, because GM
is not able to exercise significant influence over the operating and financial
decisions of Fiat Auto, this investment is accounted for using the cost method.
(See Note 15 for further discussion of GM's investment alliance with Fiat).
The balance in Investments in equity securities at December 31, 2002 and
2001, also includes the fair value of investments in equity securities
classified as available-for-sale for all periods presented. It is GM's intent to
hold these securities for longer than one year. Balances include historical
costs of $309 million and $704 million with unrealized gains of $76 million and
$311 million and unrealized losses of $24 million and $38 million at December
31, 2002 and 2001, respectively.
Financing and Insurance Operations
Other assets included the following (dollars in millions):
December 31,
------------------
2002 2001
---- ----
Mortgage servicing rights $2,683 $4,840
Real estate mortgages - held for sale 14,563 10,187
Other mortgage - related assets 2,555 1,791
Premiums and other insurance receivables 1,742 1,501
Deferred policy acquisition costs 584 165
Rental car buybacks 377 235
Intangible assets (Note 10) 3,343 3,206
Property (Note 9) 1,821 1,532
Cash deposits held for securitization trusts 1,481 1,281
Restricted cash collections for securitization trusts 1,244 447
Other 3,656 3,022
------ -------
Total other assets $34,049 $28,207
====== ======
II-44
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 11. Other Assets (concluded)
Reclassification for Consolidated Balance Sheet Presentation
December 31,
---------------------
2002 2001
---- ----
ACO - other assets, as detailed above $7,323 $17,274
FIO - other assets, as detailed above 34,049 28,207
------ ------
Subtotal 41,372 45,481
------ ------
Equipment on operating leases - noncurrent (Note 7) (3,843) (3,573)
Prepaid assets and other 2,383 1,932
Intangible assets (Note 10) (3,343) (3,206)
Property (Note 9) (1,821) (1,532)
------ ------
Total consolidated other assets $34,748 $39,102
====== ======
NOTE 12. Accrued Expenses, Other Liabilities, and Deferred Income Taxes
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Accrued expenses, other liabilities, and deferred income taxes included the
following (dollars in millions):
December 31,
---------------------
2002 2001
---- ----
Dealer and customer allowances, claims, and discounts $10,388 $8,080
Deferred revenue, principally sales of vehicles to
rental companies 10,496 8,331
Policy, product warranty, and recall campaigns 8,856 8,177
Payrolls and employee benefits (excludes postemployment) 4,331 3,419
Unpaid losses under self-insurance programs 1,996 2,016
Taxes 1,985 1,052
Interest 725 904
Postemployment benefits (including extended
disability benefits) 1,251 2,218
Other 9,425 8,090
----- -------
Total accrued expenses and other liabilities $49,453 $42,287
Pensions 53 49
Postretirement benefits 3,146 3,128
Deferred income taxes 5,113 2,420
------ ------
Total accrued expenses, other liabilities,
and deferred income taxes $57,765 $47,884
====== ======
Current $40,976 $34,090
Non-current 16,789 13,794
------ ------
Total accrued expenses, other liabilities,
and deferred income taxes $57,765 $47,884
====== ======
Year Ended
Policy, product warranty and recall campaigns liability December 31, 2002
- ------------------------------------------------------- -----------------
Beginning balance $8,177
Payments (4,106)
Increase in liability (warranties issued during period) 4,335
Adjustments to liability (pre-existing warranties) 450
------
Ending balance $8,856
=====
II-45
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 12. Accrued Expenses, Other Liabilities, and Deferred Income Taxes
(concluded)
Financing and Insurance Operations
- ----------------------------------
Other liabilities and deferred income taxes included the following (dollars
in millions):
December 31,
---------------------
2002 2001
---- ----
Unpaid insurance losses, loss adjustment expenses, and
unearned insurance premiums $5,637 $4,375
Income taxes 1,659 483
Interest 2,741 2,428
Interest rate derivatives 843 2,942
Payable to securitization trusts 1,082 485
Other 2,414 526
------- -----
Total other liabilities $14,376 $11,239
Postretirement benefits 766 750
Deferred income taxes 3,851 4,270
------- -------
Total other liabilities and deferred income taxes $18,993 $16,259
====== ======
Total consolidated accrued expenses and other
liabilities $63,829 $53,526
====== ======
Total deferred income tax liability (Note 8) $8,964 $6,690
===== =====
NOTE 13. Long-Term Debt and Loans Payable
Automotive, Communications Services, and Other Operations
- ---------------------------------------------------------
Long-term debt and loans payable were as follows (dollars in millions):
Weighted-Average
Interest Rate December 31,
------------- ------------
2002 2001 2002 2001
---- ---- ---- ----
Long-term debt and loans payable
Payable within one year
Current portion of long-term debt (1) 2.7% 2.5% $624 $64
Commercial paper (1) - 2.7% - 129
All other 5.7% 3.8% 892 2,209
------ ------
Total loans payable 1,516 2,402
Payable beyond one year (1) 6.0% 6.6% 16,625 10,720
Unamortized discount (22) (27)
Mark to market adjustment (2) 48 33
------ ------
Total long-term debt and loans payable $18,167 $13,128
====== ======
(1) The weighted-average interest rates include the impact of interest rate swap
agreements.
(2) Effective January 1, 2001, the Corporation began recording its hedged debt
at fair market value on the balance sheet due to the implementation of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
Long-term debt payable beyond one year at December 31, 2002 included
maturities as follows: 2004 - $140 million; 2005 - $1.6 billion; 2006 - $462
million; 2007 - $130 million; 2008 and after - $14.3 billion.
Amounts payable beyond one year after consideration of foreign currency swaps
at December 31, 2002 included $1.7 billion in currencies other than the U.S.
dollar, primarily the Canadian dollar ($815 million), the Japanese yen ($676
million), and the Brazilian real ($108 million).
At December 31, 2002 and 2001, long-term debt and loans payable for ACO
included $15.6 billion and $10.9 billion, respectively, of obligations with
fixed interest rates and $2.6 billion and $2.2 billion, respectively, of
obligations with variable interest rates (predominantly LIBOR), after
considering the impact of interest rate swap agreements.
II-46
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 13. Long-Term Debt and Loans Payable (continued)
To achieve its desired balance between fixed and variable rate debt, GM has
entered into interest rate swap and cap agreements. The notional amounts of such
agreements as of December 31, 2002 for ACO were approximately $1.7 billion
relating to swap agreements ($988 million pay fixed and $745 million pay
variable). No such cap agreements existed at December 31, 2002. The notional
amounts of such agreements as of December 31, 2001 for ACO were approximately
$1.7 billion relating to swap agreements ($239 million pay fixed and $1.5
billion pay variable) and $90 million relating to cap agreements.
GM's ACO business maintains substantial lines of credit with various banks
that totaled $11.5 billion at December 31, 2002, of which $2.6 billion
represented short-term credit facilities and $8.9 billion represented long-term
credit facilities. At December 31, 2001, bank lines of credit totaled $11.0
billion, of which $2.3 billion represented short-term credit facilities and $8.7
billion represented long-term credit facilities. The unused short-term and
long-term portions of the credit lines totaled $1.8 billion and $6.6 billion at
December 31, 2002, compared with $1.8 billion and $6.7 billion at December 31,
2001. Certain bank lines of credit contain covenants with which the Corporation
and applicable subsidiaries were in compliance throughout the year ended
December 31, 2002.
Financing and Insurance Operations
- ----------------------------------
Debt was as follows (dollars in millions):
Weighted-Average
Interest Rate December 31,
------------- ------------
2002 2001 2002 2001
---- ---- ---- ----
Debt
Payable within one year
Current portion of long-term debt (1) 3.5% 4.3% $27,344 $22,014
Commercial paper (1) 2.7% 2.7% 13,425 16,620
All other 3.0% 3.1% 25,383 20,640
------ ------
Total loans payable 66,152 59,274
Payable beyond one year (1) 5.2% 5.5% 115,218 93,717
Unamortized discount (717) (693)
Mark to market adjustment (2) 3,120
-------
888
Total debt $183,773 $153,186
======= =======
Total consolidated notes and loans payable $201,940 $166,314
======= =======
(1)The weighted-average interest rates include the impact of interest rate swap
agreements.
(2)Effective January 1, 2001, the Corporation began recording its hedged debt
at fair market value on the balance sheet due to the
implementation of SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities."
Debt payable beyond one year at December 31, 2002 included maturities as
follows: 2004 - $26.3 billion; 2005 - $16.5 billion; 2006 - $17.9 billion; 2007
- - $8.4 billion; 2008 and after - $46.1 billion.
Amounts payable beyond one year after consideration of foreign currency swaps
at December 31, 2002 included $12.9 billion in currencies other than the U.S.
dollar, primarily the Canadian dollar ($6.0 billion), the euro ($3.3 billion),
the U.K. pound sterling ($1.7 billion), and the Australian dollar ($926
million).
At December 31, 2002 and 2001, debt for FIO included $68.9 billion and $65.7
billion, respectively, of obligations with fixed interest rates and $112.4
billion and $87.3 billion, respectively, of obligations with variable interest
rates (predominantly LIBOR), after considering the impact of interest rate swap
agreements.
To achieve its desired balance between fixed and variable rate debt, GM has
entered into interest rate swap, cap, and floor agreements. The notional amounts
of such agreements as of December 31, 2002 for FIO were approximately $56.4
billion relating to swap agreements ($53.7 billion pay variable and $2.7 billion
pay fixed). No such cap and floor agreements existed at December 31, 2002. The
notional amounts of such agreements as of December 31, 2001 for FIO were
approximately $46.2 billion relating to swap agreements ($41.3 billion pay
variable and $4.9 billion pay fixed), $23 million relating to cap agreements,
and $73 million relating to floor agreements.
II-47
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 13. Long-Term Debt and Loans Payable (concluded)
GM's FIO business maintains substantial lines of credit with various banks
that totaled $53.0 billion at December 31, 2002, of which $17.8 billion
represented short-term credit facilities and $35.2 billion represented long-term
credit facilities. At December 31, 2001, bank lines of credit totaled $49.8
billion, of which $19.0 billion represented short-term credit facilities and
$30.8 billion represented long-term credit facilities. The unused short-term and
long-term portions of the credit lines totaled $7.4 billion and $34.7 billion at
December 31, 2002 compared with $8.2 billion and $30.7 billion at December 31,
2001. Certain bank lines of credit contain covenants with which the Corporation
and applicable subsidiaries were in compliance throughout the year ended
December 31, 2002.
NOTE 14. Pensions and Other Postretirement Benefits
GM has a number of defined benefit pension plans covering substantially all
employees. Plans covering U.S. and Canadian represented employees generally
provide benefits of negotiated, stated amounts for each year of service as well
as significant supplemental benefits for employees who retire with 30 years of
service before normal retirement age. The benefits provided by the plans
covering U.S. and Canadian salaried employees and employees in certain foreign
locations are generally based on years of service and compensation history. GM
also has certain nonqualified pension plans covering executives that are based
on targeted wage replacement percentages and are unfunded.
Pension plan assets are primarily invested in equity and fixed income
securities, U.S. Government obligations, commingled pension trust funds,
insurance contracts, GM $1-2/3 par value common stock (valued at December 31,
2002 at approximately $30 million), and GM Class H common stock (valued at
December 31, 2002 at $1.6 billion).
GM's funding policy with respect to its qualified pension plans is to
contribute annually not less than the minimum required by applicable law and
regulations. GM made pension contributions to the U.S. hourly and salary plans
of $4.8 billion in 2002, no pension contributions in 2001, and contributions of
$5.0 billion in 2000 (consisting entirely of GM Class H common stock contributed
during the second quarter of 2000). In addition, GM made pension contributions
to all other U.S. plans of $106 million, $99 million, and $69 million in 2002,
2001, and 2000, respectively.
Additionally, GM maintains hourly and salary benefit plans that provide
postretirement medical, dental, vision, and life insurance to most U.S. retirees
and eligible dependents. The cost of such benefits is recognized in the
consolidated financial statements during the period employees provide service to
GM. Postretirement plan assets in GM's hourly VEBA trust are invested primarily
in equity securities, fixed income securities, and GM Class H common stock
(valued at December 31, 2002 at approximately $200 million).
II-48
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 14. Pensions and Other Postretirement Benefits (continued)
Certain of the Corporation's non-U.S. subsidiaries have postretirement plans,
although most participants are covered by government-sponsored or administered
programs. The cost of such programs generally is not significant to GM.
U.S. Plans Non-U.S. Plans
Pension Benefits Pension Benefits Other Benefits
---------------------------------------------------
2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
Change in benefit obligations (dollars in millions)
Benefit obligation at
beginning of year $76,383 $76,131 $9,950 $9,911 $52,489 $49,889
Service cost 885 901 194 176 506 480
Interest cost 5,307 5,294 700 638 3,689 3,733
Plan participants'
contributions 25 25 25 24 55 50
Amendments 83 33 31 2 - -
Actuarial losses 3,678 152 1,040 346 3,802 1,582
Benefits paid (6,463) (6,321) (641) (549) (3,392) (3,173)
Curtailments, settlements,
and other 216 168 830 (598) 80 (72)
------ ------ ----- ------ ----- ------
Benefit obligation at end
of year 80,114 76,383 12,129 9,950 57,229 52,489
------ ------ ------ ----- ------ ------
Change in plan assets
Fair value of plan assets at
beginning of year 67,322 77,866 6,340 7,397 4,944 6,724
Actual return on plan assets (4,933) (4,444) (329) (391) (150) (479)
Employer contributions 4,906 99 258 224 1,000 -
Plan participants'
contributions 25 25 25 24 - -
Benefits paid (6,463) (6,321) (641) (549) - (1,300)
Curtailments, settlements,
and other 3 97 290 (365) - -
------ ------ ------ ----- ------ ------
Fair value of plan assets
at end 60,860 67,322 5,943 6,340 5,794 4,945
------ ------ ------ ----- ------ ------
Funded status (19,254) (9,061) (6,186) (3,610) (51,435) (47,544)
Unrecognized actuarial loss 36,212 21,207 3,802 1,808 13,540 8,902
Unrecognized prior service
cost 6,002 7,174 691 740 (292) 249
Unrecognized transition - - 46 54 - -
obligation ------ ------ ------ ----- ------ --------
Net amount recognized $22,960 $19,320 $(1,647) $(1,008) $(38,187) $(38,393)
====== ====== ====== ===== ======== ========
Amounts recognized in the
consolidated balance
sheets consist of:
Prepaid benefit cost $1 $7,006 $218 $521 $ - $ -
Accrued benefit
liability (17,237) (7,617) (5,525) (3,222) (38,187) (38,393)
Intangible asset 6,002 5,625 690 606 - -
Accumulated other
comprehensive income 34,194 14,306 2,970 1,087 - -
------ ------ ------ ----- ------ ------
Net amount recognized $22,960 $19,320 $(1,647) $(1,008) $(38,187) $(38,393)
===== ====== ===== ===== ====== ======
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $92 billion, $89 billion, and $66 billion,
respectively, as of December 31, 2002, and $59 billion, $59 billion, and $48
billion, respectively, as of December 31, 2001,
II-49
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 14. Pensions and Other Postretirement Benefits (continued)
U.S. Plans Non-U.S. Plans
Pension Benefits Pension Benefits Other Benefits
----------------------------------------------------------------
2002 2001 2000 2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ---- ---- ---- ----
Components of expense (dollars in millions)
Service cost $885 $901 $900 $194 $176 $177 $506 $480 $448
Interest cost 5,307 5,294 5,425 700 638 630 3,688 3,733 3,346
Expected return on plan
assets (7,133)(7,521)(7,666) (580) (605) (578) (390) (542) (650)
Amortization of prior
service cost 1,255 1,325 1,416 93 93 97 (14) (45) (42)
Amortization of
transition
obligation/(asset) - - (48) 25 3 (17) - - -
Recognized net actuarial
loss/(gain) 733 82 8 62 (1) 2 320 96 70
Curtailments,
settlements, and other 213 65 235 51 100 24 - - -
----- --- --- --- --- --- ----- ----- -----
Net expense $1,260 $146 $270 $545 $404 $335 $4,110 $3,722 $3,172
===== === === === === === ===== ===== =====
Weighted-average
assumptions
Discount rate 6.75% 7.25% 7.25% 6.23% 6.81% 7.06% 6.76% 7.25% 7.74%
Expected return on plan
assets 10.0% 10.0% 10.0% 8.8% 8.9% 9.0% 7.9% 7.9% 8.1%
Rate of compensation
increase 5.0% 5.0% 5.0% 3.4% 3.8% 4.0% 4.3% 4.7% 4.3%
For measurement purposes, an approximate 7.2% annual rate of increase in the
per capita cost of covered health-care benefits was assumed for 2003. The rate
was assumed to decrease on a linear basis to 5.0% through 2009 and remain at
that level thereafter.
A one percentage point increase in the assumed health-care trend rate would
have increased the Accumulated Postretirement Benefit Obligation (APBO) by $6.3
billion at December 31, 2002 and increased the aggregate service and interest
cost components of non-pension postretirement benefit expense for 2002 by $523
million. A one percentage point decrease would have decreased the APBO by $5.3
billion and decreased the aggregate service and interest cost components of
non-pension postretirement benefit expense for 2002, by $416 million.
GM sets the discount rate assumption annually for each of its
retirement-related benefit plans at their respective measurement dates to
reflect the yield of high quality fixed-income debt instruments.
GM's expected return on assets assumption is derived from a detailed periodic
study conducted by GM's actuaries and GM's asset management group. The study
includes a review of anticipated future long-term performance of individual
asset classes and consideration of the appropriate asset allocation strategy
given the anticipated requirements of the respective plans to determine the
average rate of earnings expected on the funds invested to provide for the
pension plan benefits. While the study gives appropriate consideration to recent
fund performance and historical returns, the assumption is primarily a
long-term, prospective rate. Based on its recent study, GM is revising its
expected long-term return assumption for its U.S. plans effective January 1,
2003 to 9%, a reduction from its previous level of 10%.
The following table illustrates the sensitivity to a change in certain
assumptions for U.S. pension plans (as of December 31, 2002 the Projected
Benefit Obligation (PBO) for U.S. pension plans was $80.1 billion and the
minimum pension liability charged to equity with respect to U.S. pension plans
was $21.2 billion net of tax):
Impact on 2003 Impact on Impact on
Pre-Tax Pension December 31, December 31,
Change in Assumption Expense 2002 2002 Equity
PBO (Net of tax)
- -----------------------------------------------------------------------------
25 basis point
decrease in discount +$120 million +$1.9 billion -$1.1 billion
rate
25 basis point
increase in discount -$120 million -$1.8 billion +$1.1 billion
rate
25 basis point
decrease in expected +$170 million - -
return on assets
25 basis point
increase in expected -$170 million - -
return on assets
II-50
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 14. Pensions and Other Postretirement Benefits (concluded)
These changes in assumptions would have no impact on GM's funding requirements.
The following table illustrates the sensitivity to a change in the discount rate
assumption related to GM's U.S. OPEB plans (the U.S. APBO was a significant
portion of GM's worldwide APBO of $57.2 billion as of December 31, 2002):
Impact on 2003 Impact on
Pre-Tax OPEB December 31, 2002
Change in Assumption Expense APBO
- ------------------------------------------------------------------
25 basis point
decrease in discount +$150 million +$1.6 billion
rate
25 basis point
increase in discount -$140 million -$1.5 billion
rate
NOTE 15. Commitments and Contingent Matters
Commitments
GM had the following minimum commitments under noncancelable operating leases
having remaining terms in excess of one year, primarily for property: 2003-$822
million; 2004-$685 million; 2005-$533 million; 2006-$526 million; 2007-$405
million; and $1.4 billion in 2008 and thereafter. Certain of these minimum
commitments fund the obligations of non-consolidated SPEs. Certain of the leases
contain escalation clauses and renewal or purchase options. Rental expenses
under operating leases were $985 million, $849 million, and $861 million in
2002, 2001, and 2000, respectively.
GM sponsors a credit card program, entitled the GM Card program, that offers
rebates that can be applied primarily against the purchase or lease of GM
vehicles. The amount of rebates available to qualified cardholders (net of
deferred program income) was $4.0 billion, $3.9 billion, and $3.8 billion at
December 31, 2002, 2001, and 2000, respectively.
At December 31, 2002, GM had unconditionally guaranteed approximately $45
million of the debt of unaffiliated suppliers. The debt is fully collateralized
with supplier company assets and accordingly no liability has been recorded. In
addition, GM has entered into agreements with certain suppliers that may require
GM to make payments based on changes in the suppliers' costs. GM's maximum
exposure under such agreements is approximately $38 million. No liabilities are
recorded with respect to such agreements.
GM has guaranteed a minimum value of $1.6 billion upon expiration of various
leases or approximately 87% of appraised fair value at such time. These leases
have terms of up to six years and many contain renewal options. At expiration,
the fair values of all such properties are expected to fully mitigate GM's
obligations under these guarantees. No liabilities are recorded with respect to
these guarantees.
The Corporation has guaranteed certain amounts related to the securitization
of mortgage loans. In addition, GMAC issues financial standby letters of credit
as part of their financing and mortgage operations. At December 31, 2002
approximately $50 million was recorded with respect to these guarantees, the
maximum exposure under which is approximately $2.7 billion.
In addition to guarantees, GM has entered into agreements indemnifying
certain parties with respect to environmental conditions pertaining to ongoing
or sold GM properties. Due to the nature of the indemnifications, GM's maximum
exposure under these agreements cannot be estimated. No amounts have been
recorded for such indemnities as the Corporation's obligations under them are
not probable and estimable.
In addition to the above, in the normal course of business GM periodically
enters into agreements that incorporate indemnification provisions. While the
maximum amount to which GM may be exposed under such agreements cannot be
estimated, it is the opinion of management that these guarantees and
indemnifications are not expected to have a material adverse effect on the
Corporation's consolidated financial position or results of operations.
Contingent Matters
Litigation is subject to uncertainties and the outcome of individual
litigated matters is not predictable with assurance. Various legal actions,
governmental investigations, claims, and proceedings are pending against the
Corporation, including those arising out of alleged product defects;
employment-related matters; governmental regulations relating to safety,
emissions, and fuel economy; product warranties; financial services; dealer,
supplier, and other contractual relationships; and environmental matters.
II-51
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 15. Commitments and Contingent Matters (continued)
Contingent Matters (concluded)
In connection with the 2000 sale by Hughes of its satellite systems
manufacturing businesses to The Boeing Company ("Boeing"), the stock purchase
agreement provides for potential adjustment to the purchase price based upon the
final closing date financial statements of the satellite systems manufacturing
businesses. The stock purchase agreement also provides for a dispute resolution
process to resolve any disputes that arise in determining the purchase price
adjustment. Based upon the final closing date financial statements of the
satellite systems manufacturing businesses that were prepared by Hughes, Boeing
is owed a purchase price adjustment of $164 million plus interest at a rate of
9.5% from the date of sale, the total amount of which has been provided for in
Hughes' consolidated financial statements. However, Boeing has submitted
additional proposed adjustments, which are being resolved through the dispute
resolution process. As of December 31, 2002, approximately $670 million of
proposed adjustments remain unresolved. Hughes is contesting the matter in the
arbitration process, which will result in a binding decision unless the matter
is otherwise settled. Although Hughes believes it has adequately provided for
the disposition of this matter, the impact of its disposition cannot be
determined at this time. It is possible that the final resolution of this matter
could result in Hughes making a cash payment to Boeing that would be material to
Hughes' consolidated results of operations and financial position.
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 December 31, 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.
Investment in Fiat Auto Holdings
On March 13, 2000, GM entered into a contract (the "Master Agreement") with
Fiat under which GM acquired 20% of FAH. A copy of the Master Agreement has been
made public in filings with the United States Securities and Exchange Commission
(SEC). Fiat continues to hold the other 80% of FAH through various subsidiaries.
FAH is the sole stockholder of Fiat Auto, which owns and operates the global
automotive group of Fiat (other than the Ferrari, Maserati and Iveco businesses,
which are held separately by Fiat). Additionally, GM and Fiat Auto have formed
joint ventures relating to powertrain and purchasing and initiated other
collaborative activities.
The Master Agreement provides that, from January 24, 2004 to July 24, 2009,
Fiat has the right to exercise a put option (the "Put") to require GM to
purchase Fiat's FAH shares at fair market value. Whether and when Fiat may seek
to exercise the Put is unknown. It is uncertain as to whether the Put would ever
be exercised due to the possibilities that it could be affected by subsequent
agreements of the companies, it could become non-exercisable under other
provisions of the Master Agreement, it could be rendered unenforceable by reason
of actions Fiat may have taken, or Fiat may choose to not exercise the Put.
If and when the Put is implemented, the fair market value of FAH shares
would be determined by investment banks under procedures set forth in the Master
Agreement. Until any such valuation is completed, the amount, if any, that GM
might have to pay for Fiat's FAH shares is not quantifiable.
If GM were to acquire Fiat's FAH shares and thus become the sole owner of
Fiat Auto, GM would decide what, if any, additional capitalization would then be
appropriate for Fiat Auto. Specifically, if Fiat Auto were to need additional
funding, GM would have to decide whether or not to provide such funding and
under what conditions to provide any funding.
Unless FAH or Fiat Auto were subject to liquidation or insolvency, FAH's
consolidated financial statements would be required for financial reporting
purposes to be consolidated with those of GM. Any indebtedness, losses and
capital needs of FAH and Fiat Auto after their acquisition by GM are not
presently determinable, but they could have a material adverse effect on GM.
While GM and Fiat have discussed potential alternatives to the Master Agreement,
no changes to it have been agreed upon.
II-52
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 16. Preferred Securities of Subsidiary Trust
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 17. Stockholders' Equity
The following table presents changes in capital stock for the period from
January 1, 2000 to December 31, 2002 (dollars in millions):
Common Stocks
------------------
$1-2/3 Total
par Capital
value Class H Stock
----- ------- -----
Balance at January 1, 2000 $1,033 $14 $1,047
Shares reacquired (184) - (184)
Shares issued 65 74 139
----- -- ------
Balance at December 31, 2000 914 88 1,002
Shares reacquired - - -
Shares issued 18 - 18
---- ---- ------
Balance at December 31, 2001 932 88 1,020
Shares reacquired - - -
Shares issued 4 8 12
----- --- ------
Balance at December 31, 2002 $936 $96 $1,032
=== == =====
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.
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 Convertible Preferred
Stock. The Hughes Series B Convertible Preferred Stock does not accrue dividends
and is not redeemable. The Hughes Series B Convertible 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.
II-53
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 17. Stockholders' Equity (continued)
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 of Hughes 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.
The Hughes Series B Convertible Preferred Stock may be converted to Hughes
Class B common stock at the option of GM any time after June 24, 2003.
Common Stocks
During the second quarter of 2000, GM completed an exchange offer in which GM
repurchased 86 million shares of GM $1-2/3 par value common stock and issued 92
million shares of GM Class H common stock. In addition, on June 12, 2000, GM
contributed approximately 54 million shares and approximately 7 million shares
of GM Class H common stock to the U.S. Hourly-Rate Employees Pension Plan and
VEBA trust, respectively. The total value of the contributions was approximately
$5.6 billion. As a result of the exchange offer and employee benefit plan
contributions, the economic interest in Hughes attributable to GM $1-2/3 par
value common stock decreased from approximately 62% to approximately 30% and the
economic interest in Hughes attributable to GM Class H common stock increased
from approximately 38% to 70% on a fully diluted basis.
On June 6, 2000, the GM Board declared a three-for-one stock split of the GM
Class H common stock. The stock split was 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. All GM Class H common stock per share amounts and numbers of shares for
all periods presented have been adjusted to reflect the stock split.
Furthermore, as a result of this stock split, the voting and liquidation rights
of the GM Class H common stock were reduced from 0.6 votes per share and 0.6
liquidation units per share, to 0.2 votes per share and 0.2 liquidation units
per share in order to avoid dilution in the aggregate voting or liquidation
rights of any class. The voting and liquidation rights of the GM $1-2/3 par
value common stock were not changed. The voting and liquidation rights of GM
$1-2/3 par value common stock are one vote per share and one liquidation unit
per share.
On July 24, 2000, Fiat purchased for $2.4 billion approximately 32 million
shares of GM $1-2/3 par value common stock, or approximately 5.4% of GM's $1-2/3
par value common stock outstanding as of that date. Fiat sold its entire stake
in GM for $1.2 billion in December 2002. (See Notes 11 and 15).
The liquidation rights of the GM $1-2/3 par value and GM Class H common
stocks are subject to certain adjustments if outstanding common stock is
subdivided, by stock split or otherwise, or if shares of one class of common
stock are issued as a dividend to holders of another class of common stock.
Holders of GM Class H common stock have no direct rights in the equity or assets
of Hughes, but rather have rights in the equity and assets of GM (which includes
100% of the stock of Hughes).
The outstanding shares of GM Class H common stock may be recapitalized as
shares of GM $1-2/3 par value common stock at any time after December 31, 2002,
at the sole discretion of the GM Board, or automatically, if at any time the
Corporation should sell, liquidate, or otherwise dispose of 80% or more of the
business of Hughes, based on the fair market value of the assets, both tangible
and intangible, of Hughes as of the date that such proposed transaction is
approved by the GM Board. In the event of any recapitalization, all outstanding
shares of GM Class H common stock will automatically be converted into GM's
$1-2/3 par value common stock at an exchange rate that would provide GM Class H
common stockholders with that number of shares of GM $1-2/3 par value common
stock that would have a value equal to 120% of the value of their GM Class H
common stock, on such date. A recapitalization of the type described in the
prior sentence would occur if any of the triggering events took place unless the
holders of GM common stock (including the holders of GM $1-2/3 par value common
stock and holders of the GM Class H common stock voting separately as individual
classes) vote to approve an alternative proposal from the GM Board.
II-54
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 17. Stockholders' Equity (concluded)
Other Comprehensive Income
The changes in the components of other comprehensive income (loss) are
reported net of income taxes, as follows (dollars in millions):
Years Ended December 31,
--------------------------------------------------------------------------
2002 2001 2000
---------------------------------------------------------------------------
Pre-tax Tax Exp. Net Pre-tax Tax Exp. Net Pre-tax Tax Exp. Net
Amount (Credit) Amount Amount (Credit) Amount Amount (Credit) Amount
------ -------- ------ ------ -------- ------ ------ -------- ------
Foreign currency
translation
adjustments $117 $(18) $135 $(565) $(148) $(417) $(741) $(272) $(469)
Unrealized (loss) gain
on securities:
Unrealized holding
(loss) gain (664) (232) (432) (41) (26) (15) (481) (179) (302)
Reclassification
adjustment 448 156 292 (81) (27) (54) (175) (62) (113)
--- --- --- ---- -- -- --- ---- ----
Net unrealized
(loss) gain (216) (76) (140) (122) (53) (69) (656) (241) (415)
--- -- --- --- -- -- --- --- ---
Minimum pension
liability adjustment (21,771) (8,137) (13,634) (15,320) (5,784) (9,536) 118 42 76
Net unrealized gain
(loss) on derivatives 151 49 102 (387) (80) (307) - - -
------ ----- ------ ------ ----- ----- - --- --- ----
Other comprehensive
(loss) income $(21,719) $(8,182)$(13,537)$(16,394) $(6,065)$(10,329)$(1,279) $(471) $(808)
====== ====== ====== ====== ===== ====== ===== === ===
NOTE 18. 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.
All GM Class H common stock per share amounts and numbers of shares for 2000
have been adjusted to reflect the three-for-one stock split, in the form of a
200% stock dividend, paid on June 30, 2000.
The attribution of earnings to each class of GM common stock was as follows
(dollars in millions):
Years Ended December 31,
---------------------------
2002 2001 2000
---- ---- ----
Earnings attributable to common stocks
Earnings attributable to $1-2/3 par value $1,885 $984 $3,957
Earnings (losses) attributable to Class H $(196) $(482) $385
Earnings attributable to GM $1-2/3 par value common stock for the period
represent the earnings attributable to all GM common stocks, reduced by the
Available Separate Consolidated Net Income (ASCNI) of Hughes for the respective
period.
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 (920
million, 876 million, and 681 million for 2002, 2001, and 2000, 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 during 2002,
2001, and 2000.
II-55
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 18. Earnings Per Share Attributable to Common Stocks (continued)
In addition, the denominator used in determining the ASCNI of Hughes may be
adjusted on occasion as deemed appropriate by the GM Board to reflect
subdivisions or combinations of the GM Class H common stock, certain transfers
of capital to or from Hughes, the contribution of shares of capital stock of GM
to or for the benefit of Hughes employees, and the retirement of GM Class H
common stock purchased by Hughes. The GM Board's discretion to make such
adjustments is limited by criteria set forth in GM's Restated Certificate of
Incorporation.
Shares of GM Class H common stock delivered by GM in connection with the
award of such shares to and the exercise of stock options by employees of Hughes
increase the numerator and denominator of the fraction referred to above. On
occasion, in anticipation of exercises of stock options, Hughes purchases GM
Class H common stock from the open market. Upon purchase, these shares are
retired and therefore decrease the numerator and denominator of the fraction
referred to above.
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
------ ------ ------ ----- ------ ------
Year ended December 31, 2002
Income (loss) $1,900 $(164)
Less: Dividends on preference
stock 15 32
------ ----
Basic EPS
Income (loss) attributable
to common stock $1,885 560 $3.37 $(196) 920 $(0.21)
==== ====
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options - 2 - -
------ ----- ---- ----
Diluted EPS
Adjusted income (loss)
attributable
to common stock $1,885 562 $3.35 (196) 920 $(0.21)
===== === ==== === === ====
to common stocks
Year ended December 31, 2001
Income (loss) $1,018 $(417)
Less: Dividends on preference
stocks 34 65
------ ----
Basic EPS
Income (loss)
attributable to common
stock $984 551 $1.78 $(482) 876 $(0.55)
==== ====
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options - 5 - -
----- ----- ----- ----
Diluted EPS
Adjusted income (loss)
attributable to common
stocks $984 556 $1.77 $(482) 876 $(0.55)
=== === ==== === === ====
Year ended December 31, 2000
Income $4,016 $436
Less: Dividends on preference
stock 59 51
----- ---
Basic EPS
Income attributable to
common stock $3,957 582 $6.80 $385 681 $0.56
==== ====
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options (7) 9 7 27
------ ----- ---- ---
Diluted EPS
Adjusted income
attributable to common
stock $3,950 591 $6.68 $392 708 $0.55
===== === ==== === === ====
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. In addition, for periods in
which there was an adjusted loss attributable to common stocks, options to
purchase shares of GM $1-2/3 par value common stock and 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.
II-56
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 19. Derivative Financial Instruments and Risk Management
Effective January 1, 2001, GM adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities, as amended and interpreted, 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.
Cash Flow Hedges
GM uses financial instruments designated as cash flow hedges to hedge the
Corporation's exposure to foreign currency exchange risk associated with buying,
selling, and financing in currencies other than the local currencies in which it
operates, and its exposure to commodity price risk associated with changes in
prices of commodities used in its automotive business, primarily non ferrous
metals used in the manufacture of automotive components. For transactions
denominated in foreign currencies, GM typically hedges forecasted and firm
commitment exposure up to one year in the future. For commodities, GM hedges
exposures up to six years in the future. For the years ended December 31, 2002
and December 31, 2001, hedge ineffectiveness associated with instruments
designated as cash flow hedges increased cost of sales and other expenses by
$0.1 million and $5 million, respectively; changes in time value of the
instruments (which are excluded from the assessment of hedge effectiveness and
exclude transition adjustment) increased cost of sales and other expenses by $19
million and $53 million, respectively. Derivative gains and losses included in
other comprehensive income are reclassified into earnings at the time that the
associated hedged transactions impact the income statement. For the year ended
December 31, 2002, net derivative losses of $58 million were reclassified to
cost of sales and other expenses. For the year ended December 31, 2001, net
derivative gains of $2 million were likewise reclassified. These net
losses/gains were offset by net gains/losses on the transactions being hedged.
Approximately $6 million of net derivative losses included in other
comprehensive income at December 31, 2002, will be reclassified into earnings
within 12 months from that date. During 2002, there were net losses of
approximately $4 million which were reclassified into earnings as a result of
discontinuance of certain cash flow hedges.
Fair Value Hedges
GM uses financial instruments designated as fair value hedges to manage
certain of the Corporation's exposure to interest rate risk. GM is subject to
market risk from exposures to changes in interest rates due to its financing,
investing, and cash management activities. A variety of instruments is used to
hedge GM's exposure associated with its fixed rate debt and mortgage servicing
rights (MSR's). For the year ended December 31, 2002, hedge ineffectiveness
associated with instruments designated as fair value hedges, primarily due to
hedging of MSRs, decreased selling, general, and administrative expenses by $458
million and increased selling, general, and administrative expenses by $218
million in 2001. Changes in time value of the instruments (which are excluded
from the assessment of hedge effectiveness) decreased selling, general, and
administrative expenses by $212 million in 2002 and $46 million in 2001.
Undesignated Derivative Instruments
Forward contracts and options not designated as hedging instruments under
SFAS No. 133 are also used to hedge certain foreign currency, commodity, and
interest rate exposures. Unrealized gains and losses on such instruments are
recognized currently in earnings.
II-57
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 20. Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined using
available market information or other appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value; therefore, the estimates are not necessarily
indicative of the amounts that could be realized or would be paid in a current
market exchange. The effect of using different market assumptions and/or
estimation methodologies may be material to the estimated fair value amounts.
Book and estimated fair values of financial instruments, for which it is
practicable to estimate fair value, were as follows (dollars in millions):
December 31,
------------------------------------------
2002 2001
------------------------------------------
Automotive, Communications Services, Book Fair Book Fair
and Other Operations Value Value Value Value
- ----------------------------------- ----- ----- ----- -----
Assets
Other assets (1) $752 $582 $4,076 $4,040
Derivative assets $364 $364 $187 $187
Liabilities
Long-term debt (2) $16,651 $15,595 $10,726 $11,817
Other liabilities (1) $531 $580 $487 $510
Derivative liabilities $298 $298 $281 $281
December 31,
------------------------------------------
2002 2001
------------------------------------------
Book Fair Book Fair
Financing and Insurance Operations Value Value Value Value
- ---------------------------------- ----- ----- ----- -----
Assets
Finance receivables - net (3) $134,647 $135,890 $109,211 $110,877
Derivative assets $6,369 $6,369 $1,673 $1,673
Liabilities
Debt (2) $183,773 $184,837 $153,186 $153,680
Derivative liabilities $843 $843 $2,942 $2,942
(1) Other assets include various financial instruments (e.g., long-term
receivables and certain investments) that have fair values based on
discounted cash flows, market quotations, and other appropriate
valuation techniques. The fair values of retained subordinated
interests in trusts and excess servicing assets (net of deferred
costs) were derived by discounting expected cash flows using
current market rates. Estimated values of Industrial Development
Bonds, included in other liabilities, were based on quoted market
prices for the same or similar issues.
(2) Long-term debt has an estimated fair value based on quoted market
prices for the same or similar issues or based on the current rates
offered to GM for debt of similar remaining maturities.
(3) The fair value was estimated by discounting the future cash flows
using applicable spreads to approximate current rates applicable to
each category of finance receivables.
Due to their short-term nature, the book value approximates fair value for
cash and marketable securities, accounts and notes receivable (less allowances),
accounts payable (principally trade), ACO' loans payable and Financing and
Insurance Operations' debt payable within one year for the periods ending
December 31, 2002 and 2001.
II-58
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 21. Stock Incentive Plans
Stock-Based Compensation`
GM applied the intrinsic value method of recognition and measurement under
Accounting Principles Board Opinion No. 25 to its stock options and other
stock-based employee compensation awards. Accordingly, no compensation expense
related to employee stock options is reflected in net income, as all options
granted had an exercise price equal to the market value of the underlying common
stock on the date of the grant. Refer to Note 1 for GM's pro forma net income,
earnings attributable to common stocks, and basic and diluted earnings per share
attributable to common stocks if compensation cost for all outstanding and
unvested stock option and other stock-based employee compensation awards had
been determined based on the fair value at the grant date, consistent with the
method prescribed by SFAS No. 123. The effects of the Delphi spin-off adjustment
on the number of options and related exercise prices, as described below, are
considered, under SFAS No. 123, to be modifications of the terms of the
outstanding options. Accordingly, the pro forma disclosure includes compensation
cost for the incremental fair value, under SFAS No. 123, resulting from such
modifications. The pro forma amounts for compensation cost are not indicative of
the effects on operating results for future periods.
GM's stock incentive plans consist of the General Motors 2002 Stock Incentive
Plan, formerly the 1997 General Motors Amended Stock Incentive Plan (the
"GMSIP"), the Hughes Electronics Corporation Incentive Plan (the "Hughes Plan"),
and the General Motors 1998 Salaried Stock Option Plan (the "GMSSOP"). The GMSIP
is administered by the Executive Compensation Committee of the GM Board. The
GMSSOP is administered by the Vice President of Global Human Resources. The
Hughes Plan is administered by the Executive Compensation Committee of the
Board of Directors of Hughes.
Under the GMSIP, as of December 31, 2002, 28 million shares of GM $1-2/3 par
value common stock may be granted from June 1, 2002, through May 31, 2007, of
which approximately 28 million were available for grants at December 31, 2002.
Any shares granted and undelivered under the GMSIP, due primarily to expiration
or termination, become again available for grant. Options granted prior to
1997 under the GMSIP generally are exercisable one-half after one year and
one-half after two years from the dates of grant. Stock option grants awarded
since 1997 vest ratably over three years from the date of grant. Option prices
are 100% of fair market value on the dates of grant and the options generally
expire 10 years from the dates of grant, subject to earlier termination under
certain conditions.
Under the Hughes Plan, Hughes may grant shares, rights, or options to acquire
up to 159 million shares of GM Class H common stock through December 31, 2002,
of which 5 million were available for grants at December 31, 2002. Option prices
are 100% of fair market value on the dates of grant and the options generally
vest over two to five years and expire 10 years from the dates of grant, subject
to earlier termination under certain conditions.
Under the GMSSOP, which commenced January 1, 1998 and ends December 31, 2007,
the number of shares of GM $1-2/3 par value common stock that may be granted
each year is determined by management. Approximately 6 million shares of GM
$1-2/3 par value common stock were available for grants at December 31, 2002.
Stock options vest one year following the date of grant and are exercisable two
years from the date of grant. Option prices are 100% of fair market value on the
dates of grant and the options generally expire 10 years and two days from the
dates of grant subject to earlier termination under certain conditions.
(Column a) (Column b) (Column c)
Number of
securities
Number of remaining
Securities to be available for
issued upon Weighted average future issuance
exercise of exercise price under equity
outstanding of outstanding compensation
options, options, plans (excluding
warrants and warrants and reflected in
Plan Category rights rights column (Column a)
- --------------------------------------------------------------------------------
Equity compensation plans
approved by security holders:
GMSIP 65,822,160 $56.45 28,108,941
GMSIP and Hughes Plan 95,195,978 $22.99 4,645,893
Equity compensation plans
not approved by security
holders (1):
GMSSOP 18,957,199 $59.91 6,000,000
- --------------------------------------------------------------------------------
Total 179,975,337 $39.11 38,754,834
- --------------------------------------------------------------------------------
(1) All equity compensation plans except the GMSSOP were approved by the
shareholders. The GMSSOP was adopted by the Board of Directors in 1998 and
expires December 31, 2007. The purpose of the plan is to recognize the
importance and contribution of GM employees in the creation of stockholder
value, to further align compensation with business success and to provide
employees with the opportunity for long-term capital accumulation through the
grant of options to acquire shares of General Motors common stock.
II-59
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 21. Stock Incentive Plans (continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
2002 2001 2000
----------------------------------------------------------------
GM Hughes GM GM Hughes GM GM Hughes GM
SIP Plan SSOP SIP Plan SSOP SIP Plan SSOP
--- ---- ---- --- ---- ---- --- ---- ----
Interest rate 4.3% 4.7% 4.3% 4.6% 5.1% 4.6% 6.4% 6.5% 6.5%
Expected life
(years) 5.0 7.0 5.0 5.0 7.0 5.0 5.0 6.9 5.0
Expected
volatility 34.6% 51.6% 34.6% 31.2% 51.3% 31.1% 27.8% 42.1% 27.6%
Dividend yield 4.0% - 4.0% 3.8% - 3.8% 2.7% - 2.7%
Class H common stock share amounts and numbers of shares for 2000 have been
adjusted to reflect the three-for-one stock split in the form of a 200% stock
dividend paid on June 30, 2000.
Changes in the status of outstanding options were as follows:
GMSIP GMSIP and GMSSOP
$1-2/3 Par Value Hughes Plan $1-2/3 Par Value
Common Class H Common Common
---------------------------------------------------------------
Weighted- Weighted- Weighted-
Shares Average Shares Average Shares Average
under Exercise under Exercise under Exercise
Option Price Option Price Option Price
- -----------------------------------------------------------------------------------
Options
outstanding at 39,009,147 $51.30 50,265,246 $13.10 8,062,620 $58.73
January 1, 2000
- -----------------------------------------------------------------------------------
Granted 11,231,004 $74.14 35,641,517 $37.05 4,182,955 $75.50
Exercised 6,831,078 $42.95 6,545,206 $11.45 1,635,248 $46.59
Terminated 283,967 $64.48 11,249,673 $30.96 242,863 $63.46
- -----------------------------------------------------------------------------------
Options
outstanding at 43,125,106 $58.49 68,111,884 $22.76 10,367,464 $67.30
December 31, 2000
- -----------------------------------------------------------------------------------
Granted 13,141,725 $52.49 38,029,467 $23.34 3,902,862 $52.35
Exercised 1,682,731 $39.66 2,068,506 $11.25 37,655 $46.59
Terminated 1,641,974 $61.08 6,565,541 $27.66 154,690 $66.27
- -----------------------------------------------------------------------------------
Options
outstanding at 52,942,126 $57.52 97,507,304 $22.90 14,077,981 $63.22
December 31, 2001
- -----------------------------------------------------------------------------------
Granted 17,294,937 $50.53 290,000 $15.71 5,015,553 $50.46
Exercised 2,729,511 $40.46 642,263 $12.80 71,663 $46.59
Terminated 1,685,392 $55.28 1,959,063 $20.77 64,672 $62.39
- -----------------------------------------------------------------------------------
Options
outstanding at 65,822,160 $56.45 95,195,978 $22.99 18,957,199 $59.91
December 31, 2002
===================================================================================
Options
exercisable at 21,985,984 $47.57 29,640,511 $12.93 2,411,586 $46.59
December 31, 2000
- -----------------------------------------------------------------------------------
December 31, 2001 29,890,175 $53.93 38,333,135 $15.75 6,148,695 $61.97
- -----------------------------------------------------------------------------------
December 31, 2002 38,094,946 $58.18 56,222,452 $19.40 10,098,994 $67.48
- -----------------------------------------------------------------------------------
II-60
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 21. Stock Incentive Plans (concluded)
The following table summarizes information about GM's stock option plans at
December 31, 2002:
Weighted-
Average Weighted Weighted
Range of Remaining -Average -Average
Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life (yrs.) Price Exercisable Price
-----------------------------------------------------------------------------
GMSIP $1-2/3 Par Value Common
$21.00 to $39.99 1,113,007 2.3 $32.40 1,041,527 $32.13
40.00 to 49.99 15,551,259 4.2 $44.93 15,444,416 $44.93
50.00 to 59.99 28,560,745 8.6 $51.42 4,358,047 $52.57
60.00 to 83.50 20,597,149 6.5 $73.40 17,250,956 $73.03
-----------------------------------------------------------------------------
$21.00 to $83.50 65,822,160 6.8 $56.45 38,094,946 $58.18
GMSIP and Hughes Plan Class H Common
-----------------------------------------------------------------------------
$3.00 to $8.99 1,600,977 1.8 $7.18 1,600,977 $7.18
9.00 to 16.99 29,469,411 5.0 $12.60 28,487,187 $12.54
17.00 to 24.99 22,917,549 7.6 $19.57 11,412,872 $19.10
25.00 to 32.99 17,519,754 8.0 $27.80 7,000,140 $28.34
33.00 to 41.99 23,688,287 7.3 $37.09 7,721,276 $40.33
-----------------------------------------------------------------------------
$3.00 to $41.99 95,195,978 6.7 $22.99 56,222,452 $19.40
GMSSOP $1-2/3 Par Value Common
-----------------------------------------------------------------------------
$46.59 2,282,027 5.0 $46.59 2,282,027 $46.59
50.46 5,000,719 9.0 $50.46 - $-
52.35 3,857,486 8.0 $52.35 - $-
71.53 3,778,487 6.0 $71.53 3,778,487 $71.53
75.50 4,038,480 7.0 $75.50 4,038,480 $75.50
-----------------------------------------------------------------------------
$46.59 to $75.50 18,957,199 7.3 $59.91 10,098,994 $67.48
-----------------------------------------------------------------------------
NOTE 22: Hughes Transactions
On December 9, 2002, Hughes, GM and EchoStar Communications Corporation
(EchoStar) entered into a Termination, Settlement and Release Agreement
(Termination Agreement), in which these parties agreed to terminate the
Agreement and Plan of Merger, dated as of October 28, 2001, as amended, between
Hughes and EchoStar (Merger Agreement) and certain related agreements. Under the
terms of the Termination Agreement, EchoStar paid Hughes $600 million in cash
and Hughes retained its 81% ownership position in PanAmSat. This resulted in a
gain of $600 million ($372 million after-tax), or $0.21 diluted earnings per
share of GM $1-2/3 par value common stock, recorded in total net sales and
revenue. The companies entered into the Termination Agreement because the Merger
could not be completed within the time allowed by the Merger Agreement due to
regulatory opposition.
GM has announced that it is currently evaluating a variety of strategic
options for Hughes, including a reduction or elimination of its retained
economic interest in Hughes, transactions that would involve strategic investors
and public offerings of GM Class H common stock or related securities for cash
or in exchange for outstanding GM debt obligations (see Note 26). Any such
transaction might involve the separation of Hughes from GM. GM and Hughes have
engaged in preliminary discussions with some parties. No decisions have been
made regarding which options or combinations of options, if any, GM will pursue.
Due to the numerous uncertainties involved in these matters, there can be no
assurance that any transaction or offering will be announced or completed or as
to the time at which such a transaction or offering might be completed.
II-61
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 23. Other Income
Other income (included in total net sales and revenues) consisted of the
following (dollars in millions):
Years Ended December 31,
------------------------
2002 2001 2000
---- ---- ----
Automotive, Communications Services, and Other Operations
Other income
Interest income $929 $771 $619
Rental car lease revenue 1,214 1,424 1,584
Gain on EchoStar termination payment (Note 22) 600 - -
Gain on sale of Hughes' satellite systems (1) - - 2,036
Claims, commissions, and grants 781 767 756
Other 239 369 247
------ ------ ------
Total other income $3,763 $3,331 $5,242
===== ===== =====
(1) Represents the gain on the sale of Hughes' satellite systems manufacturing
businesses to The Boeing Company for $3.8 billion in cash.
Other income (included in total revenues) consisted of the following (dollars
in millions):
Years Ended December 31,
-------------------------
2002 2001 2000
---- ---- ----
Financing and Insurance Operations
Other income
Interest income $2,951 $2,269 $1,794
Insurance premiums 2,188 1,524 1,394
Mortgage banking income 2,064 1,862 1,518
Automotive securitization income 1,352 1,179 786
Other 3,035 2,841 2,011
------- ----- -----
Total other income $11,590 $9,675 $7,503
====== ===== =====
NOTE 24. European Matters
During 2001, GME announced its plan 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 and were recorded in the GME segment 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 write-downs; 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 per diluted 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).
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 were 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
in the GME segment, an after-tax charge of $55 million ($0.10 per diluted share
of GM $1-2/3 par value common stock) in 2002 for those member states that have
passed national laws through December 31, 2002. Management is assessing the
impact of this potential legislation on GM's financial position and results of
operations, and may include charges to earnings in future periods as additional
national laws are passed.
II-62
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 25: Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", established standards for reporting information about operating
segments in financial statements. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance. GM's
chief operating decision maker is the Chief Executive Officer. The operating
segments are managed separately because each operating segment represents a
strategic business unit that offers different products and serves different
markets.
GM's reportable operating segments within its ACO business consist of General
Motors Automotive (GMA) (which is comprised of four regions: GMNA, GME, GMLAAM,
GMAP), Hughes, and Other. GMNA designs, manufactures, and/or markets vehicles
primarily in North America under the following nameplates: Chevrolet, Pontiac,
GMC, Oldsmobile, Buick, Cadillac, Saturn, and HUMMER. GME, GMLAAM, and GMAP meet
the demands of customers outside North America with vehicles designed,
manufactured, and marketed under the following nameplates: Opel, Vauxhall,
Holden, Saab, Buick, Chevrolet, GMC, and Cadillac. Hughes includes activities
relating to digital entertainment, information and communications services, and
satellite-based private business networks. The Other segment 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 FIO business consist of GMAC and Other.
GMAC provides a broad range of financial services, including consumer vehicle
financing, full-service leasing and fleet leasing, dealer financing, car and
truck extended service contracts, residential and commercial mortgage services,
commercial and vehicle insurance, and asset-based lending. The Financing and
Insurance Operations' Other segment includes financing entities operating in the
U.S., Canada, Brazil, and Mexico which are not associated with GMAC.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that the
disaggregated financial results 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 purposes of assisting in making
internal operating decisions. GM evaluates performance based on stand-alone
operating segment net income and generally accounts for intersegment sales and
transfers as if the sales or transfers were to third parties, that is, at
current market prices. Revenues are attributed to geographic areas based on the
location of the assets producing the revenues.
II-63
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 25. Segment Reporting (continued)
Other Total
GMNA GME GMLAAM GMAP GMA Hughes Other ACO GMAC Financing Financing
---- --- ------ ---- --- ------ ----- --- ---- --------- ---------
2002 (dollars in millions)
Manufactured products sales and revenues:
External customers $113,731 $22,409 $4,698 $3,663 $144,501 $8,910 $2,563 $155,974 $ - $ - $ -
Intersegment (2,038) 1,057 327 654 - 18 (18) - - - -
------- ----- ----- ----- ------- ------ ----- ------- --- --- ---
Total manufactured products 111,693 23,466 5,025 4,317 144,501 8,928 2,545 155,974 - - -
Financing revenue - - - - - - - - 14,710 726 15,436
Other income 2,751 446 85 207 3,489 559 (285) 3,763 12,083 (493) 11,590
------- ----- ----- ----- ------- ------ ----- ------- ------ --- ------
Total net sales and revenues $114,444 $23,912 $5,110 $4,524 $147,990 $9,487 $2,260 $159,737 $26,793 $233 $27,026
======= ====== ===== ===== ====== ===== ===== ======= ====== === ======
Depreciation and amortization $4,751 $1,080 $178 $143 $6,152 $1,073 $172 $7,397 $5,136 $405 $5,541
Interest income (a) $1,002 $316 $24 $12 $1,354 $24 $(449) $929 $3,221 $(270) $2,951
Interest expense $709 $304 $145 $8 $1,166 $336 $(713) $789 $6,736 $190 $6,926
Income tax expense (benefit) $1,157 $(436) $(76) $55 $700 $(111) $(1,078) $(489) $1,071 $(49) $1,022
Earnings (losses) of
nonconsolidated associates $46 $76 $(3) $231 $350 $(70) $11 $291 $(1) $(7) $(8)
Net income (loss) $2,900 $(1,011) $(181) $188 $1,896 $(239) $(1,803)(c)$(146) $1,870 $12 $1,882
Investments in nonconsolidated $534 $890 $397 $3,233 $5,054 $(53) $43 $5,044 $237 $(237) $-
affiliates
Segment assets $105,551 $20,344 $3,035 $1,689 $130,619 $18,549(f)(g)$(5,408)$143,760 $227,670 $441 $228,111
Expenditures for property $4,370 $1,447 $197 $263 $6,277 $566(d) $143 $6,986 $451 $6 $457
2001
Manufactured products sales and revenues:
External customers $105,859 $22,249 $5,615 $3,262 $136,985 $8,236 $2,939 $148,160 $ - $ - $ -
Intersegment (1,772) 820 200 752 - 25 (25) - - - -
------- ----- ----- ----- ------- ------ ----- ------- ------ --- -----
Total manufactured products 104,087 23,069 5,815 4,014 136,985 8,261 2,914 148,160 - - -
Financing revenue - - - - - - - - 15,083 1,011 16,094
Other income 2,851 631 49 187 3,718 57 (444) 3,331 10,389 (714) 9,675
------- ----- ----- ----- ------- ------ ----- ------- ------ --- -----
Total net sales and revenues $106,938 $23,700 $5,864 $4,201 $140,703 $8,318 $2,470 $151,491 $25,472 $297 $25,769
======= ====== ===== ===== ======= ====== ===== ======= ====== === ======
Depreciation and amortization $4,515 $994 $146 $117 $5,772 $1,144(b) $135 $7,051 $5,305 $552 $5,857
Interest income (a) $831 $369 $27 $14 $1,241 $57 $(527) $771 $2,696 $(427) $2,269
Interest expense $969 $349 $95 $8 $1,421 $196 $(866) $751 $7,606 $(10) $7,596
Income tax expense (benefit) $423 $(282) $(18) $24 $147 $(326) $(91) $(270) $1,075 $(37) $1,038
(Losses) earnings of
nonconsolidated associates $(37) $41 $(6) $(61) $(63) $(61) $(5) $(129) $(5) $3 $(2)
Net income (loss) $1,270 $(765) $(81) $(57) $367 $(618)(b) $(916) $(1,167) $1,786 $(18) $1,768
Investments in nonconsolidated $665 $886 $614 $2,700 $4,865 $55 $30 $4,950 $1,062 $(1,062) $ -
affiliates
Segment assets $89,501 $18,552 $4,181 $896 $113,130 $19,154(f) $(2,074)$130,210 $192,721 $1,038 $193,759
Expenditures for property $5,771 $1,477 $125 $194 $7,567 $799(d) $245 $8,611 $13 $7 $20
See notes on next page
II-64
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 25. Segment Reporting (continued)
Other Total
GMNA GME GMLAAM GMAP GMA Hughes Other ACO GMAC Financing Financing
---- --- ------ ---- --- ------ ----- --- ---- --------- ---------
2000 (dollars in millions)
Manufactured products sales and revenues:
External customers $111,481 $23,815 $5,470 $2,999 $143,765 $8,514 $3,106 $155,385 $ - $ - $ -
Intersegment (1,659) 1,040 184 435 - 34 (34) - - - -
------- ----- ----- ----- ------- ------ ----- ------- ------ --- -----
Total manufactured products 109,822 24,855 5,654 3,434 143,765 8,548 3,072 155,385 - - -
Financing revenue - - - - - - - - 15,493 1,009 16,502
Other income 2,901 503 59 172 3,635 2,141 (534) 5,242 8,168 (665) 7,503
------- ----- ----- ----- ------- ------ ----- ------- ------ --- -----
Total net sales and revenues $112,723 $25,358 $5,713 $3,606 $147,400 $10,689 $2,538 $160,627 $23,661 $344 $24,005
======= ====== ===== ===== ====== ====== ===== ======= ====== === ======
Depreciation and amortization $4,564 $1,357 $272 $107 $6,300 $996(b)(e) $133 $7,429 $5,505 $477 $5,982
Interest income (a) $633 $403 $22 $13 $1,071 $106 $(558) $619 $2,231 $(437) $1,794
Interest expense $1,175 $408 $101 $4 $1,688 $218 $(1,091) $815 $8,295 $442 $8,737
Income tax expense (benefit) $1,218 $(209) $(122) $17 $904 $577 $(38) $1,443 $954 $(4) $950
(Losses) earnings of
nonconsolidated associates $(74) $7 $69 $(195) $(193) $(142) $(1) $(336) $- $4 $4
Net income (loss) $3,174 $(676) $26 $(233) $2,291 $829(b)(e) $(281) $2,839 $1,602 $11 $1,613
Investments in nonconsolidated
affiliates $780 $170 $436 $1,915 $3,301 $82 $114 $3,497 $982 $(982) $-
Segment assets $90,502 $18,857 $4,166 $1,108 $114,633 $19,220(f) $(497)$133,356 $168,410 $1,334 $169,744
Expenditures for property $6,073 $1,517 $233 $168 $7,991 $939(d) $270 $9,200 $518 $4 $522
- --------------------------------
(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 (HAC) of approximately $3 million and $16 million for 2001 and 2000,
respectively. There is no 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."
(c) Net income (loss) for ACO Other includes a non-cash charge of $1.4 billion
after tax related to the write-down of GM's investment in FAH. See Note 11.
(d) Excludes satellite expenditures totaling $732 million, $944 million, and
$777 million in 2002, 2001, and 2000, respectively.
(e) The amount reported for Hughes includes the write-off of approximately $329
million of unamortized goodwill related to the satellite systems
manufacturing businesses at the time of the sale to The Boeing Company.
(f) The amount reported for Hughes excludes the unamortized GM purchase
accounting adjustments of approximately $57 million at December 31, 2002,
$57 million at December 31, 2001, and $60 million at December 31, 2000.
(g) The amount reported for Hughes excludes a writeoff of $739 million that was
recorded in the fourth quarter of 2002 by Hughes in its stand alone
financial statements for goodwill impairments at DIRECTV Latin America and
DIRECTV Broadband; however, in accordance with SFAS No. 142, GM evaluated
the carrying value of goodwill associated with its Hughes Direct-to-Home
Broadcast reporting unit in the aggregate and determined that the goodwill
was not impaired.
II-65
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
NOTE 25. Segment Reporting (concluded)
Information concerning principal geographic areas was as follows (dollars in
millions):
2002 2001 2000
-------------------------------------------------------------------
Net Sales Long Net Sales Long Net Sales Long
& Lived & Lived & Lived
Revenues Assets(1) Revenues Assets(1) Revenues Assets(1)
-------- --------- -------- --------- -------- ---------
North America
United States $138,692 $52,364 $132,004 $53,246 $136,399 $55,967
Canada and Mexico 15,023 7,094 11,769 6,294 13,986 6,496
-------- ------- -------- ------- -------- -------
Total North America 153,715 59,458 143,773 59,540 150,385 62,463
Europe
France 2,082 177 1,829 130 1,986 139
Germany 5,886 4,605 6,133 4,165 6,582 4,423
Spain 1,738 1,055 1,772 728 1,650 729
United Kingdom 5,677 2,044 5,024 1,487 5,035 1,491
Other 11,068 2,985 11,139 2,515 11,935 2,944
------ ------- ------ ----- ------ -----
Total Europe 26,451 10,866 25,897 9,025 27,188 9,726
Latin America
Brazil 2,479 769 2,889 1,166 3,395 1,281
Other Latin America 2,230 337 2,249 479 1,843 392
----- ----- ----- ----- ----- -----
Total Latin America 4,709 1,106 5,138 1,645 5,238 1,673
All Other 1,888 2,434 2,452 3,560 1,821 3,980
------- ------- -------- ------- ------- -----
Total $186,763 $73,864 $177,260 $73,770 $184,632 $77,842
======= ====== ======= ====== ======= ======
(1) Primarily consist of property (Note 9), equipment on operating leases (Note
7), and satellites (Note 11) net of accumulated depreciation.
NOTE 26. Subsequent Events
In the fourth quarter of 2002, the Corporation announced its agreement to
sell its GM Defense operations (light armored vehicle business) to General
Dynamics Corporation for approximately $1.3 billion in cash. The transaction
closed on March 1, 2003 and is estimated to result in an after-tax gain of
approximately $600 million.
On March 12, 2003, GM contributed 149.2 million shares of GM Class H common
stock to certain of its U.S. employee benefit plans. The shares will be held by
United States Trust Company of New York as trustee for the employee benefit
plans. An independent valuation firm that was retained to value the shares
applied a discount to the market value due to, among other things, various
restrictions on the transfer of the shares provided for in the agreements
between GM and the trustee, resulting in an aggregate contribution value of
approximately $1.24 billion. The contribution increased the amount of GM Class
H common stock held by GM's employee benefit plans to approximately 330 million
shares, and reduced GM's retained economic interest in Hughes to approximately
19.9% from 30.7%. As a consequence of the contribution, GM now expects that its
2003 U.S. pre-tax pension expense will be approximately $2.8 billion instead of
the $2.9 billion originally estimated.
In the first quarter of 2003, Hughes completed a series of financing
transactions to replace its previous credit facilities with a capital structure
that is more long-term in nature. On February 28, 2003, DIRECTV issued $1.4
billion in senior notes due in 2013. The ten-year senior notes are unsecured
indebtedness and bear interest at 8.375%. In addition, on March 6, 2003, DIRECTV
entered into a new senior secured credit facility with total term loan and
revolving loan commitments of $1.7 billion. The new senior secured credit
facility is comprised of a $375 million Tranche A Term Loan, $200 million of
which was undrawn at March 12, 2003, a $1.1 billion Tranche B Term Loan and a
$250 million revolving credit facility which were undrawn at March 12, 2003. The
new senior secured credit facility has a term of five to seven years and is
secured by substantially all of DIRECTV's assets. The revolving credit facility
and the term loans bear interest at LIBOR plus 3.5%. DIRECTV distributed to
Hughes the net proceeds from the senior secured credit facility and the sale of
the senior notes totaling $2.6 billion. The $200 million undrawn portion of the
Tranche A Term Loan is expected to be drawn by December 31, 2003 with the net
proceeds distributed to Hughes. The revolving portion of the senior secured
credit facility will be available to DIRECTV to fund working capital and other
requirements. The above distribution enabled Hughes to repay all amounts
outstanding under its previous credit facilities, which were terminated on
February 28, 2003.
Il-66
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
Selected Quarterly Data (Unaudited)
2002 Quarters
-------------
1st (1) 2nd (2) 3rd (3) 4th (4)
--- ---- --- ----
(dollars in millions except per share amounts)
Total net sales and revenues $46,264 $48,265 $43,578 $48,656
Income (losses) before income taxes
and minority interests $354 $1,781 $(1,405) $1,350
Income tax expense (benefit) 125 563 (551) 396
Minority interests (22) (19) (32) (21)
Earnings (losses) of nonconsolidated
associates 21 93 82 87
--- ----- --- -----
Net income (loss) 228 1,292 (804) 1,020
Dividends on preference stocks (24) (23) - -
--- ----- --- -----
Earnings (losses) attributable to
common stocks $204 $1,269 $(804) $1,020
=== ===== === =====
Earnings (losses) attributable to $1-2/3
par value $325 $1,389 $(795) $961
(Losses) earnings attributable to Class H $(121) $(120) $(9) $59
Basic earnings (losses) per share
attributable to $0.58 $2.48 $(1.42) $1.71
$1-2/3 par value
Class H $(0.14) $(0.14) $(0.01) $0.06
Average number of shares of common
stocks outstanding - basic (in millions)
$1-2/3 par value 559 560 560 560
Class H 878 884 958 958
Diluted earnings (losses) per share
attributable to $0.57 $2.43 $(1.42) $1.71
$1-2/3 par value
Class H $(0.14) $(0.14) $(0.01) $0.06
Average number of shares of common
stocks outstanding - diluted (in millions)
$1-2/3 par value 570 572 560 561
Class H 878 884 958 959
II-67
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - continued
Selected Quarterly Data (Unaudited) - continued
(1) First quarter 2002 results include the following:
o a $407 million after-tax restructuring charge related to severance
payments and asset impairments at GME that were part of the
restructuring of GM's automotive operations in Europe;
o a $59 million after-tax favorable adjustment related to Hughes'
resolution of a lawsuit that was filed against the U.S. government
relating to the National Aeronautics and Space Administration's (NASA)
breach of contract to launch ten satellites on the Space Shuttle;
o a $51 million after-tax charge related to Hughes' expected loss
associated with a contractual dispute with General Electric Capital
Corporation; and
o a $18 million after-tax charge related to Hughes' loan guarantee for a
Hughes Network Systems' affiliate in India.
(2) Second quarter 2002 results include a $55 million after-tax charge at GME
related to the European Union's directive requiring member states to enact
legislation regarding end-of-life vehicles to be the responsibility of
manufacturers for dismantling and recycling vehicles they have sold.
(3) Third quarter 2002 results include the following:
o a $1.4 billion after-tax charge related to the write-down of GM's
investment in Fiat Auto Holdings, B.V. as a result of the completion
of an impairment study of the carrying value of GM's investment;
o a $116 million after-tax charge primarily related to GM's costs
associated with the transfer of commercial truck production from
Janesville, Wisconsin, to Flint, Michigan; and
o a $68 million after-tax favorable adjustment related to Hughes' sale of
equity interests primarily related to the investment in the Thomson
multimedia S.A.;
(4) Fourth quarter 2002 results include the following:
o a $372 million after-tax gain related to Hughes' receipt of $600
million EchoStar paid in connection with the termination of the October
28, 2001, merger agreement between Hughes and EchoStar;
o a $27 million after-tax charge related to Hughes' write-down of their
investment in Crown Media as a result of an other than temporary
decline in the market value of their investment;
o a $63 million after-tax charge related to Hughes' write-down of their
investment in XM Satellite Radio as a result of an other than temporary
decline in the market value of their investment;
o a $97 million after-tax charge related to Hughes' shut-down of DIRECTV
Broad-band Business Services for costs to close the business including
contract termination payments, write-offs of equipment, and severance
payments; and
o a $15 million after-tax charge related to Hughes' loss in the exchange
of Hughes' ownership in Hughes Tele.com (India) Limited for an equity
interest in and long-term receivables from Tata Teleservices Limited.
II-68
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
Selected Quarterly Data (Unaudited)
2001 Quarters
-------------
1st (5) 2nd (6) 3rd (7) 4th
--- ---- --- ---
(dollars in millions except per share amounts)
Total net sales and revenues $42,615 $46,220 $42,475 $45,950
Income (losses) before income taxes
and minority interests $504 $925 $(285) $374
Income tax expense 208 304 76 180
Minority interests (2) 7 (10) (13)
Earnings (losses) of nonconsolidated
associates (57) (151) 3 74
--- --- --- ---
Net income (loss) 237 477 (368) 255
Dividends on preference stocks (28) (23) (25) (23)
--- --- --- ---
Earnings (losses) attributable to
common stocks $209 $454 $(393) $232
=== === === ===
Earnings (losses) attributable to $1-2/3
par value $296 $574 $(223) $337
Losses attributable to Class H $(87) $(120) $(170) $(105)
Basic earnings (losses) per share
attributable to
$1-2/3 par value $0.54 $1.05 $(0.41) $0.61
Class H $(0.10) $(0.14) $(0.19) $(0.12)
Average number of shares of common
stocks outstanding - basic (in millions)
$1-2/3 par value 548 549 551 556
Class H 875 876 877 877
Diluted earnings (losses) per share
attributable to
$1-2/3 par value $0.53 $1.03 $(0.41) $0.60
Class H $(0.10) $(0.14) $(0.19) $(0.12)
Average number of shares of common
stocks outstanding - diluted (in millions)
$1-2/3 par value 554 559 551 559
Class H 875 876 877 877
II-69
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION - continued
Selected Quarterly Data (Unaudited) - continued
(5) First quarter 2001 results include a $12 million after-tax increase to
income for the net impact from initially adopting SFAS No. 133,
"Accounting for Derivatives and Hedging Activities."
(6) Second quarter 2001 results include a $133 million after-tax restructuring
charge related to General Motors' portion of severance payments and asset
impairments that were part of the second quarter restructuring of its
affiliate Isuzu Motors Ltd.
(7) Third quarter 2001 results include the following:
o a $194 million after-tax charge for the announced closing of the
Ste.Therese, Quebec, assembly plant;
o a $474 million after-tax charge related to Hughes' settlement with
Raytheon on a purchase price adjustment related to Raytheon's 1997
merger with Hughes defense;
o a $67 million after-tax gain related to Hughes' sale of 4.1 million
shares of Thomson multimedia S.A.common stock;
o a $133 million after-tax charge related to Hughes' non-cash charge from
the revaluation of its Sky Perfect investment;
o a $40 million after-tax severance charge related to Hughes' 10%
company-wide work force reduction in the United States; and
o a $21 million after-tax favorable adjustment for the expected costs
associated with the shutdown of Hughes' DIRECTV Japan business.
II-70
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 9. Changes in and disagreements with accountants on accounting and
financial disclosure
None
II-71
PART III
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEMS 10, 11, 12, and 13
Information required by Part III (Items 10, 11, 12, and 13) of this Form 10-K
is incorporated by reference from General Motors Corporation's definitive Proxy
Statement for its 2003 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission, pursuant to Regulation 14A, not later
than 120 days after the end of the fiscal year, all of which information is
hereby incorporated by reference in, and made part of, this Form 10-K, except
that the information required by Item 10 with respect to executive officers of
the Registrant is included in Item 4A of Part I of this report.
* * * * * * *
ITEM 14. Controls and Procedures
The Corporation maintains disclosure controls and procedures designed to
ensure that information required to be disclosed in reports filed under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the specified time periods. Within 90 days prior to the date
of this report, the Corporation's Chief Executive Officer and Chief Financial
Officer evaluated, with the participation of GM's management, the effectiveness
of the Corporation's disclosure controls and procedures. Based on the
evaluation, which disclosed no significant deficiencies or material weaknesses,
the Corporation's Chief Executive Officer and Chief Financial Officer concluded
that the Corporation's disclosure controls and procedures are effective. There
were no significant changes in the Corporation's internal controls or in other
factors that could significantly affect internal controls subsequent to the
evaluation.
* * * * * * *
III-1
PART IV
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 15. Exhibits, Financial Statement Schedule, and Reports on Page
Form 8-K Number
---------------------------------------------------------------------
(a) 1. All Financial Statements See Part II
2. Financial Statement Schedule II -
Allowances for the Years Ended
December 31, 2002, 2001, and 2000 IV-3
3. Exhibits (Including Those Incorporated by Reference)
Exhibit
Number
- ------
(3)(a) Restated Certificate of Incorporation filed as Exhibit 3(i) to
the Current Report on Form 8-K of General Motors Corporation
dated June 24, 1999, as amended by the amendment filed as
Exhibit 3(i) to the Current Report on Form 8-K of General
Motors Corporation dated June 6, 2000, and Amendment to
Article Four of the Certificate of Incorporation -
Division III - Preference Stock, by reason of the
Certificates of Designations filed with the Secretary of
State of the State of Delaware on September 14, 1987 and the
Certificate of Decrease filed with the Secretary of State of
the State of Delaware on September 29, 1987 (pertaining to
the Six Series of Preference Stock contributed to the General
Motors pension trusts), incorporated by reference to Exhibit
19 to the Quarterly Report on Form 10-Q of General Motors
Corporation for the quarter ended June 30, 1990 in
the Form SE of General Motors Corporation dated August
6, 1990; as further amended by the Certificate of Designations
filed with the Secretary of State of the State of Delaware
on June 28, 1991 (pertaining to Series A Conversion Preference
Stock), incorporated by reference to Exhibit 4(a) to
Form S-8 Registration Statement No. 33-43744 in the Form
SE of General Motors Corporation dated November 1, 1991; as
further amended by the Certificate of Designations filed with
the Secretary of State of the State of Delaware on December
9, 1991 (pertaining to Series B 9-1/8% Preference
Stock), incorporated by reference to Exhibit 4(a) to
Form S-3 Registration Statement No. 33-45216 in the Form SE
of General Motors Corporation dated January 27, 1992; as
further amended by the Certificate of Designations filed
with the Secretary of State of the State of Delaware on
February 14, 1992 (pertaining to Series C Convertible
Preference Stock), incorporated by reference to Exhibit
(3)(a) to the Annual Report on Form 10-K of General Motors
Corporation for the year ended December 31, 1991
in the Form SE of General Motors Corporation dated March
20, 1992; as further amended by the Certificate of
Designations filed with the Secretary of
State of the State of Delaware on July 15, 1992
(pertaining to Series D 7.92% Preference Stock), incorporated
by reference to Exhibit 3(a)(2) to the Quarterly Report on
Form 10-Q of General Motors Corporation for the
quarter ended June 30, 1992 in the Form SE of General
Motors Corporation dated August 10, 1992; as further amended
by the Certificate of Designations filed with the Secretary
of State of the State of Delaware on December 15, 1992
(pertaining to Series G 9.12% Preference Stock),
incorporated by reference to Exhibit 4(a) to Form S-3
Registration Statement No. 33-49309 in the Form SE of General
Motors Corporation dated January 25, 1993; and as further
amended by the Certificate of Designations filed with
the Secretary of State of the State of Delaware on June
24, 1999 (pertaining to Series H 6.25% Automatically
Convertible Preference Stock), incorporated
by reference to Exhibit 4(a) to Form S-8 Registration
Statement No. 333-31846 in the Form SE of General Motors
Corporation dated March 6, 2000. N/A
(3)(b) By-Laws, of General Motors Corporation, as amended,
incorporated by reference to Exhibit 3(ii) to the Current
Report on Form 8-K of General Motors Corporation dated
March 2, 1998; as further amended, incorporated by
reference to Exhibit 3(ii) to the Current Reports on
Form 8-K of General Motors Corporation dated June 24, 1999,
August 2, 1999, March 6, 2000, June 6, 2000, October 3,
2000, June 5, 2001, December 4, 2001 and December 3, 2002. N/A
IV-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART IV - continued
ITEM 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(continued)
Exhibit Page
Number Number
- ------ ------
(4)(a) Form of Indenture relating to the $500,000,000 8-1/8%
Debentures Due April 15, 2016 dated as of April 1, 1986
between General Motors Corporation and Citibank, N.A.,
Trustee, incorporated by reference to Exhibit 4 to Amendment
No. 1 to Form S-3 Registration Statement No. 33-4452 N/A and
resolutions adopted by the Special Committee on April 15,
1986, incorporated by reference to Exhibit 4(a) to the
Current Report on Form 8-K of General Motors Corporation
dated April 24, 1986. N/A
(4)(c) Form of Indenture relating to the $377,377,000 7.75%
Debentures Due March 15, 2036 dated as of December 7, 1995
between General Motors Corporation and Citibank, N.A.,
Trustee, filed as Exhibit 4(a) to Amendment No. 1 to Form
S-3 Registration Statement No. 33-64229. N/A
(4)(d) Instruments defining the rights of holders of nonregistered
debt of the Registrant have been omitted from this exhibit
index because the amount of debt authorized under any such
instrument does not exceed 10% of the total assets
of the Registrant and its subsidiaries. The Registrant
agrees to furnish a copy of any such instrument to the
Commission upon request. N/A
(4)(f)(i) Indenture between General Motors Corporation and Wilmington
Trust Company, incorporated by reference to Exhibit 4(d)(i)
to the Current Report on Form 8-K of General Motors
Corporation dated July 1, 1997. N/A
(4)(f)(ii)First Supplemental Indenture, dated March 4, 2002, between
General Motors Corporation and Citibank, N.A. With Respect
To The 4.50% Series A Convertible Senior Debentures due 2032
and 5.25% Series B Convertible Senior Debentures due 2032,
incorporated by reference to Exhibit 2 to the Current Report
on Form 8-K of General Motors Corporation dated March 6,
2002. N/A
(10)(a)** General Motors 2002 Annual Incentive Plan, incorporated by
reference to Exhibit A to the Proxy Statement of General
Motors Corporation dated April 18, 2002. N/A
(10)(b)** General Motors 2002 Stock Incentive Plan, incorporated by
reference to Exhibit A to the Proxy Statement of General
Motors Corporation dated April 18, 2002. N/A
(10)(c)** General Motors 2002Long-term Incentive Plan, incorporated by
reference to Exhibit A to the Proxy Statement of General
Motors Corporation dated April 18, 2002. N/A
(10)(d)** Compensation Plan for Nonemployee Directors, incorporated by
reference to Exhibit A to the Proxy Statement of General
Motors Corporation dated April 16, 1997. N/A
(10)(f) Employment Contract with Robert A. Lutz dated September 1,
2001, incorporated by reference N/A
(10)(g) Extension to Employment Contract with Robert A. Lutz dated
December 20, 2002 IV-9
(12) Computation of Ratios of Earnings to Fixed Charges for the
Years Ended December 31, 2002, 2001, and 2000. IV-10
(21) Subsidiaries of the Registrant as of December 31, 2002 IV-11
(23) Consent of Independent Auditors IV-18
(99) Hughes Electronics Corporation Financial Statements and
Management's Discussion and Analysis of Financial Condition
and Results of Operations IV-19
(99.1) Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 IV-104
(99.2) Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 IV-105
- --------------------
* The registrant hereby undertakes to furnish supplementally a copy of any
omitted schedule or other attachment to the Securities and Exchange
Commission upon request.
** Required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
IV-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART IV - continued
ITEM 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(concluded)
(b) Reports on Form 8-K
Fifteen reports on Form 8-K, were filed October 1, 2002, October 8, 2002*,
October 15, 2002, October 17, 2002, October 23, 2002, November 1, 2002, November
4, 2002, November 27, 2002, December 3, 2002 (3), December 10, 2002, December
16, 2002*, December 19, 2002, and December 19, 2002* during the quarter ended
December 31, 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.
IV-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SCHEDULE II - ALLOWANCES
Additions Additions
Balance at charged to charged to
beginning costs and other Balance at
of year expenses accounts Deductions end of year
------- -------- -------- ---------- -----------
Description (dollars in millions)
- -----------
For the Year Ended December 31, 2002
Allowances Deducted from Assets
Allowance for credit losses $2,167 $2,028 $- $1,136(b) $3,059
Accounts and notes receivable (for doubtful
receivables) 270 207 50(a) 259(b) 268
Inventories (principally for obsolescence of
service parts) 247 43(c) - - 290
Other investments and miscellaneous assets
(receivables and other) 8 - 18 - 26
Miscellaneous allowances (mortgage and other) 156 108 16 75 205
------ ------ -- ------ ------
Total Allowances Deducted from Assets $2,848 $2,386 $84 $1,470 $3,848
===== ===== == ===== =====
For the Year Ended December 31, 2001
Allowances Deducted from Assets
Allowance for credit losses $1,493 $1,472 $32(a) $830(b) $2,167
Accounts and notes receivable (for doubtful
receivables) 241 227 83(a) 281(b) 270
Inventories (principally for obsolescence of
service parts) 300 - - 53(c) 247
Other investments and miscellaneous assets
(receivables and other) 6 - 2 - 8
Miscellaneous allowances (mortgage and other) 82 98 5 29 156
----- ----- --- ----- -----
Total Allowances Deducted from Assets $2,122 $1,797 $122 $1,193 $2,848
===== ===== === ===== =====
For the Year Ended December 31, 2000
Allowances Deducted from Assets
Allowance for credit losses $1,282 $602 $45(a) $436(b) $1,493
Accounts and notes receivable (for doubtful
receivables) 301 173 44(a) 277(b) 241
Inventories (principally for obsolescence of
service parts) 364 - - 64(c) 300
Other investments and miscellaneous assets
(receivables and other) 5 - 1 - 6
Miscellaneous allowances (mortgage and other) 116 11 5 50 82
----- --- -- --- -----
Total Allowances Deducted from Assets $2,068 $786 $95 $827 $2,122
===== === == === =====
Notes: (a) Primarily reflects the recovery of accounts previously written-off.
(b) Accounts written off.
(c) Represents net change of inventory allowances.
Reference should be made to the notes to the GM consolidated financial
statements.
IV-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 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: March 5, 2003 By: /s/JOHN F. SMITH, JR.
--- ----------------------------------
(John F. Smith, Jr.
Chairman of the Board of Directors)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on this 5th day of March 2003 by the following
persons on behalf of the Registrant and in the capacities indicated.
Signature Title
- -------------------------- ---------------------------------
/s/JOHN F. SMITH, JR. Chairman of the Board of Directors
- ---------------------
(John F. Smith, Jr.)
/s/G. RICHARD WAGONER, JR. President, Chief Executive Officer,
- -------------------------- and Director
(G. Richard Wagoner, Jr.)
/s/JOHN M. DEVINE Vice Chairman and
- ----------------- Chief Financial Officer
(John M. Devine)
/s/WALTER G. BORST Treasurer
- ------------------
(Walter G. Borst)
/s/PAUL W. SCHMIDT Controller
- ------------------
(Paul W. Schmidt)
/s/PETER R. BIBLE Chief Accounting Officer
- -----------------
(Peter R. Bible)
IV-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES - concluded
Signature Title
- --------- -------------------------
/s/PERCY BARNEVIK Director
- -----------------
(Percy Barnevik)
/s/JOHN H. BRYAN Director
- ----------------
(John H. Bryan)
/s/ARMANDO M. CODINA Director
- --------------------
(Armando Codina)
/s/GEORGE M. C. FISHER Director
- ----------------------
(George M. C. Fisher)
/s/NOBUYUKI IDEI Director
- -----------------
(Nobuyuki Idei)
/s/KAREN KATEN Director
- ----------------
(Karen Katen)
/s/ALAN G. LAFLEY Director
- -----------------
(Alan G. Lafley)
/s/PHILIP A. LASKAWY Director
- --------------------
(Philip A. Laskawy)
/s/E. STANLEY O'NEAL Director
- --------------------
(E. Stanley O'Neal)
/s/ECKHARD PFEIFFER Director
- -------------------
(Eckhard Pfeiffer)
/s/ Director
- -------------------------------------
(Lloyd D. Ward)
IV-6
CERTIFICATION
I, G. Richard Wagoner, Jr., President and Chief Executive Officer, certify
that:
1. I have reviewed this annual report on Form 10-K of General Motors
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 13, 2003
/s/ G. RICHARD WAGONER, JR.
---------------------------
G. Richard Wagoner, Jr.
President and Chief Executive
Officer
IV-7
CERTIFICATION
I, John M. Devine, Vice Chairman and Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of General Motors
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 13, 2003
/s/ JOHN M. DEVINE
--------------------------
John M. Devine
Vice Chairman and Chief Financial
Officer
IV-8