UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
-- 1934
For the quarterly period ended March 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
--- 1934
For the transition period from to
--------------- -------------
Commission file number 1-143
GENERAL MOTORS CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 38-0572515
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Renaissance Center, Detroit, Michigan 48265-3000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (313) 556-5000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
--- ---
As of April 30, 2002, there were outstanding 560,868,135 shares of the
issuer's $1-2/3 par value common stock and 877,852,719 shares of GM Class H
$0.10 par value common stock.
- 1 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
-------
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income for the Three
Months Ended March 31, 2002 and 2001 3
Consolidated Balance Sheets as of March 31, 2002,
December 31, 2001, and March 31, 2001 5
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II - Other Information
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 25
Exhibit 99 Hughes Electronics Corporation Financial Statements
(Unaudited) and Management's Discussion and Analysis
of Financial Condition and Results of Operations 26
- 2 -
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31
----------------------
2002 2001
---- ----
(dollars in millions
except per share amounts)
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Total net sales and revenues $46,264 $42,615
------ ------
Cost of sales and other expenses (Notes 10 and 11 ) 38,326 34,510
Selling, general, and administrative expenses (Note 11) 5,621 5,390
Interest expense 1,963 2,211
------- -------
Total costs and expenses 45,910 42,111
------ ------
Income before income taxes and minority interests 354 504
Income tax expense (Note 11) 125 208
Equity income/(loss) and minority interests (1) (59)
----- ----
Net income 228 237
Dividends on preference stocks (24) (28)
---- ----
Earnings attributable to common stocks $204 $209
=== ===
Basic earnings (losses) per share attributable
to common stocks (Note 9)
Earnings per share attributable to $1-2/3 par value $0.58 $0.54
==== ====
Earnings per share attributable to Class H $(0.14) $(0.10)
==== ====
Earnings (losses) per share attributable to common
stocks assuming dilution (Note 9)
Earnings per share attributable to $1-2/3 par value $0.57 $0.53
==== ====
Earnings per share attributable to Class H $(0.14) $(0.10)
==== ====
Reference should be made to the notes to consolidated financial statements.
- 3 -
CONSOLIDATED STATEMENTS OF INCOME - concluded
(Unaudited)
Three Months Ended
March 31,
---------------------
2002 2001
---- ----
(dollars in millions)
AUTOMOTIVE, COMMUNICATIONS SERVICES, AND OTHER OPERATIONS
Total net sales and revenues $39,773 $36,164
------ ------
Cost of sales and other expenses (Notes 10 and 11) 36,211 32,494
Selling, general, and administrative expenses (Note 11) 3,690 3,639
------- -------
Total costs and expenses 39,901 36,133
------ ------
Interest expense 162 162
Net expense from transactions with
Financing and Insurance Operations 90 131
---- ---
Loss before income taxes and minority interests (380) (262)
Income tax benefit (Note 11) (160) (81)
Equity income/(loss) and minority interests 11 (36)
---- ----
Net loss - Automotive, Communications Services,
and Other Operations $(209) $(217)
=== ===
FINANCING AND INSURANCE OPERATIONS
Total revenues $6,491 $6,451
----- -----
Interest expense 1,801 2,049
Depreciation and amortization expense 1,361 1,509
Operating and other expenses 1,870 1,717
Provisions for financing and insurance losses 815 541
------ ------
Total costs and expenses 5,847 5,816
----- -----
Net income from transactions with Automotive,
Communications Services, and Other Operations (90) (131)
---- ----
Income before income taxes and minority interests 734 766
Income tax expense 285 289
Equity income/(loss) and minority interests (12) (23)
---- ----
Net income - Financing and Insurance Operations $437 $454
=== ===
The above supplemental consolidating information is explained in Note 1,
"Financial Statement Presentation."
Reference should be made to the notes to consolidated financial statements.
- 4 -
CONSOLIDATED BALANCE SHEETS
Mar. 31, Mar. 31,
2002 Dec. 31, 2001
GENERAL MOTORS CORPORATION AND SUBSIDIARIES (Unaudited) 2001 (Unaudited)
--------- ---- ---------
ASSETS (dollars in millions)
Automotive, Communications Services,
and Other Operations
Cash and cash equivalents $14,656 $8,432 $7,445
Marketable securities 781 790 455
-------- ------ ------
Total cash and marketable securities 15,437 9,222 7,900
Accounts and notes receivable
(less allowances) 5,957 5,406 6,264
Inventories (less allowances) (Note 2) 9,802 10,034 11,885
Equipment on operating leases - net 3,675 4,524 5,365
Deferred income taxes and other current assets 7,974 7,877 8,421
------- ------- -------
Total current assets 42,845 37,063 39,835
Equity in net assets of nonconsolidated
associates 4,871 4,950 4,271
Property - net 34,443 34,908 34,081
Intangible assets - net (Note 3) 13,745 13,721 7,563
Deferred income taxes 22,826 22,294 14,806
Other assets 16,939 17,274 31,290
------- ------- -------
Total Automotive, Communications Services,
and Other Operations assets 135,669 130,210 131,846
Financing and Insurance Operations
Cash and cash equivalents 4,393 10,123 6,209
Investments in securities 11,874 10,669 10,107
Finance receivables - net 103,327 99,813 87,845
Investment in leases and other receivables 33,177 34,618 36,386
Other assets 36,240 36,979 29,041
Net receivable from Automotive, Communications
Services, and Other Operations 477 1,557 1,380
------- ------- -------
Total Financing and Insurance
Operations assets 189,488 193,759 170,968
------- ------- -------
Total assets $325,157 $323,969 $302,814
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Automotive, Communications Services, and
Other Operations
Accounts payable (principally trade) $19,367 $18,297 $18,587
Loans payable 1,591 2,402 2,052
Accrued expenses 34,352 34,090 33,861
Net payable to Financing and Insurance
Operations 477 1,557 1,380
------- ------- -------
Total current liabilities 55,787 56,346 55,880
Long-term debt 16,797 10,726 8,510
Postretirement benefits other than pensions 34,719 34,515 33,416
Pensions 11,072 10,790 3,386
Other liabilities and deferred income taxes 13,741 13,794 15,109
-------- -------- --------
Total Automotive, Communications Services,
and Other Operations liabilities 132,116 126,171 116,301
Financing and Insurance Operations
Accounts payable 8,098 7,900 6,669
Debt 148,082 153,186 135,334
Other liabilities and deferred income taxes 16,519 16,259 14,366
-------- -------- --------
Total Financing and Insurance
Operations liabilities 172,699 177,345 156,369
------- ------- -------
Total liabilities 304,815 303,516 272,670
Minority interests 766 746 702
General Motors - obligated
mandatorily redeemable preferred
securities of subsidiary trusts
holding solely junior subordinated
debentures of General Motors (Note 5)
Series G - - 139
Stockholders' equity
$1-2/3 par value common stock (issued,
560,498,859; 559,044,427;
and 548,924,480 shares) (Note 9) 934 932 915
Class H common stock (issued,
877,794,882; 877,505,382;
and 875,728,294 shares) (Note 9) 88 88 88
Capital surplus (principally additional
paid-in capital) 21,589 21,519 21,105
Retained earnings 9,387 9,463 10,053
-------- ------- ------
Subtotal 31,998 32,002 32,161
Accumulated foreign currency
translation adjustments (3,014) (2,919) (2,992)
Net unrealized loss on derivatives (Note 8) (256) (307) (121)
Net unrealized gains on securities 428 512 300
Minimum pension liability adjustment (9,580) (9,581) (45)
------- ------ --------
Accumulated other comprehensive loss (12,422) (12,295) (2,858)
------- ------ --------
Total stockholders' equity 19,576 19,707 29,303
------- ------- --------
Total liabilities and stockholders' equity $325,157 $323,969 $302,814
======= ======= =======
Reference should be made to the notes to consolidated financial statements
- 5 -
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Automotive, Comm. Financing and
Serv. and Other Insurance
Three Months Ended March 31,
------------------------------------
2002 2001 2002 2001
---- ---- ---- ----
(dollars in millions)
Net cash provided by (used in)
operating activities $2,989 $873 $4,268 $(153)
Cash flows from investing activities
Expenditures for property (1,888) (2,078) (16) (19)
Investments in marketable securities
- acquisitions (399) (279) (19,557) (7,225)
Investments in marketable securities
- liquidations 408 985 18,391 6,713
Mortgage servicing rights - acquisitions - - (622) (447)
Finance receivables - acquisitions - - (54,936)(50,804)
Finance receivables - liquidations - - 22,564 34,521
Proceeds from sales of finance receivables - - 28,366 19,968
Operating leases - acquisitions (968) (1,748) (2,942) (2,850)
Operating leases - liquidations 1,718 1,925 2,258 2,481
Investments in companies, net of
cash acquired (39) (548) (122) (116)
Other 547 (824) 287 503
--- ----- ----- -----
Net cash (used in) provided by
investing activities (621) (2,567) (6,329) 2,725
--- ----- ----- -----
Cash flows from financing activities
Net decrease in loans payable (811) (156) (5,852)(16,857)
Long-term debt - borrowings 6,414 2,041 7,270 22,518
Long-term debt - repayments (392) (947) (6,168) (3,770)
Proceeds from issuing common stocks 50 33 - -
Proceeds from sales of treasury stocks 19 - - -
Cash dividends paid to stockholders (304) (301) - -
----- --- ----- -----
Net cash provided by (used in)
financing activities 4,976 670 (4,750) 1,891
----- --- ----- -----
Effect of exchange rate changes on
cash and cash equivalents (40) (59) 1 (10)
Net transactions with Automotive/
Financing Operations (1,080) (591) 1,080 591
----- ------ ----- -----
Net increase (decrease) in cash
and cash equivalents 6,224 (1,674) (5,730) 5,044
Cash and cash equivalents at
beginning of the period 8,432 9,119 10,123 1,165
------- ----- ------ -----
Cash and cash equivalents at
end of the period $14,656 $7,445 $4,393 $6,209
====== ===== ===== =====
Reference should be made to the notes to consolidated financial statements.
- 6 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Financial Statement Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the U.S.
for interim financial information. In the opinion of management, all adjustments
(consisting of only normal recurring items), which are necessary for a fair
presentation have been included. The results for interim periods are not
necessarily indicative of results which may be expected for any other interim
period or for the full year. For further information, refer to the December 31,
2001 consolidated financial statements and notes thereto included in General
Motors Corporation's (the "Corporation", "General Motors", or "GM") 2001 Annual
Report on Form 10-K, and all other GM, Hughes Electronics Corporation (Hughes),
and General Motors Acceptance Corporation (GMAC) filings with the Securities and
Exchange Commission.
GM presents separate supplemental consolidating statements of income and
other financial information for the following businesses: (1) Automotive,
Communications Services, and Other Operations which consists of the design,
manufacturing, and marketing of cars, trucks, locomotives, and heavy-duty
transmissions and related parts and accessories, as well as the operations of
Hughes; and (2) Financing and Insurance Operations which consists primarily of
GMAC, which provides a broad range of financial services, including consumer
vehicle financing, full-service leasing and fleet leasing, dealer financing, car
and truck extended service contracts, residential and commercial mortgage
services, vehicle and homeowners' insurance, and asset-based lending.
Transactions between businesses have been eliminated in the Corporation's
consolidated statements of income.
New Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other Intangible Assets," changes the accounting for goodwill and indefinite
lived intangible assets from an amortization method to an impairment-only
approach. Goodwill, including goodwill recorded in past business combinations,
is no longer amortized, but is tested for impairment at least annually at the
reporting unit level. The Corporation implemented SFAS No. 142 on January 1,
2002. GM's reported net income exclusive of amortization expense recognized
related to goodwill and amortization of intangibles with indefinite lives
required under previous accounting standards on an after-tax basis is as follows
(dollars in millions except per share amounts):
Three Months Ended
March 31,
---------------------
2002 2001
---- ----
Reported net income $228 $237
Add:
Goodwill amortization - 65
Amortization of intangibles with
indefinite lives - 10
--- ---
Adjusted net income $228 $312
=== ===
Basic earnings (losses) per share attributable to
common stocks
EPS attributable to $1-2/3 par value:
Reported $0.58 $0.54
==== ====
Adjusted $0.58 $0.61
==== ====
EPS attributable to Class H:
Reported $(0.14) $(0.10)
==== ====
Adjusted $(0.14) $(0.06)
==== ====
Earnings (losses) per share attributable to common
stocks assuming dilution
EPS attributable to $1-2/3 par value:
Reported $0.57 $0.53
==== ====
Adjusted $0.57 $0.61
==== ====
EPS attributable to Class H:
Reported $(0.14) $(0.10)
==== ====
Adjusted $(0.14) $(0.06)
==== ====
-7-
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Financial Statement Presentation (concluded)
GM is currently in the process of completing the required transitional
impairment test to determine whether there is a potential impairment to any
recorded goodwill. Step one of the two part transitional impairment test
requires the Corporation to compare the fair value of each reporting unit with
its respective carrying amount, including goodwill. If the carrying amount of a
reporting unit exceeds its fair value, step two of the transitional impairment
test will be performed to measure the amount of impairment loss, if any.
Step one of the transitional impairment test will be completed in the second
quarter of 2002. Step two of the transitional impairment test will be completed
by the end of 2002 and the resulting impairment loss, if any, will be recorded
as a cumulative effect of accounting change in the consolidated statements of
income. In addition to the annual impairment test, SFAS No. 142 also requires
the Corporation to perform an impairment test if an event occurs or
circumstances change that would more likely than not result in an impairment
loss.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The Corporation is required to implement SFAS
No. 143 on January 1, 2003. Management does not expect this statement to have a
material impact on GM's consolidated financial position or results of
operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The statement retains the previously existing accounting
requirements related to the recognition and measurement of the impairment of
long-lived assets to be held and used while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. It also expands the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has been disposed of or is classified as held for sale. The
Corporation implemented SFAS No. 144 on January 1, 2002. This statement did not
have a material impact on GM's consolidated financial position or results of
operations.
Note 2. Inventories
Inventories included the following for Automotive, Communications Services,
and Other Operations (dollars in millions):
March 31, Dec. 31, March 31,
2002 2001 2001
--------- -------- ---------
Productive material, work in process,
and supplies $5,130 $5,069 $5,840
Finished product, service parts, etc. 6,517 6,779 7,950
------- ------- -------
Total inventories at FIFO 11,647 11,848 13,790
Less LIFO allowance 1,845 1,814 1,905
----- ------- -------
Total inventories (less allowances) $9,802 $10,034 $11,885
===== ====== ======
Note 3. Goodwill and Acquired Intangible Assets
The components of the Corporation's acquired intangible assets as March 31,
2002 were as follows (dollars in millions):
Gross Carrying Accumulated Net Carrying
Amount Amortization Amount
-------------- ------------ ------------
Amortized intangible assets:
Customer lists and contracts $70 $19 $51
Trademarks and other 34 9 25
Covenants not to compete 18 10 8
--- -- --
Total $122 $38 $84
=== == ==
Unamortized intangible assets:
License fees - orbital slots $432
===
- 8 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 3. Goodwill and Acquired Intangible Assets (concluded)
Aggregate amortization expense on acquired intangible assets was $6 million
for the three months ended March 31, 2002. Estimated amortization expense in
each of the next five years is as follows: 2002 - $16 million; 2003 - $16
million; 2004 - $11 million; 2005 - $9 million; and 2006 - $9 million.
The changes in the carrying amounts of goodwill for the quarter ended March
31, 2002 were as follows (dollars in millions):
Total
GMNA GME Other Hughes ACO GMAC Total GM
---- ----- ----- ------ ----- ---- ---------
Balance as of December 31,
2001 $29 $283 $57 $6,444 $6,813 $3,144 $9,957
Goodwill acquired during
the period - - - 25 25 21 46
Goodwill written off
related to sale
of business unit (3) - - - (3) - (3)
Effect of foreign
currency translation - 1 - - 1 (7) (6)
Reclassification from
intangibles - - - 210 210 - 210
-- --- -- ----- ----- ----- ------
Balance as of March 31,
2002 $26 $284 $57 $6,679 $7,046 $3,158 $10,204
== === == ===== ===== ===== ======
Note 4. Contingent Matters
Litigation is subject to uncertainties and the outcome of individual
litigated matters is not predictable with assurance. Various legal actions,
governmental investigations, claims, and proceedings are pending against the
Corporation, including those arising out of alleged product defects;
employment-related matters; governmental regulations relating to safety,
emissions, and fuel economy; product warranties; financial services; dealer,
supplier, and other contractual relationships and environmental matters. In
connection with the disposition by Hughes of its satellite systems manufacturing
businesses to The Boeing Company in 2000, there are disputes regarding the
purchase price and other matters that may result in payments by Hughes to The
Boeing Company that would be material to Hughes. In connection with a dispute
between Hughes and General Electric Capital Corporation ("GECC"), a judgment,
currently being appealed by Hughes, was entered into in GECC's favor that, if
not overturned, could be material to Hughes. Although Hughes believes that it is
reasonably possible that the jury verdict will be overturned and a new trial
granted, Hughes has increased its provision for loss related to this matter by
$83 million ($51 million after-tax) in the first quarter of 2002, including
interest, based on the status of settlement negotiations between the parties. GM
has established reserves for matters in which losses are probable and can be
reasonably estimated. Some of the matters may involve compensatory, punitive, or
other treble damage claims, or demands for recall campaigns, environmental
remediation programs, or sanctions, that if granted, could require the
Corporation to pay damages or make other expenditures in amounts that could not
be estimated at March 31, 2002. After discussion with counsel, it is the opinion
of management that such liability is not expected to have a material adverse
effect on the Corporation's consolidated financial condition or results of
operations.
Beginning January 2004, Fiat S.p.A. (Fiat) has the right to exercise a put
option to require GM to purchase 80% of Fiat Auto B.V. (Fiat Auto) at fair
market value. The put expires on July 24, 2009. The process for establishing the
value that would be paid by GM to Fiat involves the determination of "Fair
Market Value" by investment banks that would be retained by the parties pursuant
to provisions set out in the Master Agreement between GM and Fiat, which has
been made public in filings with the SEC. If the put were exercised, GM would
have the option to pay for the 80% interest in Fiat Auto entirely in shares of
GM $1-2/3 par value common stock, entirely in cash, or in whatever combination
thereof GM may choose. To the extent GM chooses to pay in cash, that portion of
the purchase price may be paid to Fiat in four installments over a three-year
period.
Note 5. Preferred Securities of Subsidiary Trusts
On April 2, 2001, GM redeemed the Series G Trust's sole assets causing the
Series G Trust to redeem the approximately 5 million outstanding Series G 9.87%
Trust Originated Preferred Securitiessm (TOPrSsm). The Series G TOPrS were
redeemed at a price of $25 per share plus accrued and unpaid dividends of $0.42
per share. Also on April 2, 2001, GM redeemed the approximately 5 million
outstanding Series G Depositary Shares, each of which represents a one-fourth
interest in a GM Series G 9.12% Preference Share, at a price of $25 per share
plus accrued and unpaid dividends of $0.59 per share. The securities together
had a total face value of approximately $252 million.
- 9 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 6. America Online's Investment in GM Preference Stock
On June 24, 1999, as part of a strategic alliance with Hughes, America
Online (AOL) invested $1.5 billion in return for approximately 2.7 million
shares of GM Series H 6.25% Automatically Convertible Preference Stock, par
value $0.10 per share. This preference stock will automatically convert on June
24, 2002 into GM Class H common stock based upon a variable conversion factor
linked to the GM Class H common stock price at the time of conversion, which
would have resulted in the issuance of approximately 80 million shares if
converted on March 31, 2002. The preference stock accrues quarterly dividends at
a rate of 6.25% per year and may be converted earlier in certain limited
circumstances. GM immediately invested the $1.5 billion received from AOL into
shares of Hughes Series A Preferred Stock designed to correspond to the
financial terms of the GM Series H 6.25% Automatically Convertible Preference
Stock. Dividends on the Hughes Series A Preferred Stock are payable to GM
quarterly at an annual rate of 6.25%. The underwriting discount on the Hughes
Series A Preferred Stock is amortized over three years. Upon conversion of the
GM Series H 6.25% Automatically Convertible Preference Stock into GM Class H
common stock, Hughes will redeem the Hughes Series A Preferred Stock through a
cash payment to GM. Simultaneous with GM's receipt of the cash redemption
proceeds, GM will make a capital contribution to Hughes of the same amount.
Note 7. Comprehensive Income (Loss)
GM's total comprehensive income (loss) was as follows (dollars in millions):
Three Months Ended
March 31,
---------------------
2002 2001
---- ----
Net income $228 $237
Other comprehensive loss (127) (892)
--- ---
Total $101 $(655)
=== ===
Note 8. Derivative Financial Instruments
Effective January 1, 2001, GM adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended, which requires that
all derivatives be recorded at fair value on the balance sheet and establishes
criteria for designation and effectiveness of derivative transactions for which
hedge accounting is applied. GM assesses the initial and ongoing effectiveness
of its hedging relationships in accordance with its documented policies. As a
result of the adoption of this standard as of January 1, 2001, GM recorded a
transition adjustment representing a one-time after-tax charge to income
totaling $23 million, as well as an after-tax unrealized gain of $4 million to
other comprehensive income.
GM is exposed to market risk from changes in foreign currency exchange rates,
interest rates, and certain commodity and equity security prices. In the normal
course of business, GM enters into a variety of foreign exchange, interest rate,
and commodity forward contracts, swaps, and options, with the objective of
minimizing exposure arising from these risks. A risk management control system
is utilized to monitor foreign exchange, interest rate, commodity and equity
price risks, and related hedge positions.
Note 9. Earnings Per Share Attributable to Common Stocks
Earnings per share (EPS) attributable to each class of GM common stock was
determined based on the attribution of earnings to each such class of common
stock for the period divided by the weighted-average number of common shares for
each such class outstanding during the period. Diluted EPS attributable to each
class of GM common stock considers the impact of potential common shares, unless
the inclusion of the potential common shares would have an antidilutive effect.
The attribution of earnings to each class of GM common stock was as follows
(dollars in millions):
Three Months Ended
March 31,
-------------------
2002 2001
---- ----
Earnings (losses) attributable to common stocks
Earnings attributable to $1-2/3 par value $325 $296
(Losses) attributable to Class H $(121) $(87)
- 10 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 9. Earnings Per Share Attributable to Common Stocks (concluded)
Earnings attributable to GM $1-2/3 par value common stock for the period
represent the earnings attributable to all GM common stocks for the period,
reduced by the Available Separate Consolidated Net Income (ASCNI) of Hughes for
the respective period.
In 2001 and prior years, losses attributable to GM Class H common stock
represent the ASCNI of Hughes, excluding the effects of GM purchase accounting
adjustments arising from GM's acquisition of Hughes Aircraft Company, reduced by
the amount of dividends accrued on the Series A Preferred Stock of Hughes (as an
equivalent measure of the effect that GM's payment of dividends on the GM Series
H 6.25% Automatically Convertible Preference Stock would have if paid by
Hughes). Beginning in 2002, losses attributable to GM Class H common stock were
not adjusted for the effects of GM purchase accounting, mentioned above, because
the related goodwill is no longer being amortized in accordance with SFAS No.
142, "Goodwill and Other Intangible Assets." The calculated losses used for
computation of the ASCNI of Hughes is then multiplied by a fraction, the
numerator of which is equal to the weighted-average number of shares of GM Class
H common stock outstanding (878 million and 875 million during the three months
ended March 31, 2002 and 2001, respectively), and the denominator of which is a
number equal to the weighted-average number of shares of GM Class H common stock
which if issued and outstanding would represent a 100% interest in the earnings
of Hughes (the "Average Class H dividend base"). The Average Class H dividend
base was 1.3 billion for both the first quarter of 2002 and 2001.
The reconciliation of the amounts used in the basic and diluted earnings per
share computations was as follows (dollars in millions except per share
amounts):
$1-2/3 Par Value Common Stock Class H Common Stock
----------------------------- -----------------------------
Per Share Per Share
Income Shares Amount ASCNI Shares Amount
Three Months Ended
March 31, 2002
Net income (loss) $333 $(105)
Less:Dividends on preference
stocks 8 16
--- ---
Basic EPS
Income (loss) attributable
to common stocks 325 559 $0.58 (121) 878 $(0.14)
==== ====
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options - 11 - -
--- --- --- ---
Diluted EPS
Adjusted income (loss)
attributable to
common stocks $325 570 $0.57 $(121) 878 $(0.14)
=== === ==== === === ====
Three Months Ended
March 31, 2001
Net income (loss) $307 $(70)
Less:Dividends on
preference stocks 11 17
--- ---
Basic EPS
Income (loss) attributable
to common stocks 296 548 $0.54 (87) 875 $(0.10)
==== ====
Effect of Dilutive Securities
Assumed exercise of
dilutive stock options - 6 - -
--- --- --- ---
Diluted EPS
Adjusted income (loss)
attributable to
common stocks $296 554 $0.53 $(87) 875 $(0.10)
=== === ==== == === ====
Note 10. Depreciation and Amortization
Depreciation and amortization included in Cost of sales and other expenses
for Automotive, Communications Services, and Other Operations was as follows (in
millions):
Three Months Ended
March 31,
---------------------
2002 2001
---- ----
Depreciation $1,132 $1,037
Amortization of special tools 629 565
Amortization of intangible assets 3 67
----- -----
Total $1,764 $1,669
===== =====
- 11 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
Note 11. GM Europe Restructuring Charge
During 2001, GM Europe (GME) announced its intention to turn around its
business with the implementation of Project Olympia. The initial stages of
Project Olympia sought to identify initiatives that could deliver:
. Solid and profitable business performance as of 2003
. A strengthened and optimized sales structure
. A revitalized Opel/Vauxhall brand
. Further market growth opportunities
. Continuous improvement by refocusing the organizational structure
The project identified several initiatives which aim to address the goals
mentioned above. These initiatives include, among other things, reducing GME's
manufacturing capacity, restructuring the dealer network in Germany, and
redefining the way vehicles are marketed. These initiatives resulted in a
decrease to GM's pre-tax earnings in the first quarter of 2002 as follows: (1)
$298 million related to employee separation costs for approximately 4,000
employees; (2) $235 million related to asset writedowns; and (3) $108 million
related to the dealer network restructuring in Germany. The net income impact of
these charges totaled $407 million, or $0.72 diluted earnings per share of GM
$1-2/3 par value common stock ($553 million included in Cost of sales and other
expenses; $88 million included in Selling, general, and administrative expenses;
and $(234) million included in Income tax expense).
Note 12. Subsequent Event
On April 29, 2002, GM, Daewoo Motor Company (Daewoo), and Korea Development
Bank acting on behalf of the Daewoo Motor Creditors Committee, signed final
definitive agreements for the establishment of a new automotive company. GM,
certain of its business partners, and the creditors will be the stockholders in
the new company.
GM will invest $251 million for a 42.1% interest in the new company. Daewoo
creditors will invest $197 million for a 33% interest, and certain of GM's
business partners will invest $149 million to share the remaining 24.9% equity
interest. GM will use the equity method to account for its interest in the new
company.
The new company would own and operate selected domestic and foreign assets of
Daewoo. The transaction is expected to close within two to three months, pending
court and government approvals.
- 12 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - concluded
(Unaudited)
Note 13. Segment Reporting
GM's reportable operating segments within its Automotive, Communications
Services, and Other Operations (ACO) business consist of General Motors
Automotive (GMA) (which is comprised of four regions: GM North America (GMNA),
GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM Asia Pacific
(GMAP)), Hughes, and Other. GM's reportable operating segments within its
Financing and Insurance Operations business consist of GMAC and Other. Selected
information regarding GM's reportable operating segments were as follows:
Other Total
GMNA GME GMLAAM GMAP GMA Hughes Other ACO GMAC Financing Financing
(dollars in millions)
For the Three Months Ended March 31, 2002
Net sales and revenues:
External customers $29,421 $5,384 $1,250 $904 $36,959 $2,007 $807 $39,773 $6,403 $88 $6,491
Intersegment (404) 200 51 153 - 5 (5) - - - -
------- ------ ----- ----- ------ ----- --- ------ ----- -- -----
Total net sales
and revenues $29,017 $5,584 $1,301 $1,057 $36,959 $2,012 $802 $39,773 $6,403 $88 $6,491
====== ===== ===== ===== ====== ===== === ====== ===== == =====
Interest income (a) $84 $64 $7 $2 $157 $4 $(88) $73 $704 $(89) $615
Interest expense $114 $79 $28 $2 $223 $76 $(137) $162 $1,756 $45 $1,801
Net income (loss) $625 $(532) $(40) $7 $60 $(156) $(113) $(209) $439 $(2) $437
Segment Assets $95,402 $17,589 $4,017 $1,115 $118,123 $19,684 $(2,138) $135,669 $189,413 $75 $189,488
For the Three Months Ended March 31, 2001
Net sales and revenues:
External customers $25,580 $6,000 $1,361 $838 $33,779 $1,911 $474 $36,164 $6,369 $82 $6,451
Intersegment (474) 268 34 172 - 6 (6) - - - -
------- ------ ------ ------ ------ ----- ----- ------ ----- -- -----
Total net sales
and revenues $25,106 $6,268 $1,395 $1,010 $33,779 $1,917 $468 $36,164 $6,369 $82 $6,451
====== ===== ===== ===== ====== ===== === ====== ===== == =====
Interest income (a) $269 $83 $1 $4 $357 $24 $(225) $156 $638 $(118) $520
Interest expense $355 $60 $24 $1 $440 $51 $(329) $162 $1,989 $60 $2,049
Net income (loss) $106 $(84) $5 $(21) $6 $(104)(b) $(119) $(217) $465 $(11) $454
Segment Assets $88,963 $18,423 $4,499 $964 $112,849 $18,854 $143 $131,846 $170,110 $858 $170,968
(a) Interest income is included in net sales and revenues from external
customers.
(b) The amount reported for Hughes excludes amortization of GM purchase
accounting adjustments related to GM's acquisition of Hughes Aircraft
Company of $1 million for 2001. There is no comparable adjustment in 2002
because the related goodwill is no longer being amortized effective
January 1, 2002 in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets."
* * * * * *
- 13 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition and
results of operations (MD&A) should be read in conjunction with the December 31,
2001 consolidated financial statements and notes thereto along with the MD&A
included in General Motors Corporation's (the "Corporation", "General Motors",
or "GM") 2001 Annual Report on Form 10-K, and all other GM, Hughes Electronics
Corporation (Hughes), and General Motors Acceptance Corporation (GMAC) filings
with the Securities and Exchange Commission. All earnings per share amounts
included in the MD&A are reported as diluted.
GM presents separate financial information for the following businesses:
Automotive, Communications Services, and Other Operations (ACO) and Financing
and Insurance Operations.
GM's reportable operating segments within its ACO business consist of:
. GM Automotive (GMA), which is comprised of four regions: GM North America
(GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM
Asia Pacific (GMAP);
. Hughes, which includes activities relating to digital entertainment,
information and communications services, and satellite-based private
business networks; and
. Other, which includes the design, manufacturing, and marketing of
locomotives and heavy-duty transmissions, the elimination of intersegment
transactions, certain non-segment specific revenues and expenditures, and
certain corporate activities.
GM's reportable operating segments within its Financing and Insurance
Operations business consist of GMAC and Other Financing, which includes
financing entities operating in the U.S., Canada, Brazil, and Mexico that are
not associated with GMAC.
The disaggregated financial results for GMA have been prepared using a
management approach, which is consistent with the basis and manner in which GM
management internally disaggregates financial information for the purpose of
assisting in making internal operating decisions. In this regard, certain common
expenses were allocated among regions less precisely than would be required for
stand-alone financial information prepared in accordance with accounting
principles generally accepted in the U.S. (GAAP) and certain expenses (primarily
certain U.S. taxes related to non-U.S. operations) were included in the ACO
segment. The financial results represent the historical information used by
management for internal decision making purposes; therefore, other data prepared
to represent the way in which the business will operate in the future, or data
prepared on a GAAP basis, may be materially different.
- 14 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
For the first quarter of 2002, consolidated net income for the Corporation
was $228 million, or $0.57 per share of GM $1-2/3 par value common stock,
compared with $237 million, or $0.53 per share of GM $1-2/3 par value common
stock for the first quarter of 2001. The consolidated net income included
special items on an after-tax basis as follows:
List of Special Items - After Tax
(dollars in millions)
Total Total Other
GMNA GME GMLAAM GMAP GMA Hughes Other ACO GMAC Financing Total GM
---- --- ------ ---- --- ------ ----- --- ---- --------- --------
For the Three Months Ended March 31, 2002
Reported Net Income (Loss) $625 $(532) $(40) $7 $60 $(156) $(113) $(209) $439 $(2) $228
GME Restructuring
Charge (A) - 407 - - 407 - - 407 - - 407
Hughes Space Shuttle
Settlement (B) - - - - - (59) - (59) - - (59)
Hughes GECC Contractual
Dispute (C) - - - - - 51 - 51 - - 51
Hughes Loan Guarantee
Charge (D) - - - - - 18 - 18 - - 18
--- --- -- -- --- --- --- --- --- -- --
Adjusted Income (Loss) $625 $(125) $(40) $7 $467 $(146) $(113) $208 $439 $(2) $645
=== === == = === === === === === = ===
For the Three Months Ended March 31, 2001
Reported Net Income (Loss) $106 $(84) $5 $(21) $6 $(104) $(119) $(217) $465 $(11) $237
SFAS 133 Adjustment (E) 14 (2) 1 1 14 8 - 22 (34) - (12)
--- --- -- -- -- --- --- --- --- -- ----
Adjusted Income (Loss) $120 $(86) $6 $(20) $20 $(96) $(119) $(195) $431 $(11) $225
=== == = == == == === === === == ===
Footnotes:
(A) The GME Restructuring Charge relates to the announced restructuring to
improve the competitiveness of GM's automotive operations in Europe (see
Note 9 in the Notes to Consolidated Financial Statements).
(B) The Hughes Space Shuttle Settlement relates to the favorable resolution
of a lawsuit that was filed against the U.S. government on March 22,
1991, based upon the National Aeronautics and Space Administration's
(NASA) breach of contract to launch ten satellites on the Space Shuttle.
(C) The Hughes GECC Contractual Dispute relates to an estimated loss
associated with a contractual dispute with General Electric Capital
Corporation.
(D) The Hughes Loan Guarantee Charge relates to a loan guarantee for a Hughes
Network Systems' affiliate in India.
(E) The SFAS 133 Adjustment represents the net impact from the initial
adoption of SFAS No. 133, "Accounting for Derivatives and Hedging
Activities."
- 15 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Vehicle Unit Deliveries of Cars and Trucks
Three Months Ended March 31,
------------------------------------------------------
2002 2001
------------------------ -------------------------
GM as GM as
a % of a % of
Industry GM Industry Industry GM Industry
-------- ---- -------- -------- ---- --------
(units in thousands)
GMNA
United States
Cars 1,899 470 24.7% 2,089 604 28.9%
Trucks 2,100 660 31.4% 2,117 592 28.0%
----- ------ ----- ------
Total United States 3,999 1,130 28.3% 4,206 1,196 28.4%
Canada, Mexico, and Other 673 180 26.7% 624 162 26.0%
------ ------ ------ ------
Total GMNA 4,672 1,310 28.0% 4,830 1,358 28.1%
GME 5,006 435 8.7% 5,281 499 9.4%
GMLAAM 887 151 17.1% 997 164 16.4%
GMAP 3,394 141 4.1% 3,472 127 3.7%
------- ------ ------- ------
Total Worldwide 13,959 2,037 14.6% 14,580 2,148 14.7%
====== ===== ====== =====
Wholesale Sales
Three Months Ended
March 31,
-------------------------
2002 2001
-------- --------
(units in thousands)
GMNA
Cars 612 594
Trucks 750 631
----- -----
Total GMNA 1,362 1,225
----- -----
GME
Cars 395 441
Trucks 29 27
--- ---
Total GME 424 468
--- ---
GMLAAM
Cars 111 111
Trucks 44 48
--- ---
Total GMLAAM 155 159
--- ---
GMAP
Cars 47 47
Trucks 61 92
--- ---
Total GMAP 108 139
--- ---
Total Worldwide 2,049 1,991
===== =====
GMA Financial Review
GMA's income and net margin, adjusted to exclude special items (adjusted
income and margin), was $467 million and 1.3% on net sales and revenues of $37.0
billion for the first quarter of 2002, compared with income of $20 million and a
net margin of 0.1% on net sales and revenues of $33.8 billion for the prior year
quarter. The increase in adjusted income and net sales and revenues from the
prior year quarter was primarily due to an increase in wholesale sales volumes
in North America, favorable mix, and material cost savings. These favorable
conditions were partially offset by pricing pressures in North America and
Europe and increased OPEB and salaried separation/retirement costs in North
America.
GMNA's income was $625 million for the first quarter of 2002, compared with
adjusted income of $120 million for the prior year quarter. The increase in
GMNA's first quarter 2002 income was primarily the result of higher wholesale
sales volumes, favorable mix, material cost savings, and structural cost
reductions. These favorable conditions were partially offset by pricing
pressures and increased OPEB and salaried separation/retirement costs. Net
price, which comprehends the percent increase/(decrease) a customer pays in the
current period for the same comparably equipped vehicle over the price paid in
the previous year's period, was unfavorable for the quarter at (1.0)%
year-over-year.
- 16 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMA Financial Review (concluded)
GME's adjusted loss was $125 million for the first quarter of 2002, compared
with an adjusted loss of $86 million for the prior year quarter. The increase in
the adjusted loss for the first quarter of 2002 was primarily due to a decrease
in wholesale sales volume from the continued weakening of the European industry
and continued pricing pressures, as well as reduced sales of the Vectra due to
the upcoming launch of the new model. These unfavorable conditions were
partially offset by material and structural cost improvements.
GMLAAM's loss was $40 million for the first quarter of 2002, compared with
adjusted income of $6 million for the prior year quarter. The decrease in income
for the first quarter of 2002 was primarily due to unfavorable mix and the
continued devaluation of the currency in Argentina. GMAP's income was $7 million
for the first quarter of 2002, compared with an adjusted loss of $20 million for
the prior year quarter. The increase in income for the first quarter of 2002 was
primarily due to equity income improvements from several joint ventures in the
region, as well as slightly favorable pricing. These favorable conditions were
partially offset by decreased wholesale sales volumes, material cost pressures,
and increased engineering costs.
Hughes Financial Review
Total net sales and revenues increased to $2.0 billion for the first quarter
of 2002, compared with $1.9 billion for the prior year quarter. The increase in
net sales and revenues for the first quarter of 2002 resulted primarily from
increased revenues at the Direct-To-Home Broadcast segment, which added about
1.3 million net new subscribers in the United States and Latin America since
March 31, 2001, and increased revenues at PanAmSat Corporation (PanAmSat). The
increased revenues at the Direct-To-Home Broadcast segment and PanAmSat were
partially offset by a decrease in revenues of $5 million at the Network Systems
segment, which was principally due to lower sales resulting from the substantial
completion of two contracts in late 2001, partially offset by increased sales of
DIRECWAY(R) and DIRECTV(R) systems. PanAmSat's increase in revenues was
primarily due to a termination fee of approximately $6 million associated with
one video customer, partially offset by reduced operating lease revenues.
Hughes' adjusted loss was $146 million for the first quarter of 2002,
compared with an adjusted loss of $96 million for the prior year quarter. The
increase in the adjusted loss for the first quarter of 2002 was primarily due to
increased subscriber marketing costs due to the record gross subscriber
additions at DIRECTV U.S. in the quarter, decreased interest income due to lower
average cash and cash equivalent balances in the current year, a decrease in
realized gains on the sale of investments, and the discontinuation of the
minority interest adjustment in 2001 related to DIRECTV Latin America, due to
the accumulation of operating losses in excess of the minority investors'
investment. These increases to the adjusted loss were partially offset by an
increased income tax benefit resulting from higher pre-tax losses and the effect
of favorable tax settlements recorded in the first quarter of 2002.
GMAC Financial Review
GMAC's income was $439 million for the first quarter of 2002, compared with
adjusted income of $431 million for the prior year quarter. Income from
automotive and other financing operations totaled $255 million for the first
quarter of 2002, compared with adjusted income of $290 million for the prior
year quarter. The decrease in adjusted income was primarily due to higher credit
losses and unfavorable borrowing spreads partially offset by strong retail asset
growth in North America. Income from insurance operations totaled $36 million
for the first quarter of 2002, compared with adjusted income of $43 million for
the prior year quarter. The decrease was due to lower capital gains, partially
offset by improved underwriting results due to increased extended service
contract fee income and certain cost reductions. Income from mortgage operations
totaled $148 million for the first quarter of 2002, compared with adjusted
income of $98 million for the prior year quarter. The increased earnings from
mortgage operations was due to higher loan originations and purchases, higher
securitization volumes, and higher levels of interest earning assets.
LIQUIDITY AND CAPITAL RESOURCES
Financing Structure
In the first quarter of 2002, GM and GMAC experienced excellent access to the
capital markets as GM and GMAC were able to issue various securities to raise
capital and extend borrowing terms consistent with GM's need for financial
flexibility. Although downgrades to GM's and GMAC's credit ratings in 2001 have
reduced GM's and GMAC's access to the commercial paper market, the amount of
commercial paper available to GM and GMAC remains sufficient to meet the
Corporation's capital needs. Moreover, the downgrades have not had a significant
adverse effect on GM's and GMAC's ability to issue long-term public debt, to
obtain bank debt, or to sell asset-backed securities. Accordingly, GM and GMAC
expect that they will continue to have excellent access to the capital markets
sufficient to meet the Corporation's needs for financial flexibility.
- 17 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Financing Structure (concluded)
As an additional source of funds, GM currently has unrestricted access to a
$5.6 billion line of credit with a syndicate of banks which is committed through
June 2006. Similarly, GMAC has a $7.4 billion line of credit, committed through
June 2002, and an additional $7.4 billion committed through June 2006. GMAC
currently plans to seek renewal of the line of credit committed through June
2002.
On February 15, 2002, GM issued $875 million of 7.250% Senior Notes due
February 15, 2052. The bonds mature in 50 years and are redeemable by GM, in
whole or part, prior to 2052 if certain circumstances are satisfied. On March 6,
2002, GM also issued $3.8 billion of convertible debt securities as part of a
comprehensive effort to improve the Corporation's financial flexibility. The
offering includes $1.2 billion principal amount of 4.5% Series A Convertible
Senior Debentures due 2032 and $2.6 billion principal amount of 5.25% Series B
Convertible Senior Debentures due 2032. The securities mature in 30 years and
are convertible into GM $1-2/3 par value common stock once specific conditions
are satisfied. The proceeds of the offerings, combined with other cash
generation initiatives, will be used to rebuild GM's liquidity position, reduce
its underfunded pension liability, and fund its postretirement health care
obligations.
Automotive, Communications Services, and Other Operations
At March 31, 2002, cash, marketable securities, and $3.0 billion of assets of
the Voluntary Employees' Beneficiary Association (VEBA) trust invested in
fixed-income securities totaled $18.4 billion, compared with $12.2 billion at
December 31, 2001 and $10.9 billion at March 31, 2001. The increase from
December 31, 2001 was primarily due to proceeds from the bond and convertible
debt offerings, and strong cash flow from automotive operations. Total assets in
the VEBA trust used to pre-fund part of GM's other postretirement benefits
liability approximated $5.2 billion at March 31, 2002, compared with $4.9
billion at December 31, 2001 and $5.7 billion at March 31, 2001. GM previously
indicated that it had a goal of maintaining $13.0 billion of cash and marketable
securities in order to continue funding product development programs throughout
the next downturn in the business cycle. This $13.0 billion target includes cash
to pay certain costs that were pre-funded in part by VEBA contributions.
Long-term debt was $16.8 billion at March 31, 2002, compared with $10.7
billion at December 31, 2001 and $8.5 billion at March 31, 2001. The ratio of
long-term debt to long-term debt and GM's net assets of Automotive,
Communications Services, and Other Operations was 82.5% at March 31, 2002,
compared with 72.6% at December 31, 2001 and 35.4% at March 31, 2001. The ratio
of long-term debt and short-term loans payable to the total of this debt and
GM's net assets of Automotive, Communications Services, and Other Operations was
83.8% at March 31, 2002, compared with 76.5% at December 31, 2001 and 40.5% at
March 31, 2001.
Net liquidity excluding Hughes, calculated as cash, marketable securities,
and $3.0 billion of assets of the VEBA trust invested in fixed-income securities
less the total of loans payable and long-term debt, was $2.3 billion at March
31, 2002, compared with $1.0 billion at December 31, 2001 and $506 million at
March 31, 2001.
In order to provide financial flexibility to GM and its suppliers, GM
maintains a two-part financing program through General Electric Capital
Corporation (GECC) pursuant to a Trade Payables Agreement with GM wherein GECC
(1) purchases GM receivables at a discount from GM suppliers prior to the due
date of those receivables, and pays on behalf of GM the amount due on other
receivables which have reached their due date (the first part) and (2) from time
to time allows GM to defer payment to GECC with respect to all or a portion of
receivables which it has purchased or paid on behalf of GM, which deferral lasts
generally up to 40 days.
To the extent GECC can realize favorable economics from transactions arising
in the first part of the program, they are shared with GM. Whenever GECC and GM
agree that GM will defer payment beyond the normal due date for receivables
under the second part of the program, GM becomes obligated to pay interest for
the period of such deferral. Outstanding balances of GM receivables held by GECC
are classified as accounts payable in GM's financial statements. If any of GM's
long-term unsecured debt obligations become subject to a rating by S&P of BBB-
(GM's current rating is BBB+) with a negative outlook or below BBB-, or a rating
by Moody's of Baa3 (GM's current rating is A3) with a negative outlook or below
Baa3, the first part of the program would be unavailable to GM and its
suppliers. If any of GM's long-term unsecured debt obligations become subject to
a rating by S&P of BBB or lower, or a rating by Moody's of Baa2 or lower, the
second part of the program would be unavailable to GM. The maximum amount
permitted under the program is $2 billion. At March 31, 2002, the outstanding
balance under the first part of the program amounted to approximately $700
million, and the outstanding balance under the second part of the program was
$750 million.
- 18 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive, Communications Services, and Other Operations (concluded)
Beginning January 2004, Fiat S.p.A. (Fiat) has the right to exercise a put
option to require GM to purchase 80% of Fiat Auto B.V. (Fiat Auto) at fair
market value. The put expires on July 24, 2009. The process for establishing the
value that would be paid by GM to Fiat involves the determination of "Fair
Market Value" by investment banks that would be retained by the parties pursuant
to provisions set out in the Master Agreement between GM and Fiat, which has
been made public in filings with the SEC. As a result of GM's purchase of the
initial 20% investment in Fiat Auto for $2.4 billion in the July 2000
transaction, some have suggested a valuation of $9.6 billion for the other 80%
of Fiat Auto. However, Exhibit 8.03(a)(iii) to the Master Agreement states that
"in determining the Fair Market Value of the Put Shares, the price [$2.4
billion] paid by General Motors for its initial 20% interest in Fiat Auto shall
not be considered."
Until a valuation is actually performed in accordance with provisions of the
Master Agreement, the amount that GM may pay for 80% of Fiat Auto is not
quantifiable. This is due in large part to the fact that there are many
variables that could cause such a determination to rise or fall, including, but
not limited to, the operating results and prospects of Fiat Auto, such factors
as the timing of any possible exercise of the put, regional and global economic
developments and those in the automotive industry, developments specific to the
business of Fiat Auto, the resolution of any antitrust issues arising in the
context of such a transaction and other legislative developments in the
countries in which Fiat Auto and GM conduct their business operations. Fiat Auto
has recently announced a major restructuring, including a significant write-off,
all of which may be relevant to any prospective valuation of Fiat Auto.
If the put were exercised, GM would have the option to pay for the 80%
interest in Fiat Auto entirely in shares of GM $1-2/3 par value common stock,
entirely in cash, or in whatever combination thereof GM may choose. To the
extent GM chooses to pay in cash, that portion of the purchase price may be paid
to Fiat in four installments over a three-year period. GM would expect to fund
any such payments from normal operating cash flows or financing activities. At
this time it cannot be determined what the effects of the exercise of the put
would be, if it ever occurs during the next eight years; however, if it is
exercised, it could have a material effect on GM at or after the time of
exercise.
Financing and Insurance Operations
At March 31, 2002, GMAC owned assets and serviced automotive receivables
totaling $217.4 billion, compared with $220.1 billion at December 31, 2001 and
$193.1 billion at March 31, 2001. The decrease from December 31, 2001 was
primarily the result of decreases in cash and cash equivalents, real estate
mortgages held for sale, mortgage lending receivables, operating lease assets,
commercial and other loan receivables, and notes receivable from GM. These
decreases were partially offset by an increase in serviced retail receivables,
serviced wholesale receivables, investments in securities, other assets,
mortgage loans held for investment, and mortgage servicing rights.
Total automotive and commercial finance receivables serviced by GMAC,
including sold receivables, totaled $135.0 billion at March 31, 2002, compared
with $130.6 billion at December 31, 2001 and $114.2 billion at March 31, 2001.
The increase from December 31, 2001 was primarily the result of a $3.2 billion
increase in serviced retail receivables and a $1.8 billion increase in serviced
wholesale receivables, partially offset by a decline in commercial and other
loan receivables. GM-sponsored retail financing incentives contributed to the
increase in serviced retail receivables. The increase in serviced wholesale loan
receivables was due to increased dealer inventories.
At March 31, 2002, GMAC's total borrowings were $147.0 billion, compared with
$152.0 billion at December 31, 2001 and $133.8 billion at March 31, 2001. GMAC's
ratio of total debt to total stockholder's equity at March 31, 2002 was 8.9:1,
compared with 9.4:1 at December 31, 2001 and March 31, 2001.
Off-Balance Sheet Arrangements
GM and GMAC use off-balance sheet special purpose entities ("SPEs") where the
economics and sound business principles warrant their use. GM's principal use of
SPEs occurs in connection with the securitization and sale of financial assets
generated or acquired in the ordinary course of business by GM's wholly-owned
subsidiary GMAC and its subsidiaries and, to a lesser extent, by GM. The assets
securitized and sold by GMAC and its subsidiaries consist principally of
mortgages, and wholesale and retail loans secured by vehicles sold through GM's
dealer network. The assets sold by GM consist of trade receivables. GM and GMAC
use SPEs in a manner consistent with conventional practices in the
securitization industry, the purpose of which is to isolate the receivables for
the benefit of securitization investors. The use of SPEs enables GM and GMAC to
access the highly liquid and efficient markets for the sale of these types of
financial assets when they are packaged in securitized forms.
- 19 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Off-Balance Sheet Arrangements (concluded)
GM leases real estate and equipment from various SPEs which have been
established to facilitate the financing of those assets for GM by nationally
prominent, creditworthy lessors. These assets consist principally of office
buildings, warehouses, and machinery and equipment. The use of SPEs allows the
parties providing the financing to isolate particular assets in a single entity
and thereby syndicate the financing to multiple third parties. This is a
conventional financing technique used to lower the cost of borrowing and, thus,
the lease cost to a lessee such as GM. There is a well-established market in
which institutions participate in the financing of such property through their
purchase of interests in these SPEs. All of the SPEs established to facilitate
property leases to GM are owned by institutions which are truly independent of,
and not affiliated with, GM. These institutions maintain substantial equity
investments in their SPEs. No officers, directors or employees of GM, GMAC, or
their affiliates hold any direct or indirect equity interests in such SPEs.
Assets in SPEs were as follows (dollars in millions):
March 31, Dec. 31,
2002 2001
----------- -----------
Automotive, Communications Services, and Other Operations
Assets leased under operating leases $2,481 $2,412
Trade receivables sold 453 868
----- -----
Total $2,934 $3,280
===== =====
Financing and Insurance Operations
Receivables sold or securitized:
- Mortgage loans $110,623 $104,678
- Retail finance receivables 12,732 11,978
- Wholesale finance receivables 16,244 16,227
------- -------
Total $139,599 $132,883
======= =======
Book Value Per Share
Book value per share is determined based on the liquidation rights of the
various classes of common stock. Book value per share of GM $1-2/3 par value
common stock was $24.56 at March 31, 2002, compared with $24.79 at December 31,
2001 and $38.23 at March 31, 2001. Book value per share of GM Class H common
stock was $4.91 at March 31, 2002, compared with $4.96 at December 31, 2001 and
$7.65 at March 31, 2001.
Dividends
Dividends may be paid on GM's common stocks only when, as, and if declared by
the GM Board in its sole discretion. The amount available for the payment of
dividends on each class of common stock will be reduced on occasion by dividends
paid on that class and will be adjusted on occasion for changes to the amount of
surplus attributed to the class resulting from the repurchase or issuance of
shares of that class.
GM's policy is to distribute dividends on its $1-2/3 par value common stock
based on the outlook and indicated capital needs of the business. On February 5,
2002, the GM Board declared a quarterly cash dividend of $0.50 per share on GM
$1-2/3 par value common stock, paid March 9, 2002, to holders of record on
February 15, 2002. With respect to GM Class H common stock, the GM Board has
determined that it will not pay any cash dividends at this time in order to
allow the earnings of Hughes to be retained for investment in its
telecommunications and space businesses.
A quarterly dividend of $8.7793 per share for the GM Series H 6.25%
Automatically Convertible Preference Stock was paid on May 1, 2002, to the sole
holder of record.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
European Matters
During September 2000, the European parliament passed a directive requiring
member states to adopt legislation regarding end-of-life vehicles and the
responsibility of manufacturers for dismantling and recycling vehicles they have
sold. European Union member states are required to transform the concepts
detailed in the directive into national law in 2002. Under the directive,
manufacturers are financially responsible for at least a portion of the cost of
the take-back of vehicles placed in service after July 2002 and all vehicles
placed in service prior to July 2002 that are still in operation in January
2007. The laws developed in the individual national legislatures throughout
Europe will have a significant impact on the amount ultimately paid by the
manufacturers for this issue. Management is currently assessing the impact of
this potential legislation on GM's financial position and results of operations,
and may include charges to earnings throughout the remaining quarters of 2002.
The European Commission has adopted a draft block exemption regulation that
provides for a reform of the rules governing automotive distribution and service
in Europe. The European Commission's proposal would eliminate the current block
exemption in place since 1985 that permits manufacturers to control where their
dealerships are located and the brands that they sell. The current block
exemption expires in October 2002, however there is a transition period until
the end of September 2003 for existing agreements with dealers. GM is presently
evaluating the effect this proposed regulation would have on its present
distribution and aftermarket strategies.
Hughes/EchoStar Transactions
On October 28, 2001, GM and its wholly owned subsidiary Hughes, together
with EchoStar Communications Corporation ("EchoStar"), announced the signing of
definitive agreements that, subject to stockholder approval, regulatory
clearance, and certain other conditions, provide for the split-off of Hughes
from GM and the subsequent merger of the Hughes business with EchoStar. These
transactions are designed to address strategic challenges currently facing the
Hughes business and to provide liquidity and value to GM, which would help to
support the credit position of GM after the transactions.
The split-off of Hughes from GM would occur by means of a distribution to
the holders of GM Class H common stock of one share of Class C common stock of a
Hughes holding company (that will own all of the stock of Hughes at the time of
the split-off) in exchange for each share of GM Class H common stock held
immediately prior to the split-off. Immediately following the split-off, the
businesses of Hughes and EchoStar would be combined in the Hughes/EchoStar
merger to form New EchoStar. Each share of the Hughes holding company Class C
common stock would remain outstanding and become a share of Class C common stock
of New EchoStar. Holders of Class A and Class B common stock of EchoStar would
receive 1/0.73, or about 1.3699, shares of stock of the merged entity in
exchange for each share of Class A or Class B common stock of EchoStar held
prior to the Hughes/EchoStar merger.
The transactions are structured in a manner that will not result in the
recapitalization of GM Class H common stock into GM $1-2/3 par value common
stock at a 120% exchange ratio, as currently provided for under certain
circumstances in the General Motors Restated Certificate of Incorporation, as
amended. The GM $1-2/3 par value common stock would remain outstanding and would
be GM's only class of common stock after the transactions.
As part of the transactions, GM would receive a dividend from Hughes of up to
$4.2 billion in cash and its approximately 30% retained economic interest in
Hughes would be reduced by a commensurate amount. In addition, GM may achieve
additional liquidity with respect to a portion of its retained economic interest
in Hughes represented by up to 100 million shares of GM Class H common stock
(or, after the transactions, New EchoStar Class C common stock), including by
exchanging such shares for GM outstanding liabilities. Following these
transactions, subject to IRS approval, and based on a number of assumptions, GM
may retain an interest in the merged entity.
GM, Hughes, and EchoStar have agreed that, in the event that the
transactions do not occur because of a failure to obtain certain specified
regulatory clearances or financing to complete the merger, EchoStar will be
required to purchase Hughes' interest in PanAmSat Corporation for an aggregate
purchase price of approximately $2.7 billion, which is payable, depending on the
circumstances, solely in cash or in a combination of cash and either debt or
equity securities of EchoStar. GM, Hughes, and EchoStar have also agreed that,
if the Hughes/EchoStar merger is not completed for certain limited reasons
involving a competing transaction or a withdrawal by GM's Board of Directors of
their recommendation of the EchoStar transaction, then Hughes will pay a
termination fee of $600 million to EchoStar. In addition, in the event that the
transactions do not occur because certain of the specified regulatory clearances
or approvals relating to United States fedeeral, state or local antitrust and
or federal communication commission matters have not been satisfied, EchoStar
will be required to pay a $600 million termination fee to Hughes.
- 21 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Employment and Payrolls
Worldwide employment at March 31, (in thousands) 2002 2001
---- ----
GMNA 199 208
GME 71 79
GMLAAM 23 23
GMAP 11 11
Hughes 13 14
GMAC 30 28
Other 12 13
--- ---
Total employees 359 376
=== ===
Three Months Ended
March 31,
--------------------
2002 2001
---- ----
Worldwide payrolls - (in billions) $5.0 $5.0
=== ===
Significant Accounting Policies
GM has identified significant accounting policies that, as a result of the
judgments, uncertainties, uniqueness and complexities of the underlying
accounting standards and operations involved, could result in material changes
to its financial condition or results of operations under different conditions
or using different assumptions. The Corporation's most significant accounting
policies are related to the following areas: sales allowances, policy and
warranty, impairment of long-lived assets, employee costs, postemployment
benefits, allowance for credit losses, investments in operating leases, and
accounting for derivatives and other contracts at fair value. Details regarding
the Corporation's use of these policies and the related estimates are described
fully in the Corporation's 2001 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. There have been no material changes to the
Corporation's significant accounting policies that impacted the Corporation's
financial condition or results of operations in the first quarter of 2002.
* * * * * * *
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
(a) Material pending legal proceedings, other than ordinary routine litigation
incidental to the business, to which the Corporation became, or was, a party
during the quarter ended March 31, 2002, or subsequent thereto, but before the
filing of this report are summarized below:
Other Matters
General Electric Capital Corporation ("GECC") and DIRECTV entered into a
contract on July 31, 1995, in which GECC agreed to establish and manage a
private label consumer credit program for consumer purchases of hardware and
related DIRECTV(R) programming. Under the contract, GECC also agreed to provide
certain related services to DIRECTV, including credit risk scoring, billing and
collections services. DIRECTV agreed to act as a surety for loans complying with
the terms of the contract. Hughes guaranteed DIRECTV's performance under the
contract. A complaint and counterclaim were filed by the parties in the U.S.
District Court for the District of Connecticut concerning GECC's performance and
DIRECTV's obligation to act as a surety. A trial commenced on June 12, 2000 with
GECC presenting evidence to the jury for damages of $157 million. DIRECTV sought
damages from GECC of $45 million. On July 21, 2000, the jury returned a verdict
in favor of GECC and awarded contract damages in the amount of $133.0 million.
The trial judge issued an order granting GECC $48.5 million in interest under
Connecticut's offer-of-judgment statute. With this order, the total judgment
entered in GECC's favor was $181.5 million. Hughes and DIRECTV filed a notice of
appeal on December 29, 2000. Oral argument on the appeal was heard on October
15, 2001 by the Second Circuit Court of Appeals. While the appeal is pending,
post-judgment interest on the total judgment is accruing at a rate of 6.241% per
year, compounded annually, from the date judgment was entered in October 2000.
Although Hughes and DIRECTV believe that it is reasonably possible that the jury
verdict will be overturned and a new trial granted, Hughes has increased its
provision for loss related to this matter by $83 million, of which $56 million
was recorded as a charge to "Selling, general and administrative expenses" and
$27 million was recorded as a charge to "Interest expense," based on the status
of settlement negotiations between the parties. Hughes believes it has
adequately provided for the disposition of this matter, however its ultimate
resolution could result in an additional charge to Hughes' results of
operations.
* * *
As previously reported, nine purported class actions were filed in state
courts in Delaware, California, and New York alleging that The News Corporation
Limited had been favored as a bidder to purchase Hughes over EchoStar
Communications Corporation ("EchoStar") to benefit GM in violation of alleged
fiduciary duties. Subsequently, an agreement, subject to regulatory approvals,
was reached to merge Hughes and EchoStar. The five Delaware cases have been
consolidated, two of the California cases have been stayed and the third
(Salomone v. Hughes) has been dismissed at the request of the plaintiff. None of
the cases has been certified as a class action. GM, Hughes and the Hughes
directors intend to vigorously defend these cases.
* * *
As previously reported, on October 4, 2001, a DIRECTV dealer named Robert
Garcia filed a class action complaint in Los Angeles Superior Court, asserting
chargeback/commission claims. On March 1, 2002, Garcia obtained a Temporary
Restraining Order ("TRO") and sought to obtain a Preliminary Injunction to
prevent DIRECTV from making changes to its contracts with dealers. The Court
dissolved the TRO and denied Preliminary Injunction on March 8, 2002. DIRECTV's
demurrer to the complaint, or in the alternative, to compel arbitration, was
heard on April 9, 2002. On April 22, 2002, the court entered an order granting
in part and denying in part DIRECTV's demurrer, and compelling plaintiffs to
pursue their individual claims in an American Arbitration Association ("AAA")
arbitration. The court's order purports to retain jurisdiction, however, in
order to determine whether the prerequisites for class treatment of dealer
claims within a AAA arbitration are met. The court intends to set a schedule for
class discovery and a class certification hearing. DIRECTV disagrees that the
court may retain jurisdiction to conduct class proceedings, and believes that
the court's order effectively denies DIRECTV its contractual right to resolve
individual dealer claims in AAA arbitrations conducted under the Federal
Arbitration Act.
* * *
- 23 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS (concluded)
As previously reported, four DIRECTV dealers, plaintiffs Cable Connection,
Inc., TV Options, Inc., Swartzel Electronics, Inc. and Orbital Satellite, Inc.
filed a class action complaint against DIRECTV and Hughes in Oklahoma State
Court, alleging claims ranging from breach of contract to fraud, promissory
estoppel, antitrust and unfair competition claims. On August 17, 2001, the court
ordered the plaintiffs to pursue their claims in arbitration. In March 2002,
DIRECTV filed a motion for a final order of arbitration. Plaintiffs then filed a
motion requesting the court to order that a single arbitration be permitted on a
class wide basis. DIRECTV intends to vigorously oppose plaintiffs' efforts to
obtain class treatment, since there is no legal or factual basis for class
treatment of individual and disparate dealer claims.
* * *
As previously reported, on December 5, 2000, Personalized Media
Communications, LLC ("PMC") and Pegasus Development Corporation ("Pegasus")
filed suit in U.S. District Court for the District of Delaware against DIRECTV,
Hughes, Thomson Consumer Electronics, Inc. and Philips Electronics North
American Corporation, alleging infringement of seven U.S. patents. The case has
been narrowed to 24 claims for purposes of discovery, and Hughes may seek
further narrowing prior to trial (expected in 2003). Based on the successful
defense by Hughes against an earlier action brought by PMC on one of the subject
patents, Hughes believes that strong defenses of invalidity and non-infringement
exist, in addition to numerous other defenses including license, laches and
estoppel, and patent misuse. Thomson has named Gemstar-TV Guide International,
Inc. ("Gemstar") and others as third-party defendants, and has raised antitrust
and patent misuse charges against Gemstar, Pegasus and PMC. Hughes intends to
vigorously defend the lawsuit and pursue its counterclaims against Pegasus and
PMC.
* * *
(b) Previously reported legal proceedings which have been terminated, either
during the quarter ended March 31, 2002, or subsequent thereto, but before the
filing of this report are summarized below:
As previously reported, a putative class action was commenced on September
7, 2000 by Jeff Biscchoff, Mitchell Guzik and other consumers similarly situated
against DIRECTV, Inc., Thomson Consumer Electronics, Inc., Best Buy Co.,
Inc., Circuit City Stores, Inc. and Tandy Corporation, Inc. in the U.S. District
Court in Los Angeles, alleging antitrust violations. DIRECTV filed a motion to
compel arbitration pursuant to the DIRECTV customer agreement, which the Court
granted on January 16, 2002, ordering DIRECTV to file an arbitration demand for
declaratory relief. The parties have agreed to a settlement which is not
material to DIRECTV.
* * *
As previously reported, Hughes Communications Galaxy, Inc. ("HCGI") filed a
lawsuit on March 22, 1991 against the U.S. Government based upon the National
Aeronautics and Space Administration's breach of contract to launch ten
satellites on the Space Shuttle. On June 30, 2000, a final judgment was entered
in favor of HCGI in the amount of $103 million and in April 2002, the U.S.
government paid to Hughes the full amount of the judgement. As a result, Hughes
recorded a $95 million gain, net of legal costs, as a reduction of "Selling,
general and administrative expenses" in the first quarter of 2002.
* * * * *
- 24 -
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Exhibit Name Page No.
------ ----------------------------------------------- --------
99 Hughes Electronics Corporation Financial Statements and
Management's Discussion and Analysis of Financial
Condition and Results of Operations 26
(b) Reports on Form 8-K
Twelve reports on Form 8-K, were filed January 3, 2002, January 10, 2002*,
January 16, 2002, February 1, 2002, February 25, 2002 (3**), February 25, 2002*,
March 1, 2002, March 5, 2002, March 6, 2002, and March 13, 2002, during the
quarter ended March 31, 2002 reporting matters under Item 5, Other Events,
reporting certain agreements under Item 7, Financial Statements, Pro Forma
Financial Information, and Exhibits.
--------------------------
* Reports submitted to the Securities and Exchange Commission under Item 9,
Regulation FD Disclosure. Pursuant to General Instruction B of Form 8-K the
reports submitted under Item 9 are not deemed to be "filed" for the purpose of
Section 18 of the Securities Exchange Act of 1934 and we are not subject to the
liabilities of that section. We are not incorporating, and will not incorporate
by reference these reports into a filing under the Securities Act or the
Exchange Act.
** Includes a Form 8-K Amendment by subsequent filing on the same day.
* * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
--------------------------
(Registrant)
Date: May 14, 2002 /s/Peter R. Bible
------------------- ----------------------------------------
(Peter R. Bible, Chief Accounting Officer)
- 25 -