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 JuneSeptember 30, 2005
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
- ---- 1934
For the transition period from to
Commission file number 1-143
GENERAL MOTORS CORPORATION
--------------------------
(Exact Name of Registrant as Specified in its Charter)
STATE OF DELAWARE 38-0572515
----------------- ----------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 Renaissance Center, Detroit, Michigan 48265-3000
- ----------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
--- ---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes X.X No .
--- ---
As of JulyOctober 31, 2005, there were outstanding 565,503,422565,506,606 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
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
Part I - Financial Information
Item 1. Condensed Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the
Three Months and SixNine Months Ended JuneSeptember 30, 2005
and 2004 (as restated) 3
Supplemental Information to the Condensed Consolidated
Statements of Income for the Three Months and SixNine
Months Ended JuneSeptember 30, 2005 and 2004 (as restated) 4
Condensed Consolidated Balance Sheets as of JuneSeptember
30, 2005, December 31, 2004, and JuneSeptember 30, 2004
(as restated) 5
Supplemental Information to the Condensed Consolidated
Balance Sheets as of JuneSeptember 30, 2005, December 31,
2004, and JuneSeptember 30, 2004 (as restated) 6
Condensed Consolidated Statements of Cash Flows for the
SixNine Months Ended JuneSeptember 30, 2005 and 2004
2004 (as restated) 7
Supplemental Information to the Condensed Consolidated
Statements of Cash Flows for the SixNine Months Ended
JuneSeptember 30, 2005 and 2004 (as restated) 8
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 2224
Item 3. Quantitative and Qualitative Disclosures Aboutabout Market
Risk 3843
Item 4. Controls and Procedures 3944
Part II - Other Information
Item 1. Legal Proceedings 3944
Item 2(c) Purchases.Purchases of equity securities 3945
Item 4. Submission of Matters to a Vote of Security Holders 405. Other Information 45
Item 6. Exhibits 4145
Signatures 4245
Certifications
Exhibit 31.1 Section 302 Certification of the Chief Executive Officer 4346
Exhibit 31.2 Section 302 Certification of the Chief Financial Officer 4447
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 4548
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 4649
2
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------ -------------------------------------------------------------
(As (As
restated) restated)restated restated
see Note 1) see Note 1)
2005 2004 2005 2004
---- ---- ---- ----
(dollars in millions except per share amounts)
Total net sales and revenues $48,469 $49,254 $94,242 $97,084$47,182 $44,899 $141,424 $141,983
------ ------ ------ ------------- -------
Cost of sales and other expenses 40,089 39,778 79,402 78,55140,372 37,373 120,587 115,924
Selling, general, and
administrative expenses 5,432 5,171 10,321 10,1805,473 4,342 15,794 14,522
Interest expense 3,712 2,839 7,391 5,6234,059 3,010 11,450 8,633
------ ------ ------ ------------- -------
Total costs and expenses 49,233 47,788 97,114 94,35449,904 44,725 147,831 139,079
------ ------ ------ ------------- -------
Income (loss) before income
taxes, equity income
and minority interests (764) 1,466 (2,872) 2,730(2,722) 174 (6,407) 2,904
Income tax expense (benefit) (305) 302 (1,240) 610(989) 9 (2,254) 619
Equity income (loss) and
minority interests 173 213 242 465100 150 342 615
----- --- ----- ----- -----
Net income (loss) $(286) $1,377 $(1,390) $2,585$(1,633) $315 $(3,811) $2,900
===== === ===== ===== =====
Basic earnings (loss) per share
attributable to
common stock (Note 9) $(0.51) $2.44 $(2.46) $4.5810) $(2.89) $0.56 $(6.74) $5.14
==== ==== ==== ====
Earnings (loss) per share
attributable to
common stock assuming dilution
(Note 9) $(0.51) $2.42 $(2.46) $4.5410) $(2.89) $0.56 $(6.74) $5.11
==== ==== ==== ====
Reference should be made to the notes to condensed consolidated financial
statements.
3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------ -------------------------------------------------------------
(As (As
restated) restated)restated restated
see Note 1) see Note 1)
2005 2004 2005 2004
---- ---- ---- ----
(dollars in millions)
AUTOMOTIVE AND OTHER OPERATIONS
Total net sales and revenues $40,178 $41,202 $77,481 $81,339$38,363 $37,065 $115,844 $118,404
------ ------ ------ ------------- -------
Cost of sales and other expenses 38,048 37,259 74,954 73,69038,009 34,913 113,776 108,603
Selling, general, and
administrative expenses 3,320 3,144 6,157 6,1673,285 2,212 9,442 8,379
------ ------ ------ ------------- -------
Total costs and expenses 41,368 40,403 81,111 79,85741,294 37,125 123,218 116,982
------ ------ ------ ------------- -------
Interest expense 671 596 1,356 1,158746 622 2,102 1,780
Net expense from transactions
with Financing and Insurance
Operations 100 59 187 127
--- ---96 77 283 204
----- ----- Income (loss)----- ---
(Loss) before income taxes,
equity income, and minority
interests (1,961) 144 (5,173) 197(3,773) (759) (9,759) (562)
Income tax (benefit) (694) (188) (2,001) (325)(1,357) (305) (3,383) (630)
Equity income (loss) and
minority interests 173 213 245 467101 152 346 619
------ --- ----------- ---
Net income (loss) - Automotive
and Other Operations $(1,094) $545 $(2,927) $989$(2,315) $(302) $(6,030) $687
===== === ===== ===
FINANCING AND INSURANCE
OPERATIONS
Total revenues $8,291 $8,052 $16,761 $15,745$8,819 $7,834 $25,580 $23,579
----- ----- ------ ------
Interest expense 3,041 2,243 6,035 4,4653,313 2,388 9,348 6,853
Depreciation and amortization
expense 1,404 1,333 2,802 2,6631,440 1,338 4,242 4,001
Operating and other expenses 1,952 2,190 4,095 4,1092,133 2,136 6,228 6,245
Provisions for financing and
insurance losses 797 1,023 1,715 2,102978 1,116 2,693 3,218
----- ----- ------ ------
Total costs and expenses 7,194 6,789 14,647 13,3397,864 6,978 22,511 20,317
Net income from transactions
with Automotive
and Other Operations (100) (59) (187) (127)(96) (77) (283) (204)
----- ----- ------ ------
Income before income taxes,
equity income, and
minority interests 1,197 1,322 2,301 2,5331,051 933 3,352 3,466
Income tax expense 389 490 761 935368 314 1,129 1,249
Equity income (loss) and
minority interests - - (3)(1) (2) (4) (4)
----- ----- -------- ------ -----
Net income - Financing and
Insurance Operations $808 $832 $1,537 $1,596$682 $617 $2,219 $2,213
=== === ===== =====
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 condensed consolidated financial
statements.
4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(As
restated)
Junerestated,
see Note 1)
Sept. 30, JuneSept. 30,
2005 Dec. 31, 2004
(Unaudited) 2004 (Unaudited)
---------- ------------ ----------
ASSETS (dollars in millions)
Cash and cash equivalents $32,261$35,089 $35,993 $29,901$37,589
Marketable securities 23,01318,012 21,737 20,81621,034
------ ------ ------
Total cash and marketable securities 55,27453,101 57,730 50,71758,623
Finance receivables - net 178,137177,082 199,600 192,023193,755
Loans held for sale 26,90317,581 19,934 17,39320,116
Accounts and notes receivable (less allowances) 18,46516,285 21,236 16,98917,379
Inventories (less allowances) (Note 3) 13,3504) 14,175 12,247 12,27412,544
Assets held for sale (Note 1) 18,748 - -
Deferred income taxes 27,64028,499 26,241 27,37927,219
Net equipment on operating leases (less
accumulated depreciation) 36,07637,972 34,214 32,32133,016
Equity in net assets of nonconsolidated
affiliates 4,9694,260 6,776 6,3816,637
Property - net 40,32539,616 39,020 37,57837,432
Intangible assets - net (Note 4) 4,9475) 4,799 4,925 4,6964,732
Other assets 60,51256,993 57,680 57,70957,182
------- ------- -------
Total assets $466,598$469,111 $479,603 $455,460$468,635
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable (principally trade) $28,694$29,886 $28,830 $26,377$26,404
Notes and loans payable 283,621278,232 300,279 277,027290,920
Liabilities related to assets held for sale
(Note 1) 12,319 - -
Postretirement benefits other than pensions 30,52532,101 28,111 31,69131,948
Pensions 9,7229,982 9,455 7,5597,824
Deferred income taxes 6,6576,718 7,078 8,1016,134
Accrued expenses and other liabilities 81,42576,620 77,727 76,64177,417
------- ------- -------
Total liabilities 440,644445,858 451,480 427,396440,647
Minority interests 902829 397 328369
Stockholders' equity
$1-2/3 par value common stock (outstanding,
565,503,422;565,504,852; 565,132,021; and
564,721,304564,804,464 shares) 943 942 941
Capital surplus (principally additional
paid-in capital) 15,255capital 15,281 15,241 15,18115,209
Retained earnings 12,4689,754 14,428 14,77214,804
------ ------ ------
Subtotal 28,66625,978 30,611 30,89430,954
Accumulated foreign currency translation
adjustments (1,645)(1,630) (1,194) (1,685)(1,678)
Net unrealized gains on derivatives 331406 589 369215
Net unrealized gains on securities 687742 751 557610
Minimum pension liability adjustment (2,987)(3,072) (3,031) (2,399)(2,482)
------- ------- -------
Accumulated other comprehensive loss (3,614)(3,554) (2,885) (3,158)(3,335)
------- ------- -------
Total stockholders' equity 25,05222,424 27,726 27,73627,619
------- ------- -------
Total liabilities and stockholders' equity $466,598$469,111 $479,603 $455,460$468,635
======= ======= =======
Reference should be made to the notes to condensed consolidated financial
statements.
5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONDENSED CONSOLIDATED BALANCE SHEETS
(As
restated)
Junerestated,
see Note 1)
Sept. 30, JuneSept. 30,
2005 Dec. 31, 2004
(Unaudited) 2004 (Unaudited)
---------- ------------ ----------
ASSETS (dollars in millions)
Automotive and Other Operations
Cash and cash equivalents $12,445$13,695 $13,148 $13,182$12,984
Marketable securities 3,6291,437 6,655 8,3197,969
------ ------------- ------
Total cash and marketable securities 16,07415,132 19,803 21,50120,953
Accounts and notes receivable (less allowances) 8,0877,800 6,713 6,3966,542
Inventories (less allowances) (Note 3) 12,8184) 13,755 11,717 11,57612,035
Net equipment on operating leases (less
accumulated depreciation) 6,7237,302 6,488 6,9146,764
Deferred income taxes and other current assets 10,5709,859 10,794 10,87610,813
------ ------ ------
Total current assets 54,27253,848 55,515 57,26357,107
Equity in net assets of nonconsolidated
affiliates 4,9694,260 6,776 6,3816,637
Property - net 38,48037,860 37,170 35,68435,583
Intangible assets - net (Note 4) 1,6585) 1,674 1,599 1,4121,445
Deferred income taxes 18,97620,343 17,399 18,31618,086
Other assets 41,41541,101 40,844 41,65741,251
------- ------- -------
Total Automotive and Other Operations assets 159,770159,086 159,303 160,713160,109
Financing and Insurance Operations
Cash and cash equivalents 19,81621,394 22,845 16,71924,605
Investments in securities 19,38416,575 15,082 12,49713,065
Finance receivables - net 178,137177,082 199,600 192,023193,755
Loans held for sale 26,90317,581 19,934 17,39320,116
Assets held for sale (Note 1) 18,748 - -
Net equipment on operating leases (less
accumulated depreciation) 29,35330,670 27,726 25,40726,252
Other assets 33,23527,975 35,113 30,70830,733
Net receivable from Automotive and Other
Operations 2,8463,399 2,426 2,0042,548
------- ------- -------
Total Financing and Insurance Operations
assets 309,674313,424 322,726 296,751311,074
------- ------- -------
Total assets $469,444$472,510 $482,029 $457,464$471,183
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive and Other Operations
Accounts payable (principally trade) $25,361$26,784 $24,257 $23,084$23,287
Loans payable 1,5631,509 2,062 2,6252,540
Accrued expenses 44,39043,040 46,147 46,72645,420
Net payable to Financing and Insurance
Operations 2,8463,399 2,426 2,0042,548
------ ------------- ------
Total current liabilities 74,16074,732 74,892 74,43973,795
Long-term debt 31,04330,929 30,460 29,81430,065
Postretirement benefits other than pensions 25,81527,380 23,406 27,72127,996
Pensions 9,6299,891 9,371 7,4897,755
Other liabilities and deferred income taxes 15,94615,764 15,657 15,46715,402
------- ------- -------
Total Automotive and Other Operations
liabilities 156,593158,696 153,786 154,930155,013
Financing and Insurance Operations
Accounts payable 3,3333,102 4,573 3,2933,117
Liabilities related to assets held for sale
(Note 1) 12,319 - -
Debt 251,015245,794 267,757 244,588258,315
Other liabilities and deferred income taxes 32,54929,346 27,790 26,58926,750
------- ------- -------
Total Financing and Insurance Operations
liabilities 286,897290,561 300,120 274,470288,182
------- ------- -------
Total liabilities 443,490449,257 453,906 429,400443,195
Minority interests 902829 397 328369
Total stockholders' equity 25,05222,424 27,726 27,73627,619
------- ------- -------
Total liabilities and stockholders' equity $469,444$472,510 $482,029 $457,464$471,183
======= ======= =======
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 condensed consolidated financial
statements.
6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SixNine Months Ended
JuneSeptember 30,
--------------------------------------------------
(As restated)
2005restated,
see Note 1)
2005(a) 2004
---- ----
(dollars in millions)
Net cash provided by operating activities
(Note 1) $2,489 $559$3,676 $12,108
Cash flows from investing activities
Expenditures for property (2,944) (3,201)(5,048) (4,762)
Investments in marketable securities -
acquisitions (10,830) (6,466)(14,473) (9,503)
Investments in marketable securities -
liquidations 10,269 7,06416,091 10,095
Net originations and purchases of mortgage
servicing rights (784) (816)(1,089) (1,151)
Increase in finance receivables (5,970) (17,556)(15,843) (31,731)
Proceeds from sales of finance receivables 17,692 9,01227,802 16,811
Operating leases - acquisitions (8,378) (7,118)(12,372) (10,522)
Operating leases - liquidations 3,258 3,9925,029 5,831
Investments in companies, net of cash acquired 1,355 (32)1,367 (85)
Other (2,411) 982(1,643) 808
----- ------
Net cash provided by (used in) investing activities (Note 1) 1,257 (14,139)(179) (24,209)
Cash flows from financing activities
Net (decrease) increase in loans payable (8,411) 2,137(6,289) 1,559
Long-term debt - borrowings 30,440 37,78449,194 57,505
Long-term debt - repayments (32,144) (30,986)(50,834) (44,822)
Cash dividends paid to stockholders (570) (564)(863) (847)
Other 3,619 2,8045,020 3,763
----- -------------
Net cash (used in) provided by financing
activities (7,066) 11,175(3,772) 17,158
Effect of exchange rate changes on cash and cash
equivalents (412) (248)
------ ------(120) (22)
--- -----
Net decrease(decrease) increase in cash and cash
equivalents (3,732) (2,653)(395) 5,035
Cash and cash equivalents at beginning of the
period 35,993 32,554
------ ------
Cash and cash equivalents at end of the period $32,261 $29,901$35,598 $37,589
====== ======
(a) Includes $509 of cash and cash equivalents classified as assets held for
sale as described in Note 1 of the Condensed Consolidated Financial
Statements.
Reference should be made to the notes to condensed consolidated financial
statements.
7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Automotive and Financing and
Other Insurance
Six-------------- -------------
Nine Months Ended JuneSeptember 30,
-----------------------------------------------------------------------
(As
restated)restated,
see
Note 1)
2005 2004 20052005(a) 2004
---- ---- ---- ----
(dollars in millions)
Net cash (used in) provided by operating
activities (Note 1) $(2,138) $955 $4,627 $(396)$(2,482) $1,273 $6,158 $10,835
Cash flows from investing activities
Expenditures for property (2,813) (3,038) (131) (163)(4,878) (4,502) (170) (260)
Investments in marketable securities -
acquisitions (271) (855) (10,559) (5,611)(289) (1,817) (14,184) (7,686)
Investments in marketable securities -
liquidations 3,137 1,603 7,132 5,4615,319 2,915 10,772 7,180
Net change in mortgage services rights - - (784) (816)(1,089) (1,151)
Increase in finance receivables - - (5,970) (17,556)(15,843) (31,731)
Proceeds from sales of finance receivables - - 17,692 9,01227,802 16,811
Operating leases - acquisitions - - (8,378) (7,118)(12,372) (10,522)
Operating leases - liquidations - - 3,258 3,9925,029 5,831
Net investing activity with Financing and
Insurance Operations 1,0001,500 - - -
Investments in companies, net of cash
acquired 1,355 (53)1,367 (94) - 219
Other (591) 110 (1,820) 872(148) 348 (1,495) 460
----- ----- ----- ------
Net cash provided by (used in) investing
activities (Note 1) 1,817 (2,233) 440 (11,906)2,871 (3,150) (1,550) (21,059)
Cash flows from financing activities
Net increase (decrease) in loans payable 46 (437) (8,457) 2,5748 (498) (6,297) 2,057
Long-term debt - borrowings 25 756 30,415 37,02897 845 49,097 56,660
Long-term debt - repayments (20) (55) (32,124) (30,931)(21) (72) (50,813) (44,750)
Net financing activity with Automotive &
Other - - (1,000)(1,500) -
Cash dividends paid to stockholders (570) (564)(863) (847) - -
Other - - 3,619 2,8045,020 3,763
--- --- ----- ------
Net cash (used in) provided by financing
activities (519) (300) (7,547) 11,475(779) (572) (4,493) 17,730
Effect of exchange rate changes on cash and
cash equivalents (283) (176) (129) (72)(36) (47) (84) 25
Net transactions with Automotive/Financing
Operations 420 512 (420) (512)973 1,056 (973) (1,056)
--- ----- -------- -----
Net decreaseincrease (decrease) in cash and cash
equivalents (703) (1,242) (3,029) (1,411)547 (1,440) (942) 6,475
Cash and cash equivalents at beginning of
the period 13,148 14,424 22,845 18,130
------ ------ ------ ------
Cash and cash equivalents at end of the
period $12,445 $13,182 $19,816 $16,719$13,695 $12,984 $21,903 $24,605
====== ====== ====== ======
(a) Includes $509 of cash and cash equivalents classified as assets held for
sale as described in Note 1 of the Condensed Consolidated Financial
Statements.
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 condensed consolidated financial
statements.
8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
U.S. for interim financial information. In the opinion of management, all
adjustments (consisting of only normal recurring items), which are necessary for
a fair presentation have been included. The results for interim periods are not
necessarily indicative of results which may be expected for any other interim
period or for the full year. The condensed 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 JuneSeptember 30, 2005, filed
separately with the U.S. Securities and Exchange Commission (SEC).
GM presents its primary financial statements on a fully consolidated basis.
Transactions between businesses have been eliminated in the Corporation's
condensed consolidated financial statements. These transactions consist
principally of borrowings and other financial services provided by Financing and
Insurance Operations (FIO) to Automotive and Other Operations (Auto & Other).
To facilitate analysis, GM presents supplemental information to the
statements of income, balance sheets, and statements of cash flows for the
following businesses: (1) Auto & Other, which consists of the design,
manufacturing, and marketing of cars, trucks and related parts and accessories;
and (2) FIO, which consists primarily of GMAC. GMAC provides a broad range of
financial services, including consumer vehicle financing, full-service leasing
and fleet leasing, dealer financing, car and truck extended service contracts,
residential and commercial mortgage services, vehicle and homeowners' insurance,
and asset-based lending.
Assets and Liabilities Classified as Held for Sale
On August 3, 2005, GMAC announced that it had entered into a definitive
agreement to sell a 60% equity interest in GMAC Commercial Holding Corp. (GMAC
Commercial Mortgage). The transaction is intended to allow GMAC Commercial
Mortgage increased access to capital for continued growth of its business and
GMAC to retain a significant economic interest. While the transaction received
GMAC Board of Directors approval on August 2, 2005, it is expected that the
transaction will be completed near the end of 2005, subject to all necessary
conditions and approvals. For the three and nine months ended September 30,
2005, GMAC Commercial Mortgage's earnings and cash flows are fully consolidated
in GM's Condensed Consolidated Statements of Income and Statements of Cash
Flows. However, as a result of the agreement to sell a 60% equity interest, the
assets and liabilities of GMAC Commercial Mortgage have been classified as held
for sale separately in GM's Condensed Consolidated Balance Sheet at September
30, 2005. The following table presents GMAC Commercial Mortgage's major classes
of assets and liabilities classified as held for sale as of September 30, 2005
(dollars in millions):
Cash and cash equivalents $509
Marketable securities 2,217
-----
Total cash and marketable securities 2,726
Finance receivables - net 3,382
Loans held for sale 8,448
Other assets 4,192
------
Total assets held for sale $18,748
======
Accounts payable $264
Debt 6,896
Deferred income taxes and other liabilities 5,056
Minority interest 103
------
Total liabilities related to assets held for sale $12,319
======
9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 1. Financial Statement Presentation (continued)
Restatement of Quarterly 2004 Financial Statements for Out-of-Period Adjustments
GM has made certain adjustments to restate previously reported quarterly
financial results for 2004 that do not affect GM's 2004 total annual results,
cash flows, or year-end 2004 financial position.
During the fourth quarter of 2004, internal controls that had been put into
place in connection with GM's Sarbanes-Oxley Section 404 program at GMAC's
residential mortgage businesses identified certain out-of-period adjustments.
The majority of these amounts resulted from items detected and recorded in the
fourth quarter of 2004 that relate to prior 2004 quarters. As a result, GM has
restated its 2004 quarterly and year-to-date financial statements. The most
significant of these restatement adjustments relate to: (1) the estimation of
fair values of certain interests in securitized assets, (2) the accounting for
deferred income taxes related to certain secured financing transactions; and (3)
the income statement effects of consolidating certain mortgage transfers
previously recognized as sales.
Upon identification of these out-of-period adjustments, GM analyzed their
effect, together with the effect of out-of-period adjustments related to Auto &
Other that had been previously considered immaterial to GM on a consolidated
basis, and concluded that, in the aggregate, they were significant enough to
warrant restatement of GM's 2004 quarterly results. The most significant of the
Auto & Other out-of-period adjustments relates to GM's accounting for the
Medicare Prescription Drug, Improvement and Modernization Act of 2003, which was
initially reported in the first quarter of 2004 pursuant to FASB Staff Position
(FSP) No. FAS 106-1, "Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003." FSP
106-1 permitted companies to recognize the effect of the Act beginning with its
enactment date (December 8, 2003), or defer recognition until the issuance of
final rules by the FASB. In the second quarter of 2004, FSP 106-2 was issued
which superseded FSP 106-1 and clarified how to account for the effect of the
Act under circumstances where a company's other postretirement employee benefits
(OPEB) plan has a plan year-end that is different from the company's fiscal
year-end. This second quarter clarification provided guidance on the accounting
for the effect of the Act in a manner different than GM had applied prior to
restatement.
A summary of the significant effects of the above restatement items is as
follows:
910
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 1. Financial Statement Presentation (continued)
Three Months Ended SixNine Months Ended
JuneSeptember 30, 2004 JuneSeptember 30, 2004
----------------- ------------------
As As
previously previously
reported * As restated reported * As restated
---------- ----------- ---------- -----------
(dollars in millions except per share amounts)
Total net sales and revenues $49,148 $49,254 $96,833 $97,084$44,858 $44,899 $141,691 $141,983
Income before income taxes,
equity income, and
minority interests $1,457 $1,466 $2,758 $2,730$338 $174 $3,096 $2,904
Income tax expense 306 302 579 61071 9 650 619
Minority interests (23) (23) (46) (46)(12) (12) (58) (58)
Earnings of nonconsolidated
associates 213 236 488 511
----- -----185 162 673 673
--- --- ----- -----
Net income $1,341 $1,377 $2,621 $2,585
===== =====$440 $315 $3,061 $2,900
=== === ===== =====
Basic earnings per share
attributable to common stock $2.37 $2.44 $4.64 $4.58$0.78 $0.56 $5.42 $5.14
==== ==== ==== ====
Average number of shares of
common stock outstanding -
basic (in millions) 565 565 565 565
Earnings per share attributable
to common stock assuming dilution $2.36 $2.42 $4.61 $4.54$0.78 $0.56 $5.39 $5.11
==== ==== ==== ====
Average number of shares of
common stock outstanding -
diluted (in millions) 567 567 568 568 569 569
Net income (loss) by reportable
operating segment / region
Automotive and Other Operations
GM North America (GMNA) $328 $355 $779 $756$(22) $(88) $757 $668
GM Europe (GME) (45) (45) (161) (161)(236) (236) (397) (397)
GM Latin
America/Africa/Mid-East 27 27 38 38
(GMLAAM) 10 10 11 11
GM Asia Pacific (GMAP) 236 259 511 534101 78 612 612
Other Operations (34) (34) (151) (151)(83) (83) (234) (234)
-- -- --- ---
Net income - Automotive and
Other Operations 495 545 989 989(213) (302) 776 687
Financing and Insurance Operations
Net income - Financing and
Insurance Operations 846 832 1,632 1,596
----- -----653 617 2,285 2,213
--- --- ----- -----
Net income $1,341 $1,377 $2,621 $2,585
===== =====$440 $315 $3,061 $2,900
=== === ===== =====
*As reported in Form 10-Q for the quarter ended JuneSeptember 30, 2004.
Statements of Cash Flows
After considering the concerns raised by the staff of the SEC as of December
31, 2004, management concluded that certain amounts in the Consolidated
Statements of Cash Flows for the year ended December 31, 2004 should be
reclassified to appropriately present net cash used in operating activities and
net cash used in investing activities. These amounts for the sixnine months ended
JuneSeptember 30, 2004 have been reclassified to be consistent with the sixnine months
ended JuneSeptember 30, 2005.
The Corporation's previous policy was to classify all the cash flow effects
of providing wholesale loans to its independent dealers by GM's Financing and
Insurance Operations as an investing activity in its Consolidated Statements of
Cash Flows. This policy, when applied to the financing of inventory sales, had
the effect of presenting an investing cash outflow and an operating cash inflow
even though there was no cash inflow or outflow on a consolidated basis. The
Corporation has changed its policy to eliminate this intersegment activity from
its Consolidated Statements of Cash Flows and, as a result of this change, all
1011
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 1. Financial Statement Presentation (continued)
cash flow effects related to wholesale loans are reflected in the operating
activities section of the Condensed Consolidated Statement of Cash Flows for the
sixnine months ended JuneSeptember 30, 2005 and 2004. This reclassification better
reflects the financing of the sale of inventory as a non-cash transaction to GM
on a consolidated basis and eliminates the effects of intercompany transactions.
The following table shows the effects of this reclassification for the sixnine
months ended JuneSeptember 30, 2004, consistent with the 2005 presentation (dollars
in millions):
Net cash provided by operating activities as previously
reported $7,599$11,396
Reclassification (7,040)
-----712
------
Revised net cash provided by operating activities $559
===$12,108
======
Net cash used in investing activities as
previously reported $(21,179)$(23,497)
Reclassification 7,040(712)
------
Revised net cash used in investing activities $(14,139)$(24,209)
======
Presentation of Delphi Receivable
As of JuneSeptember 30, 2005 GM's Condensed Consolidated Balance Sheet reflects a
change in presentation of a receivable due from Delphi Corporation (Delphi). The
receivable represents amounts that Delphi owes to GM for OPEB relating to Delphi
employees who were formerly GM employees and subsequently transferred back to GM
as job openings at GM became available to them under certain employee "flowback"
arrangements included in the 1999 Separation Agreement between GM and Delphi. GM
is responsible to pay for the OPEB of the subject employees. In accordance with
the terms of the 1999 Separation Agreement, Delphi will compensate GM for the
total OPEB attributable to services rendered by the subject employees from their
original GM service date through the date the subject employees flowed back to
GM from Delphi. In prior periods this amount was netted against the OPEB
liability carried on GM's balance sheet. As a result of the change in
presentation, GM's JuneSeptember 30, 2005 Condensed Consolidated Balance Sheet
reflects an $819 million increase in the amount presented primarily under "Other
Assets" and a corresponding liability increase under "Postretirement Benefits
Other than Pensions." Cash settlement between GM and Delphi with respect to this
receivable is scheduled to occur at the time of the employees' estimated
retirement dates. GM has the right to offset the amounts owed by Delphi under this arrangement
against amounts GM owes to Delphinot recorded an allowance for the purchasethese receivables as of
Delphi products. At JuneSeptember 30, 2005, GM owed approximately $1.8 billion to Delphi for such purchases in
North America.2005. See Note 15.
New Accounting Standards
In December 2004, the Financial Accounting Standards Board (FASB) revised
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123R), requiring companies to record share-based payment
transactions as compensation expense at fair market value. SFAS No. 123R further
defines the concept of fair market value as it relates to such arrangements.
Based on SEC guidance issued in Staff Accounting Bulletin (SAB) 107 in April
2005, the provisions of this statement will be effective for General Motors as
of January 1, 2006. The Corporation began expensing the fair market value of
newly granted stock options and other stock based compensation awards to
employees pursuant to SFAS No. 123 in 2003; therefore this statement is not
expected to have a material effect on GM's consolidated financial position or
results of operations.
In March 2005, the FASB released FASB Staff Position (FSP) FIN 46(R)-5, which
addresses whether a corporation should consider whether it holds an implicit
interest in a variable interest entity (VIE) or potential VIE when specific
conditions exist to determine if the guidance in FASB Interpretation No. 46
(Revised 2003), "Consolidation of Variable Interest Entities" (FIN 46(R)),
should be applied. GM had adopted FIN 46(R) as of January 1, 2004. GM adopted
FSP FIN 46(R)-5 upon issuance. The Interpretation did not have an effect on GM's
consolidated financial position or results of operations.
11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 1. Financial Statement Presentation (concluded)
In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset
Retirement Obligations, an interpretation of FASB Statement No. 143, Accounting
for Asset Retirement Obligations." FIN 47 requires an entity to recognize a
liability for the fair value of a conditional asset retirement obligation when
incurred if the liability's fair value can be reasonably estimated. This
interpretation is effective for fiscal years ending after December 15, 2005.
Management does not expectis evaluating the effect of this interpretation to have a material impact on GM's consolidated
financial position orand results of operations.
12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 1. Financial Statement Presentation (concluded)
In April 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," requiring retrospective application as the required method for
reporting a change in accounting principle, unless impracticable or a
pronouncement includes specific transition provisions. This statement also
requires that a change in depreciation, amortization, or depletion method for
long-lived, nonfinancial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle. This statement carries
forward the guidance in APB Opinion No. 20, "Accounting Changes," for the
reporting of the correction of an error and a change in accounting estimate.
This statement is effective for accounting changes and correction of errors made
in fiscal years beginning after December 15, 2005.
This statement is not
expected to have a material effect on GM's consolidated financial position or
results of operations.
NOTE 2. Acquisition and Disposal of Businesses
On February 3, 2005, GM completed the purchase of 16.6 million newly-issued
shares of common stock in GM Daewoo Auto & Technology Company (GM Daewoo,
formerly referred to as GM-DAT) for approximately $49 million. This increased
GM's ownership in GM Daewoo to 48.2% from 44.6%. No other shareholders in GM
Daewoo participated in the issue. On June 28, 2005, GM purchased from Suzuki
Motor Corporation (Suzuki) 6.9 million shares of outstanding common stock in GM
Daewoo for approximately $21 million. This increased GM's ownership in GM Daewoo
to 50.9%. Accordingly, as of June 30, 2005, GM Daewoo was consolidated by GM.began consolidating GM Daewoo.
This increased GM's total assets and liabilities as of June 30, 2005 by
approximately $4.7 billion and $4.5 billion, respectively, including one-time
increases of $1.6 billion of cash and marketable securities and $1.3 billion of
long-term debt. GM has not yet completed its allocation of the total purchase
price of GM Daewoo to its net assets.
The following unaudited financial information for the three and sixnine months
ended JuneSeptember 30, 2005 and 2004 represents amounts attributable to GM Daewoo
on a basis consistent with giving effect to the increased ownership and
consolidation as of January 1, 2004 (dollars in millions). The pro forma effect
on net income is not significant compared to equity income recognized.
Actual Pro-forma Pro-forma
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
-----------------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Total net sales and revenues $1,497 $1,047 $2,668 $2,039$1,438 $962 $4,485 $2,976
Income (loss) before income
taxes, equity income and
minority interests $59 $34 $43 $18$(56) $102 $(37)
On February 13, 2005, GM entered into certain agreements with Fiat S.p.A.
(Fiat), under which GM and Fiat agreed towould terminate and liquidate all joint ventures
between them and GM would acquire certain strategic assets from Fiat. Effective
May 13, 2005 the liquidation of these joint ventures and GM's acquisition of
certain strategic assets from Fiat waswere completed. As a result, GM regained
complete ownership of all of its respective assets originally contributed to
each joint venture,venture. GM acquired a 50%50 percent interest in a new joint venture
limited to operating the powertrain manufacturing plant in Bielsko-Biala,
Poland, that currently produces the 1.3 liter SDE diesel engine, and GM will
co-own with Fiat key powertrain intellectual property, including the SDE and JTD
diesel engines and the M20-32 six-speed manual transmission.
This
resulted in an increase of approximately $1.4 billion and $2.0 billion to assets
and liabilities, respectively, in GM's Consolidated Balance Sheet as of June 30,
2005.
On April 4, 2005, GM completed the sale of its Electro-Motive Division (EMD)
to an investor group led by Greenbriar Equity Group LLC and Berkshire Partners
LLC. The sale covered substantially all of the EMD businesses, and both the
LaGrange, Illinois and London, Ontario manufacturing facilities. This
transaction did not have a material effect on GM's consolidated financial
position or results of operations. The final consideration is contingent upon a
closing date balance sheet audit.
12On August 3, 2005, GMAC announced that it had entered into a definitive
agreement to sell a 60% equity interest in GMAC Commercial Holding Corp. (GMAC
Commercial Mortgage). As a result of the agreement, the assets and liabilities
of GMAC's Commercial Mortgage have been classified as held for sale separately
in GM's condensed consolidated balance sheet at September 30, 2005. See Note 1.
13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 3. Asset Impairments
In the third quarter of 2005, GM reviewed the carrying value of certain
long-lived assets held and used, other than goodwill and intangible assets with
indefinite lives. These reviews resulted in after-tax impairment charges
totaling $805 million ($468 million at GMNA, $176 million at GME, $99 million at
GMLAAM, and $62 million at GMAP). Impairments primarily relate to
product-specific assets but also include amounts related to office and
production facilities. These changes were recorded in cost of sales and other
expenses in the income statement.
In addition, year to date results include an after-tax charge of $84 million,
recorded at GMNA in the first quarter 2005, for the write-down to fair market
value of various plant assets in connection with the cessation of production at
the Lansing assembly plant. Total impairment charges were $889 million, after
tax for the first nine months of 2005. There were no impairment charges in the
first nine months of 2004.
GM determined that, as of the end of the second quarter, the value of its
investment in the common stock of FHI was impaired on an other than temporary
basis. The write-down due to this impairment was $788 million, after tax, which
was recorded in cost of sales and other expenses in the income statement.
NOTE 4. Inventories
Inventories included the following (dollars in millions):
JuneSept. 30, Dec. 31, JuneSept. 30,
2005 2004 2004
----- ---- ------------ -------- ---------
Automotive and Other Operations
- -------------------------------
Productive material, work in process, and
supplies $5,364$6,329 $4,838 $5,324$5,876
Finished product, service parts, etc. 8,7578,729 8,321 7,8387,745
------ ------ ------
Total inventories at FIFO 14,12115,058 13,159 13,16213,621
Less LIFO allowance (1,303) (1,442) (1,586)
------ ------ ------
Total inventories (less allowances) $12,818$13,755 $11,717 $11,576$12,035
Financing and Insurance Operations
- ----------------------------------
Off-lease vehicles 532420 530 698509
------ ------ ------
Total consolidated inventories (less
allowances) $13,350$14,175 $12,247 $12,274$12,544
====== ====== ======
NOTE 4.5. Goodwill and Acquired Intangible Assets
The components of the Corporation's acquired intangible assets as of
JuneSeptember 30, 2005, and 2004 were as follows (dollars in millions):
Gross Net
September 30, 2005 Carrying Accumulated Carrying
June 30, 2005 Amount Amortization Amount
-----------------------------------------------------------------------
Automotive and Other Operations
- -------------------------------
Amortizing intangible assets:
Patents and intellectual property rights $510 $93 $417$108 $402
Non-amortizing intangible assets:
Goodwill 526529
Pension intangible asset 715743
-----
Total goodwill and intangible assets $1,658$1,674
-----
Financing and Insurance Operations
- ----------------------------------
Amortizing intangible assets:
Customer lists and contracts $74 $45$63 $41 $22
Trademarks and other 29 18 11
Covenants not to compete 18 18 0
--- -- --
Total $110 $77 $33
=== ==
Non-amortizing intangible assets:
Goodwill 3,092
-----
Total goodwill and intangible assets $3,125
-----
Total consolidated goodwill and intangible
assets $4,799
=====
14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 5. Goodwill and Acquired Intangible Assets (concluded)
Gross Net
September 30, 2004 Carrying Accumulated Carrying
Amount Amortization Amount
-----------------------------------
Automotive and Other Operations
Amortizing intangible assets:
Patents and intellectual property rights $303 $61 $242
Non-amortizing intangible assets:
Goodwill 550
Pension intangible asset 653
-----
Total goodwill and intangible assets $1,445
-----
Financing and Insurance Operations
Amortizing intangible assets:
Customer lists and contracts $66 $37 $29
Trademarks and other 40 22 1819 21
Covenants not to compete 18 18 -
--- -- --
Total $132 $85 $47$124 $74 $50
=== == ==
Non-amortizing intangible assets:
Goodwill 3,2423,237
-----
Total goodwill and intangible assets 3,289$3,287
-----
Total consolidated goodwill and intangible
assets $4,947
=====
13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 4. Goodwill and Acquired Intangible Assets (concluded)
Gross Net
Carrying Accumulated Carrying
June 30, 2004 Amount Amortization Amount
------------------------------------
Automotive and Other Operations
- -------------------------------
Amortizing intangible assets:
Patents and intellectual property rights $303 $50 $253
Non-amortizing intangible assets:
Goodwill 540
Pension intangible asset 619
-----
Total goodwill and intangible assets $1,412
-----
Financing and Insurance Operations
- ----------------------------------
Amortizing intangible assets:
Customer lists and contracts $65 $35 30
Trademarks and other 40 18 22
Covenants not to compete 18 18 -
--- -- --
Total $123 $71 $52
=== ==
Non-amortizing intangible assets:
Goodwill 3,232
-----
Total goodwill and intangible assets 3,284
-----
Total consolidated goodwill and intangible
assets $4,696$4,732
=====
Annual amortization expense relating to the existing intangible assets for
each of the next five years is estimated at $33$35 million to $61$63 million.
The changes in the carrying amounts of goodwill for the sixnine months ended
JuneSeptember 30, 2005, and 2004, were as follows (dollars in millions):
Total
Auto &
GMNA GME Other GMAC Total GM
---- --- ----- ---- --------
Balance as of December 31, 2004 $154 $446 $600 $3,274 $3,874
Goodwill acquired during the period - - - 3 37 7
Effect of foreign currency
translation (7) (67) (74) (35) (109)(8) (63) (71) (46) (117)
Impairment/Other - - (143) (143)
--- --- --- ----- -----
Balance as of JuneSeptember 30, 2005 $147 $379 $526 $3,242 $3,768$146 $383 $529 $3,092 $3,621
=== === === ===== =====
Balance as of December 31, 2003 $154 $413 $567 $3,223 $3,790
Goodwill acquired during the period - - - 5 524 24
Effect of foreign currency
translation (2) (20) (22) 4 (18)(1) (11) (12) (3) (15)
Other (5) - (5) - (5)
---(7) (12)
---- --- --- ----- -----
Balance as of JuneSeptember 30, 2004 $147 $393 $540 $3,232 $3,772$148 $402 $550 $3,237 $3,787
=== === === ===== =====
NOTE 5.6. 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.FHI (20.1% at JuneSeptember 30,
2005 and 2004), Suzuki Motor Corporation (20.2%(20.6% at JuneSeptember 30, 2005 and 20.3%20.4%
at JuneSeptember 30, 2004); China - Shanghai General Motors Co., Ltd (50% at
JuneSeptember 30, 2005 and 2004), SAIC GM Wuling Automobile Co., Ltd (34% at
JuneSeptember 30, 2005 and 2004); Korea - GM Daewoo (50.9% at JuneSeptember 30, 2005 and
44.6% at JuneSeptember 30, 2004). With the increase in ownership to more than 50%,
GM consolidated GM Daewoo was consolidated by GM at June 30, 2005 - see Note 2; Italy - GM-Fiat
Powertrain (FGP) (50%(dissolved at March 31,September 30, 2005 and 50% at September 30,
2004).
Information regarding GM's share of income for all nonconsolidated affiliates
in the following countries is included in the table below (in millions):
1415
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 5.6. Investment in Nonconsolidated Affiliates (concluded)
GM's share of nonconsolidated affiliates' net income (loss):
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
-----------------------------------------------------------------------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Italy $11 $11- $30 $32 $29$59
Japan $45 $53 $95 $159$32 $140 $191
China $99 $148 $132 $310$86 $74 $218 $384
Korea $25 $15- $(25) $17 $7$(18)
On February 13, 2005, GM entered into certain agreements with Fiat, under
which GM and Fiat have terminated and liquidated all joint ventures between them
in existence at that time - see Note 2. Separately, during the second quarter of
2005, GM entered into a new joint venture with Fiat in Poland, GM Fiat
Powertrain Polska, with each party owning 50% of the joint venture.
GM determined that, as of the end of the second quarter of 2005, the value of
its investment in the common stock of FHI was impaired on an other than
temporary basis. The write-down due to this impairment was $788 million, after
tax, which was recorded in cost of sales and other expenses on the income
statement.
NOTE 6.7. Product Warranty Liability
Policy, product warranty, and recall campaigns liability included the
following (dollars in millions):
SixNine Months Twelve Months SixNine Months
Ended Ended Ended
JuneSept. 30, 2005 Dec. 31, 2004 JuneSept. 30, 2004
-------------- ------------- ------------- ---------------------------
Beginning balance $9,315 $8,832 $8,832
Payments (2,366)(3,542) (4,669) (2,290)(3,422)
Increase in liability (warranties
issued during period) 2,8674,009 5,065 2,7943,800
Adjustments to liability (pre-existing
warranties) (264)(274) (85) (157)(163)
Effect of foreign currency translation
and other adjustments (263)(204) 172 (23)38
----- ----- -----
Ending balance $9,289$9,304 $9,315 $9,156$9,085
===== ===== =====
WarrantyPolicy, product warranty, and recall campaigns liability amounts in the table
above have been revised to include amounts with respect to certified-used vehicles. December 31 and
JuneSeptember 30, 2004 balances have been revised accordingly to provide a
comparative basis.
NOTE 7.8. Commitments and Contingent Matters
Commitments
GM has guarantees related to its performance under operating lease
arrangements and the residual value of lease assets totaling $639 million.
Expiration dates vary, and certain leases contain renewal options. The fair
value of the underlying assets is expected to fully mitigate GM's obligations
under these guarantees. Accordingly, no liabilities were recorded with respect
to such guarantees.
Also, GM has entered into agreements with certain suppliers and service
providers that guarantee the value of the suppliers' assets and agreements with
third parties that guarantee fulfillment of certain suppliers' commitments. The
maximum exposure under these commitments amounts to $154$122 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 JuneSeptember 30, 2005
approximately $32$35 million was recorded with respect to these guarantees, the
maximum exposure under which is approximately $7.4$7.2 billion.
In addition to guarantees, GM has entered into agreements indemnifying
certain parties with respect to environmental conditions pertaining to ongoing
or sold GM properties. Due to the nature of the indemnifications, GM's maximum
exposure under these agreements cannot be estimated. No amounts have been
recorded for such indemnities.
15
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 7. Commitments and Contingent Matters (concluded)
In connection with the Delphi spinoff, completed May 28, 1999, GM has
provided limited guarantees with respect to benefits for former GM employees
relating to pensions, post-retirement healthcare, and life insurance. In
addition,No amounts
have been recorded for such guarantees as the Corporation's obligations under
them, while probable, are not reasonably estimable. See Note 15.
16
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 8. Commitments and Contingent Matters (concluded)
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 JuneSeptember 30, 2005. After discussion with counsel, it is the
opinion of management that such liability is not expected to have a material
adverse effect on the Corporation's consolidated financial condition or results
of operations.
Other Matters
GM has been cooperating with the SEC in connection with investigations
reported by the media concerning pension and OPEB and certain transactions
between GM and Delphi.
The SEC has issued subpoenas to GM in connection with various matters
involving GM that it has under investigation. These matters include GM's
financial reporting concerning pension and OPEB, certain transactions between GM
and Delphi, GM's recovery of recall costs from suppliers and supplier price
reductions or credits, and any obligation GM may have to fund pension and OPEB
costs in connection with Delphi's proceedings under Chapter 11 of the U.S.
Bankruptcy Code.
Separately, SEC and federal grand jury subpoenas have been served on GMAC
entities in connection with industry wide investigations into practices in the
insurance industry relating to loss mitigation insurance products such as finite
risk insurance.
GM has been conducting an internal review of credits received from suppliers
and the appropriateness of its accounting treatment for them during the years
2000 through 2005. The review of supplier credits is ongoing and GM has not
reached final conclusions about this matter. However, the review to date
indicates that GM erroneously recognized some supplier credits as income in the
year in which they were received rather than in the future periods to which
they were attributable. Accordingly, although the final restatement amounts
have not yet been determined, GM has determined to restate its financial
statements for 2001, and the restatement is expected to be material to the
financial statements previously reported for that year. GM will also restate
financial statements for periods subsequent to 2001 that may be affected by the
erroneous accounting. However, the effect of any such restatement in subsequent
periods, including the periods presented in this Form 10-Q, is expected to be
immaterial to those financial statements. In connection with this determination,
on November 9, 2005 GM has filed a Current Report on Form 8-K, under Item 4.02
(non-reliance on previously issued financial statements), with the SEC.
GM is cooperating with these ongoing investigations.
NOTE 8.9. Comprehensive Income (Loss)
GM's total comprehensive income (loss), net of tax, was as follows (in
millions):
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30
---------------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Net income (loss) $(286) $1,377 $(1,390) $2,585$(1,633) $315 $(3,811) $2,900
Other comprehensive income
(loss) 2 302 (729) 44860 (177) (669) 271
----- --- ----- -----
-----
Total $(284) $1,679 $(2,119) $3,033$(1,573) $138 $(4,480) $3,171
===== === ===== =====
=====
1617
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 9.10. Earnings Per Share Attributable to Common Stock
The reconciliation of the amounts used in the basic and diluted earnings per
share computations was as follows (in millions except per share amounts):
$1-2/3 Par Value Common Stock
-------------------------------
Income Per Share
(Loss) Shares Amount
------- ------ ---------
Three Months Ended JuneSeptember 30, 2005
Basic EPS
(Losses) attributable to common stock $(286) 565 $(0.51)
====$(1,633) 566 $(2.89)
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - - -
-------- --- ----
Diluted EPS
Adjusted (losses) attributable to common
stock $(286) 565 $(0.51)
===$(1,633) 566 $(2.89)
===== === ====
Three Months Ended JuneSeptember 30, 2004
Basic EPS
Earnings attributable to common stock $1,377$315 565 $2.44$0.56
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 2 -
--- --- ----
Diluted EPS
Adjusted earnings attributable to common
stock $315 567 $0.56
=== === ====
Nine Months Ended September 30, 2005
Basic EPS
(Losses) attributable to common stock $(3,811) 565 $(6.74)
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - - -
----- --- ----
Diluted EPS
Adjusted (losses) attributable to common $(3,811) 565 $(6.74)
===== === ====
stock
Nine Months Ended September 30, 2004
Basic EPS
Earnings attributable to common stock $2,900 565 $5.14
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 3 -
----- --- ----
Diluted EPS
Adjusted earnings attributable to common
stock $1,377$2,900 568 $2.42
===== === ====
Six Months Ended June 30, 2005
Basic EPS
(Losses) attributable to common stock $(1,390) 565 $(2.46)
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - - -
----- --- ----
Diluted EPS
Adjusted (losses) attributable to common
stock $(1,390) 565 $(2.46)
===== === ====
Six Months Ended June 30, 2004
Basic EPS
Earnings attributable to common stock $2,585 565 $4.58
====
Effect of Dilutive Securities
Assumed exercise of dilutive stock options - 4 -
----- --- ----
Diluted EPS
Adjusted earnings attributable to common
stock $2,585 569 $4.54$5.11
===== === ====
Certain stock options and convertible securities were not included in the
computation of diluted earnings per share for the periods presented since the
instruments' underlying exercise prices were greater than the average market
prices of GM $1-2/3 par value common stock and inclusion would be antidilutive.
Such shares not included in the computation of diluted earnings per share were
112 million as of Junefor the three and nine months ended September 30, 2005, 236 million
for the three months ended September 30, 2004, and 223231 million as of Junefor the nine
months ended September 30, 2004. In addition, for periods in which there was a
loss attributable to common stocks, options to purchase shares of GM $1-2/3 par
value common stock with underlying exercise prices less than the average market
prices were outstanding, but were excluded from the calculations of diluted loss
per share, as inclusion of these securities would have reduced the net loss per
share.
1718
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 10.11. 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 SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
--------------------------------------------------------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Depreciation $1,292 $1,441 $2,562 $2,589$1,256 $1,117 $3,818 $3,706
Amortization of special tools 803 774 1,619 1,5001,907 737 3,526 2,237
Amortization of intangible
assets 1314 9 23 1637 25
----- ----- ----- -----
Total $2,108 $2,224 $4,204 $4,105$3,177 $1,863 $7,381 $5,968
===== ===== ===== =====
NOTE 11.12. 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
JuneSeptember 30, JuneSeptember 30, JuneSeptember 30,
-------------------------------------------------------------------------------------------------------
2005 2004 2005 2004 2005 2004
-------------------------------------------------------------------------------------------------------
Components of expense (dollars in millions)
Service cost $274 $275 $70 $60$274 $69 $61 $188 $149
Interest cost 1,237 1,263 235 216 1,079 9671,262 234 221 1,082 970
Expected return on plan
assets (1,974) (1,955) (182) (163)(1,956) (184) (167) (421) (274)
Amortization of prior
service cost 291 319320 26 23 (15)24 (16) (20)
Recognized net actuarial
loss 479 464 69 47 58670 48 587 278
Curtailments, settlements,
and other 21 - 25- 8 1 2- -
--- --- --- --- --------- -----
Net expense $328 $366 $243 $184 $1,419 $1,100$307 $364 $223 $188 $1,420 $1,103
=== === === === ===== =====
---------------------------------------------------
Six----------------------------------------------------
Nine Months Ended SixNine Months Nine Months
September 30, Ended Six Months Ended
JuneSeptember 30, JuneSeptember 30,
June 30,
-------------------------------------------------------------------------------------------------------
2005 2004 2005 2004 2005 2004
-------------------------------------------------------------------------------------------------------
Components of expense (dollars in millions)
Service cost $548 $548 $142 $122 $376 $306$823 $822 $211 $183 $564 $455
Interest cost 2,474 2,523 476 439 2,160 1,9843,710 3,785 710 659 3,242 2,954
Expected return on plan
assets (3,948) (3,908) (367) (326) (842) (547)(5,923) (5,864) (551) (493) (1,263) (821)
Amortization of prior
service cost 582 638 53 47 (31) (40)873 958 80 72 (47) (60)
Recognized net actuarial
loss 958 928 138 95 1,172 6521,436 1,392 208 143 1,759 930
Curtailments, settlements,
and other 112113 34 8491 8 2 -
--- -------- ----- --- --- ----- -----
Net expense $726 $763 $526 $385 $2,837 $2,355
=== ===$1,032 $1,127 $749 $572 $4,257 $3,458
===== ===== === === ===== =====
During each of the second quarterand the third quarters of 2005, GM withdrew $1
billion from its Voluntary Employees' Beneficiary Association (VEBA) trust as a
reimbursement for its retiree health care payments. On July 1,October 3, 2005, GM
withdrew an additional $1 billion from the VEBA, and on a quarter-by-quarter
basis is evaluating the need for additional withdrawals as the cost of health
care continues to adversely affect GM's liquidity.
NOTE 12.13. GMNA and GME 2005 Initiatives
Results in the first quarter of 2005 include after-tax charges of $140 million
recorded in GMNA and $8 million recorded in Other Operations related to
voluntary early retirement and other separation programs with respect to certain
salaried employees in the U.S. GMNA results in the first quarter of 2005 include
a charge of $84 million, after tax, for the write-down to fair market value of
various plant assets in connection with the first quarter announcement to
discontinue production at the Lansing assembly plant during the second quarter
of 2005.
18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 12. 2005 Initiatives (concluded)
GME results in the first and second quartersthird quarter of 2005 include after-tax separation charges
of $422$56 million and $126 million, respectively, related to the restructuring plan announced in the fourth quarter
of 2004. This plan targets a reduction in annual structural costs of an
estimated $600 million by 2006. A total reduction of 12,000 employees, including
10,000 in Germany, over the period 2005 through 2007 through separation
programs, early retirements, and selected outsourcing initiatives is expected.
The third quarter charge incurredrelates to approximately 500 additional separations in
the firstthird quarter, of 2005 covers approximately 5,650 people, of whom 4,900 are in Germany.
The charge in the second quarter of 2005 covers approximately 600 additional
people, as well as those charges related to previous separations that are
required to be amortized over future periods, andperiods. The year-to-date charge of $604
million also includes costs related to the dissolutionseparation of approximately 6,200
people in the FGP joint ventures.first two quarters.
19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
NOTE 13.14. Segment Reporting
Auto & Other Total
GMNA GME GMLAAM GMAP GMA Other Other GMAC Financing Financing
---- --- ------ ---- --- ----- ----- ---- --------- ---------
For the Three Months Ended (dollars in millions)
JuneSeptember 30, 2005
Manufactured products
sales and revenues:
External customers $28,038 $8,025 $2,742 $1,640 $40,445 $(267) $40,178 $8,319 $(28) $8,291$26,144 $6,837 $2,805 $2,893 $38,679 $(316) $38,363 $8,710 $109 $8,819
Intersegment (913) 438 193 282(1,356) 312 186 859 1 (1) - - - -
------ ----- ----- ----- ------ --- ------ ----- --- -----
Total manufactured products $24,788 $7,149 $2,991 $3,752 $38,680 $(317) $38,363 $8,710 $109 $8,819
====== ===== ===== ===== ====== === ====== ===== === =====
Interest income (a) $383 $96 $11 $17 $507 $(269) $238 $601 $(138) $463
Interest expense $804 $114 $62 $45 $1,025 $(279) $746 $3,320 $(7) $3,313
Net income (loss) $(2,095) $(382) $(74) $114 $(2,437) $122 $(2,315) $675 $7 $682
Segment assets $124,523 $23,348 $5,082 $9,458 $162,411 $(3,325) $159,086 $314,194 $(770) $313,424
For the Three Months Ended
September 30, 2004
Manufactured products
sales and revenues:
External customers $26,969 $6,682 $1,961 $1,396 $37,008 $57 $37,065 $7,691 $143 $7,834
Intersegment (663) 253 205 205 - - - - - -
------ ----- ----- ----- ------ --- ------ ----- ----- -----
Total manufactured products $27,125 $8,463 $2,935 $1,922 $40,445 $(267) $40,178 $8,319 $(28) $8,291$26,306 $6,935 $2,166 $1,601 $37,008 $57 $37,065 $7,691 $143 $7,834
====== ===== ===== ===== ====== ====== ====== ===== ===== =====
Interest income (a) $318 $112 $10 $2 $442 $(252) $190 $432 $(70) $362$269 $105 $5 $3 $382 $(194) $188 $374 $(86) $288
Interest expense $755 $132 $38 $9 $934 $(263) $671 $3,050 $(9) $3,041$669 $114 $23 $4 $810 $(188) $622 $2,398 $(10) $2,388
Net income (loss) $(1,194) $(89) $33 $176 $(1,074) $(20) $(1,094) $816 $ (8) $808$(88) $(236) $27 $78 $(219) $(83) $(302) $620 $(3) $617
Segment assets $124,188 $24,087 $4,876 $10,219 $163,370 $(3,600) $159,770 $309,991 $(317) $309,674$129,260 $25,190 $3,965 $4,119 $162,534 $(2,425) $160,109 $311,786 $(712) $311,074
For the ThreeNine Months Ended
JuneSeptember 30, 2005
Manufactured products
sales and revenues:
External customers $80,267 $22,435 $7,681 $6,068 $116,451 $(607) $115,844 $25,250 $ 330 $25,580
Intersegment (2,976) 1,134 544 1,300 2 (2) - - - -
------ ----- ----- ----- ------- --- ------- ----- --- ------
Total manufactured products $77,291 $23,569 $8,225 $7,368 $116,453 $(609) $115,844 $25,250 $330 $25,580
====== ====== ===== ===== ======= === ======= ====== === ======
Interest income (a) $997 $299 $40 $22 $1,358 $(721) $637 $1,510 $(301) $1,209
Interest expense $2,317 $357 $124 $61 $2,859 $(757) $2,102 $9,370 $(22) $9,348
Net income (loss) $(4,849) $(996) $5 $(438) $(6,278) $248 $(6,030) $2,219 $ - $2,219
For the Nine Months Ended
September 30, 2004
Manufactured products
sales and revenues:
External customers $29,988 $7,917 $1,764 $1,456 $41,125 $77 $41,202 $7,703 $349 $8,052$86,600 $21,877 $5,454 $4,280 $118,211 $193 $118,404 $22,964 $615 $23,579
Intersegment (559) 177 145 237(1,762) 695 454 613 - - - - - -
------ ------ ----- ----- ------------ --- ------- ------ --- ------ ----- -- -----
Total manufactured products $29,429 $8,094 $1,909 $1,693 $41,125 $77 $41,202 $7,703 $349 $8,052$84,838 $22,572 $5,908 $4,893 $118,211 $193 $118,404 $22,964 $615 $23,579
====== ====== ===== ===== ===== ====== ==== ====== ===== == =====
Interest income (a) $212 $92 $(3) $4 $305 $(170) $135 $329 $(68) $261
Interest expense $655 $88 $16 $5 $764 $(168) $596 $2,253 $(10) $2,243
Net income (loss) $355 $(45) $10 $259 $579 $(34) $545 $846 $(14) $832
Segment assets $129,862 $24,829 $3,672 $3,925 $162,288 $(1,575) $160,713 $296,968 $(217) $296,751
For the Six Months Ended
June 30, 2005
Manufactured products
sales and revenues:
External customers $54,123 $15,598 $4,876 $3,175 $77,772 $(291) $77,481 $16,540 $ 221 $16,761
Intersegment (1,620) 822 358 441 1 (1) - - - -
------ ----- ----- ----- ------ --- ------ ------ -- -----
Total manufactured products $52,503 $16,420 $5,234 $3,616 $77,773 $(292) $77,481 $16,540 $221 $16,761
====== ===== ===== ===== ====== ==== ====== ====== == =====
Interest income (a) $614 $203 $29 $5 $851 $(452) $399 $909 $(164) $745
Interest expense $1,513 $243 $62 $16 $1,834 $(478) $1,356 $6,051 $(16) $6,035
Net income (loss) $(2,754) $(614) $79 $236 $(3,053) $126 $(2,927) $1,544 $(7) $1,537
For the Six Months Ended
June 30, 2004
Manufactured products
sales and revenues:
External customers $59,631 $15,195 $3,493 $2,884 $81,203 $136 $81,339 $15,273 $472 $15,745
Intersegment (1,099) 442 249 408 - - - - - -
------ ----- ----- ----- ------ --- ------ ------ --- ------
Total manufactured products $58,532 $15,637 $3,742 $3,292 $81,203 $136 $81,339 $15,273 $472 $15,745
====== ===== ===== ===== ====== ==== ============= === ======= ====== === ======
Interest income (a) $398 $173 $8 $6 $585 $(293) $292 $662 $(137) $525$667 $278 $13 $9 $967 $(487) $480 $1,036 $(223) $813
Interest expense $1,294 $175 $10 $12 $1,491 $(333) $1,158 $4,476 $(11) $4,465$1,963 $289 $33 $16 $2,301 $(521) $1,780 $6,874 $(21) $6,853
Net income (loss) $756 $(161) $11 $534 $1,140 $(151) $989 $1,610 $(14) $1,596$668 $(397) $38 $612 $921 $(234) $687 $2,230 $(17) $2,213
- ------------------------------------
(a) Interest income is included in net sales and revenues from external
customers.
20
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 15. Subsequent Events
On October 3, 2005, GM withdrew $1 billion from its VEBA trust as a
reimbursement for its retiree health care payments.
On November 1, 2005, Moody's Investment Services downgraded GM's ratings to
B1 with a negative outlook. The ratings of GMAC were unaffected by the GM
action and remain at Ba1with a review status of "direction uncertain."
On October 31, 2005, GM announced it will maintain its 50 cents per share
quarterly dividend for the fourth quarter.
On October 17, 2005, GM announced that it is exploring the possible sale of a
controlling interest in GMAC to a strategic partner.
On October 17, 2005, GM and the United Auto Workers (UAW) reached a tentative
agreement to reduce GM's health-care costs significantly while maintaining a
high level of health-care benefits for its hourly employees and retirees in the
United States. In reaching the tentative agreement, the UAW indicated its desire
to seek court approval of those changes affecting retirees, and on October 18,
2005 filed such a lawsuit in U.S. federal court. Although GM continues to
believe that it can lawfully make changes to retiree health-care benefits, GM
and the UAW agreed as part of the overall tentative settlement that the UAW
would seek court approval. GM also agreed to cooperate with the UAW to expedite
such review and approval. Instituting such litigation is the initial step in
implementing this element of the agreement.
On October 11, 2005, GM completed the sale of its investment in the common
stock of FHI to Toyota and through open market sales (including a tender of its
FHI shares into FHI's share repurchase program), for cash proceeds of
approximately $770 million (net of transaction costs) and recorded a gain of
approximately $80 million, pre-tax ($70 million after-tax) with respect to the
sale in the fourth quarter of 2005 due the to appreciation of the fair value of
GM's investment in the common stock of FHI after June 30, 2005, the date of the
FHI impairment charge.
On October 8, 2005, Delphi filed a petition for Chapter 11 proceedings under
the United States Bankruptcy Code for itself and many of its U.S. subsidiaries.
Delphi is GM's largest supplier of automotive systems, components and parts,
and GM is Delphi's largest customer.
GM will work constructively in the court proceedings with Delphi, its unions
and other participants in Delphi's restructuring process. GM's goal is to pursue
outcomes that are in the best interests of GM and its stockholders, and that
enable Delphi to continue as an important supplier to GM.
Delphi has indicated to GM that it expects no disruption in its ability to
supply GM with the systems, components and parts it needs as Delphi pursues a
restructuring plan under the Chapter 11 process. Although the challenges faced
by Delphi during its restructuring process could create operating and financial
risks for GM, that process is also expected to present opportunities for GM.
For example, Delphi or one or more of its affiliates may reject or threaten
to reject individual contracts with GM, either for the purpose of exiting
specific lines of business or in an attempt to increase the price GM pays for
certain parts and components. As a result, GM might be adversely affected by
disruption in the supply of automotive systems, components and parts that could
potentially force the suspension of production at GM assembly facilities.
Another risk is that various financial obligations Delphi has to GM as of the
date of Delphi's filing for Chapter 11, may be subject to compromise in the
Chapter 11 proceedings resulting in GM receiving payment of only a portion of
the face amount owed by Delphi. GM will seek to minimize this risk by protecting
its right of set-off against amounts it owes to Delphi as of the date of
Delphi's Chapter 11 filing, currently estimated at $1.2 billion. However, the
extent to which these obligations are covered by GM's right to set-off may be
subject to dispute by Delphi or its other creditors. Given that the bankruptcy
court will resolve any such disputes, GM cannot provide any assurance that it
will be able to fully or partially set-off such amounts. The financial impact of
a substantial compromise of the $1.2 billion could have a material adverse
impact on the financial position of GM, however, GM believes it is not currently
possible to reasonably estimate the amount.
In connection with GM's split-off of Delphi in 1999, GM entered into separate
agreements with the UAW, International Union of Electrical Workers and the
United Steel Workers. In each of these three agreements (Benefit Guarantee
Agreement(s)) GM provided contingent benefit guarantees to make payments for
limited pension and post retirement health care and life insurance benefits
(OPEB) to certain former GM U.S. hourly employees who transferred to Delphi as
part of the split-off and meet the eligibility requirements for such payments
(Covered Employees).
21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 15. Subsequent Events (continued)
Each Benefit Guarantee Agreement contains separate benefit guarantees
relating to pension, post-retirement health care and life insurance benefits.
These limited benefit guarantees each have separate triggering events that
initiate potential GM liability if Delphi fails to provide the corresponding
benefit at the required level. Therefore, it is possible that GM could incur
liability under one of the guarantees (e.g. pension) without triggering the
other guarantees (e.g. post-retirement health care or life insurance). In
addition, with respect to pension benefits, GM's obligation under the pension
benefit guarantees only arises to the extent that the combination of pension
benefits provided by Delphi and the PBGC falls short of the amounts GM has
guaranteed.
The Chapter 11 filing by Delphi does not by itself trigger any of the benefit
guarantees. In addition, the benefit guarantees expire on October 18, 2007 if
not previously triggered by Delphi's failure to pay the specified benefits. If a
benefit guarantee is triggered before its expiration date, GM's obligation could
extend for the lives of affected Covered Employees, subject to the applicable
terms of the pertinent benefit plans or other relevant agreements.
The benefit guarantees do not obligate GM to guarantee any benefits for
Delphi retirees in excess of the levels of corresponding benefits GM provides at
any given time to GM's own hourly retirees. Accordingly, if any of the benefits
GM provides to its hourly retirees are reduced, there would be a similar
reduction in GM's obligations under the corresponding benefit guarantee.
A separate agreement between GM and Delphi requires Delphi to indemnify GM if
and to the extent GM makes payments under the benefit guarantees to the UAW
employees or retirees. GM has received a notice from Delphi, that in the opinion
of its Chief Restructuring Officer, it was more likely than not that GM would
become obligated to provide benefits pursuant to the benefit guarantees to the
UAW employees or retirees. The notice stated that Delphi was unable at this time
to estimate the timing and scope of any benefits GM might be required to provide
under those benefit guarantees. Any recovery by GM under indemnity claims
against Delphi could be significantly limited as a result of the Delphi
reorganization proceeding. As a result, GM's claims for indemnity may not be
paid in full.
Although GM believes some losses under the guarantees are probable, for
numerous reasons, including but not limited to the following, GM believes it is
not currently possible to reasonably estimate the financial impact that the
Corporation may eventually sustain, if any, due to the benefit guarantees.
First, GM does not know whether the obligation to make any payments under the
benefit guarantees will be triggered. Second, there are substantial
uncertainties regarding the interpretation of the benefit guarantees. Third, it
is impossible to predict what the impact of the Delphi bankruptcy will be on the
benefits addressed by the benefit guarantees, including whether Delphi will be
permitted by the Court to terminate its pension or OPEB plan for hourly workers
and retirees or reduce the benefits under those plans, and the magnitude of any
changes granted. Fourth, the number of former GM employees who will be covered
under the guarantees is unknown. Fifth, the nature and amount of any payments GM
may receive from the Chapter 11 estate of Delphi in consideration for Delphi's
commitment to indemnify GM for liabilities arising under the benefit guarantees
are not presently estimable. Sixth, GM's financial exposure is likely to be
affected by the outcome of various negotiations between GM and Delphi, between
Delphi and various unions and between GM and those same unions, and the impact
of those negotiations on GM is not estimable. Seventh, it is not possible to
ascertain the extent to which any payments made by the PBGC will lessen GM's
obligations under the pension guarantee. GM continues to evaluate the relevant
facts and circumstances in order to make an appropriate determination as to when
and to what extent it should record a liability due to the Delphi Chapter 11
filing.
GM's tentative health-care agreement with the UAW, discussed above, provides
former GM employees who became Delphi employees the potential to earn up to
seven years of credited service for purposes of eligibility for certain
health-care benefits under the GM/UAW Benefit Guarantee.
GM currently believes that it is probable that it has incurred a liability
due to Delphi's Chapter 11 filing. However, GM further believes that it is not
presently able to reasonably estimate the amount, if any, it may ultimately pay
under the benefit guarantees due to the foregoing uncertainties. The range of
GM's contingent exposure extends from there being potentially no material
financial impact to the Corporation if the guarantees are not triggered, up
to $12 billion at the high end, with amounts closer to the midpoint being
considered more possible than amounts towards either of the extreme ends of this
range. These views reflect GM's current assessment that it is unlikely that a
Chapter 11 process will result in both a termination of Delphi's pension plan
and complete elimination of its OPEB plans.
22
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - concluded
(Unaudited)
Note 14.15. Subsequent Event
On August 3, 2005, GMAC announcedEvents (concluded)
With respect to the possible cash flow impact on GM related to its ability to
make either pension or OPEB payments, if any are required under the benefit
guarantees, GM would expect to make such payments from ongoing operating cash
flow and financings. Such payments, if any, are not expected to have a material
effect on GM's cash flows in the short-term. However, if payable, these payments
would be likely to increase over time, and could have a material effect on GM's
liquidity in coming years. (For reference, Delphi's 2004 Form 10-K reported that
its total cash outlay for OPEB for 2004 was $226 million which included $154
million for both hourly and salaried retirees [the latter of which are not
covered under the benefit guarantees], plus $72 million in payments to GM for
certain former Delphi hourly employees that flowed back to retire from GM). If
benefits to Delphi's U.S. hourly employees under Delphi's pension plan are
reduced or terminated, the resulting effect on GM cash flows in future years due
to the Benefit Guarantee Agreements is currently not reasonably estimable.
In addition, various financial obligations Delphi has to GM, including the
$819 million payable to GM described in Note 1, as of the date of Delphi's
filing for Chapter 11, may be subject to compromise in the Chapter 11
proceedings resulting in GM receiving payment of only a portion of the face
amount owed by Delphi. GM will seek to minimize this risk by securing adequate
protection, including protecting its right of set-off against amounts it owes to
Delphi as of the date of Delphi's Chapter 11 filing, currently estimated at $1.2
billion. However, the extent to which these obligations are covered by GM's
right to set-off may be subject to dispute by Delphi or its other creditors.
Given that the bankruptcy court will resolve any such disputes, GM cannot
provide any assurance that it had entered into a definitive
binding agreement to sell a 60% equity interest in GMAC Commercial Holding Corp.
(GMAC Commercial Mortgage). The transaction will allow GMAC Commercial Mortgage
increased access to capital for continued growth of its business and GMAC to
retain a significant economic interest. The transaction closing is contingent
upon GMAC Commercial Mortgage securing an investment grade senior debt rating by
Standard & Poor's, Moody's, and Fitch. It is expected that the transaction will be completed duringable to fully or partially set-off such
amounts. The financial impact of a substantial compromise of the fourth quarter$1.2 billion
could have a material adverse impact on the financial position of 2005, subject to all necessary
conditions and approvals.
21GM but is not
reasonably estimable at this time.
23
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 JuneSeptember 30, 2005, filed separately
with the U.S. Securities and Exchange Commission (SEC). All earnings per share
amounts included in the MD&A are reported on a fully diluted basis.
GM presents separate supplemental financial information for its reportable
operating segments:
o Automotive and Other Operations (Auto & Other); and
o Financing and Insurance Operations (FIO).
GM's Auto & Other reportable operating segment consists of:
o GM's four automotive regions: GM North America (GMNA), GM Europe (GME),
GM Latin America/Africa/Mid-East (GMLAAM), and GM Asia Pacific (GMAP),
which constitute GM Automotive (GMA); and
o Other, which includes the elimination of intersegment transactions,
certain non-segment specific revenues and expenditures, including
egacylegacy costs related to postretirement benefits for certain Delphi and
other retirees, and certain corporate activities.
GM's FIO reportable operating segment consists of GMAC and Other Financing,
which includes financing entities that are not consolidated by GMAC.
The disaggregated financial results for GMA have been prepared using a
management approach, which is consistent with the basis and manner in which GM
management internally disaggregates financial information for the purpose of
assisting in making internal operating decisions. In this regard, certain common
expenses were allocated among regions less precisely than would be required for
stand-alone financial information prepared in accordance with accounting
principles generally accepted in the U.S. (GAAP). The financial results
represent the historical information used by management for internal
decision-making purposes; therefore, other data prepared to represent the way in
which the business will operate in the future, or data prepared in accordance
with GAAP, may be materially different.
Consistent with industry practice, market share information employs estimates
of sales in certain countries where public reporting is not legally required or
otherwise available on a consistent basis.
The accompanying MD&A gives effect to the restatement of the 2004 Quarterly
Consolidated Financial Statements discussed in Note 1 to the Condensed
Consolidated Financial Statements.
2224
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Recent Events
Health Care
On October 17, 2005, GM and the United Auto Workers (UAW) reached a tentative
agreement to reduce GM's health-care costs significantly while maintaining a
high level of health-care benefits for its hourly employees and retirees in the
United States.
The tentative agreement, subject to finalized language and UAW-GM member
ratification, is projected to reduce GM's retiree health-care (OPEB) liabilities
by about $15 billion, or 25% of the Corporation's hourly health-care
liability, reduce GM's annual employee health-care expense by about $3
billion on a pre-tax basis over a seven year amortization period, and result in
cash savings estimated to be about $1 billion a year, after the agreement is
fully implemented.
The tentative agreement also commits GM to make contributions to a new
independent Defined Contribution Voluntary Employees' Beneficiary Association
(VEBA) that will be used to mitigate the effect of reduced GM health-care
coverage on individual hourly retirees. The new independent VEBA will be
partially funded by GM contributions of $1 billion in each of three years,
currently expected to be 2006, 2007 and 2011. GM will also make future
contributions subject to provisions of the tentative agreement referencing
profit sharing, payments, wage deferral payments, stock appreciation rights,
and dividend payments.
In reaching the tentative agreement, the UAW indicated its desire to seek
court approval of those changes affecting retirees, and on October 18, 2005
filed such a lawsuit in U.S. federal court. Although GM continues to believe
that it can lawfully make changes to retiree health-care benefits, GM and the
UAW agreed as part of the overall tentative settlement that the UAW would seek
court approval. GM also agreed to cooperate with the UAW to expedite such review
and approval. Instituting such litigation is the initial step in implementing
this element of the agreement.
GM North America Recovery Plan
GM has previously announced plans to improve results at GMNA. The following
is an update of the key elements of these plans and actions to date.
Execute Revenue Growth Initiatives
GMNA is keeping an intense focus on improving both revenue and contribution
margin. GMNA remains committed to increase capital spending by approximately $1
billion in 2005 in support of new car and truck programs, despite financial
pressures. The execution of new product introductions continues to be a major
emphasis, as shown by the success of new entries such as the Chevrolet Cobalt,
Impala, and HHR, the Hummer H3, Pontiac G6 and Solstice, and Cadillac STS and
DTS. GMNA is reallocating capital and engineering to support more fuel-efficient
vehicles, including hybrid and flex-fuel vehicles in the U.S., and is increasing
production of displacement on demand engines and six-speed transmissions.
Additional strategies to increase contribution margin include improving
profitability on fleet business, including daily rental business. GM is also
moderating the high cost of leasing through improved residual values and more
targeted offers.
Revamp Sales and Marketing Strategy
The greatest area of focus has been implementing Total Value Promise as a way
of doing business, through pricing and/or content changes on approximately half
of 2006 model year products, emphasizing total value to customers, and
decreasing reliance on sales incentives. Clarifying, focusing, and
differentiating the role of each North American brand continues to be an
important goal. In addition, increasing advertising to support new products,
improving the retail distribution network, and improving GM's sales performance
in major metropolitan markets will support growing GMNA's business.
Reduce costs and continue manufacturing restructuring plan
GMNA remains committed to achieving 100% or more capacity utilization in the
North America by 2008, based on conservative volume assumptions. This will
require closing additional assembly and component plants, and reducing
manufacturing employment levels by 25,000 or more in the 2005 to 2008 period.
This is in addition to the one million-unit reduction in assembly capacity that
has been achieved over the 2002 to 2005 period. The overall
manufacturing-restructuring plan has been formulated, and the next steps will
involve finalizing the plans in detail with the affected unions. GMNA will
announce further details on this manufacturing restructuring by the end of 2005.
25
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Recent Events (continued)
Reduce costs and continue manufacturing restructuring plan (concluded) Beyond
this and the below-mentioned health care changes, GMNA has put in place other
initiatives to reduce structural cost, for example, improving salaried,
executive, and contract employee costs and productivity, through radically
restructuring the business model in the U.S. and reducing headcount by 30% over
the last five years. GMNA will continue this approach in 2006 in an orderly way,
without disruption to GM's ability to execute key business strategies. In
addition, there have been no salary increases, bonus, or enhanced variable pay
for 2005 for salaried employees and the executive group.
In total, GM is confident that these initiatives should reduce structural
cost significantly, by appproximately $5 billion on an annual running rate
basis, by the end of 2006.
Reducing material costs, by far the largest cost item, remains a critical
part of GMNA's overall cost reduction plans. Despite higher commodity prices and
troubled supplier situations, GMNA is targeting for 2006 a net reduction of $1
billion after including the cost of significant product enhancements. Using the
most competitive sources and globalizing the product development process are two
major opportunities to reduce material costs.
Reduce Health-Care Costs
Health-care cost incurred by GM in the U.S. is a critical area of
uncompetitiveness for GM. The tentative agreement reached between GM and the
UAW, discussed above, represents a major step in GM's restructuring plan and
efforts to reduce structural cost. In addition, consistent with past practice,
GM is increasing the U.S. salaried workforce's participation in the cost of
health care.
These cost-reduction strategies exclude any possible effect from the Delphi
situation discussed below. GM is committed to meeting the challenges and
opportunities related to the Delphi bankruptcy, and will work as constructively
as possible with Delphi to support their objective of emerging from bankruptcy
as a viable ongoing business.
Delphi Bankruptcy
On October 8, 2005, Delphi Corporation (Delphi) filed a petition for Chapter
11 proceedings under the United States Bankruptcy Code for itself and many of
its U.S. subsidiaries. GM expects no immediate effect on its global automotive
operations as a result of Delphi's action. Delphi is GM's largest supplier of
automotive systems, components and parts, and GM is Delphi's largest customer.
GM will work constructively in the court proceedings with Delphi, its unions
and other participants in Delphi's restructuring process. GM's goal is to pursue
outcomes that are in the best interests of GM and its stockholders, and that
enable Delphi to continue as an important supplier to GM.
Delphi has indicated to GM that it expects no disruption in its ability to
supply GM with the systems, components and parts it needs as Delphi pursues a
restructuring plan under the Chapter 11 process. Although the challenges faced
by Delphi during its restructuring process could create operating and financial
risks for GM, that process is also expected to present opportunities for GM.
For example, Delphi or one or more of its affiliates may reject or threaten
to reject individual contracts with GM, either for the purpose of exiting
specific lines of business or in an attempt to increase the price GM pays for
certain parts and components. As a result, GM might be adversely affected by
disruption in the supply of automotive systems, components and parts that could
potentially force the suspension of production at GM assembly facilities.
Another risk is that various financial obligations Delphi has to GM as of the
date of Delphi's filing for Chapter 11, may be subject to compromise in the
Chapter 11 proceedings resulting in GM receiving payment of only a portion of
the face amount owed by Delphi. GM will seek to minimize this risk by protecting
its right of set-off against amounts it owes to Delphi as of the date of
Delphi's Chapter 11 filing, currently estimated at $1.2 billion. However, the
extent to which these obligations are covered by GM's right to set-off may be
subject to dispute by Delphi or its other creditors. Given that the bankruptcy
court will resolve any such disputes, GM cannot provide any assurance that it
will be able to fully or partially set-off such amounts. The financial impact of
a substantial compromise of the $1.2 billion could have a material adverse
impact on the financial position of GM, however, GM believes it is not currently
possible to reasonably estimate the amount.
In connection with GM's split-off of Delphi in 1999, GM entered into separate
agreements with the UAW, International Union of Electrical Workers and the
United Steel Workers. In each of these three agreements (Benefit Guarantee
Agreement(s)) GM provided contingent benefit guarantees to make payments for
limited pension and post-retirement health care and life insurance benefits
(OPEB) to certain former GM U.S. hourly employees who transferred to Delphi as
part of the split-off and meet the eligibility requirements for such payments
(Covered Employees).
26
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Recent Events (continued)
Delphi Bankruptcy (continued)
Each Benefit Guarantee Agreement contains separate benefit guarantees
relating to pension, post-retirement health care and life insurance benefits.
These limited benefit guarantees each have separate triggering events that
initiate potential GM liability if Delphi fails to provide the corresponding
benefit at the required level. Therefore, it is possible that GM could incur
liability under one of the guarantees (e.g. pension) without triggering the
other guarantees (e.g. post-retirement health care or life insurance). In
addition, with respect to pension benefits, GM's obligation under the pension
benefit guarantees only arises to the extent that the combination of pension
benefits provided by Delphi and the PBGC falls short of the amounts GM has
guaranteed.
The Chapter 11 filing by Delphi does not by itself trigger any of the benefit
guarantees. In addition, the benefit guarantees expire on October 18, 2007 if
not previously triggered by Delphi's failure to pay the specified benefits. If a
benefit guarantee is triggered before its expiration date, GM's obligation could
extend for the lives of affected Covered Employees, subject to the applicable
terms of the pertinent benefit plans or other relevant agreements.
The benefit guarantees do not obligate GM to guarantee any benefits for
Delphi retirees in excess of the levels of corresponding benefits GM provides at
any given time to GM's own hourly retirees. Accordingly, if any of the benefits
GM provides to its hourly retirees are reduced, there would be a similar
reduction in GM's obligations under the corresponding benefit guarantee.
A separate agreement between GM and Delphi requires Delphi to indemnify GM if
and to the extent GM makes payments under the benefit guarantees to the UAW
employees or retirees. GM has received a notice from Delphi, that in the opinion
of its Chief Restructuring Officer, it was more likely than not that GM would
become obligated to provide benefits pursuant to the benefit guarantees to the
UAW employees or retirees. The notice stated that Delphi was unable at this time
to estimate the timing and scope of any benefits GM might be required to provide
under those benefit guarantees. Any recovery by GM under indemnity claims
against Delphi could be significantly limited as a result of the Delphi
reorganization proceeding. As a result, GM's claims for indemnity may not be
paid in full.
Although GM believes some losses under the guarantees are probable, for
numerous reasons, including but not limited to the following, GM believes it is
not currently possible to reasonably estimate the financial impact that the
Corporation may eventually sustain, if any, due to the benefit guarantees.
First, GM does not know whether the obligation to make any payments under the
benefit guarantees will be triggered. Second, there are substantial
uncertainties regarding the interpretation of the benefit guarantees. Third, it
is impossible to predict what the impact of the Delphi bankruptcy will be on the
benefits addressed by the benefit guarantees, including whether Delphi will be
permitted by the Court to terminate its pension or OPEB plan for hourly workers
and retirees or reduce the benefits under those plans, and the magnitude of any
changes granted. Fourth, the number of former GM employees who will be covered
under the guarantees is unknown. Fifth, the nature and amount of any payments GM
may receive from the Chapter 11 estate of Delphi in consideration for Delphi's
commitment to indemnify GM for liabilities arising under the benefit guarantees
are not presently estimable. Sixth, GM's financial exposure is likely to be
affected by the outcome of various negotiations between GM and Delphi, between
Delphi and various unions and between GM and those same unions, and the impact
of those negotiations on GM is not estimable. Seventh, it is not possible to
ascertain the extent to which any payments made by the PBGC will lessen GM's
obligations under the pension guarantee. GM continues to evaluate the relevant
facts and circumstances in order to make an appropriate determination as to when
and to what extent it should record a liability due to the Delphi Chapter 11
filing.
GM's tentative health-care agreement with the UAW, discussed above, provides
former GM employees who became Delphi employees the potential to earn up to
seven years of credited service for purposes of eligibility for certain
health-care benefits under the GM/UAW Benefit Guarantee.
GM currently believes that it is probable that it has incurred a liability
due to Delphi's Chapter 11 filing. However, GM further believes that it is not
presently able to reasonably estimate the amount, if any, it may ultimately pay
under the benefit guarantees due to the foregoing uncertainties. The range of
GM's contingent exposure extends from there being potentially no material
financial impact to the Corporation if the guarantees are not triggered, to up
to $12 billion at the high end, with amounts closer to the midpoint being
considered more possible than amounts towards either of the extreme ends of this
range. These views reflect GM's current assessment that it is unlikely that a
Chapter 11 process will result in both a termination of Delphi's pension plan
and complete elimination of its OPEB plans.
27
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Recent Events (concluded)
Delphi Bankruptcy (concluded)
With respect to the possible cash flow impact on GM related to its ability to
make either pension or OPEB payments, if any are required under the benefit
guarantees, GM would expect to make such payments from ongoing operating cash
flow and financings. Such payments, if any, are not expected to have a material
effect on GM's cash flows in the short-term. However, if payable, these payments
would be likely to increase over time, and could have a material effect on GM's
liquidity in coming years. (For reference, Delphi's 2004 Form 10-K reported that
its total cash outlay for OPEB for 2004 was $226 million which included $154
million for both hourly and salaried retirees [the latter of which are not
covered under the benefit guarantees], plus $72 million in payments to GM for
certain former Delphi hourly employees that flowed back to retire from GM). If
benefits to Delphi's U.S. hourly employees under Delphi's pension plan are
reduced or terminated, the resulting effect on GM cash flows in future years due
to the Benefit Guarantee Agreements is currently not reasonably estimable.
In addition, various financial obligations Delphi has to GM, including the
$819 million payable to GM described in Note 1, as of the date of Delphi's
filing for Chapter 11, may be subject to compromise in the Chapter 11
proceedings resulting in GM receiving payment of only a portion of the face
amount owed by Delphi. GM will seek to minimize this risk by securing adequate
protection, including protecting its right of set-off against amounts it owes to
Delphi as of the date of Delphi's Chapter 11 filing, currently estimated at $1.2
billion. However, the extent to which these obligations are covered by GM's
right to set-off may be subject to dispute by Delphi or its other creditors.
Given that the bankruptcy court will resolve any such disputes, GM cannot
provide any assurance that it will be able to fully or partially set-off such
amounts. The financial impact of a substantial compromise of the $1.2 billion
could have a material adverse impact on the financial position of GM but is not
reasonably estimable at this time.
GMAC Strategic Alternatives
On October 17, 2005, GM announced that it is exploring the possible sale of a
controlling interest in GMAC to a strategic partner, with the goal of restoring
GMAC's investment grade rating and renewing its access to low-cost financing.
In addition, GMAC said it will continue to evaluate strategic and structural
alternatives to help ensure that its residential mortgage business, Residential
Capital Corp. (ResCap) retains its investment grade credit ratings.
Other Matters
GM has been cooperating with the SEC in connection with investigations
reported by the media concerning pension and OPEB and certain transactions
between GM and Delphi.
The SEC has issued subpoenas to GM in connection with various matters
involving GM that it has under investigation. These matters include GM's
financial reporting concerning pension and OPEB, certain transactions between GM
and Delphi, GM's recovery of recall costs from suppliers and supplier price
reductions or credits, and any obligation GM may have to fund pension and OPEB
costs in connection with Delphi's proceedings under Chapter 11 of the U.S.
Bankruptcy Code.
Separately, SEC and federal grand jury subpoenas have been served on GMAC
entities in connection with industry wide investigations into practices in the
insurance industry relating to loss mitigation insurance products such as finite
risk insurance.
GM has been conducting an internal review of credits received from suppliers
and the appropriateness of its accounting treatment for them during the years
2000 through 2005. The review of supplier credits is ongoing and GM has not
reached final conclusions about this matter. However, the review to date
indicates that GM erroneously recognized some supplier credits as income in the
year in which they were received rather than in the future periods to which
they were attributable. Accordingly, although the final restatement amounts
have not yet been determined, GM has determined to restate its financial
statements for 2001, and the restatement is expected to be material to the
financial statements previously reported for that year. GM will also restate
financial statements for periods subsequent to 2001 that may be affected by the
erroneous accounting. However, the effect of any such restatement in subsequent
periods, including the periods presented in this Form 10-Q, is expected to be
immaterial to those financial statements. In connection with this determination,
on November 9, 2005 GM has filed a Current Report on Form 8-K, under Item 4.02
(non-reliance on previously issued financial statements), with the SEC.
GM is cooperating with these ongoing investigations.
28
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
Consolidated Results Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------------------------------
Restated Restated-----------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
(dollars in millions)
Consolidated:
Total net sales and revenues $48,469 $49,254 $94,242 $97,084$47,182 $44,899 $141,424 $141,983
Net income (loss) $(286) $1,377 $(1,390) $2,585$(1,633) $315 $(3,811) $2,900
Net margin (0.6%(3.5%) 2.8% (1.5%0.7% (2.7%) 2.7%2.0%
Automotive and Other Operations:
Total net sales and revenues $40,178 $41,202 $77,481 $81,339$38,363 $37,065 $115,844 $118,404
Net income (loss) $(1,094) $545 $(2,927) $989$(2,315) $(302) $(6,030) $687
Financing and Insurance Operations:
Total revenues $8,291 $8,052 $16,761 $15,745$8,819 $7,834 $25,580 $23,579
Net income $808 $832 $1,537 $1,596$682 $617 $2,219 $2,213
The decreaseincrease in secondthird quarter 2005 total net sales and revenues, compared
with secondthird quarter 2004, was due to decreaseda $1.7 billion increase to GMA revenue of
$680 million,
primarily driven by lower production volumea substantial increase at GMAP, primarily from the consolidation of GM
Daewoo Auto & Technology Company (GM Daewoo) for the first time, and unfavorable product mixa 38%
increase at GMNA,
partlyGMLAAM, partially offset by revenue increases in all other automotive regions.an approximately 6% decline at GMNA. FIO
revenue increased $239 million.13%, or $1 billion.
Consolidated net income decreased $1.7$1.9 billion to a net loss of $286 million$1.6 billion
in the secondthird quarter of 2005, compared to income of $1.4 billion$315 million in the secondthird
quarter of 2004. The net loss at Auto & Other of $1.1$2.3 billion is primarily
attributable to GMNA, which had a net loss of $1.2$2.1 billion, and GME, which had a
net loss of $89$382 million. All automotive regions incurred charges for asset
impairments, which totaled $805 million partially offset by net income at GMLAAM and GMAP.after tax. GMAC earned $816$675 million in
the secondthird quarter of 2005, down $30up $55 million from the 2004 level, reflecting lower financing income partially offset by higher
income from mortgage operations, partly offset by lower income from financing
and insurance operations.
For the sixnine months ended JuneSeptember 30, 2005, GM incurred a net loss of $1.4$3.8
billion, compared with net income of $2.6$2.9 billion in 2004. A significant loss at
GMNA, primarily due to lower production volume, weaker product mix, material
cost pressure, and higher healthcare costs and asset impairment charges, is the
primary reason for the overall net loss for the first half of the year.loss.
On a consolidated basis, GM recognized a net tax benefit of $305$989 million on a
loss before taxes, equity income, and minority interests of $764 million,$2.7 billion,
resulting in an effective tax rate for the secondthird quarter of 2005 of 40%36%. 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
secondthird quarter of 2005, GM's income tax provision was based on the total of
pre-tax income at statutory tax rates plus one-fourth of these expected
benefits. Taxes were allocated to GM's automotive regions based on tax rates
used by management for evaluating their performance. Tax benefits in excess of
those recognized in GMA are allocated to Other Operations. GM's quarterly tax
provisions for the remainder of 2005 will be consistent with this approach.
SecondThird quarter 2005 results compared to second quarter 2004, included:
o Global automotive market share increased 0.5 percentage point to 15.2%;Consolidated net loss of $1.6 billion, or $2.89 per share;
o Loss of $2.1 billion at GMNA, incurred a significant loss due to lower volumes, unfavorable mix,
material cost pressure, and increased health-care expense;highlighting need for acceleration of
turnaround plan;
o Positive effects of GME achieved improvedrestructuring plan;
o Strong operating results which were more than offset by a
restructuring charge related to ongoing initiatives;at GMAP and GMLAAM;
o GMLAAM was profitable for the sixth consecutive quarter;
o GMAP earned lowerHigher net income resulting from conditions in China and lower
income at GM Holden; and
o GMAC earned significant net income despite a lower net interest margin
environment.
23challenging environment
29
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------------------------------
Restated Restated
2005 2004 2005 2004
---- ---- ---- ----
(dollars in millions)
Auto & Other:
Total net sales and revenues $40,178 $41,202 $77,481 $81,339$38,363 $37,065 $115,844 $118,404
Net income (loss) $(1,094) $545 $(2,927) $989$(2,315) $(302) $(6,030) $687
GMA net income (loss) by region:
GMNA $(1,194) $355 $(2,754) $756$(2,095) $(88) $(4,849) $668
GME (89) (45) (614) (161)(382) (236) (996) (397)
GMLAAM 33 10 79 11(74) 27 5 38
GMAP 176 259 236 534114 78 (438) 612
----- ---- ------ --- ------ ------
Net income (loss) $(1,074) $579 $(3,053) $1,140$(2,437) $(219) $(6,278) $921
Net margin (2.7%(6.3%) 1.4% (3.9%(0.6)% (5.4%) 1.4%0.8%
GM global automotive market share 15.2% 14.7% 14.3% 14.1%14.6% 15.4% 14.4% 14.5%
Other:
Net income (loss) $(20) $(34) $126 $(151)$122 $(83) $248 $(234)
GM Auto & Other net sales and revenues declined $1.0increased $1.3 billion, or 2.5%3.5%, in
the secondthird quarter of 2005, compared to the year-earlier quarter. The decreaseincrease
was more than accounted for byachieved despite a 7.8%5.8% decline in GMNA's total revenues, whilewhich was more
than offset as all other regions increased revenues over the secondthird quarter of
2004. GM's global market share was 15.2%14.6% and 14.7%15.4% for the secondthird quarters of
2005 and 2004, respectively. GMNA's market share increased 1.1decreased 2.9 percentage
points, to 27.3%25.6% for the quarter, compared to 2004. Market share gains were
achieved in GMLAAM and GMAP, while GME's share remained unchangeddeclined 0.2% despite ana slight
increase in sales volume. See discussion below under each region.
GMA incurred a net loss of $1.1$2.4 billion in the secondthird quarter 2005, compared
to a net incomeloss of $579$219 million in 2004, primarily due to a substantial loss at
GMNA, asset impairment charges in all regions, and a restructuring charge at
GME.
For the sixnine months ended JuneSeptember 30, 2005, GMA total net sales and
revenues decreased $3.4$1.8 billion over the year-earlier period, with a decrease in
GMNA of $6.0$7.5 billion more than offsetting increases in all other automotive
regions. Over the same period, GMA incurred a net loss of $3.1$6.3 billion, compared
to net income of $1.1 billion$921 million in 2004, primarily resulting from a loss of $2.8$4.8
billion at GMNA in 2005 and restructuring charges at GME.GMNA.
Other Operations incurred lossesearned net income of $20 million and $34$122 million in the second
quartersthird quarter 2005
compared to a net loss of 2005 and$83 million in the third quarter of 2004, respectively, and earned
net income of $126$248 million for the first sixnine months of 2005, compared to a net loss
of $151$234 million for the year-earlier period. The improved performance in 2005
was primarily due to tax benefits allocated to Other Operations, partly offset
by interest expense and legacy costs.
2430
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
GM Automotive Regional Results
GM North America Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------------------------------
Restated Restated
2005 2004 2005 2004
---- ---- ---- ----
(dollars in millions)
GMNA:
Net income (loss) $(1,194) $355 $(2,754) $756$(2,095) $(88) $(4,849) $668
Net margin (4.4%(8.5%) 1.2% (5.2%(0.3% (6.3%) 1.3%0.8%
Production volume (volume in thousands)
Cars 458 543 928 1,068424 463 1,352 1,531
Trucks 789 846 1,502 1,666722 746 2,224 2,412
----- ----- ----- -----
Total GMNA 1,247 1,389 2,430 2,7341,146 1,209 3,576 3,943
Vehicle unit sales
Industry - North America 5,631 5,393 10,318 10,0685,518 5,247 15,840 15,316
GM as a percentage of industry 27.3% 26.2% 26.4% 26.3%25.6% 28.5% 26.1% 27.0%
Industry - U.S. 4,801 4,598 8,801 8,5924,735 4,524 13,538 13,116
GM as a percentage of industry 27.9% 26.7% 26.7% 26.7%26.1% 29.3% 26.5% 27.6%
GM cars 23.5% 23.5% 23.4% 24.6%22.6% 26.9% 23.1% 25.4%
GM trucks 31.3%28.8% 31.1% 29.2% 29.4% 29.4% 28.4%
North American industry vehicle unit sales increased to 5.65.5 million in the
secondthird quarter of 2005 compared to 5.45.2 million in 2004, andwhile GMNA's market share
increased 1.1decreased 2.9 percentage points to 27.3%25.6% from 26.2%28.5% in the secondthird quarter of
2004. Over this period U.S. industry sales increased 4.4%4.7% to 4.84.7 million units.
GM's U.S. market share increaseddecreased by 1.23.2 percentage points, to 27.9%26.1%, compared to
the secondthird quarter of 2004. U.S. car market share remained unchanged at 23.5%declined to 22.6%from 26.9%,
whileand U.S. truck market share increaseddecreased to 31.3%28.8%, up 1.9down 2.3 percentage points.
Increased volume of new models and successful marketing programs, in particular
employee pricing offers, were primary drivers of the increased retail sales in
the 2005 period.
In the secondthird quarter of 2005, GMNA recorded a net loss of $1.2$2.1 billion, a
deterioration of $1.5$2.0 billion from 2004 net incomeloss of $355$88 million. The decrease
was primarily due to lower production volume, unfavorable product mix, higher
health-care expense, unfavorable material costs, increased advertising costs,
and charges for asset impairments. In addition, third quarter 2004 results
included favorable adjustments for product mix,liability reserves and unfavorable material costs.an insurance
settlement. Pricing was favorable for the quarter, with more newly launched
products with low incentives, and fewer 2005 models available. Production volume
was lower in 2005 by 14263 thousand units, at 1.2471.146 million for the quarter,
compared to 1.3891.209 million in the secondthird quarter of 2004. Dealer inventories in
the U.S. declined by 349319 thousand units as a result of decreased production and strong
retail sales in the quarter, to 1.018 million818 thousand at JuneSeptember 30, 2005, from
1.3671.137 million units at JuneSeptember 30, 2004. Product mix was unfavorable primarily
due to a decrease in sales of large utility vehicles, resulting fromvehicles.
After reviewing the need to reduce
dealer inventory levels in lightcarrying value of the upcoming launchlong-lived assets held and used, other
than goodwill and intangible assets with indefinite lives, GMNA concluded that
certain product-specific long-lived assets, as well as certain office and
production facilities, were impaired. Accordingly, GMNA recorded an impairment
charge of the GMT 900 full-size
sport utility vehicle later this year. In addition, GMNA produced more fleet
vehicles (28.4% of production in the second quarter of 2005, compared to 25.1%
in the second quarter of 2004) that are less profitable than retail units.
Country of sale mix, with higher sales in Canada and Mexico, and model mix were
unfavorable, as well. In the second quarter of 2005, GMNA completed its annual
study of warranty reserves. This resulted in a favorable pretax adjustment of
$237 million, compared to $138 million in the second quarter of 2004 ($147
million and $86$468 million, after tax, respectively).tax.
North American industry vehicle unit sales increased 2.5%3.4% to 10.315.8 million in
the first sixnine months ofended September 30, 2005 from 10.115.3 million in the first six monthssame period of
2004, while GMNA's market share increaseddecreased by 0.10.9 percentage point to 26.4% in26.1% as of
September 30, 2005,
year-to-date, compared to 26.3% in27.0% as of September 30, 2004.
For the first sixnine months ofended September 30, 2005, industry vehicle unit sales in
the United States increased 2.4%3.2% to 8.813.5 million units from 8.613.1 million units
in the year-earlier period. GM's 2005 year-to-date U.S. market share remained
unchanged, at 26.7%.decreased
to 26.5% from 27.6% for the same period in 2004. U.S. car market share declined
by 1.22.3 percentage points to 23.4%23.1%, while U.S. truck market share increaseddecreased to
29.4%29.2%, up 1.0down 0.2 percentage point from 2004.
25
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
GM Automotive Regional Results (concluded)
For the first sixnine months ofended September 30, 2005 GMNA incurred a net loss of $2.8$4.8
billion, compared to net income of $756$668 million in 2004, primarily due to lower
production volume, unfavorable product mix, higher health-care expense, asset
impairment charges, and unfavorable product mix.increased advertising expense. In addition, results in
the first halfquarter of 2005 included an after-tax charge of $140 million related
to voluntary early retirement and other separation programs with respect to
certain salaried employees in the U.S.
The first half of 2005 also
included a charge of $84 million, after tax, for the write-down to fair market
value of various plant assets in connection with the cessation of production at
the Lansing assembly plant during the second quarter of 2005.
Vehicle revenue per unit was $18,811$19,157 for the secondthird quarter of 2005, slightly$847
higher compared to $18,801$18,310 for the secondthird quarter of 2004.
GM North America Recovery Plan
GM has announced plans to improve results at GMNA. The key elements of these
plans and actions to date are as follows:
- Execution of new products:
o Increasing capital spending by approximately $1 billion in 2005,
concentrated on new products;
o Advancing the timing of several high volume, high profit programs,
including large pick-ups and mid- and large-utilities;
o Achieving strong sales of recently launched products, such as the Cobalt
and H3, and
o Launching additional products in the near term, including the
Chevrolet HHR, Pontiac Solstice, and Cadillac DTS.
- Retool sales and marketing strategy:
o Clarifying, focusing, and differentiating the role of each North
American brand;
o Increasing advertising to support new products;
o Implementing pricing and/or content changes on approximately half of
2006 model year products, emphasizing total value to customers, and
decreasing reliance on sales incentives;
o Focusing on improving GM's sales performance in major metropolitan
markets; and
o Improving the retail distribution network.
- Reduce cost and improve quality:
o Continuing the improvements in quality and productivity that have been
recognized in recent surveys by J.D. Power and the Harbour Report;
o Continuing to implement capacity reductions; and
o Continuing efforts to reduce material costs through global sourcing
efforts.
- Address health care cost burden:
o GM is engaged in discussions with the UAW and other unions, focused on a
cooperative approach to significantly reduce GM's health care cost
disadvantage.
Delphi Matters
Delphi Corporation, a major supplier to GM's automotive operations and a
former subsidiary of GM, has presented GM with information regarding its
intention to address its existing legacy liabilities and the high cost
structure of its U.S. operations. Delphi has stated that it has also outlined
this information to its largest union, the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America (UAW), and
separately to its other U.S. unions. Delphi has stated that it is seeking a
comprehensive restructuring of its U.S. operations in which it obtains
participation by its unions and financial support from GM. Delphi has also
stated that, if it is not successful in achieving a restructuring by October 17,
2005, it would consider other strategic alternatives, including a judicial
reorganization under Federal bankruptcy laws. GM is considering Delphi's
request in order to determine what participation by GM, if any, would be
in the best interests of GM and its stockholders. Delphi has notified
GM that, assuming GM participates in Delphi's restructuring in a manner
satisfactory to Delphi, it is Delphi's view there is not a likelihood that GM
would become obligated to provide any benefits pursuant to the benefit guarantee
agreement GM entered into with certain of its unions in 1999 (see Note 7 to the
Consolidated Financial Statements), but has indicated that without GM's
financial participation in Delphi's restructuring proposal, it expects that its
view as to that matter would change.
2631
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
GM Europe Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------------------------------
Restated Restated-----------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
(dollars in millions)
GME net loss $(89) $(45) $(614) $(161)$(382) $(236) $(996) $(397)
GME net margin (1.1%(5.3%) (0.6%(3.4%) (3.7%(4.2%) (1.0%(1.8%)
(volume in thousands)
Production volume 501 503 1,003 976412 411 1,415 1,387
Vehicle unit sales
Industry 5,673 5,576 10,945 10,9294,955 4,833 15,927 15,762
GM as a percentage of industry 9.7% 9.7% 9.7%9.3% 9.5% 9.6% 9.5%
GM market share - Germany 11.1% 10.8% 11.0% 10.7%10.5% 10.1% 10.9% 10.5%
GM market share - United Kingdom 15.5% 13.9% 15.2% 14.0%13.7% 14.2% 14.7% 14.1%
Industry vehicle unit sales increased in Europe during the secondthird quarter of
2005 by 1.7%2.5% to 5.75.0 million, from 5.64.8 million in the secondthird quarter of 2004, with
strong year-over-year growth in most of the region, partly offset by
declineswhile sales in the U.K., Italy, and Central Europe. In line with higher industry
volumes,
declined slightly. GME's vehicle unit sales increased by 10volume was essentially flat, at 460
thousand, down 482 units over the secondversus. third quarter of 2004, to 549 thousand units.2004. GME's market share remained unchanged at
9.7%. In GM's two largest markets in Europe, GM gained market share: share was
11.1% in Germany, a 0.3declined
0.2 percentage point increase versus the second quarter of
2004, and 15.5% in the United Kingdom, an increase of 1.6 percentage points
versus the same period in 2004.to 9.3%. Market share wasresults were mixed in the rest ofthroughout the
region, with improvements in Germany, Italy, and Eastern Europe, and declines in
the U.K., France, Spain, and other markets.
Net loss for GME totaled $89$382 million and $45$236 million in the secondthird quarters
of 2005 and 2004, respectively. The secondthird quarter 2005 loss includes an
after-tax
asset impairment and ongoing restructuring chargecharges of $126$176 million related to the initiative
announced in the fourth quarter of 2004 and costs of dissolving GM's powertrain
and purchasing joint ventures with Fiat S.p.A (Fiat). This charge and continued
unfavorable price pressure$56
million respectively. These charges more than offset improvements in product mix
and net price, favorable material costs, and structural costs improvements
(including the initial effects of the restructuring initiative), favorable
material costs, and the effects of positive product mix..
For the first sixnine months of 2005, industry unit sales were essentially
unchangedup slightly from
the 2004 period in Europe, at 10.9to 15.9 million units. GM's market share in the
region increased 0.20.1 percentage point year-to-date in the first half of 2005, to 9.7%9.6%. GM's share
improved in both the U.K., up 1.20.6 percentage pointspoint to 15.2%14.7%, and in Germany, up
0.30.4 percentage point to 11.0%10.9%, compared to the first sixnine months of 2004.
For the sixnine months ended JuneSeptember 30, 2005, GME's net loss was $614$996
million, compared to $161$397 million for the same period in 2004. The increased
loss was more than accounted for by after-tax restructuring charges totaling
$548$604 million (including $422 million inand the first quarter).impairment charge noted above. These charges and
unfavorable price more than offset favorable mix and material and structural
cost improvements.
The restructuring plan notedreferred to above targets a reduction in annual
structural costs of an estimated $600 million by 2006. A total reduction of
12,000 employees, including 10,000 in Germany, over the period 2005 through 2007
through separation programs, early retirements, and selected outsourcing
initiatives is expected. The charge incurred in the secondthird quarter of 2005 covers
approximately 600500 people, as well as those charges related to previous
separationsseparation agreements that are required to be amortized over future periods. The
year-to-date charge incurredof $604 million also includes costs related to the
separation of approximately 6,200 people in the first quarter of 2005 covered approximately 5,650 people, of
whom 4,900 are in Germany.two quarters.
The Corporation's plan is on track and anticipates further separations and
associated charges in the remainderfourth quarter 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.
2732
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (continued)
GM Latin America/Africa/Mid-East Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------------------------------
Restated Restated-----------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
(dollars in millions)
GMLAAM net income $33 $10 $79 $11$(74) $27 $5 $38
GMLAAM net margin 1.1% 0.5% 1.5% 0.3%(2.5%) 1.2% 0.1% 0.6%
(volume in thousands)
Production volume 196 172 381 331207 185 587 516
Vehicle unit sales
Industry 1,237 1,020 2,381 2,0041,278 1,084 3,672 3,075
GM as a percentage of industry 18.3% 17.1%17.5% 17.2% 16.6%17.2% 16.9%
GM market share - Brazil 21.9% 23.5% 20.6% 23.5%21.1% 21.8% 20.7% 22.9%
Industry vehicle unit sales in the LAAM region increased over 21%nearly 18% in the
secondthird quarter of 2005, to 1.2371.278 million units, compared to the secondthird quarter of
2004. Overall, GMLAAM's market share for the region increased 1.2 percentage
points, to 18.3% in the second quarter of 2005. This increase was primarily the
result of a 3.40.3 percentage
point, increase in South Africa market share, and
increases in Argentina and the Middle East, partly offset by a decrease of 1.6
percentage points in Brazil. GM's market share in Brazil was adversely affected
by the lack of a 1.0 liter flex-fuel vehicle in the low market segment. This
will be addressedto 17.5% in the third quarter of 2005 with2005. GM's market share gains in
Venezuela and South Africa were partially offset by lower share in Brazil,
reflecting the launchstrong competitive environment.
GMLAAM's net loss of the Chevrolet
Celta with flex-fuel.
GMLAAM earned net income of $33$74 million in the quarter upis down from net income of
$10$27 million in the secondthird quarter of 2004. The increasethird quarter loss is more than
accounted for by impairment charges of $99 million. These charges, along with
unfavorable exchange in Brazil, more than offset favorable volume, mix, and net
income was
primarily the result of higher production volume, partly offset by negative
foreign exchange, especially in Brazil. The second quarter of 2005 is the sixth
consecutive quarter of profitability for GMLAAM.price.
In the first halfnine months of 2005, industry vehicle unit sales grew to 2.3813.672
million units, up 18.8%19.4% over the first half of 2004. GM's market share in the region increased to
17.2%, from 16.6%16.9% in 2004, despite a decrease in share in Brazil, down 2.92.2
percentage points to 20.6%20.7%.
For the first halfnine months of 2005, GMLAAM earned $79$5 million, compared to $11$38
million a year earlier, primarily due to higher income in South Africa,
Venezuela, and Colombia, partially offset by unfavorable results in Brazil.the third quarter impairment charges.
GM Asia Pacific Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------------------------------
Restated Restated-----------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
(dollars in millions)
GMAP net income $176 $259 $236 $534$114 $78 $(438) $612
GMAP net margin 9.2% 15.3% 6.5% 16.2%3.0% 4.9% (5.9%) 12.5%
(volume in thousands)
Production volume 400 337 735 633409 314 1,142 947
Vehicle unit sales
Industry 4,500 4,048 9,142 8,6204,459 4,130 13,631 12,747
GM as a percentage of industry 6.3% 5.6% 5.6%5.9% 5.1% 5.7% 5.2%
GM market share - Australia 17.5% 19.2% 18.0% 19.3% 18.2% 19.7%19.5%
GM market share - China 11.4% 9.8% 10.9% 9.8%
28
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (concluded)
GM Asis Pacific (concluded)11.7% 9.1% 11.1% 9.6%
Industry vehicle unit sales in the Asia Pacific region increased 11.2%8.0% in the
secondthird quarter of 2005 compared to the secondthird quarter of 2004, to 4.5 million
units, with slightly overmore than half the unit increase in China, and growth throughout the
region. GMAP increased its vehicle unit sales (including GM Daewoo Auto &
Technology Company [GM Daewoo] and China
affiliates) in the region by 5552 thousand units, or 24.7%24.9% in the period, to 281261
thousand units from 226209 thousand in 2004, driven primarily by higher salesa 49% increase in China.
GMAP's secondthird quarter 2005 market share increased to 6.3%5.9%, from 5.6%5.1% in the secondthird
quarter of 2004. GMAP increased its market share in China to 11.4%11.7% in the secondthird
quarter of 2005, up from 9.8%9.1% in the secondthird quarter of 2004. Market share in
Australia decreased in the period to 18.0%17.5%, compared to 19.3%19.2% in the secondthird
quarter of 2004, primarily due to lower sales of full-sized cars.
33
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review (concluded)
GM Asia Pacific (concluded)
In the first sixnine months of 2005, industry vehicle unit sales in the region
increased 522884 thousand units, or 6.1%6.9%, to 9.113.6 million, over the year earlier
period, while GMAP's sales increased 63115 thousand units, or 13.9%17.5%, to 513774
thousand. The bulk of GMAP's growth 49was virtually accounted for by an increase of 102
thousand units was in China, where market share grew 1.11.5 percentage points to 10.9%11.1%
for the first halfnine months of 2005. Overall in the region, GMAP's market share
increased 0.40.5 percentage point, to 5.6%5.7%, in the period, compared to 2004.
Net income from GMAP was $176$114 million and $259$78 million in the secondthird quarters
of 2005 and 2004, respectively. The increase of $36 million was primarily the
result of improved results at GM Daewoo and higher equity income from GM
Shanghai, partially offset by asset impairment charges of $62 million from GM
Holden.
For the six-monthnine-month periods ending JuneSeptember 30, 2005 and 2004, GMAP'sGMAP had a net
loss of $438 million and net income was $236 million and $534of $612 million, respectively. The decrease
in income was primarily due to the write-down to fair-market value of GM's
investment in Fuji, recognized as of June 30, 2005, discussed above. In
addition, there were lower equity earnings from Shanghai GM largely due to unfavorable product mix and unfavorable price. In addition, GM
Holden's 2005 results have been lower than in 2004 due to reduced salesthe first half of
locally produced vehicles and the unfavorable effect of the failure ION, a local
supplier.2005.
On June 28, 2005 GM increased its ownership in GM Daewoo to 50.9% from 48.2%.
Accordingly, as of June 30, 2005, GM Daewoo was consolidated by GM.GM Daewoo. See Note 2 to the
Consolidated Financial Statements.
Other Operations Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
-----------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
(dollars in millions)
Other:
Total net sales, revenues, and
eliminations $(267) $77 $(292) $136$(317) $57 $(609) $193
Net income (loss) $(20) $(34) $126 $(151)$122 $(83) $248 $(234)
Other Operations incurredearned net lossesincome of $20$122 million and $34incurred a net loss of
$83 million in the secondthird quarters of 2005 and 2004, respectively. Results for
2005 include tax benefits of $158$311 million recognized in Other Operations. As
discussed above, these benefits relate to various items that generally do not
vary with changes in pre-tax income. These benefits were partially offset by
legacy costs, interest expense, and exchange. Other Operations'operations results include
after-tax legacy costs of $129$128 million, and $102compared to $100 million forin the second quartersthird
quarter of 2005
and 2004, respectively, related to employee benefit costs of divested businesses,
primarily Delphi, for which GM has retained responsibility.
For the first halfnine months of 2005, Other Operations earned net income of $126$248
million, compared to a net loss of $151$234 million in the 2004 period. The
improvement is attributable to tax benefits, as discussed above, of $547$858 million
allocated to Other Operations in 2005, partially reduced by increases in legacy
costs, interest expense, and exchange. Legacy costs of $241$369 million and $204$304
million were included in Other Operations' results for 2005 and 2004,
respectively. Other Operations' results for the first half of 2005 also include
$8 million, after tax, related to the early retirement and other separation
programs, in the first quarter, described above for certain salaried employees
in the U.S.
29
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Health-Care Costs
GM is currently exposed to significant and growing liabilities for other
postretirement employee benefits (OPEB), including retiree health care and life
insurance, for both its hourly and salaried workforces. GM discontinued offering
OPEB to salaried workers hired after 1992. Such employees now comprise
approximately 30% of GM's U.S. active salaried workforce. GM's OPEB liabilities
have grown to $77.5 billion as of December 31, 2004 with increases in recent
years primarily resulting from increases in health-care inflation. GM's OPEB
liabilities affect GM's short-term and long-term financial condition in several
ways. GM's OPEB liabilities affect GM's OPEB expense, which affects GM's net
income. GM's pre-tax OPEB expense is expected to grow to an estimated $5.7
billion in 2005, up $1.1 billion from 2004, primarily as a result of rising
retiree health-care costs and falling discount rates. GM's total pre-tax
health-care expense for 2005 is estimated to be $7.4$7.5 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$5.7 billion, also up
approximately $0.4$0.3 billion from 2004 spending levels. However, GM has Voluntary
Employees' Beneficiary Association (VEBA)VEBA and
401(h) trusts totaling $20.4$20.3 billion as of JuneSeptember 30, 2005 that could be used
to reimburse GM for its OPEB expenditures under certain circumstances. During
each of the second quarterand third quarters of 2005, GM withdrew $1 billion from its
VEBA trust as a reimbursement for its retiree health care payments. On July 1,October
3, 2005, GM withdrew an additional $1 billion from the VEBA, and on a
quarter-by-quarter basis is evaluating the need for additional withdrawals as
the cost of health care continues to adversely affect GM's liquidity. GM's OPEB
liabilities also negatively affect GM's credit ratings, which are discussed at
"Status of Debt Ratings" below.
34
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Health-Care Costs (concluded)
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 discussionsincreased cost sharing with
our
labor unions aboutsalaried and hourly employees. On October 17, 2005, GM and the United Auto
Workers (UAW) reached a tentative agreement to reduce GM's health-care costs
significantly while maintaining a high level of OPEBhealth-care benefits providedfor its
hourly employees and retirees in the United States. See Note 15 to hourly employees.the Condensed
Consolidated Financial Statements.
GMAC Financial Review
GMAC's net income was $816$675 million and $846$620 million in the secondthird quarters of
2005 and 2004, respectively. Net income for the first sixnine months of both 2005
and 2004 was $1.5 billion$2.2 billion. Third quarter 2005 earnings represent a record third
quarter for GMAC and $1.6 billion, respectively.were achievable despite the unfavorable impact of Hurricane
Katrina and continued negative credit rating agency actions. The increase in
third quarter earnings were due to strong performance of GMAC's Mortgage
Operations which more than offset lower earnings from financing and a modest
decline in insurance earnings as compared to the prior year. As a result of
Hurricane Katrina , GMAC's third quarter earnings were negatively impacted by
approximately $161 million with the majority of the impact related to credit
losses in the lending businesses- both auto finance and mortgage-with less
significant losses in the insurance business.
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
-----------------------------------------
Restated Restated
2005 2004 2005 2004
---- ---- ---- ----
(dollars in millions)
Financing operations $378 $452 $626 $894$178 $259 $804 $1,154
Mortgage operations 338 319 723 550408 266 1,131 815
Insurance operations 100 75 195 166
--- ---89 95 284 261
---- ---- ----- -----
Net income $816 $846 $1,544 $1,610$675 $620 $2,219 $2,230
=== === ===== =====
Net income from GMAC's financing operations totaled $378$178 million in the secondthird
quarter of 2005, as compared with $452$259 million earned in the same period of the
prior year. For the first sixnine months ofended September 30, 2005 and 2004, financing
operations' net
income was $626operations earned $804 million and $894 million,$1.2 billion, respectively. The decrease for the
2005 periods
reflects the unfavorable effect of lower net interest margins as a result of
increased borrowing costs.costs and the unfavorable effect of reserves related to
Hurricane Katrina. The reserves related to Hurricane Katrina and the decline in
net interest margins waswere somewhat mitigated by the effect of improved used
vehicle prices on lease
terminations andterminating leases, favorable consumer credit provisions
(primarily as a result of lower credit loss provisionsasset levels in the third quarter of 2005
compared to 2004.the third quarter of 2004), and a decrease in advertising expenses
related to joint marketing programs with GM.
Mortgage operations earned $338record quarterly earnings of $408 million in the
secondthird quarter of 2005, upan increase of 53% from $319the $266 million earned in the
secondthird quarter of 2004.the prior year. For the first sixnine months of 2005 and 2004,
mortgage operations' net income was $723earnings were $1.1 billion and $815 million, compared to $550 million
in 2004. These results represent increasesrespectively. Earnings
increased as a result of 6% and 31% over the same periods
of 2004, despite lower overall U.S. mortgage industry volume in 2005 as compared
to 2004. On a combined basis,higher loan production, for GMAC's residential based
mortgage companies for the second quarterresulting in an increase in
gains on sales of 2005 remained consistent with that
experienced for the second quarter of 2004, despite a decline of approximately
11% in total U.S. residential mortgage industry volume during the same time
period.loans. In addition, the favorable effects of valuation gains
on the investment 30portfolio and favorable mortgage servicing results mitigated
lower net interest margins due to increased borrowing costs. GMAC Commercial
Mortgage also experienced an increase in 2005 earnings compared to the prior
year, largely due to increased loan production, higher asset levels, and
increases in fee income. In August 2005, GMAC entered into a definitive
agreement to sell a 60% interest in GMAC Commercial Mortgage, with the
transaction expected to close near the end of 2005.
GMAC's insurance operations earned $89 million in the third quarter of 2005,
compared to $95 million earned in the third quarter of 2004. For the year to
date periods of 2005 and 2004, insurance operations earned $284 million and $261
million, respectively. Lower net income for the third quarter of 2005 compared
to 2004 is attributable to an increase in the combined ratio from 93.5% to
94.6%. During the third quarter of 2005, $18 million of after-tax incurred
losses were recorded related to Hurricane Katrina, primarily offset by a
decrease in ratio of losses incurred to earned premium for service contracts.
Acquisition and underwriting expenses also increased during the quarter. For the
first nine months of 2005 as compared to the same period of 2004, the combined
ratio improved to 94.3% from 94.7% due to a decrease in losses incurred
primarily offset by an increase in acquisition and underwriting expenses. In
35
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC Financial Review (concluded)
portfolio and favorable mortgage servicingaddition, increased underwriting results mitigatedfrom international operations
contributed to the impact of lower
gains on sales of loans and lower net interest margins due to increased
borrowing costs. GMAC's commercial mortgage operations' earnings were down $5
million from the second quarter of 2004, primarily due to lower gains on sales
of loans as a result of certain valuation adjustments, which occurred during the
quarter. However, as a result of increased volume and higher gains on salesincrease in
the first quarter of 2005, net income for the first sixnine months of 2005,
compared to 2004. Investment income increased by $25 million to $101 million asin the third quarter and first
nine months of 2005 compared to the first six months of 2004.
Net income from insurance operations totaled $100 million and $75 million for
the second quarter of 2005 andsame 2004 respectively, and $195 million and $166
million for the first six months of 2005 and 2004, respectively.periods. The increases
in 2005 areincrease was
primarily the result of favorable underwriting results duelarger debt and equity portfolios of invested assets.
GMAC insurance maintained a strong investment portfolio, with a market value of
$7.8 billion at September 30, 2005, including net unrealized gains of $563
million.
GMAC continued to increasesmaintain adequate liquidity, with cash reserve balances and
marketable securities at September 30, 2005 of $24.3 billion, comprised of $21.8
billion in insurance premiumscash and service revenue earnedcash equivalents and written from
contract growth across$2.5 billion invested in certain
marketable securities. GMAC also provided a significant source of cash flow to
GM through the majoritypayment of product lines. In addition, incurred
losses attributable to severe weathera $500 million dividend in the United States were lower in the
secondthird quarter, of 2005 than in the second quarter of 2004.bringing
total year to date dividends paid to $1.5 billion.
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.outlook.
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 JuneSeptember 30, 2004.
The Corporation's previous policy was to classify all the cash flow effects
of providing wholesale loans to its independent dealers by GM's Financing and
Insurance Operations as an investing activity in its Consolidated Statements of
Cash Flows. This policy, when applied to the financing of inventory sales, had
the effect of presenting an investing cash outflow and an operating cash inflow
even though there was no cash inflow or outflow on a consolidated basis. The
Corporation has changed its policy to eliminate this intersegment activity from
its Condensed 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 Condensed Consolidated Statement of Cash
Flows for the sixnine months ended JuneSeptember 30, 2004. This reclassification better
reflects the financing of the sale of inventory as a non-cash transaction to GM
on a consolidated basis and eliminates the effects of intercompany transactions.
See Note 1 to the Condensed Consolidated Financial Statements for the effect of
this reclassification.
Status of Debt Ratings
In the secondthird quarter of 2005, GM, GMAC, and GMACResCap experienced adequate
access to secured funding sources and limited access to the unsecured capital
markets. Nonetheless, GM, GMAC and GMACResCap were able to meet their respective
capital requirements due to their diversified funding strategies and liquidity
positions. On April 5,
2005, Moody's downgraded GM's long-term credit rating from Baa2 with a negative
outlook to Baa3 with a negative outlook and, at the same time, downgraded GMAC's
long-term credit rating from Baa1 with a negative outlook to Baa2 with a
negative outlook. Moody's lowered GM's commercial paper rating to Prime-3 with a
negative outlook from Prime-2 with a negative outlook and, at the same time,
affirmed GMAC's commercial paper rating of Prime-2 with a negative outlook. On
July 7, 2005, Moody's placed the ratings of GM, GMAC, and ResCap
on review for possible downgrade. Moody's concluded the review on August 24,
2005 with the downgrade of GM and GMAC to Ba2 and Ba1, respectively. At the same
time, Moody's downgraded ResCap to Baa3, also with a negative outlook. In
addition, Moody's downgraded GM's and GMAC's short-term ratings to "not prime."
On October 10, Moody's placed the ratings of GM, GMAC, and ResCap on review for
possible downgrade. On May 5,October 17, 2005 Moody's changed the review status of
GMAC's and ResCap's ratings to "direction uncertain" from "review for possible
downgrade," leaving the ratings of GM under review for possible downgrade. On
November 1, 2005, Moody's resolved GM's review, downgrading GM's ratings to B1
with a negative outlook. The ratings of GMAC and ResCap were unaffected by the
GM action and remain at Ba1 and Baa3, respectively. Both have a review status of
"direction uncertain." On October 3, 2005, Standard & Poor's downgradedplaced the ratings
of GM, GMAC, and ResCap on CreditWatch with negative implications. This review
was concluded on October 10, 2005, with the downgrade of GM's and GMAC's
long-term credit rating from BBB-to BB- with
a negative outlook to BB with a negative
outlook and, atoutlook. In addition, on the same time,date, Standard & Poor's changed the
outlook of both GMAC's and ResCap's long term credit rating and that of their
commercial paper to "developing." Standard & Poor's also downgraded GM's
and GMAC's commercial paper rating from A-3 with a negative outlook to B-1B-2, also with a negative outlook. On May
24,September 26, 2005,
Fitch downgraded GM's and GMAC's long-term credit rating from BBB-BB+ with a
negative outlook to BB+BB with a negative outlook and, at the same time, downgraded
GM's and GMAC's commercial paper rating from F3 with a negative outlook to B
with a negative outlook. On May 26, 2005, DBRSIn addition, Fitch downgraded GM's
long-termthe long term credit
rating from BBBfor ResCap to BBB- with a negative outlook to BBB (low) with a negative
31outlook. On October 17, 2005, Fitch
placed the ratings of GMAC and ResCap on rating watch evolving, leaving the
ratings of GM unaffected.
36
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (continued)
Status of Debt Ratings (continued)
outlook and, at the same time, downgraded GMAC's long-term credit rating of BBB
(high) negative to BBB with a negative outlook. DBRS downgraded GM's commercial
paper rating from R-2 (high) with a negative outlook to R-2 (low) with a
negative outlook and, at the same time, lowered the outlook on GMAC's commercial
paper rating of R-1 (low) with a negative outlook to R-2 (mid) with a negative
outlook.
On August 2, 2005, DBRS downgraded GM's long-term rating from BBB (low) with
a negative outlook to BB (high) with a negative outlook and, at the same time,
downgraded GMAC's long-term credit rating of BBB with a negative outlook to BBB
(low) with a negative outlook. DBRS downgraded GM's commercial paper rating from
R-2 (low) with a negative outlook to R-3 (high) with a negative outlook and, at
the same time, lowered the rating on GMAC's commercial paper from R-2 (mid) with
a negative outlook to R-2 (low) with a negative outlook. DBRS also changed the
rating trends for ResCap to negative from stable, leaving the rating at BBB
negative. On October 11, 2005, DBRS placed the rating of GM on negative credit
watch and, at the same time, changed the rating trends of GMAC and ResCap to
"developing." On October 14, 2005, DBRS downgraded the long term and short term
ratings of GM to BB and R-3 (high), respectively. A negative outlook was
maintained. The ratings outlook for GMAC and ResCap were maintained as
"developing." Refer to the table below for a summary of GM's and GMAC's credit
ratings subsequent to these rating actions.
Standard & Poor's, Fitch, Moody's, and DBRS rate GM's credit at
non-investment grade, with both Standard & Poor's, Moody's, and Fitch also rating
GMAC's credit non-investment grade. While this has resulted in increased
borrowing costs and limited access to unsecured debt markets, including capital
markets for retail debt, these outcomes have been mitigated by actions taken by
GM and GMAC over the past few years to focus on an increased use of liquidity
sources other than institutional unsecured markets that are not directly
affected by ratings on unsecured debt, including secured funding sources beyond
traditional asset classes and geographical markets, automotive whole loan sales,
and use of bank and conduit facilities. Further reductions of GM's and/or GMAC's
credit ratings could increase the possibility of additional terms and conditions
contained in any new or replacement financing arrangements. The reduction of
GM's and GMAC's credit ratings to non-investment grade is not expected to have a
material effect on GM's and GMAC's access to adequate capital to meet the
Corporation's funding needs in the short and medium term.
Notwithstanding the foregoing, management believes that the current ratings
situation and outlook increase the level of risk for achieving the Corporation's
funding strategy and GMAC's ability to sustain current level of asset
originations over the long term. In addition, the ratings situation and outlook
increase the importance of successfully executing the Corporation's plans for
improvement of operating results. Management continuously assesses these matters
and is seeking to mitigate the increased risk by exploring whether actions could
be taken that would provide a basis for rating agencies to evaluate GMAC's
financial performance in order to provide GMAC with ratings independent of those
assigned to GM. Currently, only Moody'sOn October 17, 2005, GM made an announcement that it is
exploring the possible sale of a controlling interest in GMAC to a strategic
partner, with the goal of restoring GMAC's investment grade rating and DBRS assign a different credit
ratingrenewing
its access to GMAC than they do to GM.low-cost financing. 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"an investment rating from
other rating agencies.
Status of Debt Ratings (concluded)
---------------------------------------------------------------
GM GMAC GM GMAC GM GMAC
---------------------------------------------------------------
Rating Agency--------------------------- ----------------------------------
Senior Debt Commercial Paper
OutlookRating Agency GM GMAC ResCap GM GMAC ResCap
- ------------- ---------------------------------------------------------------
R-3--------------------------- ----------------------------------
DBRS BB (high) BBB (low) BBB R-3 (high) R-2(low) Negative NegativeR-2 (middle)
Fitch BB+ BB+B+ BB BBB- B B Negative NegativeF3
Moody's B1 Ba1 Baa3 Baa2NP NP Prime-3 Prime-2 Negative Negative
S&P BB- BB BBBBB- B-2 B-1 B-1A-3
--------------------------- ----------------------------------
Outlook
Rating Agency GM GMAC ResCap
- ------------- ----------------------------------------------------
DBRS Negative Developing Developing
Fitch Negative Evolving Evolving
Moody's Negative Uncertain Uncertain
S&P Negative Watch Developing Developing
----------------------------------------------------
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$0.7 billion in undrawn committed
facilities with various maturities and undrawn uncommitted lines of credit of
$1.2 billion. Similarly, GMAC currently has a $3.0 billion syndicated line of
credit committed through June 2006, $4.4 billion committed through June 2008,
and committed and uncommitted bilateral lines of credit of $3.5$3.4 billion and $13.4$13.0 billion,
respectively. In addition, New Center Asset Trust (NCAT) has an $18.5 billion
committed liquidity facility. NCAT is a special purpose entity administered by
GMAC for the purpose of funding assets as part of GMAC's securitization funding
programs. This entity funds the purchase of assets through the issuance of
asset-backed commercial paper and represents an important source of liquidity to
GMAC. At JuneSeptember 30, 2005, NCAT had commercial paper outstanding of $8.0$5.5
billion, which is not consolidated in the Corporation's Condensed Consolidated
Balance Sheet. In addition, MACGMAC enters into secured funding facilities whereby,
in certain facilities, third parties (including
third-party asset-backed(asset-backed commercial paper conduits)conduits,
forward flow sale agreements and repurchase facilities) have committed to
purchase a minimum amount of receivables through a designated period of time. In
July 2005, GMAC entered into a five year commitment to sell up to $55 billion of
retail automotive receivables to a third-party purchaser. The unused portion of
the committed and uncommitted facilities totaled $24.7$76.5 billion at JuneSeptember 30,
2005. As part of its cash management strategy, from time to time GMAC
repurchases previously issued debt, but does so in a manner that does not
compromise overall liquidity.
3237
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (continued)
Status of Debt Ratings (concluded)(continued)
In addition, Residential Capital Corporation (ResCap),ResCap, which was formed as the holding company of GMAC's
residential mortgage business,businesses, and in the second quarter of 2005 successfully
achieved an investment grade rating (independent from GMAC), has and issued $4
billion of unsecured debt through a private placement offering. Following the
bond offering, in July 2005, ResCap closed a $3.5 billion syndication of its
bank facilities consisting of a $1.75 billion syndicated term loan and $0.9
billion syndicated line of credit committed through July 2008 and a $0.9 billion
syndicated line of credit committed through July 2006. In addition, Mortgage
Interest Networking Trust (MINT) has a $3.0 billion committed liquidity
facility. MINT is a special purpose entity administered by ResCap for the
purpose of funding assets as part of ResCap's mortgage warehouse funding
program. This entity funds the purchase of assets through the issuance of
asset-backed commercial paper and represents an important source of liquidity to
ResCap. At JuneSeptember 30, 2005, MINT had commercial paper outstanding of $2.6$2.9
billion, which is reflected as secured debt in the Corporation's Condensed
Consolidated Balance Sheet.
Line of Credit Between GM and GMAC
GM and GMAC have historically entered into various financing arrangements.
Currently such arrangements include a $4 billion revolving line of credit from
GMAC to GM entered into in September 2003 that expires in September 2006.
Separately, GM extended a $6 billion revolving line of credit to GMAC in October
2002 that expires in December 2005. These credit lines are used for general
operating and seasonal working capital purposes and reduce external liquidity
requirements, given the differences in the timing of GM and GMAC's peak funding
requirements. The maximum amount drawn under these facilities during the quarter
ended JuneSeptember 30, 2005 was $1.4 billion by GM and $1.0 billionnone by GMAC. SimilarComparable
amounts drawn by GM and GMAC during the secondthird quarter of 2004 were $1.5$3.5 billion
and $1.0 billion,none, respectively. Interest is payable on amounts advanced under the
arrangements based on market interest rates, adjusted to reflect the credit
rating of GM or GMAC in its capacity as borrower. On August 2, 2005 GM borrowed
$1.4 billion from GMAC under its revolving credit line in order to meet cash
flow needs arising during the annual two-week shut-down of its vehicle assembly
operations. GM plans to repay the $1.4 billion during the third quarter of 2005,
using cash flow from operations.operations which was repaid on August 12, 2005. On September 22, 2004, GM
repaid $3.5 billion to GMAC that it borrowed under the same credit line during
the third quarter of 2004.
Automotive and Other Operations
At JuneSeptember 30, 2005, cash, marketable securities, and $4.2$4.1 billion ($3.5
billion at December 31, 2004 and JuneSeptember 30, 2004) of readily-available assets
of the VEBA trust totaled $20.2$19.2 billion, compared with $23.3 billion at December
31, 2004 and $25.0$24.5 billion at JuneSeptember 30, 2004. The decrease of approximately
13%18% from December 31, 2004 was primarily the result of the net loss of Auto &
Other for the first sixnine months of 2005, and payments totaling approximately
$2.5$2.7 billion related to the GME restructuring initiative and to the agreement
reached in February 2005 between GM and Fiat to terminate the Master Agreement
(including the Put Option) between them, settle various disputes related
thereto, and other matters. The amount of GM's consolidated cash and marketable
securities is subject to intra-month and seasonal fluctuations and includes
balances held by various GM business units and subsidiaries worldwide that are
needed to fund their operations. In the first sixnine months of 2005, GMAC paid GM
$1.0$1.5 billion in dividends. Additionally, on August 1, 2005, GMAC paid a $500 million cash
dividend to GM, bringing total year to date dividends to $1.5 billion. As of JuneSeptember 30, 2005, $1.6$1.4 billion of cash and
marketable securities was included in GM's balances as a result of the
consolidation of GM Daewoo. The increase to $4.2$4.1 billion in readily-available
assets in the VEBA (as compared to $3.5 billion at December 31, 2004) results
from higher withdrawal capacity from the hourly VEBA trust due to increased
other postretirement employee benefit payments, and the addition of withdrawal
capacity from the salaried VEBA that was funded in 2004. Total assets in the
VEBA and 401(h) trusts used to pre-fund part of GM's other postretirement
benefits liability approximated $20.4$20.3 billion at JuneSeptember 30, 2005, $20.0
billion at December 31, 2004, and $15.9$16.0 billion at JuneSeptember 30, 2004.
As noted above, during each of the second quarterand third quarters of 2005, GM
withdrew $1 billion from its VEBA trust as reimbursement for its retiree health
care payments. On July 1,October 3, 2005, GM withdrew an additional $1 billion from the
VEBA, and on a quarter-by-quarter basis is evaluating the need for additional
withdrawals as the cost of health care continues to adversely affect GM's
liquidity.
3338
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (continued)
Automotive and Other Operations (concluded)
Long-term debt was $31.0$30.9 billion at JuneSeptember 30, 2005, compared with $30.5
billion at December 31, 2004 and $29.8$30.1 billion at JuneSeptember 30, 2004. As of
JuneSeptember 30, 2005, $1.3 billion of long-term debt was included in GM's balance
as a result of the consolidation of GM Daewoo. The ratio of long-term debt to
the total of long-term debt and GM's net assets of Automotive and Other
Operations was 90.7%98.8% at JuneSeptember 30, 2005, 84.7% at December 31, 2004, and
84.9%85.3% at JuneSeptember 30, 2004. The ratio of long-term debt and short-term loans
payable to the total of this debt and GM's net assets of Automotive and Other
Operations was 91.1%98.8% at JuneSeptember 30, 2005, 85.5% at December 31, 2004, and
84.9%86.3% at JuneSeptember 30, 2004.
Net liquidity, calculated as cash, marketable securities, and $4.2$4.1 billion
($3.5 billion at December 31, 2004 and JuneSeptember 30, 2004) of readily-available
assets of the VEBA trust less the total of loans payable and long-term debt, was
a negative $12.4$13.2 billion at JuneSeptember 30, 2005, compared with a negative $9.2
billion at December 31, 2004, and a negative $7.4$8.2 billion at JuneSeptember 30, 2004.
During the past several years General Electric Capital Corporation (GECC)
providedIn order to provide financial flexibility to GM and its suppliers, GM
maintains a trade payables program for suppliers to original equipment
manufacturers (OEMs) in a broad range of industries, including the automotive
industry.through GMAC Commercial Finance (GMACCF).
The GMACCF program was available to suppliers of GM. In late 2004, GECC
decided that for strategic reasons it would discontinue offering that financing
program to suppliers of any OEMs, including suppliersimplemented in the automotive
industry. Under the program, OEMs became directly responsible to make payments
to GECC after GECC had paid the receivables that were originally due to the
suppliers from the OEMs. The former GECC program no longer services GM
suppliers. In the second quarter of 2005, replacing a
larger program that GM and GMAC began offeringmaintained with General Electric Capital Corporation.
Under the GMACCF program, GMACCF pays participating GM suppliers the amount due
to them from GM in advance of their contractual original due dates. In exchange
for the early payment, these suppliers accept a new
supplier finance program to a limited numberdiscounted payment. On the
original due date of its suppliers.the payables, GM pays GMACCF the full amount. At JuneSeptember
30, 2005, GM owed approximately $0.4 billion to GMACGMACCF under the new program, which
amount is included in the balances of net payable to FIO and net receivable
from Auto & Other in GM's Supplemental Information to the Consolidated Balance
Sheets, and is eliminated in GM's Consolidated Balance Sheets.
Financing and Insurance Operations
At JuneSeptember 30, 2005, GMAC's consolidated assets totaled $310.0$314.2 billion,
compared with $324.1 billion at December 31, 2004 and $297.0$311.8 billion at
JuneSeptember 30, 2004. The decrease from December 31, 2004 was attributable to a
decrease in net finance receivables and loans, from $200.2 billion at December
31, 2004 to $178.3$177.2 billion at JuneSeptember 30, 2005, driven by decreases in retail
and wholesale automotive receivables, partly offset by an increase in loans held
for sale.sale and investments in operating leases. The increase in GMAC's
consolidated assets at JuneSeptember 30, 2005 compared with JuneSeptember 30, 2004 was
due to higher balances of cash, investment securities, loans held for sale, and
investment in operating leases, partlylargely offset by decreases in retail and
wholesale automotive receivables. As of September 30, 2005, $18.7 billion of
assets and $12.3 billion of related liabilities of GMAC Commercial Mortgage were
reclassified as held for sale.
Consistent with the changes in asset levels, GMAC's total debt decreased to
$250.9$245.7 billion at JuneSeptember 30, 2005, compared with $267.7 billion at December
31, 2004. Debt was lower by $6.4$5.7 billion at JuneSeptember 30, 2004, at $244.5$251.4
billion. GMAC's ratio of total debt to total stockholder's equity at JuneSeptember
30, 2005 was 11.1:10.8:1, compared with 12.0:11.9:1 at December 31, 2004, and 11.1:11.0:1 at
JuneSeptember 30, 2004. GMAC's liquidity, as well as its ability to profit from
ongoing activity, is in large part dependent upon its timely access to capital
and the costs associated with raising funds in different segments of the
unsecured and secured capital markets. Part of GMAC's strategy in managing
liquidity risk has been to develop diversified funding sources across a global
investor base and to extend debt maturities over a longer period of time,
thereby maintaining sufficient cash balances. As an important part of its
overall funding and liquidity strategy, GMAC maintains substantial bank lines of
credit. These bank lines of credit, which totaled $45.8$48.8 billion at JuneSeptember 30,
2005, provide "back-up" liquidity and represent additional funding sources, if
required. In addition, GMAC enters into secured funding facilities whereby, in
certain facililties,facilities, third parties (including third-party asset-backed commercial
paper conduits) have committed to purchase a minimum amount of receivables
through a designated period of time. The unused portion of the committed and
uncommitted facilities totaled $24.7$35.6 billion at JuneSeptember 30, 2005. GMAC has
also been able to diversify its unsecured funding through the formation of
Residential Capital Corporation (ResCap).ResCap. ResCap was formed as the holding company of GMAC's residential mortgage
business and in the second quarter of 2005 successfully achieved an investment
grade rating (independent from GMAC) and issued $4.0 billion of unsecured debt
through a private placement offering. Following the bond offering, in July 2005,
ResCap closed a $3.5 billion syndication of its bank facilities, which are
intended to be used primarily for general corporate and working capital
purposes, as well as to repay GMAC affiliate borrowings, thus providing
additional liquidity to GMAC. Additionally, GMAC has increased the use of
secured funding sources beyond traditional asset classes and geographic
39
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (concluded)
Financing and Insurance Operations (concluded)
markets and has also increased the use of automotive whole loan sales. the increaseThe
increased use of whole loan sales is part of the migration to an "originate and
sell" model for the U.S. automotive finance business. Through JulySeptember 2005,
GMAC has executed $9 billion in whole loan sales.
34
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (concluded)
Financing and Insurance Operations (concluded)sales up from $4billion for the same
period in 2004
In August 2005 GMAC announced that it had entered into a definitive agreement
to sell a 60% equity interest in GMAC Commercial Mortgage, while maintaining the
remaining 40% equity interest. Under the terms of the transaction, GMAC
Commercial Mortgage will repay all intercompany loans to GMAC upon the closing,
which is expected to occur in the fourth quarter of 2005, thereby providing GMAC
significant incremental liquidity.
Off-Balance Sheet Arrangements
GM and GMAC use off-balance sheet arrangements where economics and sound
business principles warrant their use. GM's principal use of off-balance sheet
arrangements occurs in connection with the securitization and sale of financial
assets generated or acquired in the ordinary course of business by GMAC and its
subsidiaries and, to a lesser extent, by GM. The assets securitized and sold by
GMAC and its subsidiaries consist principally of mortgages, and wholesale and
retail loans secured by vehicles sold through GM's dealer network. The assets
sold by GM consist principally of trade receivables.
In addition, GM leases real estate and equipment from various off-balance
sheet entities that have been established to facilitate the financing of those
assets for GM by nationally prominent lessors that GM believes are creditworthy.
These assets consist principally of office buildings, warehouses, and machinery
and equipment. The use of such entities allows the parties providing the
financing to isolate particular assets in a single entity and thereby syndicate
the financing to multiple third parties. This is a conventional financing
technique used to lower the cost of borrowing and, thus, the lease cost to a
lessee such as GM.
There is a well-established market in which institutions participate in the
financing of such property through their purchase of ownership interests in
these entities and each is owned by institutions that are independent of, and
not affiliated with, GM. GM believes that no officers, directors or employees of
GM, GMAC, or their affiliates hold any direct or indirect equity interests in
such entities.
Assets in off-balance sheet entities were as follows (dollars in millions):
JuneSept. 30, Dec. 31, JuneSept. 30,
Automotive and Other Operations 2005 2004 2004
- ------------------------------- ---- ---- ----
Assets leased under operating leases $2,455$2,431 $2,553 $2,293$2,525
Trade receivables sold (1) 1,090980 1,210 910
-----703
------ ----- -----
Total $3,545$3,411 $3,763 $3,203$3,228
===== ===== =====
Financing and Insurance Operations - ----------------------------------
Receivables sold or securitized:
- Mortgage loans $90,309$97,887 $79,389 $82,852$74,848
- Retail finance receivables 7,6756,523 5,615 7,1125,727
- Wholesale finance receivables 21,39616,688 21,291 17,23121,425
------- ------- -------
Total $119,380$121,098 $106,295 $107,195$102,000
======= ======= =======
(1) In addition, trade receivables sold to GMAC were $590$476 million, $549
million and $456$478 million for the periods ended JuneSeptember 30, 2005,
December 31, 2004, and JuneSeptember 30, 2004, respectively.
BOOK VALUE PER SHARE
Book value per share was determined based on the liquidation rights of the
common stockholders. Book value per share of GM $1-2/3 par value common stock
was $44.30$39.65 at JuneSeptember 30, 2005, $49.06 at December 31, 2004, and $49.11$48.9 at
JuneSeptember 30, 2004.
40
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 May 9,August 2,
2005, the GM Board declared a quarterly cash dividend of $0.50 per share on GM
$1-2/3 par value common stock, paid JuneSeptember 10, 2005, to holders of record on
May
19,August 12, 2005.
35
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
EMPLOYMENT AND PAYROLLS
Worldwide employment for GM and its wholly-ownedconsolidated
subsidiaries at JuneSeptember 30, (in thousands) 2005 2004
---- ----
GMNA 177 186173 181
GME 5856 62
GMLAAM 32 2728
GMAP 1427 14
GMAC 34 33
Other 43 5
--- ---
Total employees 319 327325 323
=== ===
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
----------------------------------------
2005 2004 2005 2004
---- ---- ---- ----
Worldwide payrolls - (in billions) $5.2 $5.5 $10.5 $11.0$4.9 $15.6 $15.9
=== === ==== ====
CRITICAL ACCOUNTING ESTIMATES
The condensed consolidated financial statements of GM are prepared in
conformity with GAAP, which requires the use of estimates, judgments, and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. GM's accounting policies and critical
accounting estimates are consistent with those described in Note 1 to the 2004
Consolidated Financial Statements. Management believes that the accounting
estimates employed are appropriate and resulting balances are reasonable;
however, actual results could differ from the original estimates, requiring
adjustments to these balances in future periods. The Corporation has discussed
the development, selection and disclosures of its critical accounting estimates
with the Audit Committee of GM's Board of Directors, and the Audit Committee has
reviewed the Corporation's disclosures relating to these estimates.
Pension and Other Postretirement Employee Benefits (OPEB)
Pension and OPEB costs and liabilities are dependent on assumptions used in
calculating such amounts. These assumptions include discount rates, health-care
cost trend rates, benefits earned, interest cost, expected return on plan
assets, mortality rates, and other factors. In accordance with GAAP, actual
results that differ from the assumptions are accumulated and amortized over
future periods and, therefore, generally affect recognized expense and the
recorded obligation in future periods. While management believes that the
assumptions used are appropriate, differences in actual experience or changes in
assumptions may affect GM's pension and other postretirement obligations and
future expense.
GM has established for its U.S. pension plans a discount rate of 5.75% for
year-end 2004, which represents a 25 basis point reduction from the 6.00%
discount rate used at year-end 2003. GM's U.S. pre-tax pension expense is
forecasted to decrease from approximately $1.5 billion in 2004, excluding
curtailments and settlements, to approximately $1.2 billion in 2005 due to the
approximately 14% 2004 actual return on assets, partially offset by a lower 2004
year-end discount rate.
The following information illustrates the sensitivity to a change in certain
assumptions for U.S. pension plans (as of December 31, 2004 the projected
benefit obligation (PBO) for U.S. pension plans was $89 billion and the minimum
pension liability charged to equity with respect to U.S. pension plans was $108
million net of tax):
41
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CRITICAL ACCOUNTING ESTIMATES (concluded)
Effect on
Effect on 2005 December 31, 2004
Change in Assumption Pre-Tax Pension Expense PBO
- --------------------------------------------------------------------------
25 basis point decrease
in discount rate +$160 million +$2.3 billion
25 basis point increase
in discount rate -$160 million -$2.2 billion
25 basis point decrease
in expected return on
assets +$220 million -
25 basis point increase
in expected return on
assets -$220 million -
36
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CRITICAL ACCOUNTING ESTIMATES (concluded)
GM's U.S. pension plans generally provide covered U.S. hourly employees with
pension benefits of negotiated, flat dollar amounts for each year of credited
service earned by an individual employee. Formulas providing for such stated
amounts are contained in the prevailing labor contract. Consistent with GAAP,
the 2005 pre-tax pension expense and December 31, 2004 PBO do not comprehend any
future benefit increases beyond the amounts stated in the currently prevailing
contract that expires in September 2007. The current cycle for negotiating new
labor contracts is every four years. There is no past practice of maintaining a
consistent level of benefit increases or decreases from one contract to the
next. However, the following data illustrates the sensitivity of pension expense
and PBO to hypothetical assumed changes in future basic benefits. An annual 1%
increase in the basic benefit for U.S. hourly employees would result in a $112
million increase in 2005 pre-tax pension expense and a $523 million increase in
the December 31, 2004 PBO. An annual 1% decrease in the same benefit would
result in a $104 million decrease in 2005 pre-tax pension expense and a $487
million decrease in the December 31, 2004 PBO.
These changes in assumptions would have no effect on GM's funding
requirements. In addition, at December 31, 2004, a 25 basis point decrease in
the discount rate would decrease stockholders' equity by $19.0 million, net of
tax; a 25 basis point increase in the discount rate would increase stockholders'
equity by $19.0 million, net of tax. The impact of greater than a 25 basis point
decrease/increase in discount rate would not be proportional to the first 25
basis point decrease/increase in the discount rate. GM has established for its
U.S. OPEB plans a discount rate of 5.75% for year-end 2004, which represents a
50 basis point reduction from the 6.25% discount rate used at year-end 2003.
The following table illustrates the sensitivity to a change in the discount
rate assumption related to GM's U.S. OPEB plans (the U.S. accumulated
postretirement benefit obligation [APBO] was a significant portion of GM's
worldwide APBO of $77.5 billion as of December 31, 2004):
Effect on 2005 Effect on
Pre-Tax OPEB December 31, 2004
Change in Assumption Expense APBO
- -------------------------------------------------------------------------------------------------------------------------------------------------------------
25 basis point decrease in
discount rate +$200 million +$2.1 billion
25 basis point increase in
discount rate -$200 million -$2.1 billion
GM assumes a 10.5% initial health-care cost trend rate and a 5.0% ultimate
health-care cost trend rate as of December 31, 2004. A one percentage point
increase in the initial through ultimate assumed health-care trend rates would
have increased the APBO by $8.4 billion at December 31, 2004, and the aggregate
service and interest cost components of non-pension postretirement benefit
expense for 2004 by $543 million. A one-percentage point decrease would have
decreased the APBO by $7.0 billion and the aggregate service and interest cost
components of non-pension postretirement benefit expense for 2004 by $384
million.
The above sensitivities reflect the effect of changing one assumption at a
time. It should be noted that economic factors and conditions often affect
multiple assumptions simultaneously and the effects of changes in key
assumptions are not necessarily linear.
3742
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NEW ACCOUNTING STANDARDS
In December 2004, the Financial Accounting Standards Board (FASB) revised
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123R), requiring companies to record share-based payment
transactions as compensation expense at fair market value. SFAS No. 123R further
defines the concept of fair market value as it relates to such arrangements.
Based on SEC guidance issued in Staff Accounting Bulletin (SAB) 107 in April
2005, the provisions of this statement will be effective for General Motors as
of January 1, 2006. The Corporation began expensing the fair market value of
newly granted stock options and other stock based compensation awards to
employees pursuant to SFAS No. 123 in 2003; therefore this statement is not
expected to have a material effect on GM's consolidated financial position or
results of operations.
In March 2005, the FASB released FASB Staff Position (FSP) FIN 46(R)-5, which
addresses whether a corporation should consider whether it holds an implicit
interest in a variable interest entity (VIE) or potential VIE when specific
conditions exist to determine if the guidance in FASB Interpretation No. 46
(Revised 2003), "Consolidation of Variable Interest Entities" (FIN 46(R)),
should be applied. GM had adopted FIN 46(R) as of January 1, 2004. GM adopted
FSP FIN 46(R)-5 upon issuance. The Interpretation did not have an effect on GM's
consolidated financial position or results of operations.
In March 2005, the FASB issued FIN 47, "Accounting for Conditional Asset
Retirement Obligations, an interpretation of FASB Statement No. 143, Accounting
for Asset Retirement Obligations." FIN 47 requires an entity to recognize a
liability for the fair value of a conditional asset retirement obligation when
incurred if the liability's fair value can be reasonably estimated. This
interpretation is effective for fiscal years ending after December 15, 2005.
Management does not expectis evaluating the effect of this interpretation to have a material impact on GM's consolidated
financial position or results of operations.
In April 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," requiring retrospective application as the required method for
reporting a change in accounting principle, unless impracticable or a
pronouncement includes specific transition provisions. This statement also
requires that a change in depreciation, amortization, or depletion method for
long-lived, nonfinancial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle. This statement carries
forward the guidance in APB Opinion No. 20, "Accounting Changes," for the
reporting of the correction of an error and a change in accounting estimate.
This statement is effective for accounting changes and correction of errors made
in fiscal years beginning after December 15, 2005. This statement is not
expected to have a material effect on GM's consolidated financial position or
results of operations.
FORWARD-LOOKING STATEMENTS
In this report, in reports subsequently filed or furnished by GM with the SEC
on Form 8-K, and in related comments by management of GM our use of the words
"expect," "anticipate," "estimate," "forecast," "objective," "plan," "goal,"
"project," "priorities/targets," and similar expressions is intended to identify
forward-looking statements. While these statements represent our current
judgment on what the future may hold, and we believe these judgments are
reasonable, actual results may differ materially due to numerous important
factors that are described below and other factors that may be described in
subsequent reports that GM may file or furnish with the SEC on Form 8-K:
o- Changes in economic conditions, currency exchange rates or political
stability;
o- Shortages of and price increase for fuel, labor strikes or work
stoppages, health-care costs, market acceptance of the Corporation's new
products, pace of product introductions;
o- Significant changes in the competitive environment;
o- Changes in the laws, regulations, and tax rates; and
o- The ability of the Corporation to achieve reductions in cost and
employment levels, to realize production efficiencies, and to implement
capital expenditures, all at the levels and times planned by management.management
and
- Changes or determinations made in the Delphi bankruptcy process.
* * * * * * *
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.
* * * * * * *
3843
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 CEOmanagement, with the participation of its chief executive officer and
CFO, after evaluatingits chief financial officer, evaluated 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,September 30, 2005. Based on that evaluation, GM's
chief executive officer and financial officer have concluded that, based on the evaluationas of thesethat
date, GM's disclosure controls and procedures required by paragraph (b) of
Exchange Act Rules 13a-15 or 15d-15, that GM'snot effective at the reasonable assurance
level because of the identification of a material weakness in our internal
control over financial reporting, which we view as an integral part of our
disclosure controls and procedures. This material weakness relates to the
ineffective operation of the procedures were effective.
Thereto determine whether an impairment is
necessary with respect to the Corporation's foreign investments accounted for on
the equity method which resulted in the failure to timely reduce the carrying
value of GM's investment in the common stock of Fuji Heavy Industries (FHI) to
fair value. The basis for this determination of the material weakness is
discussed in Item 4 of GM's Form 10-Q/A for the Second Quarter of 2005.
In the fourth quarter of 2005, GM's management implemented additional review
procedures designed to identify occurrences that may require a reassessment and
possible impairment of the carrying value of its foreign investments accounted
for on the equity method and is confident that, as of the date of this filing,
GM has substantially completed the process of fully remediating its related
controls and procedures. These remedial actions, performed in conjunction with
GM's quarterly closing and financial reporting process, include a thorough
review by corporate and regional executives of transactions or events that
could affect the classification or carrying value of such investments.
In July 2005, GMAC implemented a new general ledger system for two of GMAC's
segments - GMAC's North America Operations and Insurance Operations, in a single
instance. GMAC has assessed the internal controls over the key processes
affected by the system change, and concluded that adequate internal control over
financial reporting has been maintained.
Other than indicated above, 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. However,
subsequent to September 30, 2005, GM took the remedial actions described above.
* * * * * * *
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 JuneSeptember
30, 2005 or subsequent thereto, but before the filing of this report are
summarized below:
Environmental Matters
- ---------------------
With respect to the previously reported matter in which the EPA had issued an
Administrative complaint on October 17, 2003 against General Motors in
connection with the Corporation's assembly facilities in Moraine, Ohio, Pontiac,
Michigan, and Orion, Michigan, the EPA has issued an additional complaint
against the Corporation's assembly facility in Linden, New Jersey. The
complaints allege multiple violations of the hazardous waste rules as applied to
GM's painting and purge operations. The EPA is seeking aggregate penalties in
excess of $700,000. GM believes that the complaints are without merit because
the purge material in question is not a "waste" but instead is being used as
intended in enclosed systems to clean, suspend paint solids, and transport
fluids. The purge material is thereafter captured, reclaimed, and reused by GM
in its processes. GM intends to vigorously assert its defenses and the merits of
its own position.
* * * * * * * * *
44
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 2(c). Purchases of Equity Securities
GM made no purchases of GM $1-2/3 par value common stock during the three
months ended JuneSeptember 30, 2005:2005.
* * * * * * * * *
39
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Registrant was held on June 7, 2005.
At that meeting, the following matters were submitted5. Other Information
On November 9, 2005, Fitch downgraded GM's long-term credit rating from BB to
B+ while maintaining a vote of the
stockholders of General Motors Corporation:
Final Voting Results
------------------------
Votes Percent
----- -------
Item No. 1
Nomination and election of directors
The following nominees for directors received the number of votes set
opposite their respective names and were elected to servenegative watch on the Boardrating. The ratings of Directors:
Percy N. Barnevik For 435,573,871 96.4%
Withheld 16,229,499 3.6
Erskine B. Bowles For 435,338,372 96.4
Withheld 16,464,998 3.6
John H. Bryan For 434,637,167 96.2
Withheld 17,166,203 3.8
Armando M. Codina For 435,610,153 96.4
Withheld 16,193,217 3.6
George M.C. Fisher For 435,510,227 96.4
Withheld 16,293,143 3.6
Karen Katen For 435,249,591 96.3
Withheld 16,553,779 3.7
Kent Kresa For 431,532,881 95.5
Withheld 20,270,489 4.5
Ellen J. Kullman For 435,650,233 96.4
Withheld 16,153,137 3.6
Philip A. Laskawy For 430,808,969 95.4
Withheld 20,994,401 4.6
E. Stanley O'Neal For 429,518,905 95.1
Withheld 22,284,465 4.9
Eckhard Pfeiffer For 431,562,688 95.5
Withheld 20,240,682 4.5
G. Richard Wagoner, Jr. For 434,782,441 96.2
Withheld 17,020,929 3.8
In addition, 40 votesGMAC and
ResCap were cast 0.0unaffected by the action and remain at BB and BBB-, respectively.
The ratings for each of the following:
John Chevedden, James Dollinger,
William Dean Fitzpatrick,
Lucy Kessler, John Lauve,
Louis Lauve III, Steve Mahac,
Erik Nielsen, Larry Parks,
Danny Taylor, William L. Walde,
William Woodward, M.D.
Item No. 2
Ratification of the For 436,239,301 96.5
selection of Deloitte & Not in favor
Touche LLP as independent Against 5,746,953 1.3
public accountants for Abstain 9,817,116 2.2
the year 2005 ---------- ---
Total 15,564,069 3.5
Broker Non-Vote -- --
Item No. 3
Stockholder proposal to For 29,016,448 8.7
eliminate awarding, Not in favor
repricing, or renewing Against 292,351,492 87.8
stock options Abstain 11,677,305 3.5
----------- ----
Total 304,028,797 91.3
Broker Non-
Vote 118,758,125 --
40
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Final Voting Results
------------------------
Votes Percent
----- -------
Item No. 4
Stockholder proposal to For 160,046,670 48.1
adopt cumulative vo Not in favor
Against 160,629,512 48.2
Abstain 12,369,063 3.7
----------- ----
Total 172,998,575 51.9
Broker Non-
Vote 118,758,125 --
Item No. 5
Stockholder proposal to For 17,800,637 5.3
request reportGMAC and ResCap both remain on Not in favor
greenhouse gas emissions Against 298,968,298 89.8
Abstain 16,276,310 4.9
----------- ----
Total 315,244,608 94.7
Broker Non-
Vote 118,758,125 --
Item No. 6
Stockholder proposal to For 52,185,878 15.7
request stockholder Not in favor
approval for future Against 269,709,468 81.0
golden parachutes Abstain 11,149,899 3.3
----------- ----
Total 280,859,367 84.3
Broker Non-
Vote 118,758,125 --
Item No. 7
Stockholder proposal to For 33,241,368 10.0
apply simple majority Not in favor
vote on items subject Against 287,943,588 86.4
to stockholder vote Abstain 11,860,289 3.6
----------- ----
Total 299,803,877 90.0
Broker Non-
Vote 118,758,125 --rating watch evolving.
* * * * * * * * *
ITEM 6. Exhibits
Exhibit Page
Number Exhibit Name Number
- ------ ----------------------- ------
31.1 Section 302 Certification of the Chief Executive Officer 4346
31.2 Section 302 Certification of the Chief Financial Officer 4447
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 4548
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 4649
* * * * * *
41
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
--------------------------
(Registrant)
Date: August 8,November 9, 2005 By: /s/PETER R. BIBLE
--- -----------------
(Peter R. Bible,
Chief Accounting Officer)
42
45