UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
- --- 1934
For the transition period from to
Commission file number 1-143
GENERAL MOTORS CORPORATION
--------------------------
(Exact Name of Registrant as Specified in its Charter)
STATE OF DELAWARE 38-0572515
----------------- ----------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 Renaissance Center, Detroit, Michigan 48265-3000
- ----------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No .
--- ---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes X No .
--- ---
As of April 30, 2005, there were outstanding 565,476,036 shares of the
issuer's $1-2/3 par value common stock.
Website Access to Company's Reports
General Motor's (GM's) internet website address is www.gm.com. Our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to section
13(a) or 15(d) of the Exchange Act are available free of charge through our
website as soon as reasonably practicable after they are electronically filed
with, or furnished to, the Securities and Exchange Commission.
1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income for the Three Months
Ended March 31, 2005 and 2004 (as restated) 3
Supplemental Information to the Consolidated Statements
of Income for the Three Months Ended March 31,
2005 and 2004 (as restated) 4
Consolidated Balance Sheets as of March 31, 2005,
December 31, 2004, and March 31, 2004 (as restated) 5
Supplemental Information to the Consolidated Balance
Sheets as of March 31, 2005, December 31, 2004,
and March 31, 2004 (as restated) 6
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2005 and 2004
(as restated) 7
Supplemental Information to the Condensed Consolidated
Statements of Cash Flows for the Three Months Ended
March 31, 2005 and 2004 (as restated) 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 31
Item 4. Controls and Procedures 32
Part II - Other Information
Item 1. Legal Proceedings 32
Item 2(c). Purchases of equity securities 33
Item 5. Other Information 33
Item 6. Exhibits 33
Signatures 34
Certifications
Exhibit 31.1 Section 302 Certification of the Chief Executive Officer 35
Exhibit 31.2 Section 302 Certification of the Chief Financial Officer 36
Exhibit 32.1 Certification of the Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 37
Exhibit 32.2 Certification of the Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350, As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 38
2
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------
(As restated
See Note 1)
2005 2004
------ ------
(dollars in millions
except per share amounts)
Total net sales and revenues $45,773 $47,830
------ ------
Cost of sales and other expenses 39,313 38,773
Selling, general, and administrative expenses 4,889 5,009
Interest expense 3,679 2,784
------ ------
Total costs and expenses 47,881 46,566
------ ------
Income (loss) before income taxes, equity income
and minority interests (2,108) 1,264
Income tax expense (benefit) (935) 308
Equity income (loss) and minority interests 69 252
----- -----
Net income (loss) $(1,104) $1,208
===== =====
Basic earnings (loss) per share attributable to
common stock (Note 8) $(1.95) $2.14
==== ====
Earnings (loss) per share attributable to common stock
assuming dilution (Note 8) $(1.95) $2.12
==== ====
Reference should be made to the notes to consolidated financial statements.
3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------
(As restated
See Note 1)
2005 2004
------ ------
(dollars in millions
AUTOMOTIVE AND OTHER OPERATIONS
Total net sales and revenues $37,303 $40,137
------ ------
Cost of sales and other expenses 36,906 36,431
Selling, general, and administrative expenses 2,837 3,023
------ ------
Total costs and expenses 39,743 39,454
------ ------
Interest expense 685 562
Net expense from transactions with
Financing and Insurance Operations 87 68
------ --
Income (loss) before income taxes, equity income, and
minority interests (3,212) 53
Income tax (benefit) (1,307) (137)
Equity income (loss) and minority interests 72 254
----- ---
Net income (loss) - Automotive and Other Operations $(1,833) $444
===== ===
FINANCING AND INSURANCE OPERATIONS
Total revenues $8,470 $7,693
----- -----
Interest expense 2,994 2,222
Depreciation and amortization expense 1,398 1,330
Operating and other expenses 2,143 1,919
Provisions for financing and insurance losses 918 1,079
------ -----
Total costs and expenses 7,453 6,550
Net income from transactions with Automotive
and Other Operations (87) (68)
----- -----
Income before income taxes, equity income,
and minority interests 1,104 1,211
Income tax expense 372 445
Equity income (loss) and minority interests (3) (2)
--- ---
Net income - Financing and Insurance Operations $729 $764
=== ===
The above Supplemental Information is intended to facilitate analysis of General
Motors Corporation's businesses: (1) Automotive and Other Operations; and (2)
Financing and Insurance Operations.
Reference should be made to the notes to consolidated financial statements.
4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(As restated
See Note 1)
Mar. 31, Mar. 31,
2005 Dec. 31, 2004
(Unaudited) 2004 (Unaudited)
---------- ------ ----------
ASSETS (dollars in millions)
Cash and cash equivalents $26,389 $35,993 $28,535
Marketable securities 26,256 21,737 21,036
------ ------ ------
Total cash and marketable securities 52,645 57,730 49,571
Finance receivables - net 190,646 199,600 186,550
Loans held for sale 22,569 19,934 18,285
Accounts and notes receivable (less allowances) 18,001 21,236 19,515
Inventories (less allowances) (Note 2) 13,189 12,247 12,320
Deferred income taxes 26,615 26,241 27,357
Net equipment on operating leases - (less
accumulated depreciation) 34,371 34,214 31,637
Equity in net assets of nonconsolidated
affiliates 6,500 6,776 6,054
Property - net 38,106 39,020 37,664
Intangible assets - net (Note 3) 4,864 4,925 4,727
Other assets 60,264 57,680 60,547
------- ------- -------
Total assets $467,770 $479,603 $454,227
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable (principally trade) $28,519 $28,830 $27,163
Notes and loans payable 291,831 300,279 278,972
Postretirement benefits other than pensions 28,393 28,111 31,512
Pensions 9,300 9,455 7,795
Deferred income taxes 6,709 7,078 7,660
Accrued expenses and other liabilities 77,001 77,727 74,512
------- ------- -------
Total liabilities 441,753 451,480 427,614
Minority interests 416 397 319
Stockholders' equity
$1-2/3 par value common stock
(outstanding, 565,470,511; 565,132,021;
and 564,488,127 shares) 942 942 941
Capital surplus (principally additional
paid-in capital) 15,234 15,241 15,135
Retained earnings 13,041 14,428 13,678
------ ------ ------
Subtotal 29,217 30,611 29,754
Accumulated foreign currency translation
adjustments (1,784) (1,194) (1,768)
Net unrealized gains (losses) on derivatives 612 589 (8)
Net unrealized gains on securities 535 751 762
Minimum pension liability adjustment (2,979) (3,031) (2,446)
------- ------- -------
Accumulated other comprehensive loss (3,616) (2,885) (3,460)
------- ------- -------
Total stockholders' equity 25,601 27,726 26,294
------- ------- -------
Total liabilities and stockholders' equity $467,770 $479,603 $454,227
======= ======= =======
Reference should be made to the notes to consolidated financial statements.
5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED BALANCE SHEETS
(As restated
See Note 1)
Mar. 31, Mar. 31,
2005 Dec. 31, 2004
(Unaudited) 2004 (Unaudited)
---------- ------ ----------
ASSETS (dollars in millions)
Automotive and Other Operations
Cash and cash equivalents $10,205 $13,148 $11,262
Marketable securities 5,447 6,655 8,763
------ ------ ------
Total cash and marketable securities 15,652 19,803 20,025
Accounts and notes receivable (less allowances) 6,493 6,713 6,868
Inventories (less allowances) (Note 2) 12,736 11,717 11,718
Net equipment on operating leases -
(less accumulated depreciation) 6,329 6,488 6,519
Deferred income taxes and other current assets 11,002 10,794 10,855
------ ------ ------
Total current assets 52,212 55,515 55,985
Equity in net assets of nonconsolidated
affiliates 6,500 6,776 6,054
Property - net 36,265 37,170 35,768
Intangible assets - net (Note 3) 1,550 1,599 1,438
Deferred income taxes 17,763 17,399 18,302
Other assets 40,405 40,844 42,103
------- ------- -------
Total Automotive and Other Operations assets 154,695 159,303 159,650
Financing and Insurance Operations
Cash and cash equivalents 16,184 22,845 17,273
Investments in securities 20,809 15,082 12,273
Finance receivables - net 190,646 199,600 186,550
Loans held for sale 22,569 19,934 18,285
Net equipment on operating leases (less
accumulated depreciation) 28,042 27,726 25,119
Other assets 34,825 35,113 35,077
Net receivable from Automotive and Other
Operations 2,300 2,426 1,660
------- ------- -------
Total Financing and Insurance Operations
assets 315,375 322,726 296,237
------- ------- -------
Total assets $470,070 $482,029 $455,887
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive and Other Operations
Accounts payable (principally trade) $24,168 $24,257 $23,970
Loans payable 2,446 2,062 2,868
Accrued expenses 44,269 46,147 45,305
Net payable to Financing and Insurance
Operations 2,300 2,426 1,660
------- ------- -------
Total current liabilities 73,183 74,892 73,803
Long-term debt 29,879 30,460 29,557
Postretirement benefits other than pensions 23,685 23,406 27,519
Pensions 9,209 9,371 7,731
Other liabilities and deferred income taxes 15,381 15,657 15,617
------- ------- -------
Total Automotive and Other Operations
liabilities 151,337 153,786 154,227
Financing and Insurance Operations
Accounts payable 4,351 4,573 3,193
Debt 259,506 267,757 246,547
Other liabilities and deferred income taxes 28,859 27,790 25,307
------- ------- -------
Total Financing and Insurance Operations
liabilities 292,716 300,120 275,047
------- ------- -------
Total liabilities 444,053 453,906 429,274
Minority interests 416 397 319
Total stockholders' equity 25,601 27,726 26,294
------- ------- -------
Total liabilities and stockholders' equity $470,070 $482,029 $455,887
======= ======= =======
The above Supplemental Information is intended to facilitate analysis of General
Motors Corporation's businesses: (1) Automotive and Other Operations; and (2)
Financing and Insurance Operations.
Reference should be made to the notes to consolidated financial statements.
6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
--------------------
(As restated
See Note 1)
2005 2004
------ ------
(dollars in millions
Net cash used in operating activities (Note 1) $(4,137) $(3,279)
Cash flows from investing activities
Expenditures for property (1,288) (1,399)
Investments in marketable securities -
acquisitions (6,178) (2,652)
Investments in marketable securities -
liquidations 4,567 2,905
Net originations and purchases of mortgage
servicing rights (397) (300)
Increase in finance receivables (391) (11,076)
Proceeds from sales of finance receivables 6,475 5,962
Operating leases - acquisitions (3,672) (3,153)
Operating leases - liquidations 1,439 1,957
Investments in companies, net of cash acquired (75) 5
Other (2,496) (2,196)
----- -----
Net cash used in investing activities (Note 1) (2,016) (9,947)
Cash flows from financing activities
Net increase in loans payable 1,292 2,217
Long-term debt - borrowings 10,545 20,677
Long-term debt - repayments (16,127) (15,068)
Cash dividends paid to stockholders (283) (282)
Other 1,566 1,764
----- -----
Net cash provided by (used in) financing
activities (3,007) 9,308
Effect of exchange rate changes on cash and cash
equivalents (444) (101)
----- -----
Net decrease in cash and cash equivalents (9,604) (4,019)
Cash and cash equivalents at beginning of the
period 35,993 32,554
------ ------
Cash and cash equivalents at end of the period $26,389 $28,535
====== ======
Reference should be made to the notes to consolidated financial statements.
7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Automotive and Financing and
Other Insurance
Three Months Ended March 31,
------------------------------------
(As restated
See Note 1)
2005 2004 2005 2004
----- ----- ----- ------
(dollars in millions)
Net cash used in operating activities
(Note 1) $(2,555) $(1,809) $(1,582) $(1,470)
Cash flows from investing activities
Expenditures for property (1,233) (1,298) (55) (101)
Investments in marketable securities -
acquisitions (93) (700) (6,085) (1,952)
Investments in marketable securities -
liquidations 1,429 1,004 3,138 1,901
Net change in mortgage services rights - - (397) (300)
Increase in finance receivables - - (391) (11,076)
Proceeds from sales of finance receivables - - 6,475 5,962
Operating leases - acquisitions - - (3,672) (3,153)
Operating leases - liquidations - - 1,439 1,957
Net investing activity with Financing and
Insurance Operations 500 - - -
Investments in companies, net of cash
acquired (75) (16) - 21
Other (374) (16) (2,122) (2,180)
--- ----- ----- -----
Net cash provided by (used in) investing
activities 154 (1,026) (1,670) (8,921)
Cash flows from financing activities
(Note 1)
Net increase (decrease) in loans payable 223 (149) 1,069 2,366
Long-term debt - borrowings 13 24 10,532 20,653
Long-term debt - repayments - (26) (16,127) (15,042)
Net financing activity with Automotive &
Other - - (500) -
Cash dividends paid to stockholders (283) (282) - -
Other - 34 1,566 1,730
----- ---- ----- -----
Net cash provided by (used in) financing
activities (47) (399) (3,460) 9,707
Effect of exchange rate changes on cash and
cash equivalents (369) (96) (75) (5)
Net transactions with Automotive/Financing
Operations (126) 168 126 (168)
------ ------ ------ ---
Net decrease in cash and cash equivalents (2,943) (3,162) (6,661) (857)
Cash and cash equivalents at beginning of
the period 13,148 14,424 22,845 18,130
------ ------ ------ ------
Cash and cash equivalents at end of the
period $10,205 $11,262 $16,184 $17,273
====== ====== ====== ======
The above Supplemental Information is intended to facilitate analysis of General
Motors Corporation's businesses: (1) Automotive and Other Operations; and (2)
Financing and Insurance Operations. Classification of cash flows for Financing
and Insurance Operations is consistent with presentation in GM's Consolidated
Statement of Cash Flows. See Note 1.
Reference should be made to the notes to consolidated financial statements.
8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Financial Statement Presentation
The consolidated financial statements include the accounts of General Motors
Corporation and domestic and foreign subsidiaries that are more than 50% owned,
principally General Motors Acceptance Corporation and Subsidiaries (GMAC),
(collectively referred to as the "Corporation," "General Motors" or "GM"). In
addition, GM consolidates variable interest entities (VIEs) for which it is
deemed to be the primary beneficiary. General Motors' share of earnings or
losses of affiliates is included in the consolidated operating results using the
equity method of accounting when GM is able to exercise significant influence
over the operating and financial decisions of the investee. GM encourages
reference to the GM and GMAC Annual Reports on Form 10-K for the period ended
December 31, 2004 and the GMAC Quarterly Report on form 10-Q for the period
ended March 31, 2005, filed separately with the U.S. Securities and Exchange
Commission (SEC).
GM presents its primary financial statements on a fully consolidated basis.
Transactions between businesses have been eliminated in the Corporation's
consolidated financial statements. These transactions consist principally of
borrowings and other financial services provided by Financing and Insurance
Operations (FIO) to Automotive and Other Operations (Auto & Other).
To facilitate analysis, GM presents supplemental information to the
statements of income, balance sheets, and statements of cash flows for the
following businesses: (1) Auto & Other, which consists of the design,
manufacturing, and marketing of cars, trucks, locomotives, and related parts and
accessories; and (2) FIO, which consists primarily of GMAC. GMAC provides a
broad range of financial services, including consumer vehicle financing,
full-service leasing and fleet leasing, dealer financing, car and truck extended
service contracts, residential and commercial mortgage services, vehicle and
homeowners' insurance, and asset-based lending.
Restatement of First Quarter 2004 Financial Statements for Out-of-period
Adjustments
GM has made certain adjustments to restate previously reported quarterly
financial results for 2004 that do not affect GM's 2004 total annual results,
cash flows, or year-end 2004 financial position.
During the fourth quarter of 2004, internal controls that had been put into
place in connection with GM's Sarbanes-Oxley Section 404 program at GMAC's
residential mortgage businesses identified certain out-of-period adjustments.
The majority of these amounts resulted from items detected and recorded in the
fourth quarter of 2004 that relate to prior 2004 quarters. As a result, GM has
restated its 2004 quarterly financial statements. The most significant of these
restatement adjustments relate to: (1) the estimation of fair values of certain
interests in securitized assets, (2) the accounting for deferred income taxes
related to certain secured financing transactions; and (3) the income statement
effects of consolidating certain mortgage transfers previously recognized as
sales.
Upon identification of these out-of-period adjustments, GM analyzed their
effect, together with the effect of out-of-period adjustments related to Auto &
Other that had been previously considered immaterial to GM on a consolidated
basis, and concluded that, in the aggregate, they were significant enough to
warrant restatement of GM's 2004 quarterly results. The most significant of the
Auto & Other out-of-period adjustments relates to GM's accounting for the
Medicare Prescription Drug, Improvement and Modernization Act of 2003, which was
initially reported in the first quarter of 2004 pursuant to FASB Staff Position
(FSP) No. FAS 106-1. FSP 106-1 permitted companies to recognize the effect of
the Act beginning with its enactment date (December 8, 2003), or defer
recognition until the issuance of final rules by the FASB. In the second quarter
of 2004, FSP 106-2 was issued which clarified how to account for the effect of
the Act under circumstances where a company's other postretirement employee
benefits (OPEB) plan has a plan year-end that is different from the company's
fiscal year-end. This second quarter clarification provided guidance on the
accounting for the effect of the Act in a manner different than GM had
previously applied. A summary of the significant effects of the restatement
follows:
9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 1. Financial Statement Presentation (continued)
Three Months Ended
March 31, 2004
--------------------
As previously As
reported restated
------------- --------
(dollars in millions
except per share amounts)
Total net sales and revenues $47,852 $47,830
Income before income taxes, equity income,
and minority interests $1,301 $1,264
Income tax expense 273 308
Minority interests (23) (23)
Earnings of nonconsolidated associates 275 275
----- -----
Net income $1,280 $1,208
===== =====
Basic earnings per share attributable to common stock $2.27 $2.14
==== ====
Average number of shares of common stock
outstanding - basic (in millions) 564 564
Earnings per share attributable to
common stock assuming dilution $2.25 $2.12
==== ====
Average number of shares of common stock
outstanding - diluted (in millions) 569 569
Net income(loss) by reportable operating segment / region
Automotive and Other Operations
GM North America (GMNA) $451 $401
GM Europe (GME) (116) (116)
GM Latin America/Africa/Mid-East (GMLAAM) 1 1
GM Asia Pacific (GMAP) 275 275
Other Operations (117) (117)
--- ---
Net income- Automotive and Other Operations 494 444
Financing and Insurance Operations
Net income - Financing and Insurance Operations 786 764
----- -----
Net income $1,280 $1,208
===== =====
Statements of Cash Flows
After considering the concerns raised by the staff of the SEC as of December
31, 2004, management concluded that certain amounts in the Consolidated
Statements of Cash Flows for the year ended December 31, 2004 should be
reclassified to appropriately present net cash used in operating activities and
net cash used in investing activities. These amounts for the quarter ended March
31, 2004 have been reclassified to be consistent with the quarter ended March
31, 2005.
The Corporation's previous policy was to classify all the cash flow effects
of providing wholesale loans to its independent dealers by GM's Financing and
Insurance Operations as an investing activity in its Consolidated Statements of
Cash Flows. This policy, when applied to the financing of inventory sales, had
the effect of presenting an investing cash outflow and an operating cash inflow
even though there was no cash inflow or outflow on a consolidated basis. The
Corporation has changed its policy to eliminate this intersegment activity from
its Consolidated Statements of Cash Flows and, as a result of this change, all
cash flow effects related to wholesale loans are reflected in the operating
activities section of the Consolidated Statement of Cash Flows for the three
months ended March 31, 2005 and 2004. This reclassification better reflects the
financing of the sale of inventory as a non-cash transaction to GM on a
consolidated basis and eliminates the effects of intercompany transactions.
10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 1. Financial Statement Presentation (concluded)
The following table shows the effects of this reclassification for the three
months ended March 31, 2004, consistent with the 2005 presentation (dollars in
millions):
Net cash provided by operating activities as previously
reported $1,098
Reclassification (4,377)
-----
Revised net cash used in operating activities $(3,279)
=====
Net cash used in investing activities as
previously reported $(14,324)
Reclassification 4,377
-----
Revised net cash used in investing activities $(9,947)
=====
New Accounting Standards
In December 2004, the Financial Accounting Standards Board (FASB) revised
SFAS No. 123 (SFAS No. 123R), "Accounting for Stock-Based Compensation,"
requiring companies to record share-based payment transactions as compensation
expense at fair market value. SFAS No. 123R further defines the concept of fair
market value as it relates to such arrangements. Based on SEC guidance issued in
April 2005, the provisions of this statement will be effective for General
Motors as of January 1, 2006. The Corporation began expensing the fair market
value of newly granted stock options and other stock based compensation awards
to employees pursuant to SFAS No. 123 in 2003; therefore this statement is not
expected to have a material effect on GM's consolidated financial position or
results of operations.
In March 2005, the FASB released FASB Staff Position (FSP) FIN 46(R)-5, which
addresses whether a corporation should consider whether it holds an implicit
interest in a variable interest entity (VIE) or potential VIE when specific
conditions exist to determine if the guidance in FIN 46(R), "Consolidation of
Variable Interest Entities," should be applied. GM had adopted FIN 46(R) as of
January 1, 2004. GM adopted FSP FIN 46(R)-5 upon issuance. The Interpretation
did not have an effect on GM's consolidated financial position or results of
operations.
In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset
Retirement Obligations, an interpretation of FASB Statement No. 143, Accounting
for Asset Retirement Obligations." FIN 47 requires an entity to recognize a
liability for the fair value of a conditional asset retirement obligation when
incurred if the liability's fair value can be reasonably estimated. This
interpretation is effective for fiscal years ending after December 15, 2005.
Management does not expect this interpretation to have a material impact on GM's
consolidated financial position or results of operations.
NOTE 2. Inventories
Inventories included the following (dollars in millions):
March 31, Dec. 31, March 31,
2005 2004 2004
----- ---- ----
Automotive and Other Operations
- -------------------------------
Productive material, work in process,
and supplies $5,179 $4,838 $5,155
Finished product, service parts, etc. 8,999 8,321 8,149
------ ------ ------
Total inventories at FIFO 14,178 13,159 13,304
Less LIFO allowance (1,442) (1,442) (1,586)
------ ------ ------
Total inventories (less allowances) $12,736 $11,717 $11,718
Financing and Insurance Operations
- ----------------------------------
Off-lease vehicles 453 530 602
------ ------ ------
Total consolidated inventories (less
allowances) $13,189 $12,247 $12,320
====== ====== ======
11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 3. Goodwill and Acquired Intangible Assets
The components of the Corporation's acquired intangible assets as of March
31, 2005, and 2004 were as follows (dollars in millions):
Gross Accumulated Net
March 31, 2005 Carrying Amortization Carrying
Amount Amount
------------------------------------
Automotive and Other Operations
- -------------------------------
Amortizing intangible assets:
Patents and intellectual property rights $303 $71 $232
Non-amortizing intangible assets:
Goodwill 571
Pension intangible asset 747
-----
Total goodwill and intangible assets $1,550
-----
Financing and Insurance Operations
- ----------------------------------
Amortizing intangible assets:
Customer lists and contracts $74 $43 31
Trademarks and other 40 21 19
Covenants not to compete 18 18 -
--- -- ----
Total $132 $82 $50
=== ==
Non-amortizing intangible assets:
Goodwill 3,264
-----
Total goodwill and intangible assets 3,314
-----
Total consolidated goodwill and intangible
assets $4,864
=====
Gross Accumulated Net
March 31, 2004 Carrying Amortization Carrying
Amount Amount
------------------------------------
Automotive and Other Operations
- -------------------------------
Amortizing intangible assets:
Patents and intellectual property rights $303 $37 $266
Non-amortizing intangible assets:
Goodwill 536
Pension intangible asset 636
-----
Total goodwill and intangible assets $1,438
-----
Financing and Insurance Operations
- ----------------------------------
Amortizing intangible assets:
Customer lists and contracts $65 $33 32
Trademarks and other 40 17 23
Covenants not to compete 18 18 -
--- -- ----
Total $123 $68 $55
=== == --
Non-amortizing intangible assets:
Goodwill 3,234
-----
Total goodwill and intangible assets 3,289
-----
Total consolidated goodwill and intangible
assets $4,727
=====
Annual amortization expense relating to the existing intangible assets for
each of the next five years is estimated at $35 million to $45 million.
12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 3. Goodwill and Acquired Intangible Assets (concluded)
The changes in the carrying amounts of goodwill for the quarter ended March
31, 2005, and 2004, were as follows (dollars in millions):
Total
Auto &
GMNA GME Other GMAC Total GM
---- --- ----- ---- --------
Balance as of December 31, 2004 $154 $446 $600 $3,274 $3,874
Goodwill acquired during the period - - - 3 3
Effect of foreign currency
translation (3) (26) (29) (13) (42)
--- --- --- ----- -----
Balance as of March 31, 2005 $151 $420 $571 $3,264 $3,835
=== === === ===== =====
Balance as of December 31, 2003 $154 $413 $567 $3,223 $3,790
Goodwill acquired during the period - - - 3 3
Effect of foreign currency
translation (2) (24) (26) 8 (18)
Other (5) - (5) - (5)
--- --- --- ----- -----
Balance as of March 31, 2004 $147 $389 $536 $3,234 $3,770
=== === === ===== =====
NOTE 4. Investment in Nonconsolidated Affiliates
Nonconsolidated affiliates of GM identified herein are those entities in
which GM owns an equity interest and for which GM uses the equity method of
accounting, because GM has the ability to exert significant influence over
decisions relating to their operating and financial affairs. GM's significant
affiliates, and the percent of GM's current equity ownership, or voting
interest, in them include the following: Japan - Fuji Heavy Industries Ltd.
(20.1% at March 31, 2005 and 2004), Suzuki Motor Corporation (20.4% at March 31,
2005 and 20.3% at March 31, 2004); China - Shanghai General Motors Co., Ltd (50%
at March 31, 2005 and 2004), SAIC GM Wuling Automobile Co., Ltd (34% at March
31, 2005 and 2004); Korea - GM Daewoo (48.2% at March 31, 2005 and 44.6% at
March 31, 2004); Italy - GM-Fiat Powertrain (FGP) (50% at March 31, 2005 and
2004). On February 13, 2005, GM entered into certain agreements with Fiat S.p.A.
(Fiat), as a result of which GM will no longer hold an interest in FGP. Under
these agreements, GM and Fiat agreed to terminate and liquidate the joint
ventures as soon as reasonably practicable. GM expects the liquidation of the
joint ventures to be complete in the second quarter of 2005. Information
regarding GM's share of income for all nonconsolidated affiliates in the
following countries is included in the table below (in millions):
GM's share of nonconsolidated affiliates' net income (loss)
- -----------------------------------------------------------
Three Months Ended
March 31,
-------------
2005 2004
---- ----
Italy $21 $18
Japan $50 $106
China $33 $162
Korea $(8) $(8)
NOTE 5. Product Warranty Liability
Policy, product warranty and recall campaigns liability included the
following (dollars in millions):
Three Twelve Three
Ended Months Months Ended Months Ended
March 31, 2005 Dec. 31, 2004 March 31, 2004
-------------- ------------- --------------
Beginning balance $9,133 $8,674 $8,674
Payments (1,209) (4,608) (1,131)
Increase in liability
(warranties issued during
period) 1,221 4,980 1,483
Adjustments to liability
(pre-existing warranties) 5 (85) 6
Effect of foreign currency
translation (110) 172 (80)
----- ----- -----
Ending balance $9,040 $9,133 $8,952
===== ===== =====
13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 6. Commitments and Contingent Matters
Commitments
GM has guarantees related to its performance under operating lease
arrangements and the residual value of lease assets totaling $639 million.
Expiration dates vary, and certain leases contain renewal options. The fair
value of the underlying assets is expected to fully mitigate GM's obligations
under these guarantees. Accordingly, no liabilities were recorded with respect
to such guarantees.
Also, GM has entered into agreements with certain suppliers and service
providers that guarantee the value of the suppliers' assets and agreements with
third parties that guarantee fulfillment of certain suppliers' commitments. The
maximum exposure under these commitments amounts to $128 million.
The Corporation has guaranteed certain amounts related to the securitization
of mortgage loans. In addition, GMAC issues financial standby letters of credit
as part of their financing and mortgage operations. At March 31, 2005
approximately $30 million was recorded with respect to these guarantees, the
maximum exposure under which is approximately $7.6 billion.
In addition to guarantees, GM has entered into agreements indemnifying
certain parties with respect to environmental conditions pertaining to ongoing
or sold GM properties. Due to the nature of the indemnifications, GM's maximum
exposure under these agreements cannot be estimated. No amounts have been
recorded for such indemnities.
In connection with the Delphi Corporation (Delphi) spinoff, completed May 28,
1999, GM has provided limited guarantees with respect to benefits for former GM
employees relating to pensions, post-retirement healthcare, and life insurance.
In addition, GM has provided limited guarantees with respect to benefits for
former GM employees relating to pensions, post-retirement healthcare, and life
insurance in connection with certain other divestitures. Due to the nature of
these indemnities, the maximum exposure under these agreements cannot be
estimated. No amounts have been recorded for such indemnities as the
Corporation's obligations under them are not probable and estimable. Delphi has
given GM an indemnification with respect to all amounts for which GM may be
obligated under the guarantee obligation GM has with respect to employees of
Delphi.
In addition to the above, in the normal course of business GM periodically
enters into agreements that incorporate indemnification provisions. While the
maximum amount to which GM may be exposed under such agreements cannot be
estimated, it is the opinion of management that these guarantees and
indemnifications are not expected to have a material adverse effect on the
Corporation's consolidated financial position or results of operations.
Contingent Matters
Litigation is subject to uncertainties and the outcome of individual
litigated matters is not predictable with assurance. Various legal actions,
governmental investigations, claims, and proceedings are pending against the
Corporation, including those arising out of alleged product defects;
employment-related matters; governmental regulations relating to safety,
emissions, and fuel economy; product warranties; financial services; dealer,
supplier, and other contractual relationships; and environmental matters.
GM has established reserves for matters in which losses are probable and can
be reasonably estimated. Some of the matters may involve compensatory, punitive,
or other treble damage claims, or demands for recall campaigns, environmental
remediation programs, or sanctions, that if granted, could require the
Corporation to pay damages or make other expenditures in amounts that could not
be estimated at March 31, 2005. After discussion with counsel, it is the opinion
of management that such liability is not expected to have a material adverse
effect on the Corporation's consolidated financial condition or results of
operations.
Investment in Fiat Auto Holdings (FAH)
On February 13, 2005 GM and Fiat reached a settlement agreement whereby GM
agreed to pay Fiat approximately $2.0 billion and return its 10% equity interest
in FAH to terminate the Master Agreement (including the Put Option) entered into
in March 2000, settle various disputes related thereto, and acquire an interest
in key strategic diesel engine assets and other important rights with respect to
diesel engine technology and know-how. The settlement agreement resulted in a
pre-tax charge to earnings in the fourth quarter of 2004 of approximately $1.4
billion ($886 million after tax or $1.56 per fully diluted share).
14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 7. Comprehensive Income
GM's total comprehensive income, net of tax, was as follows (in millions):
Three Months Ended
March 31,
-----------------------
2005 2004
---- ----
Net income (loss) $(1,104) $1,208
Other comprehensive income (loss) (731) 146
----- -----
Total $(1,835) $1,354
===== =====
NOTE 8. Earnings Per Share Attributable to Common Stocks
The reconciliation of the amounts used in the basic and diluted earnings
per share computations for income from continuing operations was as follows (in
millions except per share amounts):
$1-2/3 Par Value Common Stock
-------------------------------
Income Per Share
(Loss) Shares Amount
----- ------ ---------
Three Months Ended March 31, 2005
Basic EPS
Income from continuing operations
attributable to common stocks $(1,104) 565 $(1.95)
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - - -
----- --- ----
Diluted EPS
Adjusted income attributable to common
stocks $(1,104) 565 $(1.95)
===== === ====
Three Months Ended March 31, 2004
Basic EPS
Income from continuing operations
attributable to common stocks $1,208 564 $2.14
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 5 -
----- --- ----
Diluted EPS
Adjusted income attributable to common
stocks $1,208 569 $2.12
===== === ====
Certain stock options and convertible securities were not included in the
computation of diluted earnings per share for the periods presented since the
instruments' underlying exercise prices were greater than the average market
prices of GM $1-2/3 par value common stock and inclusion would be antidilutive.
Such shares not included in the computation of diluted earnings per share were
114 million as of March 31, 2005 and 223 million as of March 31, 2004.
NOTE 9. Depreciation and Amortization
Depreciation and amortization included in cost of sales and other expenses
and selling, general and administrative expenses for Automotive and Other
Operations was as follows (in millions):
Three Months Ended
March 31,
--------------------
2005 2004
---- ----
Depreciation $1,270 $1,148
Amortization of special tools 816 726
Amortization of intangible assets 10 7
----- -----
Total $2,096 $1,881
===== =====
15
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 10. Pensions and Other Postretirement Benefits
U.S. Plans Non-U.S. Plans
Pension Benefits Pension Benefits Other Benefits
----------------------------------------------------
Three Months Three Months Three Months
Ended Ended Ended
March 31, March 31, March 31,
----------------------------------------------------
2005 2004 2005 2004 2005 2004
----------------------------------------------------
Components of expense (dollars in millions)
Service cost $274 $273 $72 $62 $188 $157
Interest cost 1,237 1,260 241 223 1,081 1,017
Expected return on plan
assets (1,974) (1,953) (185) (163) (421) (273)
Amortization of prior
service cost 291 319 27 24 (16) (20)
Recognized net actuarial
loss 479 464 69 48 586 374
Curtailments, settlements,
and other 91 34 59 7 - -
--- --- --- --- ----- -----
Net expense $398 $397 $283 $201 $1,418 $1,255
=== === === === ===== =====
NOTE 11. 2005 Initiatives
Results in the first quarter of 2005 include after-tax charges of $140
million recorded in GMNA and $8 million recorded in Other Operations related to
voluntary early retirement and other separation programs with respect to certain
salaried employees in the U.S.
GMNA results in the first quarter of 2005 include a charge of $84 million,
after tax, for the write-down to fair market value of various plant assets in
connection with the first quarter announcement to discontinue production at the
Lansing assembly plant during the second quarter of 2005.
GME results in the first quarter of 2005 include an after-tax separation
charge of $422 million related to the restructuring plan announced in the fourth
quarter of 2004. This plan targets a reduction in annual structural costs of an
estimated $600 million by 2006. A total reduction of 12,000 employees, including
10,000 in Germany, over the period 2005 through 2007 through separation
programs, early retirements, and selected outsourcing initiatives is expected.
The charge incurred in the first quarter of 2005 covers approximately 5,650
people, of whom 4,900 are in Germany.
16
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 12. Segment Reporting
Auto & Other Total
GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing
---- --- ------ ---- --- ----- ----- ---- --------- ---------
For the Three Months Ended (dollars in millions)
March 31, 2005
Manufactured products
sales and revenues:
External customers $26,085 $7,573 $2,134 $1,535 $37,327 $(24) $37,303 $8,221 $249 $8,470
Intersegment (707) 384 165 159 1 (1) - - - -
------ ----- ----- ----- ------ --- ------ ----- --- -----
Total manufactured products $25,378 $7,957 $2,299 $1,694 $37,328 $(25) $37,303 $8,221 $249 $8,470
====== ===== ===== ===== ====== === ====== ===== === =====
Interest income (a) $296 $91 $19 $3 $409 $(200) $209 $477 $(94) $383
Interest expense $758 $111 $24 $7 $900 $(215) $685 $3,001 $(7) $2,994
Net income (loss) $(1,560) $(525) $46 $60 $(1,979) $146 $(1,833) $728 $ 1 $729
Segment assets $124,590 $25,197 $4,473 $5,013 $159,273 $(4,578) $154,695 $315,228 $147 $315,375
For the Three Months Ended
March 31, 2004
Manufactured products
sales and revenues:
External customers $29,643 $7,278 $1,729 $1,428 $40,078 $59 $40,137 $7,570 $123 $7,693
Intersegment (540) 265 104 171 - - - - - -
------ ----- ----- ----- ------ --- ------ ----- ---- -----
Total manufactured products $29,103 $7,543 $1,833 $1,599 $40,078 $59 $40,137 $7,570 $123 $7,693
====== ===== ===== ===== ====== === ====== ===== === =====
Interest income (a) $186 $81 $11 $2 $280 $(123) $157 $333 $(69) $264
Interest expense $639 $87 $(6) $7 $727 $(165) $562 $2,223 $(1) $2,222
Net income (loss) from
continuing operations $401 $(116) $1 $275 $561 $(117) $444 $764 $ - $764
Segment assets $129,926 $24,013 $3,595 $3,791 $161,325 $(1,675) $159,650 $296,820 $(583) $296,237
- ------------------------
(a) Interest income is included in net sales and revenues from external
customers.
17
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded
(Unaudited)
NOTE 13. Subsequent Event
On April 4, 2005, GM, Greenbriar Equity Group LLC (Greenbriar), and Berkshire
Partners LLC (Berkshire) announced that they have concluded the sale of
Electro-Motive Division (EMD) by GM to an investor group led by Greenbriar and
Berkshire. The sale covers substantially all of the EMD businesses, and both the
LaGrange, Illinois and London, Ontario manufacturing facilities. GM does not
expect this transaction to have a material effect on GM's consolidated financial
position or results of operations.
* * * * * *
18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the December 31,
2004 consolidated financial statements and notes thereto (the 2004 Consolidated
Financial Statements), along with the MD&A included in General Motors
Corporation's (the Corporation, General Motors, or GM) 2004 Annual Report on
Form 10-K, as well as General Motors Acceptance Corporation's (GMAC) Annual
Report on Form 10-K for the period ended December 31, 2004 and the Quarterly
Report on Form 10-Q for the period ended March 31, 2005, filed separately with
the U.S. Securities and Exchange Commission (SEC). All earnings per share
amounts included in the MD&A are reported on a fully diluted basis.
GM presents separate supplemental financial information for its reportable
operating segments:
o Automotive and Other Operations (Auto & Other); and
o Financing and Insurance Operations (FIO).
GM's Auto & Other reportable operating segment consists of:
o GM's four automotive regions: GM North America (GMNA), GM Europe (GME),
GM Latin America/Africa/Mid-East (GMLAAM), and GM Asia Pacific (GMAP),
which constitute GM Automotive (GMA); and
o Other, which includes the design, manufacturing and marketing of
locomotives, the elimination of intersegment transactions, certain
non-segment specific revenues and expenditures, including legacy costs
related to postretirement benefits for certain Delphi and other
retirees, and certain corporate activities.
GM's FIO reportable operating segment consists of GMAC and Other Financing,
which includes financing entities that are not consolidated by GMAC.
The disaggregated financial results for GMA have been prepared using a
management approach, which is consistent with the basis and manner in which GM
management internally disaggregates financial information for the purpose of
assisting in making internal operating decisions. In this regard, certain common
expenses were allocated among regions less precisely than would be required for
stand-alone financial information prepared in accordance with accounting
principles generally accepted in the U.S. (GAAP). The financial results
represent the historical information used by management for internal
decision-making purposes; therefore, other data prepared to represent the way in
which the business will operate in the future, or data prepared in accordance
with GAAP, may be materially different.
Consistent with industry practice, market share information employs estimates
of sales in certain countries where public reporting is not legally required or
otherwise available on a consistent basis.
The accompanying MD&A gives effect to the restatement of the Consolidated
Financial Statements discussed in Note 1 to the Consolidated Financial
Statements.
19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated Results Three Months Ended
March 31,
---------------------
Restated
2005 2004
---- ----
(dollars in millions)
Consolidated:
Total net sales and revenues $45,773 $47,830
Net income (loss) $(1,104) $1,208
Net margin (2.4%) 2.5%
Automotive and Other Operations:
Total net sales and revenues $37,303 $40,137
Net income (loss) $(1,833) $444
Financing and Insurance Operations:
Total revenues $8,470 $7,693
Net income $729 $764
The decrease in first quarter 2005 total net sales and revenues, compared
with first quarter 2004, was due to decreased GMA revenue of $2.8 billion,
primarily driven by lower production volume and unfavorable product mix at GMNA,
partly offset by revenue increases in all other automotive regions. FIO revenue
increased $777 million.
Consolidated net income decreased $2.3 billion to a net loss of $1.1 billion
in the first quarter of 2005, compared to income of $1.2 billion in the first
quarter of 2004. The net loss at Auto & Other of $1.8 billion is attributable to
GMNA, which had a net loss of $1.6 billion, and GME, which had a net loss of
$525 million. GMAC earned $728 million in the first quarter of 2005, down $36
million from the 2004 level, reflecting lower financing income partially offset
by higher income from mortgage and insurance operations.
On a consolidated basis, GM recognized a net tax benefit of $935 million on a
loss before taxes, equity income, and minority interests of $2.1 billion,
resulting in an effective tax rate for the first quarter of 2005 of 44%. For
2005, GM expects to recognize substantial permanent tax benefits that do not
vary with pre-tax income, such as Medicare Part D benefits in the U.S. For the
first quarter of 2005, GM's income tax provision was based on the total of
pre-tax income at statutory tax rates plus one-fourth of these expected
benefits. Taxes were allocated to GM's automotive regions based on effective tax
rates used by management for evaluating their performance. Tax benefits in
excess of those recognized in GMA are allocated to Other Operations. GM's
quarterly tax provisions for the remainder of 2005 will be consistent with this
approach.
First quarter 2005 highlights included:
o GMNA incurred a significant loss due to lower volumes, unfavorable mix, and
increased health-care expense;
o GME recognized an employee separation charge related to restructuring
initiatives;
o GMLAAM was profitable for the fifth consecutive quarter;
o GMAP earned lower net income resulting from challenging conditions in China
and lower income in Japan; and
o GMAC earned significant net income despite a lower net interest margin
environment.
20
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review
Three Months Ended
March 31,
---------------------
Restated
2005 2004
---- ----
(dollars in millions)
Auto & Other:
Total net sales and revenues $37,303 $40,137
Net income (loss) $(1,833) $444
GMA net income (loss) by region:
GMNA $(1,560) $401
GME (525) (116)
GMLAAM 46 1
GMAP 60 275
----- ---
Net income (loss) $(1,979) $561
Net margin (5.3%) 1.4%
GM global automotive market share 13.4% 13.6%
Other:
Net income (loss) $146 $(117)
GM Automotive's net sales and revenues declined $2.8 billion, or 7%, in the
first quarter of 2005, compared to the year-earlier quarter. The decrease was
driven by a 13% decline in GMNA's total sales, while all other regions increased
revenues over the first quarter of 2004. GM's global market share was 13.4% and
13.6% for the first quarters of 2005 and 2004, respectively. GMNA's market share
decreased 1.1 percentage points, to 25.2% for the quarter, compared to 2004.
Market share gains were achieved in GME and GMAP, while GMLAAM's share decreased
slightly despite an increase in sales volume (see discussion below under each
region).
GMA incurred a net loss of $1,979 million in the first quarter 2005, compared
to net income of $561 million in 2004, accounted for by a substantial loss at
GMNA and a restructuring charge at GME. Operating results at GME, GMLAAM, and
GMAP met or exceeded management's expectations for the quarter.
GM Automotive Regional Results
GM North America Three Months Ended
March 31,
----------------------
Restated
2005 2004
---- ----
(dollars in millions)
GMNA
Net income (loss) $(1,560) $401
Net margin (6.1%) 1.4%
Production volume (volume in thousands)
Cars 470 525
Trucks 713 820
----- -----
Total GMNA 1,183 1,345
Vehicle unit sales
Industry - North America 4,684 4,676
GM as a percentage of industry 25.2% 26.3%
Industry - U.S. 3,998 3,994
GM as a percentage of industry 25.4% 26.7%
GM cars 23.3% 25.9%
GM trucks 27.1% 27.3%
North American industry vehicle unit sales were essentially unchanged at 4.7
million in the first quarter of 2005 compared to 2004. While industry sales were
flat, GMNA's market share declined 1.1 percentage points to 25.2% from 26.3% in
the first quarter of 2004.
During the first quarter of 2005, industry vehicle unit sales in the United
States were unchanged at 4.0 million units compared to the first quarter of
2004. GM's U.S. market share decreased by 1.3 percentage points, to 25.4%,
compared to the first quarter of 2004. U.S. car market share declined by 2.6
percentage points to 23.3%, while U.S. truck market share declined to 27.1%,
down 0.2 percentage point.
21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
GM North America (concluded)
In the first quarter of 2005, GMNA recorded a net loss of $1.6 billion, a
deterioration of $2.0 billion from 2004 net income of $401 million. The decrease
was primarily due to lower production volume, unfavorable product mix, negative
pricing, and higher health-care expense, partially offset by structural cost
savings. Production volume was lower in 2005 by 162 thousand units, at 1.183
million for the quarter, compared to 1.345 million in the first quarter of 2004.
Dealer inventories in the U.S. declined by 99 thousand units as a result of
this, to 1.243 million at March 31, 2005 from 1.342 million units at March 31,
2004. Product mix was unfavorable primarily due to a decrease in sales of large
utility vehicles, with an increase in less-profitable smaller utilities and
small cars.
Results in the first quarter of 2005 included an after-tax charge of
$140 million related to voluntary early retirement and other separation programs
with respect to certain salaried employees in the U.S. First quarter 2005 also
included a charge of $84 million, after tax, for the write-down to fair market
value of various plant assets in connection with the first quarter announcement
to discontinue production at the Lansing assembly plant during the second
quarter of 2005.
GMNA's plans to improve financial results through the rest of 2005 include
continued new product introductions throughout the year, with the goal of
reaching 25% of 2005 sales volume with products introduced after the first half
of 2004, continued focus on differentiating divisional brands, attention to
under-performing key markets, a focus on offering better value to the customer,
and further improvements in cost structure, where the greatest need for
reduction is in health-care costs.
The negative mix factors noted above, as well as retail price adjustments for
mid-size utilities, were primarily responsible for the decrease in vehicle
revenue per unit to $18,396 in the first quarter of 2005, from $19,084 in 2004.
GM Europe Three Months Ended
March 31,
--------------------
2005 2004
---- ----
(dollars in millions)
GME net loss $(525) $(116)
GME net margin (6.6%) (1.5%)
(volume in thousands)
Production volume 502 473
Vehicle unit sales
Industry 5,254 5,353
GM as a percentage of industry 9.8% 9.4%
GM market share - Germany 10.9% 10.6%
GM market share - United Kingdom 14.8% 14.0%
Industry vehicle unit sales decreased in Europe during the first quarter of
2005 by approximately 2% to 5.3 million, from 5.4 million in the first quarter
of 2004, with strong year-over-year growth in Eastern Europe and France more
than offset by declines in the rest of the Western and the Central regions.
Despite the lower industry volumes, GME's vehicle unit sales increased by 13
thousand units over the first quarter of 2004, to 513 thousand units. In
addition, GME achieved its highest quarterly market share in six years; at 9.8%
it was 0.4 percentage point higher than the same period in 2004. In the two
largest markets in Europe, GM gained market share: share was 10.9% in Germany, a
0.3 percentage point increase versus the first quarter of 2004, and 14.8% in the
United Kingdom, an increase of 0.8 percentage point versus the same period in
2004. Market share also improved in every other significant European market,
other than Spain.
Net loss for GME totaled $525 million and $116 million in the first quarters
of 2005 and 2004 respectively. The increased loss is primarily the result of an
after-tax separation charge of $422 million related to the restructuring plan
announced in the fourth quarter of 2004. This plan targets a reduction in annual
structural costs of an estimated $600 million by 2006. A total reduction of
12,000 employees, including 10,000 in Germany, over the period 2005 through 2007
through separation programs, early retirements, and selected outsourcing
initiatives is expected. The charge incurred in the first quarter of 2005 covers
approximately 5,650 people, of whom 4,900 are in Germany. The Corporation's plan
is on track and anticipates further separations and associated charges in the
remainder of 2005 and into 2006 and 2007. The amount of such future separation
charges will be recognized in the respective periods, and will depend both on
the type of separations and associated workforce demographics.
In addition to the separation charge, favorable product mix and improvements
in material costs were largely offset by continued price deterioration, which
was the result of increased marketing programs, especially in Germany and the
U.K.
22
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
GM Latin America/Africa/Mid-East Three Months Ended
March 31,
---------------------
2005 2004
---- ----
(dollars in millions)
GMLAAM net income $46 $1
GMLAAM net margin 2.0% 0.1%
(volume in thousands)
Production volume 185 159
Vehicle unit sales
Industry 1,144 984
GM as a percentage of industry 16.0% 16.2%
GM market share - Brazil 19.0% 23.5%
Industry vehicle unit sales in the LAAM region increased over 16% in the
first quarter of 2005, to 1.144 million units, compared to the first quarter of
2004. Overall, GMLAAM's market share for the region decreased 0.2 percentage
point, to 16.0% in the first quarter of 2005. This decline was primarily the
result of a 4.5 percentage point decline in Brazil market share, largely offset
by increases in Argentina and the Middle East. Low plant inventories in Brazil
in January and February 2005, which were the result of strong sales in December
2004, contributed to the sales decline, which was largely reversed in March.
GMLAAM sales continue to grow rapidly in South Africa.
GMLAAM earned net income of $46 million in the quarter, up from net income of
$1 million in the first quarter of 2004. The first quarter of 2005 is the fifth
consecutive quarter of profitability for GMLAAM.
GM Asia Pacific Three Months Ended
March 31,
---------------------
2005 2004
---- ----
(dollars in millions)
GMAP net income $60 $275
GMAP net margin 3.5% 17.2%
(volume in thousands)
Production volume 341 296
Vehicle unit sales
Industry 4,597 4,575
GM as a percentage of industry 5.0% 4.9%
GM market share - Australia 18.5% 20.0%
GM market share - China 10.4% 9.9%
Industry vehicle unit sales in the Asia Pacific region were virtually
unchanged in the first quarter of 2005 compared to the first quarter of 2004, at
4.6 million units. Declines in industry volume in China, Japan, and South Korea
were offset primarily by gains in Australia, India, and Thailand. GMAP increased
its vehicle unit sales (including GM Daewoo Auto & Technology Company [GM-DAT]
and China affiliates) in the region by 6 thousand units, or 3% in the period, to
231 thousand units from 225 thousand in 2004. GMAP's first quarter 2005 market
share increased to 5.0%, from 4.9% in the first quarter of 2004. Despite lower
industry sales in China, GMAP increased its sales volume compared to the first
quarter of 2004, and increased its market share in China to 10.4% in the first
quarter of 2005, up from 9.9% in the first quarter of 2004. GM expects industry
sales in China in the second half of 2005 to exceed the level in the same period
of 2004. In an effort to continue gaining market share, GMAP will introduce
eight new or upgraded models in China through the balance of 2005.
Net income from GMAP was $60 million and $275 million in the first quarters
of 2005 and 2004, respectively. The decrease in GMAP's net income, compared with
the first quarter of 2004, was primarily due to lower equity earnings from
Shanghai GM, primarily due to unfavorable pricing, partially offset by favorable
mix. In addition, Japan equity income decreased compared to the prior period due
to a one-time favorable pension gain recognized at Suzuki in the first quarter
of 2004. GM Holden's results were lower than in the first quarter of 2004 due to
lower production as a result of plant rearrangements and modernization at the
beginning of 2005 coupled with weaker mix due to declining demand in the upper
medium segment of the market and lower export volumes.
23
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
On February 3, 2005 GM completed the purchase of 16.6 million newly-issued
shares of common stock in GM-DAT for approximately $49 million. This increased
GM's ownership in GM-DAT to 48.2% from 44.6%. No other shareholders in GM-DAT
participated in the issue.
Other Operations
Three Months Ended
March 31,
---------------------
2005 2004
---- ----
(dollars in millions)
Other:
Total net sales, revenues, and $(25) $59
eliminations
Net income (loss) $146 $(117)
=== ===
Other Operations recorded net income of $146 million in the first quarter of
2005, compared to a net loss of $117 million in 2004. The improved results
include tax benefits of $389 million recognized in Other Operations. As
discussed above, these benefits relate to various items that generally do not
vary with changes in pre-tax income. In addition, Other Operations' results
include after-tax legacy costs of $112 million and $102 million for the first
quarters of 2005 and 2004, respectively, related to employee benefit costs of
divested businesses, primarily Delphi, for which GM has retained responsibility.
Other Operations' results also include $8 million, after tax, related to the
early retirement and other separation programs described above for certain
salaried employees in the U.S.
Health-care Costs
GM is currently exposed to significant and growing liabilities for other
postretirement employee benefits (OPEB), including retiree healthcare and life
insurance, for both its hourly and salaried workforces. GM discontinued offering
OPEB to salaried workers hired after 1992. Such employees now comprise
approximately 30% of GM's U.S. active salaried workforce. GM's OPEB liabilities
have grown to $77.5 billion as of December 31, 2004 with increases in recent
years primarily resulting from increases in health-care inflation. GM's OPEB
liabilities affect GM's short-term and long-term financial condition in several
ways. GM's OPEB liabilities affect GM's OPEB expense, which affects GM's net
income. GM's pre-tax OPEB expense has grown to an estimated $5.7 billion in
2005, up $1.1 billion from 2004, primarily as a result of rising retiree
health-care costs and falling discount rates. GM's total pre-tax health-care
expense for 2005 is estimated to be $7.4 billion. This cost increase has
challenged GM's ability to reduce its structural costs.
In recent years, GM has paid its OPEB expenditures from operating cash flow,
which reduces GM's liquidity and cash flow from operations. GM's OPEB spending
is expected to be $4.2 billion in 2005, up $0.4 billion from 2004. GM's total
cash spending for healthcare in 2005 is estimated to be $5.8 billion, also up
approximately $0.4 billion from 2004 spending levels. However, GM has VEBA
trusts totaling $20.8 billion that could be used to reimburse GM for its OPEB
expenditures under certain circumstances. GM's OPEB liabilities also negatively
affect GM's credit ratings, which are discussed at "Status of Debt Ratings"
below.
Because of the importance of OPEB liabilities to GM's financial condition, GM
management is pursuing an aggressive strategy on several fronts to mitigate the
continued growth of these liabilities. These efforts include public policy
initiatives, improvements to the health-care delivery system, enhanced consumer
awareness of the effect of health-care choices and on-going discussions with our
labor unions about the level of OPEB benefits provided to hourly employees.
GMAC Financial Review
GMAC's net income was $728 million and $764 million in the first quarters of
2005 and 2004, respectively.
Three Months Ended
March 31,
---------------------
Restated
2005 2004
---- ----
(dollars in millions)
Financing operations $248 $442
Mortgage operations 385 231
Insurance operations 95 91
--- ---
Net income $728 $764
=== ===
24
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (concluded)
Net income from financing operations totaled $248 million and $442 million in
the first quarters of 2005 and 2004, respectively. The decrease in net income in
the first quarter of 2005, compared with 2004, was primarily the result of
significantly lower net interest margins, partially offset by improved credit
experience and stronger used car prices. During the first quarter of 2005,
remarketing results of off-lease vehicles continued to improve, with the average
gain per vehicle increasing from $461 in 2004 to $1,179 per vehicle in 2005.
Net income from mortgage operations totaled $385 million in the first quarter
of 2005, a 67% increase over the $231 million earned in the first quarter of
2004, reflecting increases for all three of GMAC's mortgage entities - GMAC
Residential Mortgage, GMAC-RFC, and GMAC Commercial Mortgage. Increases in
interest rates favorably affected mortgage servicing results and fee-based
revenue. Although mortgage industry volumes in the first quarter of 2005 were
below those of the first quarter of 2004, GMAC's mortgage operations continued
to increase market share. As a result, mortgage origination volumes were higher
for both the residential and commercial mortgage operations, compared to the
first quarter of 2004, resulting in an increase in gains on sales of loans.
Net income from insurance operations totaled $95 million and $91 million in
the first quarters of 2005 and 2004, respectively. The increase in net income
in the first quarter of 2005, compared with 2004, was primarily due to strong
net underwriting revenue and investment income.
2005 Priorities / Targets
With respect to GM's and GMNA's earnings for the remainder of 2005, GM has
determined not to provide a forecast at this time due to the uncertainty
affecting key elements of its outlook, such as a resolution of the current
health-care cost issues facing GM. GME, GMLAAM, GMAP and GMAC are expected to
meet or exceed their net income targets of $(500) million, $100 million, $600
million, and $2,500 million or more, respectively, for 2005.
LIQUIDITY AND CAPITAL RESOURCES
Statements of Cash Flows Reclassifications
After considering the concerns raised by the staff of the SEC as of December
31, 2004, management concluded that certain amounts in the Consolidated
Statements of Cash Flows for the year ended December 31, 2004 should be
reclassified to appropriately present net cash provided by operating activities
and net cash used in investing activities. These amounts have been reclassified
consistently as of March 31, 2004.
The Corporation's previous policy was to classify all the cash flow effects
of providing wholesale loans to its independent dealers by GM's Financing and
Insurance Operations as an investing activity in its Consolidated Statements of
Cash Flows. This policy, when applied to the financing of inventory sales, had
the effect of presenting an investing cash outflow and an operating cash inflow
even though there was no cash inflow or outflow on a consolidated basis. The
Corporation has changed its policy to eliminate this intersegment activity from
its Consolidated Statements of Cash Flows and, as a result of this change, all
cash flow effects related to wholesale loans are reflected in the operating
activities section of the Consolidated Statement of Cash Flows for the quarter
ended March 31, 2004. This reclassification better reflects the financing of the
sale of inventory as a non-cash transaction to GM on a consolidated basis and
eliminates the effects of intercompany transactions. See Note 1 to the
Consolidated Financial Statements for the effect of this reclassification.
Status of Debt Ratings
In the first quarter of 2005, GM and GMAC experienced adequate access to
the capital markets consistent with their diversified funding strategy and
liquidity positions. On March 16, 2005, Standard & Poor's lowered the outlook on
GM's and GMAC's long-term credit rating from BBB- with a stable outlook to BBB-
with a negative outlook and, at the same time, lowered the outlook on GM's and
GMAC's commercial paper rating from A-3 with a stable outlook to A-3 with a
negative outlook. On May 5, 2005, Standard & Poor's downgraded GM's and GMAC's
long-term credit rating from BBB- with a negative outlook to BB with a negative
outlook and, at the same time, downgraded GM's and GMAC's commercial paper
rating from A-3 with a negative outlook to B-1 with a negative outlook. On
February 14, 2005, Moody's lowered the outlook on GM's and GMAC's long-term
credit ratings of Baa2 and Baa1, respectively, to negative from stable and, at
the same time, lowered the outlook on GM's and GMAC's commercial paper rating of
Prime-2 to negative from stable. On April 5, 2005, Moody's downgraded GM's
long-term credit rating from Baa2 with a negative outlook to Baa3 with a
negative outlook and, at the same time, downgraded GMAC's long-term credit
rating from Baa1 with a negative outlook to Baa2 with a
25
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (continued)
Status of Debt Ratings (concluded)
negative outlook. Moody's lowered GM's commercial paper rating to Prime-3 with a
negative outlook from Prime-2 with a negative outlook and, at the same time,
lowered the outlook on GMAC's commercial paper rating of Prime-2 from stable to
negative. On March 16, 2005, Fitch downgraded GM's and GMAC's long-term credit
rating from BBB with a negative outlook to BBB- with a negative outlook and, at
the same time, downgraded GM's and GMAC's commercial paper rating from F2 with a
negative outlook to F3 with a negative outlook. On March 16, 2005, DBRS
downgraded GM's long-term rating from BBB (high) with a stable outlook to BBB
with a negative outlook and, at the same time, lowered the outlook on GMAC's
long-term credit rating of BBB (high) from stable to negative. DBRS downgraded
GM's commercial paper rating from R-1 (low) with a stable outlook to R-2 (high)
with a negative outlook and, at the same time, lowered the outlook on GMAC's
commercial paper rating of R-1 (low) from stable to negative. Refer to the table
below for a summary of GM's and GMAC's credit ratings subsequent to these rating
actions.
A further reduction of GM's and/or GMAC's credit ratings such that GM
and/or GMAC would be rated non-investment grade by more than one rating agency
would increase their borrowing costs and further constrain their access to
unsecured debt markets, including capital markets for retail debt. In addition,
a further reduction of GM's and/or GMAC's credit ratings could increase the
possibility of additional terms and conditions contained in any new or
replacement financing arrangements. However, over the past few years, GM and
GMAC have increased their focus on expanding and developing diversified funding
sources, including committed bank conduit facilities and asset-backed securities
that are not directly affected by ratings on unsecured debt. Accordingly, the
possibility of a further reduction of GM's and/or GMAC's credit ratings such
that GM and/or GMAC would be rated non-investment grade by more than one rating
agency is not expected to have a material effect on GM's and GMAC's access to
adequate capital to meet the Corporation's funding needs in the short and medium
term.
Notwithstanding the foregoing, management believes that the current ratings
situation and outlook increases the level of risk of the Corporation's funding
strategy over the long term as well as the importance of successfully executing
its plans for improvement of operating results. Management continuously assesses
this matter and is seeking to mitigate the increased risk by exploring whether
actions could be taken that would provide a basis for rating agencies to
evaluate GMAC's financial performance in order to provide GMAC with ratings
independent of those assigned to GM. Currently, only Moody's and DBRS assign a
different credit rating to GMAC than they do to GM. There can be no assurance
that any such actions would be taken or that such actions, if taken, would be
successful in achieving a "split" rating from other rating agencies.
---------------------------------------------------------------
GM GMAC GM GMAC GM GMAC
---------------------------------------------------------------
Rating Agency Senior Debt Commercial Paper Outlook
- -------------
---------------------------------------------------------------
R-2 R-1
DBRS BBB BBB (high) (high) (low) Negative Negative
Fitch BBB- BBB- F3 F3 Negative Negative
Moody's Baa3 Baa2 Prime-3 Prime-2 Negative Negative
S&P BB BB B-1 B-1 Negative Negative
As an additional source of funds, GM currently has unrestricted access to a
$5.6 billion line of credit with a syndicate of banks that is committed through
June 2008. GM also has an additional $0.9 billion in undrawn committed
facilities with various maturities and undrawn uncommitted lines of credit of
$1.8 billion. Similarly, GMAC currently has a $4.6 billion syndicated line of
credit committed through June 2005, $4.4 billion committed through June 2008,
$5.0 billion of bilateral committed lines with various maturities, and
uncommitted lines of credit of $20.4 billion. In addition, New Center Asset
Trust (NCAT) has $19.5 billion of liquidity facilities committed through June
2005. Mortgage Interest Networking Trust (MINT) has $3.4 billion of liquidity
facilities committed to July 2005. NCAT and MINT are special purpose entities
administered by GMAC for the purpose of funding assets as part of GMAC's
securitization and mortgage warehouse funding programs. These entities fund the
purchase of assets through the issuance of asset-backed commercial paper and
represent an important source of liquidity to GMAC. At March 31, 2005 NCAT had
commercial paper outstanding of $11.1 billion, which is not consolidated in the
Corporation's Consolidated Balance Sheet. At March 31, 2005, MINT had commercial
paper outstanding of $1.1 billion, which is reflected as secured debt in the
Corporation's Consolidated Balance Sheet. GMAC also has $61.3 billion in funding
commitments (with $31.9 billion used) with third parties (including third party
asset-backed commercial paper conduits) that may be used as additional secured
funding sources.
26
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (continued)
Automotive and Other Operations
At March 31, 2005, cash, marketable securities, and $4.2 billion ($3.5
billion at December 31, 2004 and March 31, 2004) of readily-available assets of
the Voluntary Employees' Beneficiary Association (VEBA) trust totaled $19.8
billion, compared with $23.3 billion at December 31, 2004 and $23.5 billion at
March 31, 2004. The decrease of approximately 15% from December 31, 2004 was
primarily the result of the net loss of Auto & Other for the first quarter of
2005, and payments totaling approximately $1.7 billion related to the GME
restructuring initiative and to the agreement reached in February 2005 between
GM and Fiat S.p.A. to terminate the Master Agreement (including the Put Option)
between them, settle various disputes related thereto, and other matters. The
increase to $4.2 billion in readily-available assets in the VEBA results from
higher withdrawal capacity from the hourly VEBA trust due to increased other
postretirement employee benefit payments, and the addition of withdrawal
capacity from the salaried VEBA that was funded in 2004. Total assets in the
VEBA trust used to pre-fund part of GM's other postretirement benefits liability
approximated $20.8 billion at March 31, 2005, $20.0 billion at December 31,
2004, and $15.9 billion at March 31, 2004.
Long-term debt was $29.9 billion at March 31, 2005, compared with $30.5
billion at December 31, 2004 and $29.6 billion at March 31, 2004. The ratio of
long-term debt to the total of long-term debt and GM's net assets of Automotive
and Other Operations was 89.9% at March 31, 2005, 84.7% at December 31, 2004,
and 84.5% at March 31, 2004. The ratio of long-term debt and short-term loans
payable to the total of this debt and GM's net assets of Automotive and Other
Operations was 90.6% at March 31, 2005, 85.5% at December 31, 2004, and 85.7% at
March 31, 2004.
Net liquidity, calculated as cash, marketable securities, and $4.2 billion
($3.5 billion at December 31, 2004 and March 31, 2004) of readily-available
assets of the VEBA trust less the total of loans payable and long-term debt, was
a negative $12.5 billion at March 31, 2005, compared with a negative $9.2
billion at December 31, 2004, and a negative $8.9 billion at March 31, 2004.
During the past several years GM has maintained a trade payables program
for its suppliers through General Electric Capital Corporation (GECC). The
program has been offered by GECC to a broad range of industrial companies whose
role as original equipment manufacturers (OEM) in various industries made the
financial flexibility of such a program advantageous for the OEMs and their
suppliers. As would be typical under the GECC program, GECC pays participating
GM suppliers the amount due to them from GM in advance of the date the payments
are due from GM under the terms of the suppliers' contracts with GM, however the
amount of the payment is discounted to reflect the suppliers' early receipt of
payment. On the original due date of the payables GM pays GECC the full amount
originally due. In late 2004, GECC decided that for strategic reasons it would
discontinue offering such financing to any OEM, including GM, or their
suppliers. At March 31, 2005 and 2004, GM owed approximately $0.8 billion and
$1.4 billion, respectively, to GECC under this program. These amounts are
classified as short-term debt in GM's consolidated financial statements. In
connection with GECC's decision to exit the business of providing such financing
programs, GM and GECC have begun the process of winding down the use of that
program by GM and its suppliers. GM is currently implementing the transition of
many of GM's suppliers that have participated in the GECC program to a new
replacement program offered by GMAC. GM anticipates that discontinuance of the
future availability of the GECC program will not result in a material disruption
to the supply of parts and materials to GM, nor will it have a material adverse
effect on GM's financial position, results of operations or cash flow.
Financing and Insurance Operations
At March 31, 2005, GMAC's consolidated assets totaled $315.2 billion,
compared with $324.1 billion at December 31, 2004 and $296.8 billion at March
31, 2004. The decrease from December 31, 2004 was attributable to a decrease in
net finance receivables and loans, from $200.2 billion at December 31, 2004 to
$190.8 billion at March 31, 2005, driven by decreases in retail and wholesale
automotive receivables and mortgage receivables. The increase in GMAC's
consolidated assets at March 31, 2005 compared with March 31, 2004 was due to a
higher balance of investment securities, loans held for sale, and consumer
receivables and loans, including both automotive and residential mortgages.
27
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (concluded)
Financing and Insurance Operations (concluded)
Consistent with the changes in asset levels, GMAC's total debt decreased to
$259.4 billion at March 31, 2005, compared with $267.7 billion at December 31,
2004. Debt was lower by $13.0 billion at March 31, 2004, at $246.4 billion.
GMAC's ratio of total debt to total stockholder's equity at March 31, 2005 was
11.5:1, compared with 11.9:1 at December 31, 2004, and 11.7:1 at March 31, 2004.
GMAC's liquidity, as well as its ability to profit from ongoing activity, is in
large part dependent upon its timely access to capital and the costs associated
with raising funds in different segments of the capital markets. Part of GMAC's
strategy in managing liquidity risk has been to develop diversified funding
sources across a global investor base. As an important part of its overall
funding and liquidity strategy, GMAC maintains substantial bank lines of credit.
These bank lines of credit, which totaled $57.1 billion at March 31, 2005,
provide "back-up" liquidity and represent additional funding sources, if
required. In addition, GMAC has $61.3 billion in funding commitments (with $31.9
billion used) through a variety of committed facilities with third parties
(including third party asset-backed commercial paper conduits) that GMAC's
Financing and Mortgage Operations may use as additional secured funding sources.
Off-Balance Sheet Arrangements
GM and GMAC use off-balance sheet arrangements where economics and sound
business principles warrant their use. GM's principal use of off-balance sheet
arrangements occurs in connection with the securitization and sale of financial
assets generated or acquired in the ordinary course of business by GMAC and its
subsidiaries and, to a lesser extent, by GM. The assets securitized and sold by
GMAC and its subsidiaries consist principally of mortgages, and wholesale and
retail loans secured by vehicles sold through GM's dealer network. The assets
sold by GM consist principally of trade receivables.
In addition, GM leases real estate and equipment from various off-balance
sheet entities that have been established to facilitate the financing of those
assets for GM by nationally prominent lessors that GM believes are creditworthy.
These assets consist principally of office buildings, warehouses, and machinery
and equipment. The use of such entities allows the parties providing the
financing to isolate particular assets in a single entity and thereby syndicate
the financing to multiple third parties. This is a conventional financing
technique used to lower the cost of borrowing and, thus, the lease cost to a
lessee such as GM.
There is a well-established market in which institutions participate in the
financing of such property through their purchase of ownership interests in
these entities and each is owned by institutions that are independent of, and
not affiliated with, GM. GM believes that no officers, directors or employees of
GM, GMAC, or their affiliates hold any direct or indirect equity interests in
such entities.
Assets in off-balance sheet entities were as follows (dollars in millions):
March 31, Dec. 31, March 31,
Automotive and Other Operations 2005 2004 2004
- ------------------------------- ---- ---- ----
Assets leased under operating leases $2,469 $2,553 $2,303
Trade receivables sold (1) 1,153 1,210 795
----- ----- -----
Total $3,622 $3,763 $3,098
===== ===== =====
Financing and Insurance Operations
- ----------------------------------
Receivables sold or securitized:
- Mortgage loans $81,496 $79,043 $84,267
- Retail finance receivables 4,777 5,615 8,501
- Wholesale finance receivables 24,507 21,291 18,702
------- ------- -------
Total $110,780 $105,949 $111,470
======= ======= =======
(1) In addition, trade receivables sold to GMAC were $558 million, $549
million and $506 million for the periods ended March 31, 2005, December
31, 2004, and March 31, 2004, respectively.
BOOK VALUE PER SHARE
Book value per share was determined based on the liquidation rights of the
common stockholders. Book value per share of GM $1-2/3 par value common stock
was $45.27 at March 31, 2005, $49.06 at December 31, 2004, and $46.58 at March
31, 2004.
28
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
DIVIDENDS
Dividends may be paid on GM's $1-2/3 par value common stock only when, as,
and if declared by the GM Board in its sole discretion. The amount available for
the payment of dividends on common stock will be reduced on occasion by
dividends paid and will be adjusted on occasion for changes to the amount of
surplus attributed to the stock resulting from the repurchase or issuance of
shares of stock.
GM's policy is to distribute dividends on its $1-2/3 par value common stock
based on the outlook and indicated capital needs of the business. On February 1,
2005, the GM Board declared a quarterly cash dividend of $0.50 per share on GM
$1-2/3 par value common stock, paid March 10, 2005, to holders of record on
February 11, 2005.
EMPLOYMENT AND PAYROLLS
Worldwide employment for GM and its wholly-owned
subsidiaries at March 31, (in thousands) 2005 2004
---- ----
GMNA 179 186
GME 58 63
GMLAAM 30 26
GMAP 15 14
GMAC 34 33
Other 5 5
--- ---
Total employees 321 327
=== ===
Three Months Ended
March 31,
------------------
2005 2004
---- ----
Worldwide payrolls - (in billions) $5.3 $5.5
=== ===
CRITICAL ACCOUNTING ESTIMATES
The consolidated financial statements of GM are prepared in conformity with
GAAP, which requires the use of estimates, judgments, and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the periods presented. GM's accounting policies and critical accounting
estimates are consistent with those described in Note 1 to the 2004 Consolidated
Financial Statements. Management believes that the accounting estimates employed
are appropriate and resulting balances are reasonable; however, actual results
could differ from the original estimates, requiring adjustments to these
balances in future periods. The Corporation has discussed the development,
selection and disclosures of its critical accounting estimates with the Audit
Committee of GM's Board of Directors, and the Audit Committee has reviewed the
Corporation's disclosures relating to these estimates.
Pension and Other Postretirement Employee Benefits (OPEB)
Pension and OPEB costs and liabilities are dependent on assumptions used in
calculating such amounts. These assumptions include discount rates, health care
cost trend rates, benefits earned, interest cost, expected return on plan
assets, mortality rates, and other factors. In accordance with GAAP, actual
results that differ from the assumptions are accumulated and amortized over
future periods and, therefore, generally affect recognized expense and the
recorded obligation in future periods. While management believes that the
assumptions used are appropriate, differences in actual experience or changes in
assumptions may affect GM's pension and other postretirement obligations and
future expense.
GM has established for its U.S. pension plans a discount rate of 5.75% for
year-end 2004, which represents a 25 basis point reduction from the 6.00%
discount rate used at year-end 2003. GM's U.S. pre-tax pension expense is
forecasted to decrease from approximately $1.5 billion in 2004, excluding
curtailments and settlements, to approximately $1.2 billion in 2005 due to the
approximately 14% 2004 actual return on assets, partially offset by a lower 2004
year-end discount rate.
29
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CRITICAL ACCOUNTING ESTIMATES (concluded)
The following information illustrates the sensitivity to a change in
certain assumptions for U.S. pension plans (as of December 31, 2004 the
projected benefit obligation (PBO) for U.S. pension plans was $89 billion and
the minimum pension liability charged to equity with respect to U.S. pension
plans was $108 million net of tax):
Effect on
Effect on 2005 December 31, 2004
Change in Assumption Pre-Tax Pension Expense PBO
- --------------------------- ------------------------- -----------------
25 basis point decrease in
discount rate +$160 million +$2.3 billion
25 basis point increase in
discount rate -$160 million -$2.2 billion
25 basis point decrease in
expected return on assets +$220 million -
25 basis point increase in
expected return on assets -$220 million -
GM's U.S. pension plans generally provide covered U.S. hourly employees
with pension benefits of negotiated, flat dollar amounts for each year of
credited service earned by an individual employee. Formulas providing for such
stated amounts are contained in the prevailing labor contract. Consistent with
GAAP, the 2005 pre-tax pension expense and December 31, 2004 PBO do not
comprehend any future benefit increases beyond the amounts stated in the
currently prevailing contract that expires in September 2007. The current cycle
for negotiating new labor contracts is every four years. There is no past
practice of maintaining a consistent level of benefit increases or decreases
from one contract to the next. However, the following data illustrates the
sensitivity of pension expense and PBO to hypothetical assumed changes in future
basic benefits. An annual 1% increase in the basic benefit for U.S. hourly
employees would result in a $112 million increase in 2005 pre-tax pension
expense and a $523 million increase in the December 31, 2004 PBO. An annual 1%
decrease in the same benefit would result in a $104 million decrease in 2005
pre-tax pension expense and a $487 million decrease in the December 31, 2004
PBO.
These changes in assumptions would have no effect on GM's funding
requirements. In addition, at December 31, 2004, a 25 basis point decrease in
the discount rate would decrease stockholders' equity by $19.0 million, net of
tax; a 25 basis point increase in the discount rate would increase stockholders'
equity by $19.0 million, net of tax. The impact of greater than a 25 basis point
decrease/increase in discount rate would not be proportional to the first 25
basis point decrease/increase in the discount rate.
GM has established for its U.S. OPEB plans a discount rate of 5.75% for
year-end 2004, which represents a 50 basis point reduction from the 6.25%
discount rate used at year-end 2003.
The following table illustrates the sensitivity to a change in the discount
rate assumption related to GM's U.S. OPEB plans (the U.S. accumulated
postretirement benefit obligation [APBO] was a significant portion of GM's
worldwide APBO of $77.5 billion as of December 31, 2004):
Effect on 2005 Effect on
Pre-Tax OPEB December 31, 2004
Change in Assumption Expense APBO
- --------------------------- ------------------ ---------------------
25 basis point decrease in
discount rate +$200 million +$2.1 billion
25 basis point increase in
discount rate -$200 million -$2.1 billion
GM assumes a 10.5% initial health care cost trend rate and a 5.0% ultimate
health care cost trend rate as of December 31, 2004. A one percentage point
increase in the initial through ultimate assumed health care trend rates would
have increased the APBO by $8.4 billion at December 31, 2004, and the aggregate
service and interest cost components of non-pension postretirement benefit
expense for 2004 by $543 million. A one-percentage point decrease would have
decreased the APBO by $7.0 billion and the aggregate service and interest cost
components of non-pension postretirement benefit expense for 2004 by $384
million.
The above sensitivities reflect the effect of changing one assumption at a
time. It should be noted that economic factors and conditions often affect
multiple assumptions simultaneously and the effects of changes in key
assumptions are not necessarily linear.
30
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NEW ACCOUNTING STANDARDS
In December 2004, the Financial Accounting Standards Board (FASB) revised
SFAS No. 123 (SFAS No. 123R), "Accounting for Stock-Based Compensation,"
requiring companies to record share-based payment transactions as compensation
expense at fair market value. SFAS No. 123R further defines the concept of fair
market value as it relates to such arrangements. Based on SEC guidance issued in
April 2005, the provisions of this statement will be effective for General
Motors as of January 1, 2006. The Corporation began expensing the fair market
value of newly granted stock options and other stock based compensation awards
to employees pursuant to SFAS No. 123 in 2003; therefore this statement is not
expected to have a material effect on GM's consolidated financial position or
results of operations.
In March 2005, the FASB released FASB Staff Position (FSP) FIN 46(R)-5, which
addresses whether a corporation should consider whether it holds an implicit
interest in a variable interest entity (VIE) or potential VIE when specific
conditions exist to determine if the guidance in FIN 46(R), "Consolidation of
Variable Interest Entities," should be applied. GM had adopted FIN 46(R) as of
January 1, 2004. GM adopted FSP FIN 46(R)-5 upon issuance. The Interpretation
did not have an effect on GM's consolidated financial position or results of
operations.
In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset
Retirement Obligations, an interpretation of FASB Statement No. 143, Accounting
for Asset Retirement Obligations." FIN 47 requires an entity to recognize a
liability for the fair value of a conditional asset retirement obligation when
incurred if the liability's fair value can be reasonably estimated. This
interpretation is effective for fiscal yeas ending after December 15, 2005.
Management does not expect this interpretation to have a material impact on GM's
consolidated financial position or results of operations.
FORWARD-LOOKING STATEMENTS
In this report, in reports subsequently filed or furnished by GM with the SEC
on Form 8-K, and in related comments by management of GM our use of the words
"expect," "anticipate," "estimate," "forecast," "objective," "plan," "goal,"
"project," "priorities/targets," and similar expressions is intended to identify
forward-looking statements. While these statements represent our current
judgment on what the future may hold, and we believe these judgments are
reasonable, actual results may differ materially due to numerous important
factors that are described below and other factors that may be described in
subsequent reports that GM may file or furnish with the SEC on Form 8-K:
. Changes in economic conditions, currency exchange rates or political
stability;
. Shortages of and price increase for fuel, labor strikes or work
stoppages, health-care costs, market acceptance of the Corporation's new
products, pace of product introductions;
. Significant changes in the competitive environment;
. Changes in the laws, regulations, and tax rates; and
. The ability of the Corporation to achieve reductions in cost and employment
levels, to realize production efficiencies, and to implement capital
expenditures, all at the levels and times planned by management.
* * * * * * *
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes in the Corporation's exposure to
market risk since December 31, 2004. See Item 7A in GM's Annual Report on Form
10-K for the year ended December 31, 2004.
* * * * * * *
31
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4. Controls and Procedures
The Corporation maintains disclosure controls and procedures designed to
ensure that information required to be disclosed in reports filed under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the specified time periods.
GM's CEO and CFO, after evaluating the effectiveness of GM's disclosure
controls and procedures (as defined in the Securities Exchange Act of 1934 Rules
13a-15(e) or 15d-15(e)) as of the end of the period covered by this report, have
concluded that based on the evaluation of these controls and procedures required
by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, that GM's disclosure
controls and procedures were effective.
There were no changes in the Corporation's internal control over financial
reporting that occurred during the last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Corporation's
internal control over financial reporting.
* * * * * * *
PART II
ITEM 1. Legal Proceedings
(a) Material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Corporation, or its
principal subsidiaries, became a party during the quarter ended March 31,
2005, or subsequent thereto, but before the filing of this report are
summarized below:
Environmental Matters
The EPA Region V filed an Administrative complaint against three General
Motor's facilities on October 17, 2003. The three GM assembly facilities named
in the complaint are Moraine, Ohio, Pontiac, Michigan, and Orion, Michigan. The
complaint alleges multiple violations of the hazardous waste rules as applied to
GM's painting and purge operations. The EPA seeks penalties in excess of
$100,000 and other remedial action. GM believes that the EPA's complaint is
without merit because the purge material in question is not a "waste" but
instead is being used as intended in enclosed systems to clean, suspend paint
solids, and transport fluids. The purge material is thereafter captured,
reclaimed, and reused by GM in its processes. GM intends to vigorously assert
its defenses and the merits of its own position.
* * * * * * * * *
32
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 2(c). Purchases of Equity Securities
GM made the following purchases of GM $1-2/3 par value common stock during the
three months ended March 31, 2005:
Maximum
Number (or
Approximate
Dollar Value)
of Shares
Total Number (or Units)
of Shares (or that May Yet
Total Average Units)Purchased Be Purchased
Number of Price as Part of Under the
Shares (or Paid Publicly Plans
Units per Share Announced Plans or
Period Purchased) (or Unit) or Program Programs
- --------------------------------------------------------------------------------
January 1 to
January 31, 2005 14,831 $39.51 NA NA
February 1 to
February 28, 2005 - - NA NA
March 1 to
March 31, 2005 - - NA NA
- --------------------------------------------------------------------------------
Total 14,831 $39.51 NA NA
- --------------------------------------------------------------------------------
* * * * * * * * *
ITEM 5. Other Information
On May 5, 2005, Standard & Poor's downgraded GM's and GMAC's long-term credit
rating from BBB- with a negative outlook to BB with a negative outlook and, at
the same time, downgraded GM's and GMAC's commercial paper rating from A-3 with
a negative outlook to B-1 with a negative outlook.
* * * * * * * * *
ITEM 6. Exhibits
Exhibit Page
Number Exhibit Name Number
- ------ ------------ ------
(31.1) Section 302 Certification of the Chief Executive Officer 35
(31.2) Section 302 Certification of the Chief Financial Officer 36
(32.1) Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 37
(32.2) Certification of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, As Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 38
* * * * * *
33
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
--------------------------
(Registrant)
Date: May 10, 2005 By: /s/PETER R. BIBLE
--- -----------------
(Peter R. Bible,
Chief Accounting Officer)
34